GAB Decision 391
February 28, 1983
Missouri Department of Social Services;
Settle, Norval; Teitz, Alexander Ford, Cecilia
The Missouri Department of Social Services (State) appealed a
disallowance of $36,833 in federal financial participation (FFP) by the
Region VII Division of Cost Allocation (Agency), affirmed by the
Regional Director, involving public assistance staff development and
training costs under Titles IV-A and XX of the Social Security Act.
There are three issues, each of which will be discussed separately
below.
This decision is based on the record in this appeal, which includes a
transcript of a telephone conference.
Student Commitment to Work
Under Title XX, FFP is available in the costs of training persons
preparing for employment in a State agency if (1) the persons are
selected by the State agency and are accepted by the school; (2) they
are pursuing educational programs approved by the State agency; and (3)
they are legally committed to work for the State agency for a period of
time at least equal to the period for which financial assistance is
granted if employment is offered within six months after training is
completed. (45 CFR 228.83(a)(2) (1977))
The Agency disallowed $9262 in FFP in payments to four students
during the State's 1977 fiscal year because they did not fulfill their
work commitments under the requirements of this regulation. It was the
Agency's position that the State should bear the full financial
responsibility for this.
The State did not contest that the four students did not fulfill
their obligations but noted that the language of the recoupment
provision at 45 CFR 228.83(c) (1977) says that "any" recoupment of
funds
by the State from such trainees shall be treated as a refund and
deducted from total training costs for the purpose of determining net
cost for FFP. According to the State, this language means that the
Agency recognized that (1) certain individuals will fail to fulfill
their commitments; (2) the regulations do not require recoupment; and
(3) HHS will not hold the State liable for uncollected costs.
(2) All four students in question graduated in May 1977. One student
reported to work in June 1977 and one reported in July 1977; both failed
to fulfill their work commitments. Another student reported sometime
between July 1, 1977 and June 30, 1978 but refused the employment offer;
the fourth student did not report by November 1, 1977. /1/
The 1976 version of 45 CFR228.83 stated:
(b) An adjustment will be made in FFP for expenditures in the form of
financial assistance granted to students preparing for employment if 90
percent of the students required to report for employment to the agency
within a given State fiscal year:
(1) Fail to so report; or
(2) Fail to secure employment in accordance with (a)(3) of this
section.
The FFP to be disallowed will be based on the difference between the
percentage of students reporting and the 90 percent required to report.
The adjustment shall be made by averaging the actual costs incurred for
all students required to report in the fiscal year pursuant to paragraph
(a)(2)(iv) of this section, and such average shall be multiplied by the
number of persons in excess of the allowable 10 percent.
(Hereinafter, this provision will be called the 90% provision.)
This provision became effective in June 1975 and was eliminated in
the revision of the Title XX regulations published on January 31, 1977,
effective May 1, 1977 (or earlier at state option).
1. The 1977 regulations
The disallowance was taken under the 1977 regulations. Both parties
contended that the 1977 regulations apply to the facts in this appeal
because they were in effect when the students failed to fulfill their
work commitments. /2/ If the 1977 regulations apply, then the State's
arguments must be rejected and the disallowance upheld.
(3) The State argued that the removal of the 90% provision and the
presence of the recoupment provision means that the State and federal
government would share in any losses and that the State need give the
federal government credit only for any recoveries made from students.
The State's interpretation of the recoupment provision in the 1977
regulation becomes doubtful when one realizes that the same provision
was included in the 1976 regulation. In the earlier regulation, it is
coupled with a specific provision setting out when a disallowance should
be taken and how it is to be calculated.We thus conclude that the
recoupment provision cannot be interpreted to mean that the federal
government will share in costs for students who do not fulfill their
work commitments. The only effect the recoupment provision has on a
disallowance is if funds are recouped and a claim for FFP is reduced by
the amount that was recouped, there would be no basis for a
disallowance. We view the recoupment provision as the Agency does - as
an administrative one that addresses the accounting treatment of such
funds, i.e. that they are considered refunds rather than program income.
