GAB Decision 415
Docket Nos. 82-102, 82-124, 82-147, 82-228, 83-1, 83-15, 83-31, 83-35, 83-44,
83-54, 83-71, 83-86
April 29, 1983
New York Department of Social Services: Wage Reporting System;
Garrett, Donald; Settle, Norval Ford, Cecilia
The Board has considered jointly eleven appeals by the New York
Department of Social Services (NYSDSS, State) from disallowances of
costs claimed under Titles IV-A, IV-D, XIX, and XX of the Social
Security Act (Act) for the development, implementation, and operation of
the State's Wage Reporting System (WRS). The disallowances were made by
the Department of Health and Human Services' (Department) Health Care
Financing Administration, Social Security Administration, Office of
Human Development Services, and Office of Child Support Enforcement /1/
which found that since the Advanced Planning Document (APD) for the WRS
had not yet been approved, claims for federal reimbursement in costs of
the system were improper.
Ever since the State submitted its APD to the Agency in September
1978, the parties have been discussing numerous questions and problems
pertaining to approval of that document. Correspondence in the record
on these issues includes letters from then Governor Carey of New York,
then Secretary Califano of the Department, and then Undersecretary Stark
of the Department. In New York Department of Social Services, Decision
No. 238, December 10, 1981, the Board, ruling on the narrow issue
presented to it there, found that Agency approval of the WRS was
necessary before federal financial participation could be received, and
that no such approval had been given. In the current appeals, the State
asked that we examine the Agency's failure to approve the WRS, which
seemed initially to involve a number of questions regarding the
allowability and allocability of the costs. During the course of the
proceedings however, some issues have been eliminated, leaving only the
one that both parties consider crucial and over which they have been
deadlocked for several years. /2/ (2) This issue is whether the costs
of creating and maintaining wage data files (called "collection")
are
"necessary and reasonable for the proper and efficient administration"
of Act programs. The Agency determined that it would participate only
in the costs of developing the capability for and actually using the
data for Act program purposes (called "matching") because the collection
costs were not required for administration of Act programs and thus were
not necessary and reasonable. We find there was no substantial basis
for the Agency's determination not to participate in the costs of
collection. /3/
WRS: Background
The State found, over the years, that the most common source of
errors in the determination of both eligibility and payment levels in
the Act programs was the failure to account for all income, such as
employment earnings, social security payments, unemployment insurance
benefits, and duplicate welfare payments. Moreover, errors due to
unreported or understated income were often continued or compounded
during the process of periodic recertification of eligibility and
payment levels. The Agency did not dispute that these problems
occurred.
As part of its efforts to remedy this problem, NYSDSS asked the New
York State Legislature to pass a wage reporting bill to require all of
the State's employers to report quarterly to NYSDSS wages paid to each
of their employees. NYSDSS decided that such a system was necessary
when the Social Security Administration, from whom the State obtains
wage data, changed its reporting cycle from quarterly to annually.
NYSDSS envisaged the system placed within its organization.
The wage reporting bill was enacted into law in August 1978, with the
stipulation that the employer reporting and wage report processing
components be the responsibility of the New York State Department of
Taxation and Finance (Tax Department), and that other Departments
needing this data provide files of individual social security numbers to
the Tax Department for those persons in whom they had an interest. The
WRS started operating in the fall of 1978.
Employers submit employee wage reports to the Tax Department
quarterly. The Tax Department converts these reports to machine
processable form, (3) matches the resulting files to files of public
assistance and care recipients and their responsible relatives, and
provides wage information on matches to NYSDSS.
