GAB Decision 398
March 18, 1983
Pennsylvania Department of Public Welfare;
Ford, Cecilia; Settle, Norval Teitz, Alexander
The Pennsylvania Department of Public Welfare (DPW, State) appealed a
decision by the Regional Commissioner, Social Security Administration
(Agency) to disallow $33,235 in federal financial participation (FFP)
for welfare fraud prosecution costs charged to Title IV-A of the Social
Security Act. The issue arose because the State entered into a
cooperative agreement with the Philadelphia District Attorney (D.A.)
under which the State agreed to partial reimbursement of the D.A.'s
office for the cost of prosecuting cases involving fraud in the Aid to
Families with Dependent Children program (AFDC). The State then claimed
the reimbursement as part of its administrative costs of running its
IV-A program. The Agency found the costs to be a general government
expense unallowable under Action Transmittal (AT) 78-8.
Based on the record in this appeal, we uphold the disallowance.
Statement of the Facts
On March 19, 1981, the DPW entered into a cooperative agreement with
the D.A. (State's Exhibit A) The agreement provided for the
reimbursement of prosecution costs associated with cases referred to the
D.A. by DPW.
The agreement divided cases into two types. The first category, not
involved in this appeal, involved child support or food stamp fraud
where, under federal regulation and policies, FFP in the costs borne by
DPW was assured. The second category consisted of all cases not
involving these two programs. The cost of prosecution of these latter
cases would be split between DPW and the D.A. on a 50-50 basis.
According to the State, DPW's records leading up to the cooperative
agreement are sketchy. However, apparently the State realized that
federal policy ordinarily precluded the reimbursement of prosecutorial
costs. Nonetheless there was a strong feeling among several DPW
officials that the unique nature of the agreement would make the costs
of prosecutions allowable under the AFDC program. (State's Exhibit B)
Therefore, DPW began to claim FFP for the prosecution costs as a
component of the State's administrative costs.
(2) According to the State, in most Pennsylvania counties welfare
fraud is prosecuted aggressively. DPW does not claim FFP for the costs
of these prosecutions. Instead the costs are viewed as part of the
"overall general governmental responsibility of the political
subdivision." (State's appeal brief, p. 6)
The county of Philadelphia (which is also a city) presented a special
problem because of its large size and attendant large volume of criminal
cases. On the scale of priorities for prosecution, welfare fraud has
historically not ranked high.As a letter from the D.A. makes clear, this
was not due to a lack of concern for this type of case. Instead welfare
fraud was relegated to a lower priority out of sheer necessity given the
enormous number of cases passing through the criminal justice system in
the city. (State's Exhibit F)
The State has submitted two affidavits attesting to the situation in
Philadelphia prior to the cooperative agreement. (State's Exhibits G
and H) As the affidavits note, welfare fraud cases were handled on an ad
hoc basis and were perceived by both prosecuting attorneys and judges as
relatively minor offenses. Prosecuting attorneys were not familiar with
the relevant statutes and regulations and could not prosecute
effectively. Restitution was not uniformly required by judges and, when
imposed, not effectively collected. Only 16 welfare fraud cases were
prosecuted in 1980.
With the infusion of funds stemming from the agreement, the D.A. set
up a Welfare Fraud Unit staffed by four attorneys, one administrative
assistant, and a secretary. In some instances, persons assigned to the
Welfare Fraud Unit were transferred from other existing units, but their
old positions were, in turn, filled with new personnel. (Letter dated
February 23, 1983 from Chief, Welfare Fraud Unit to attorney for State;
attachment to State's Reply Brief). In 1981, the number of welfare
fraud cases jumped 1250% to over 200 cases. In 1982 the number of
prosecutions doulbed to over 400 cases. In addition, the D.A. has
obtained restitution orders totalling $352,788 for AFDC and $552,800 for
mixed AFDC/Food Stamp cases, a portion of which is returned to the
federal government.