According to the Notice of Proposed Rulemaking for the 1977
regulations (41 FR 36158, August 26, 1976), the 1976 requirements were
changed to eliminate "administratively infeasible requirements." There
is no indication that the removal of the 90% provision was meant to lead
to an openended sharing of possible losses by a state and the federal
government. Indeed, the changes noted by the Agency in the Notice go to
the substantive responsibilities placed on a student and the State in
offering and accepting employment. The Notice also talks in terms of
the relationship between "the student" and "the State agency,"
indicating that the Agency was interested and would scrutinize the
conduct of the state vis a vis each individual student.
In the absence of the 90% provision, the Agency reasonably
interpreted its regulation to provide that each student must meet the
requirements (4) set out in 228.83. Any breach of these requirements
would lead to a concomitant disallowance.
2. The 1976 regulations
The Board believes, however, that the better view is that the 1976
regulations are applicable here, even though the students failed to meet
their work obligations when the 1977 regulations were in effect. /3/
When the students obligated themselves to the quid pro quo of work for
training, they did so under the requirements of the earlier regulations.
The funds in question were paid to the students, the State made its
claim for FFP, and the State was paid by the federal government in
August or September 1976 - all during the time the earlier regulations
were in effect. (Transcript, pp. 3 - 4) The students' and State's
obligations were formed under the requirements of the 1976 regulations,
and these regulations, therefore, should apply.
The State asserted (January 21, 1983 letter) that a total of 32
students should have completed training and reported for work by the end
of the 1978 fiscal year. Under the 90% provision of the 1976
regulation, if four students did not fulfill their commitments, then the
State has dropped below the 90% requirement by one student and a
disallowance of some (yet undetermined) amount would be proper. The
calculation of the FFP adjustment required is set out in 228.83(b) and
in the October 1, 1975 "Title XX Program Regulation Guide" (pp. 2819
-
2822).
If the State wishes to have the disallowance amount redetermined (and
we note that it is possible that the redetermination would lead to a
larger disallowance figure since the average total cost for one of these
32 students would be the disallowed amount under the 90% calculation),
then it should provide the Agency with all the necessary documented
figures within 21 days of the date of this decision. If a dispute
arises as to the proper recalculation, the parties may return to the
Board.
(5) Instructors' Salaries
The Agency disallowed $22,107 as being the amount of salaries paid to
University of Missouri instructors in excess of their normal University
rates of pay. These instructors were regular faculty members of the
University who, in addition, worked at a Staff Development Center
operated by the University. The University was under contract with the
State to provide Division of Family Services' employees with training by
this Center to complement, expand, and strengthen their inservice
training.
The disallowance was based on 45 CFR Part 74, Appendix D, Part II,
I.2. which states:
... charges (to educational service agreements for personal services)
may include compensation in excess of the base salary of a faculty
member for the conduct of courses outside the normal duties of such
member provided that: (a) extra charges are determined at a rate not
greater than the basic salary rate of the member; (b) salary payments
for such work follow practices consistently applied within the
institution; and (c) specific authorization for such charges is
included in the educational service agreement.
Although the State admitted that there was no specific written
authorization in the contracts with the University for the rates paid,
the Agency stated in the telephone conference that the disallowance was
not being pursued because of the State's failure to comply with I.2(c).