NYSDSS provides the Tax Department with a file of the names and
social security numbers of recipients, applicants, and their responsible
relatives. This is done daily (see description below). Upon receipt of
the records resulting from this match of the wage report data, NYSDSS
integrates this information with other resource information and provides
combined reports to the local social services districts for follow-up
with recipients, applicants, and, when necessary, employers. According
to the APD (pp. 2-3), NYSDSS also would provide employer and employee
information to the New York State Welfare Inspector General in response
to inquiries by that office. Local social service district turnaround
reports on case actions taken would also be used to maintain a tracking
system so that NYSDSS might supervise and coordinate local district
followup efforts and prepare reports needed by the State. In the first
quarter of 1979, the State completed 101,000 public assistance and 4,800
absent parent matches. (State's Exhibit A-4, p. 2) In the informal
conference, a concrete example of how the system operates was given:
When an applicant for AFDC, or Home Relief, for that matter, comes in
to apply, the eligibility work now captures basic data from that
applicant. At the end of the day, in all of the forty Income
Maintenance Centers in New York City, that information is compiled and
sent to a central location in the city, where it is then teleprocessed
up to Albany during the night. We take that data over to the Department
of Taxation, and a run is made with that data against the wage reporting
file. All "hits," that is to say all people identified as having wages
included on the wage reporting file, are returned to the City overnight,
and that data is available the next morning in the Income Maintenance
Center.
To date, we find that we are rejecting, for valid cause,
approximately 3 percent of the applicants that come in for AFDC and
approximately 3.4 percent of the applicants for food stamps. That
represents a huge saving....
(Statements of the Deputy Commissioner for Administration, NYSDSS;
Transcript, pp. 13-14)
(4) Whether the Costs Are Allowable
The Agency's basic position is that the costs of collection are not
allowable because they are not "necessary and reasonable for proper and
efficient administration of the grant program." 45 CFR Part 74, Appendix
C, Part I, C.l.a. (1978). According to the Agency, these costs are
unnecessary and unreasonable because "there is no specific Federal
requirement that you incur them" (see section a below) and "because
you
can get the information elsewhere at a nominal cost to the Federal
Government, to yourselves and on a pass-through to us." (Statements of
the attorney for the Agency; Transcript, p. 80) (see section b below)
In particular, the Agency argued that only one relevant title of the Act
requires the use of wage data; none of the relevant Act titles requires
the collection of such data; and, the U. S. Department of Labor
(USDOL) might pay for a comparable system. The Agency has admitted that
it is not arguing that the overall costs of the WRS are excessive and,
therefore, unreasonable. (Statements of Chief of Approvals, Office of
Family Assistance; Transcript, p. 151)
While the Agency has discretion in determining what costs are
"necessary," as explained later in the discussion, we believe that
it
has misapplied the standard in that it has equated "necessary" only
with
"required" rather than considered necessity in terms of proper and
efficient administration.
a. Requirement for matching wage data
Until 1979, there was no specific requirement in any regulation
dealing with Act programs that states tap a centralized source of wage
data in making eligibility and benefit level ("aid") determinations.
In
December 1979, 45 CFR 205.56 as promulgated, pertaining only to the IV-A
program:
A State plan under title IV-A of the Social Security Act must provide
that -
(a) The State agency will request wage information about all current
AFDC applicants and recipients quarterly from agencies administering the
State unemployment compensation laws if those agencies collect wage
information. If they do not, the State agency must request the wage
information semi-annually from the Social Security Administration.
(b) The State agency will use this wage information for -
(1) Determining individuals' eligibility for aid or services under
the State plan;
(2) Determining the amount of aid or services;
(3) Investigations to determine whether recipients received aid or
services under the State plan to which they were not entitled; and
(5) (4) Criminal or civil prosecutions based on receipt of aid or
services under the State plan to which recipients were not entitled.
"Wage information" is defined in 45 CFR 205.51:
(a) Wage information requested from agencies administering State
unemployment compensation laws means information about "wages" as
defined in the State unemployment compensation laws;
(b) Wage information requested from the Social Security
Administration means information about both wages and self-employment
income routinely maintained in the Social Security Administration's
record system; and
(c) Wage information also includes the name and address of the
employer and the identification number used by the employer in making
the wage report.
The State has been matching against data collected by the Social
Security Administration since the late 1970s (before the regulatory
requirement). Starting in 1977, the wage information reported by
employers to the Social Security Administration was updated only
annually, but NYSDSS continues to use it.
b. USDOL-funded wage systems
New York is a "wage requesting" state. This means that USDOL:
pays for the State Department of Unemployment Insurance Compensation
to, when an applicant comes in to apply for the Unemployment Insurance
benefits, communicate to his employers and request, "How much did you
pay this man over X number of quarters?" which is then used for
computation of of his unemployment benefit checks.
(Statements of Chief of State Approvals, Office of Family Assistance;
Transcript, p. 53)
In "wage requesting" states, USDOL does not pay for the collection
of
wage data on every individual employed in the State.
