GAB Decision 451
July 29, 1983 Pennsylvania Department of Public Welfare; Docket No.
83-27 Ford, Cecilia Sparks; Garrett, Donald Settle, Norval
The Pennsylvania Department of Public Welfare (State) appealed from
the decision of the Regional Administrator, Office of Human Development
Services, disallowing $449,675 claimed under title XX of the Social
Security Act. The State represented the amount disallowed as
expenditures in fiscal years 1978 and 1979 for personnel training and
retraining directly related to the provision of title XX services.
During the course of the proceedings before the Board, the State
withdrew its appeal with respect to $10,665 claimed as indirect costs.
The remaining items disallowed included: (1) $358,701 incurred by
several outside experts engaged to provide training, determined by the
Agency not to be allowable under the regulations implementing title XX;
(2) $46,924 incurred under subcontracts which the Agency determined were
for title IV-A and not title XX training; and (3) $34,015 of
administrative costs which were allocated to title XX training on the
basis of budgeted cost estimates instead of actual expenditures. For
the reasons discussed below, we sustain the disallowance of the latter
two items and remand the case to the Agency to reconsider the
disallowance of the first item, finding that the Agency misinterpreted
the regulation and that some of the costs may in fact be allowable.
(1) Costs of Outside Experts
Rather than providing in-house training to persons delivering title
XX services, the State awarded contracts to various organizations to
provide this training. One of these organizations, the Community
College of Philadelphia (CCP), in turn hired several subcontractors to
provide the training. The Agency disallowed a total of $358,701
incurred under 19 direct training contracts and the CCP subcontracts on
the ground that the costs were not allowable under 45 CFR 228.84(c)(1).
That section provides that costs matchable as training expenditures
include --
(2) (for) experts outside the State agency engaged to develop or
conduct special programs: salary, fringe benefits, travel and per diem.
. . .
The costs disallowed were costs other than the ones specified in
section 228.84(c)(1). /1/
The State argued that the applicable regulations permit federal
financial participation in all costs incurred for training, whether the
training is provided directly by a state or under contract. It noted in
particular that the subsections of section 228.84 are preceded by the
phrase "(costs) matchable as training expenditures include," and argued
that the word "include" should not be read as equivalent to "is
limited
to," but rather as a term of enlargement. (Reply brief dated April 28,
1983, p. 3) The State also noted that the title XX regulations at 45 CFR
228.85 list specific activities not matchable as training expenditures,
and that contracted training is not among them. (Id.) In addition, the
State asserted that it would have been more costly to hire State
employees to provide training than it was to contract this function, and
that the regulations should not be construed so as to require in-house
training in order to obtain full reimbursement for training expenses.
(Id., pp. 2-4) The State also argued that since federal auditors had not
previously objected to costs of contracted training similar to the costs
in dispute here, the Agency was estopped from retroactively applying an
interpretation of the regulation which precluded reimbursement of such
costs (Id., p. 5) Finally, the State argued that the Agency, in
retroactively applying this interpretation, was violating its stated
policy not to hold states accountable for administering their programs
in (3) accordance with Agency interpretations of the regulations unless
the states were on notice of those interpretations. (Id., p. 7)
We agree with the Agency that the costs in question in this case are
not allowable under section 228.84(c)(1). As the Agency pointed out, 45
CFR Part 228 distinguishes several categories of trainers, specifying
for each which costs are matchable as training expenditures. The
categories of trainers are: State agency staff development personnel,
at section 228.84(b); experts outside the State agency, at section
228.84(c); provider agency staff development personnel, at section
228.84(f); experts outside the provider agency, at section 228.84(g);
and educational institutions, at section 228.84(i). To read section
228.84(c)(1) as providing for reimbursement of all costs incurred by an
outside expert in connection with training would render meaningless the
distinctions made in the regulation between different types of trainers
and their allowable costs. Thus, the word "include," in the context
of
this regulation, cannot reasonably be read as a term of enlargement.
Furthermore, the fact, noted by the State, that section 228.85 does
not exclude the cost of contracted training as an allowable cost does
not mean that all costs incurred under a contract to provide training
are allowable. There is no indication that the list of excluded costs
in this section was intended to be an exhaustive list; accordingly, the
failure to exclude certain costs does not imply that they are allowable.
In our view, however, both parties have overlooked a relevant
provision: section 228.84(c)(2). This section specifies the following
as costs matchable as training expenditures:
For State agency training activities directly related to the title XX
program: cost of use of space, postage, teaching supplies, and purchase
or development of teaching materials and equipment--for example, books
and audiovisual aids.
Both this section and section 228.84(c)(1), which refers specifically
to outside experts, appear under the caption "State agency training
activities." Because of this (4) placement, it seems reasonable to
conclude that training conducted by an outside expert, referred to in
section 228.84(c)(1), constitutes a state agency training activity.
Thus, the costs specified in section 228.84(c)(2), which in its text
refers to state agency training activities, are allowable even if
incurred by an outside expert as opposed to the state itself.
In response to the Board's request that it discuss whether any of the
costs incurred by outside experts might be allowable under section
228.84(c)(2), the Agency took the position that the only allowable costs
incurred for an outside expert were those listed in section
228.84(c)(1). Confirmation of Telephone Conference Call, dated July 7,
1983, p. 1. The Agency did not explain its view, however, and the face
of the regulation does not support such a narrow interpretation.