Discussion
Under 45 CFR 235.110(1981), a state plan must provide that the state
agency establish and maintain methods and criteria for identifying
situations in which fraud in the AFDC program might exist and procedures
for referring cases in which there is valid suspicion of fraud to law
enforcement officials. SSA-AT-78-8 (OFA), issued March 16, 1978
(received by the State on April 20, 1978) addresses the issue of FFP for
activities (3) in investigation of alleged AFDC fraud. It states that
50% FFP is available for preliminary investigation activities,
testimony, and "pre-prosecution activities." FFP is not available
in:
1. Prosecution Activities
The prosecution of suspected fraud cases before courts or a grand
jury or to enforce court decisions in such cases. These activities are
considered general government expenses and are not subject to Federal
financial assistance under Title IV-A.
OMB Circular A-87, incorporated by reference by 45 CFR 74.171(a)(
1981), states at C.1.a. that to be allowable under a grant program,
costs cannot "be a general expense required to carry out the overall
responsibilities of State, local... governments."
The State's argument can be divided into two components: that AT
78-8 was intended to govern routine prosecutorial costs and not the kind
of special prosecutorial costs involved here; and, alternatively, if
the action transmittal does apply, it is inconsistent with published
regulations and, therefore, is invalid. *
1. The applicability of the Action Transmittal
The State did not disagree that prosecutorial costs normally should
be treated as a general government expense; indeed it admitted that
they are treated as such in the context of most Pennsylvania counties.
Rather, the State argued that, absent the agreement, certain expenses
would not have been incurred by the D.A. The costs of the agreement
were, therefore, not "required to carry out the overall
responsibilities" of Philadelphia and were, therefore, not general
government expenses.
While the first part of the State's argument may be true, as the
Agency pointed out in its brief (page 3), the transition from the first
part to the second is a non sequitur. That the D.A., absent the
agreement, would not have incurred certain expenses does not mean that
welfare fraud prosecution was not part of the overall responsibility of
the (4) D.A. and the State. All D.A.s must, of course, establish some
priorities in the enforcement of laws (if for no other reason than
because of limited resources), so that the Philadelphia D.A. is not
really unique. At most, the State's argument establishes that this D.
A. had greater problems than other State prosecutors in fulfilling his
responsibilities to enforce the laws. It does not show that the
Philadelphia D.A. did not have a responsibility to enforce the welfare
fraud laws even though, but for this agreement, these laws would not
have been enforced so aggressively.
2.The legality of AT 78-8
The State's second argument is based on the premise that the
prosecutorial costs are allowable under the criteria of OMB Circular
A-87 because they are "necessary and reasonable for proper and efficient
administration of grant programs." We do not disagree with the State
that the agreement contributed to the efficiency and effectiveness of
the State's AFDC program. The argument fails, however, because the
State has not shown that the costs are anything other than general
government costs, which are not allowable under the Circular.
The State also argued that because the agreement was "the only
efficient collection device under Pennsylvania law" (State's appeal
brief, p. 11) it was required by 45 CFR 233.20(a)(13) (1981). This
section requires the states to take "all reasonable steps" to recover
AFDC overpayments. It is true that the State is responsible for the
recovery of overpayments. Operation of a mechanism used to recover
payments ordinarily would be considered an administrative cost. In
accordance with Section 403(a) of the Social Security Act, the Secretary
determines what costs are necessary for the "proper and efficient
administration of the State plan." Through 45 CFR Part 74 and the action
transmittal, the Secretary established that prosecutorial costs are
general costs of government and are not eligible for FFP.
APA-PRG-6 (May 22, 1973 (State's Exhibit I) does not force us to
another conclusion even though it recognizes that the federal
requirements for methods of administration are minimal. It does not say
that costs deemed by a state to be necessary for the administration of
the program will be considered so by the federal government in the face
of a regulation and action transamittal.
In summary, although we recognize the laudable effects of the State's
successful initiative, these particular costs of the program are clearly
unallowable.
(5) Conclusion
For the reasons stated above, we uphold the disallowance of $33,235.
* In its Notice of Appeal, the State raised an issue under 45 CFR 201.15
as to the validity of the deferral action preceding the disallowance in
this case. Since there is no discussion of this question in either the
State's appeal or reply brief, we assume that the State did not wish to
pursue it.
SEPTEMBER 22, 1983