New York could have become a "wage reporting" state. According to
the Agency, there are 37 states which "had identified that they wished
to collect wage information from the employers within their jurisdiction
on a quarterly basis, and the USDOL funds those systems at 100 percent
Federal monies to maintain the wage data files..." (Transcript, p. 52)
(6) c. Discussion
In the Agency's view the costs of collection are not necessary and
reasonable because (1) only Title IV-A requires the use of wage data
from a centralized source; (2) even the IV-A regulation does not
require that a state collect the data, but merely requires the use of
pre-existing data files; and (3) if New York became a "wage reporting"
state, it could "perhaps receive a 100 percent Federal funding from the
Department of Labor for this very collection of wage data." (Transcript,
p. 53)
As we explain more fully below, the State argued that the information
received from the Social Security Administration's system is inadequate
because it is too old, the information in the Unemployment Insurance
Benefits files (gathered by its wage requesting system) is inadequate,
alone, because it only has information pertaining to people filing for
and receiving those benefits, and because NYSDOL decided that a wage
reporting system funded by USDOL would not provide the up-to-date
information it needed.
As part of its answer to the State's agrument that the Social
Security Administration's system was inadequate, the Agency pointed out
that the system contains several categories of employees that the WRS
does not have. The WRS collects wage data only from New York State
employers. The Social Security Administration's system has federal
employment data, military personnel data, and data on employees
throughout the United States (so that if someone was working in another
state and then moved to New York, the Social Security Administration
could give New York information about the wages earned in that other
state).
New York continues to use the Social Security Administration system
(so that it would take advantage of the expanded employee files), but it
maintained that most information obtained from it was useless because it
was too old:
We do that (match against the Social Security Administration wage
files) on a monthly basis, but we find that the information we obtain is
so outdated and is provided on a more timely basis by the Wage Reporting
System that we end up screening out those cases that we - the "hits"
that we get from the Social Security Administration matches and not
sending them to the districts because we have previously obtained them
through the Wage Reporting System.
(Statements of former director, WRS unit; Transcript, p. 49)
The reason for the "staleness" of the Social Security Administration
files is that employers must report wage information only annually.
(7) It then takes the Social Security Administration some time to put
the data into its system, so that, according to uncontroverted
statements of the State (Statements of Director of Program Integrity and
supervisor of WRS unit; Transcript, p. 54), the turn-around time is
closer to two years. WRS is updated quarterly, which leads to a five
month turn-around time. (Transcript, p. 55) WRS data is, therefore,
much more complete and current.
The Agency's response was that while it has "no objection to a state
collecting data on a more timely basis... that is above and beyond the
requirement of the Federal regulation...." (Statements of Chief of
Approvals, Office of Family Assistance; Transcript, p. 55) Since the
system is not required, collection of the data is not "necessary."
WRS was first contemplated by its orignators as being a system housed
in NYSDSS, used by NYSDSS, to provide current data for social service
workers making aid determinations. It was only in the course of
legislative approval that the decision was made to house the WRS in the
Tax Department and to allow other State departments and programs to tap
its resources. The WRS became an integral part of the eligibility
determination process, and the Agency has never argued otherwise. It
also has never contested that the WRS allowed the State to make more
accurate and sounder determinations (thereby even saving money for the
Department) -- that the Act programs did "benefit" from the WRS's
existence. /4/
The Agency argued that just because WRS provided a "benefit" does
not
mean that the costs are necessary. We agree with the Agency that the
term "benefit" as used in 45 CFR Part 74, Appendix C, I, C.2.a. (1978)
(which provides that "a cost is allocable to a particular cost objective
to the extent of benefit received by such objective") technically refers
to the problem of allocating costs among different programs, a problem
not at issue in these appeals. But the Agency admitted that in a more
general sense, "benefit or value... would be one of the considerations
given when determining the reasonableness of a cost; or perhaps, in
some circumstances, the necessity, but not in this particular case."