Rather, the disallowance was based on I.2(a). (Transcript, p. 14)
1. The Calculations
In concluding that the instructors were paid as much as double their
basic salary rate, the Agency did the calculations explained below. /4/
Both parties agreed that the instructors were paid between $20 and $30
per delivery hour and between $10 and $30 per preparation hour. This
meant that the (6) claims made per instruction hour ranged from $50 to
$120. /5/ (Transcript, p. 15) As our analysis shows, these rates were
consistent with the University's extra compensation policy (Agency's
Appeal File, Tab D):
Faculty members on 12 month appointments are compensated at a rate
not to exceed 1/420 of their annual salary for each hour of instruction
(4 hrs. X 3 days = 12 hrs/week X 15 weeks/semester X 2 semesters + 5
additional summer weeks = 420 hours)
Faculty members on 9 month appointments are compensated at a rate not
to exceed 1/360 of their annual salary for each hour of instruction (4
hrs. X 3 days = 12 hrs/week X 15 weeks X 2 semesters = 360 hours)
Using the ratio of 3 hours of preparation time for each hour of
delivery time, the rates become:
420 hrs. of delivery 3 hrs. of preparation = 1,260
420 hrs. of delivery + 1,260 hrs. of preparation = 1,680 hours or 1/
1680 of their annual salary for each hour
$20,000 annual salary divided by 1,680 = $12 per hour
$40,000 annual salary divided by 1,680 = $24 per hour
360 hrs. of delivery X 3 hrs. of preparation = 1,080
360 hrs. of delivery + 1,080 hrs. of preparation = 1,440 hours or 1/
1440 of their annual salary for each hour
(7) $40,000 divided by 1,440 = $28 per hour /6/
$20,000 divided by 1,440 = $14 per hour
(Agency's October 6, 1982 letter, p. 3; with wording modification by
the Board to correspond with the terminology explained in footnote 4)
The Agency contested the University's calcuation of a 48 hour week
multiplied by two 15 week semesters and one 5 week summer session. It
stated that the hourly rate should have been based on a 40 hour week
multiplied by 52 weeks:
40 hrs. per week X 52 weeks = 2,080 hrs./year
$20,000 annual salary divided by 2,080 = $10 per hour
$40,000 annual salary divided by 2,080 = $20 per hour
The auditors calculated an hourly rate based on a 2080 hour year for
each instructor and disallowed the excess over that amount that had been
claimed by the State.
The auditors' justification (adopted by the Agency) for choosing
these figures was:
We recognize that 40 hours per week may not agree with actual hours
worked at the University. However we consider 40 hours per week to be a
conservative basis since University faculty members generally indicate
they work in excess of 40 hours per week.
(Audit Report, p. 32)
During the course of the appeal, the Agency did not elaborate on its
reasons for finding the State's method of payment unreasonable except to
say that in the indirect cost rate context, salaries have to reflect
100% of an instructor's efforts including delivery and preparation time,
research, and administration. (Transcript, p. 14) We are not sure what
conclusion the Agency wishes us to draw from its argument. In addition,
the argument does not provide evidence for a finding that the
calculation should be based on a 40 hour per week, 52 weeks per year
basis.
(8) 2. Analysis
The Agency has provided no substantiation for its contention that an
hourly rate calculation based on a 48 hour week for 30 or 35 weeks a
year is an unreasonable one, in the context of a college instructor's
salary. When asked to provide illumination as to the practices of other
colleges as far as their compensation policy (which might be the
cornerstone of the Agency's substantiation), the Agency could provide no
relevant information. (Transcript, pp. 14-15)
The Agency asserted that it was told by the University that
instructors worked more than 40 hours per week and, therefore, the
auditors' calculation based on a 40 hour week was generous to the State.
But the University's own calculation, albeit for less than a 52 week
year, was based on a 48 hour week: 12 hours of delivery time + 36 hours
of preparation time.
Although there has been no showing that the rates paid were purposely
based on the University's extra compensation policy, we conclude that in
fact the hourly rates paid were consistent with the policy, a
requirement of 45 CFR Part 74, Appendix D, Part II, I.2. The rates paid
ranged from $50 to $120 per instruction hour; rates under the
University's policy would range from $48 to $112 ($12 X 4 = $48; $28 X 4
= $112).