(Statements of the attorney for the Agency; Transcript, p. 143) The
Agency gave no support for its conclusion that the general concept of
benefit should not be "one of the considerations," and we believe
that
(8) the concept is a factor in the consideration of whether a particular
cost is necessary and reasonable. Here the State has provided concrete
figures to show how much money the WRS has saved the State (and thus the
federal) government (Statements of the Assistant Commissioner for
Administration; Transcript, pp. 11-13), figures which were even
adopted by the President's Council on Integrity and Efficiency as part
of its recommendation of the WRS as a "best practice." (Transcript,
p.
88) Common sense also leads us to the conclusion that wage data only 5
months old must translate into more accurate aid determinations than 2
year old data. /5/ In addition, the regulatory standard is one of
"proper and efficient administration." The Agency has not controverted
the State's contention that the WRS did improve the administration of
the Act programs.
The Agency provided no written interpretation or guideline for the
Act programs which limited federal funding for necessary costs to only
those expenditures which are mandatory for proper administration.
Furthermore, the Agency's position that necessary costs are required
costs only is contradicted by its own statements and actions. Its
position regarding the costs of collection of wage data is that nowhere
is it required that this be done, therefore, the Agency will not pay for
collection. It also states that only in the IV-A program is matching of
data required. Matching of data is not required in the other Act
programs such as IV-D, XIX and XX. The logical extension of the
Agency's position would be (9) that the costs of matching data would be
reimbursable only in the IV-A program.
Obviously, the Agency has recognized the utility of matching wage
data, because it is willing to share in matching costs in the XIX, XX,
and IV-D programs, thereby, in effect, finding the costs to be
necessary.
The reason why we feel we can fund portions of the WRS cot is because
we recognize that there are benefits to be achieved by both the Federal
and State governments, and even though there is a Federal law and
regulation in place for matching wage data, we can, in fact, fund any
kind of system in a state is we find that it provides more effective and
efficient management of our program.
(Statements of Regional Computer Specialist, Office of Family
Assistance; Transcript, p. 85)
Here, the Agency admitted that the concept of "benefit", in a general
sense, is an important consideration in the determination of whether to
participate in certain costs. In summary, the Agency's position is that
for collection costs, "not required but probably beneficial" means
the
costs are "unnecessary" and therefore, unallowable, but for matching
costs "not required but beneficial" means that the costs are "necessary"
and, therefore, allowable. This contradiction fatally weakens the
Agency's position as to collection costs.
In response to the Agency's position that USDOL might fund systems
that would provide useful wage data, the State provided information as
to why NYSDSS and NYSDOL considered those systems not be efficient means
of providing data useful for the Unemployment Insurance Benefits and Act
programs. According to the State, the Unemployment Insurance Benefits
file (the costs in which the USDOL participates) is of little utility to
NYSDSS because it collects information only on people who are applying
for or receiving Unemployment Insurance benefits. (Transcript, p. 57)
New York is not a wage reporting state because NYSDOL made the
decision that the system funded by the USDOL would not provide the
up-to-date information that it believed was needed to make Unemployment
Insurance Benefit decisions. USDOL will fund either a wage reporting or
a wage requesting system, but not both. In a wage reporting system,
wage data is entered only quarterly so that, we assume, information
would be at least 5 months old. NYSDOL found this option less desirable
than a wage requesting system because this system provides more current
information. In a wage requesting system, when a person applies for
benefits, NYSDOL sends requests for detailed wages to each employer for
whom the person (10) worked in the 52 week period prior to the time he
files a claim.
For states which have a wage reporting system to determine benefits,
they have got to use wage data of history, so to speak, use the first
four quarters out of the last five. In a wage request state, you are
using current wage data, which takes into account increase in wages and
provides a better and higher benefit to the unemployed worker than in
other states, normally.
(Statements of employee of NYSDOL; Transcript, p. 62)
The Agency seems to be concerned that it should not have to
participate in the general costs of government and that a ruling that it
must participate in collection costs because they benefit the Act
programs would lead to states claiming FFP in collection costs for any
system which they may tap for assistance information such as motor
vehicle department files, death files, birth records, and school
records. (Statements of Chief of Approvals, Office of Family
Assistance; Transcript, p. 58) We do not consider participation in
funding for collection of WRS data participation in the general costs of
government. The files described above are part of a category of general
governmental activities -- files set up for purposes other than for
social services determinations. The WRS was conceived of as serving
only social service activities and, along with aiding Unemployment
Insurance Benefit decisions, is actually used primarily for that
purpose. (Statements of the Deputy Director for Administration;
Transcript, p. 75) Asking the Agency to participate in the cost of
registering motor vehicles, for example, is clearly different from
asking it to participate in a system whose primary purpose is to assist
in aid determinations. Furthermore, it would appear that allocation
methods are available to assure the Agency does not fund the WRS beyond
the extent and benefit to the Act programs. /6/
In the context of everything said above, we find no substantial basis
for the Agency's position that only when a cost is required is it
necessary and will the Agency pay for it. New York has shown that the
WRS provides (11) more current data than the Social Security
Administration's, thus allowing for more accurate aid determinations.