Given that (1) we are analyzing a salary rate dispute in the context
of an institution in which the year is divided into definite parts
(semesters and summer sessions) and not with an office or factory in
which a 40 hour per week, 52 weeks a year calculation might be found to
be per se reasonable; (2) the rates paid were consistent with the
University's written extra compensation policy; and (3) the Agency has
provided no relevant justification for its calculations of the correct
hourly rate, we overturn the $22,107 disallowance. In finding that the
rates paid were appropriate, we specifically reject the auditors'
calculation of the amount disallowed. We recognize that individual
faculty members may have been paid rates in excess of those provided for
under the University's policy. Accordingly, the Agency is not precluded
from disallowing any amount paid to individual faculty members which
exceeded the rates properly paid under the University's policy, as the
application of that policy has been explained in this decision.
Meetings
The Agency found that the State incorrectly claimed travel and other
costs related to administrative and task force meetings under Title IV-A
as training rather than administration costs. By so misclassifying, the
State was reimbursed at a 75% rate rather than a 50% rate, resulting in
an overclaim of $5464, which was disallowed. Under 45 CFR 205.202(c)
(1977), 75% FFP is allowed for training and staff development costs.
The Agency contended that "training and staff development" referred
to
an organized (9) training program in which definite training objectives
and a curriculum are present. Such training is usually conducted by
offical staff development personnel. In contrast, staff meetings,
conferences, and seminars for the purpose of providing management-type
information do not qualify for 75% FFP.
For the period from October 1, 1975 through June 30, 1978, the
auditors found in 65 instances in which meetings were held in commercial
facilities rather than in State offices, those meetings were conducted
by nonstaff development personnel, and the participants discussed such
things as budgets, legislation, administrative objectives. These
meetings were generally called County Directors' Meetings, District
Supervisors' Meetings, or Metropolitan Directors' Meetings. In another
10 instances, costs were claimed for a medical review team, an
efficiency and effectiveness review team, and a supplementary security
income task force.
While the pertinent regulation does not define training and staff
development, the intent gleaned from reading 205.202(a) and the listing
of the types of costs that will be reimbursed (in 205.202(c)) is that
reimbursable training is run by "expert leadership" (205.202(a)(2))
and
has an organization and a specific purpose.
The State has presented no evidence that the 10 instances involving
medical review teams, etc., meet these very general standards. Based on
this lack of evidence, we must find that these meetings were merely
administrative; as such they are reimbursable at a 50% rate (Section
403(a)(3) of the Social Security Act and 45 CFR 205.202(c)(2)), and we
uphold the portion of the disallowance pertaining to them (to be
determined by the Agency).
To draw the line between an "administrative meeting" and "training"
is a hard task, made harder in this case by the lack of Agency guidance.
Clearly not every meeting can be classified as training even though in a
meeting there is the exchange of ideas and learning takes place.
Congress, when it set up a separate funding category for training, did
not intend to pay a higher than usual rate of FFP for every meeting in
which the Title IV-A program is discussed. Each individual instance
must be examined in its total context in light of the answers to such
questions as: is there a written agenda, are written materials used,
who is being trained, who is doing the training, how much control does
the trainer exercise over the conduct of the sessions, what kind of
information is being imparted, and how long is the meeting.
The State has provided us with the agenda of one meeting for which
75% FFP was found to be improper.It appears from this limited
information that the County Directors' Meeting held from February 16
through (10) 18, 1977 resulted in costs which should be reimbursed as
training costs. This conclusion is reached through the following
analysis:
Written agenda: Yes. The days are broken up into information
sessions and workshops (rather than hours set aside for open
discussion);
Written materials: Not known. The State was asked twice for such
information but was unable to provide any;
Who is being trained: County Directors from one region of the State
(rather than only people from one office);
Who is training: Agency officials (experts?) from the central State
office (rather than other County Directors);
How much control: Not known (tight control of the agenda by the
trainer would indicate that the sessions did not consist of County
Directors talking to each other without plan);
Kind of Information: It appears to be substantive information needed
for the operation of the program and provision of services (rather than
purely managerial topics such as "changes in assistance forms" or
"reorganization of County offices");
Length of Meetings: 1 full day and 2 half days (rather than just an
afternoon or a few hours).