It also still uses the Social Security Administration's system to
capture data about people not in the WRS system. It has also shown,
with no rebuttal by the Agency, that its other options are not as
desirable in that they do not provide as accurate information to assist
in making aid and Unemployment Insurance Benefit determinations.
Furthermore, the Agency should not be so unreasonable as to refuse to
participate in certain allowable costs merely because USDOL might fund a
similar system, since NYSDOL found that system to be unacceptable. /7/
In summary, the Agency has provided no substantial basis for its
determination that the collection costs are not necessary and reasonable
for the proper and efficient administration of the Act programs. The
Agency cannot decline to approve the APD on this basis.
Conclusion
Based on the analysis above, we find that the Agency's determination
not to participate in collection costs of the WRS was incorrect. Of
course, as stated, we do not reach the issue of allocation of WRS costs
to and among benefitted HHS programs. /1/ For simplicity, these
constituent agencies are collectively called "the Agency" in
this decision except in places where differentiation is appropriate.
/2/ Indeed, we rely primarily on the information and arguments made by
the parties during the informal conference held in these appeals since
we did not find the earlier briefing and documentation particularly
helpful in resolving the issue as it was refined during the conference.
/3/ Although the State claimed, and the Agency disallowed, a total of
$6,254,761, both parties have agreed that the amount in dispute should
be adjusted to reflect more accurate cost data and that, once the Board
rules on this matter, the parties would be able to agree on the
allocation of costs both between NYSDSS and the State Department of
Labor (NYSDOL) and among the Act programs. (See, e.g., Transcript, pp.
37-39) /4/ It is interesting that although the Agency has not been
willing to participate in collection costs, it has been interested in
using the WRS by tapping the system for use by the Social Security
Administration for Supplemental Security Income (SSI) eligibility
determinations. (Transcript, pp. 145-148) This desire to use WRS data
is an indication that the Agency considers its use to be a proper and
efficient tool in administering the SSI program. /5/ The Agency
labelled as "irrelevant" (Statements of the attorney for the Agency;
Transcript, p. 170) the State's argument that: From a quality control
standpoint, if we were to tell Federal auditors that we checked
two-year-old wage data and found this person was unemployed and had no
assets, therefore we made him eligible and we paid him money until we
got data two years later which indicated that he was ineligible at that
time, we would end up with a disallowance of Federal funding and a
repayment as a case error. (Transcript, pp. 167-168) While the State's
assertion is based on a hypothetical situation, it clearly has appeal
and highlights the logical inconsistency between the Agency's position
that the costs of collection are not necessary and the State's duty to
take reasonable steps to ensure the accuracy of its aid determinations.
(See, e.g., 42 CFR Part 431, Subpart P (1980)) A state is charged
generally with claiming federal financial participation in costs of aid
only to eligible people and in certain amounts. To fulfill its
responsibilities, New York set up a system specifically for the purpose
of making more accurate aid determinations. /6/ We understand
that the Agency, as a general proposition, does not want to spend
substantial amounts to fund administrative costs of processes which,
though they may have some marginal utility, are very expensive; but
that is not the case here. The Agency has not disputed that the State,
and therefore the Agency, save considerably through the WRS system. We
can also understand how the Agency might want to see another federal
agency share costs if possible, but here, that concern seems to have led
to an Alphonse and Gaston standoff which benefits neither the State nor
the Agency. /7/ We note that from the viewpoint of conserving
the overall federal fisc, the State's request for partial funding from
the Agency is apparently less costly than if NYSDOL chose to operate a
wage reporting system and received 100% federal funding.
JULY 07, 1984