The absence of one of these factors is not necessary fatal and there
may be others that the Agency considers relevant; the Agency should
exercise its program expertise to determine whether overall a meeting
has the indicia of training. The State has the obligation to provide
the Agency with the information and documentation necessary for the
Agency to make an informed judgment; it has not yet done so.
Given our assumption that the 65 instances were roughly comparable to
the one for which an agenda was presented, the Agency should examine the
auditors' workpapers and the State should provide further documentation
if possible within 21 days of the date of this decision so that the
Agency can determine, in light of the guidelines above and other factors
which it determines are relevant, the nature of these sessions. If a
dispute remains, the parties can return to the Board.
(11) Conclusion
For the reasons stated above, we:
(1) uphold the disallowance as to "Student Commitment to Work" in
full unless the State decides to have the disallowance recalculated
according to the formula set out in the 1976 regulations and presents
the Agency with the necessary figures within 21 days of the date of this
decision;
(2) overturn the disallowance as to "Instructors' Salaries," except
that the Agency is not precluded from disallowing payments to individual
faculty members which exceeded the rates properly paid under the
University's extra compensation policy; and
(3) uphold the disallowance in "Meetings" as to the 10 instances
and
remand the portion pertaining to the 65 instances to the Agency to
determine, on the basis of information in the auditors' workpapers,
documentation provided by the State, and our guidelines, whether the
sessions in question can be classified as staff development and
training. /1/ This date is significant because it is the end of the six
month period after completion of training (according to the parties)
during which a student must report for work. /2/ In the
telephone conference, however, the State appeared to agree with the
Board's tentative conclusion that the 1976 regulations should apply. At
that time, the Board had concluded that there was a possibility that no
disallowance was appropriate under the 90% provision. The State's
representative said: ... assuming the facts set out that the payments
were made during the period of the 90% rule, I would agree with your
analysis that there would not be a disallowance since there was only
four students involved in that period. I was thinking... I had
forgotten... I hadn't looked at it from that end of it, but I would
agree that the 90% rule would apply then.... (Transcript, p. 5) /3/
Although the language in the 1976 and 1977 regulations is somewhat
different, the requirements are basically the same, except for the
deletion of the 90% provision. Both parties assumed that implicit in the
regulations' statements about legally binding commitments and the duty
to report for employment is the duty to complete the work commitment.
Consistent with the parties' view, we adopt this interpretation of the
regulations and do not reach the question of whether the regulation
must, in fact, be read to require the completion of the work commitment
in order to meet the requirements for FFP. /4/ The terminology used in
this section is: for each hour of classroom delivery (delivery
hour) the instructor prepares for three hours (each is a preparation
hour). One instruction hour = one delivery hour + three preparation
hours. There is no controversy as to this formula. /5/ Late in
the appeal, the Agency argued that, in fact, the State was paying a
maximum of $240 per instruction hour: $30/hour of delivery time $30/hour
/ $60 hour of preparation time $60/ hour X 4 hours = $240/hour (Agency's
January 21, 1983 letter, pp. 5 - 6) This figure is incorrect because the
Agency has changed what it had agreed previously was the hourly rate
(either delivery or preparation) the instructors were paid. The correct
calculation of the maximum amount that could be paid is: $30/hour of
delivery time $30/hour of preparation time 1 instruction hour = 1
delivery hour ($30) + 3 preparation hours ($90) = $120 /6/
During the telephone conference, the Agency argued that, even using the
University's extra compensation policy, the rates paid ($50 to $120 per
instruction hour) were excessive because the per hour rates, such as the
$28 rate, should have been per instruction hour (which includes delivery
and preparation). (Transcript, pp. 10 - 13, 18 - 19) We believe that
the Agency's calculation is incorrect and that the $28 represents a
basic hourly rate which then must be multiplied by 4 (1 delivery hour +
3 preparation hours).
SEPTEMBER 22, 1983