It seems reasonable as a matter of policy as well to reimburse
outside experts for the costs specified in section 228.84(c)(2) since
this would not penalize the State for using outside experts to provide
training where contracting training was more cost-efficient than
providing training in-house. The Agency did not dispute that this
result was a reasonable one from a policy standpoint. Confirmation of
Telephone Conference Call, dated July 7, 1983, p. 1. Thus, we remand
this portion of the case to the Agency to determine whether any of the
costs disallowed for outside experts are the types of costs listed in
section 228.84(c)(2), and, if so, to reduce the disallowance in the
appropriate amount.
The State argued that the Agency was estopped from disallowing any
costs incurred by outside experts on the ground that the auditors failed
to question such costs in prior audits. However, there is no evidence
that the auditors made even an informal judgment that the prior period
costs were allowable; it seems entirely possible that the auditors may
simply have overlooked the costs. Moreover, it would not be sufficient
to show that the auditors approved the costs, since in order to provide
a basis for estoppel, the Agency's action must rise to the level of
affirmative misconduct. Nebraska Department of Public Welfare, Decision
No. 422, dated April 29, 1983, p. 10. Furthermore, it is evident that
other elements of estoppel, such as reliance, were also not present in
this (5) case. Audit findings are not final Agency determinations but
rather are to be considered as recommendations to the Agency. Nebraska
Department of Public Welfare, Id., at p. 4. Thus, the State would not
have been justified in relying on any statement by the auditors
approving the types of costs in question here.
The State also argued that, in disallowing the costs incurred by the
outside experts, the Agency was violating its own policy not to hold a
state to interpretations of the regulation of which it did not have
notice. However, since we have concluded that the regulation on its
face limits allowable costs of outside experts to those specified in
sections 228.84(c)(1) and 228.84(c)(2), the lack of a written
interpretation of the regulation during the period in question here is
not relevant. /2/
(2) Title IV-A Subcontracts
As noted above, the State contracted with the Community College of
Philadelphia (CCP) to provide title XX training. In addition, CCP was
awarded a contract to conduct training for title IV-A employees.
Subsequently, CCP subcontracted with an educational institution and with
outside experts to provide training. (Audit Control No. 03-20557, p.
3). The Agency disallowed $46,924 of costs incurred under five
subcontracts awarded to the Center for Effective Programs and claimed by
the State under title XX, finding that the subcontracts were awarded for
training under title IV-A.
On appeal, the State contended in support of its claim that "the same
training" was funded through "title IV-A and title XX funding streams."
(Notice of appeal dated February 9, 1983, p. 2) It further contended
that "(persons) who provide actual services funded through either Title
XX or Title III (with training funded through Title IV-A) were present
in the same classes," and that "(in) some cases, a particular class
member would provide services funded (6) through one funding stream, and
then the other." (Brief dated April 28, 1983, p. 8) The State's response
to the draft audit report indicated that, because of the complexity of
allocating the costs of a particular subcontract between titles IV-A and
XX, the State decided instead to allocate some subcontracts, including
the five in question here, wholly to title XX, and others wholly to
title IV-A. (Audit Control No. 03-10557, attached Response, p. 7)
To clarify this issue, the Board asked the State for copies of the
subcontracts and whether they referred to title XX or title IV-A
training. The Board also asked, if training was in fact given to title
IV-A and title XX service providers, whether the costs allocable to each
program could be identified. (Letter from Settle to Ulan dated May 13,
1983, p. 1) The State responded that it was unable to locate or obtain
copies of the subcontracts. (Reply brief dated June 17, 1983, p. 2)
This Board has previously held that the burden is on the grantee to
document the allowability of its costs. See, for example, New York
Department of Social Services, Decision No. 433, dated May 31, 1983, p.
9. In the instant case, the Agency found, based on the audit report,
that the subcontracts were for title IV-A training. The State did not
dispute that the subcontracts themselves were awarded for this purpose.
The fact that the subcontracts specified that they were awarded for
title IV-A training is prima facie evidence that the training was in
fact furnished to title IV-A service providers and that the subcontract
costs were thus allocable to title IV-A and not title XX. The mere
allegation by the State that training was furnished under the five
subcontracts to title XX as well as title IV-A service providers is not
sufficient to rebut this prima facie evidence. In the absence of
information specifically identifying the extent to which training was
given to title XX service providers, we must sustain the disallowance.
(3) Administrative Costs
The Agency disallowed $34,015 of administrative costs incurred by the
Community College of Philadelphia (CCP) on the ground that the costs
were not reasonably allocated to title XX training. The auditors found
that CCP allocated administrative costs between title XX and title IV-A
on the basis of budgeted cost estimates instead of actual (7)
expenditures. The Agency disallowed the difference between the amount
allocated to title XX based on the estimates and the amount which the
auditors stated was properly allocable to title XX based on actual
costs.
The State argued initially that "(efforts) to precisely allocate
training costs . . . would have been unreasonably costly." (Brief dated
April 28, 1983, p. 8) In response to the Board's request for an
explanation of this position "in view of the fact that the Agency was
apparently able to reallocate administrative costs using actual costs .
. ." (letter from Settle to Ulan dated May 13, 1983, p. 1), the State
asserted that the Agency did not use actual costs in reallocating the
administrative costs, adding that the auditors "may have believed they
were doing so as a result of a misunderstanding of the underlying
training arrangements." (Reply brief dated June 17, 1983, p. 2) No
further explanation was provided.
Under 45 CFR 201.5, funds are advanced on a quarterly basis for
expenditures under an approved state plan based on the state's estimate
of expenditures that will be made during the quarter. However, the
state must later submit a statement of expenditures which "provides the
basis for making the adjustments necessary when the State's estimate for
any prior quarter was greater or less than the amount the State actually
expended during that quarter." 45 CFR 201.5(a)(3). Thus, a state is
clearly entitled to be reimbursed only for its actual, as opposed to
estimated, expenditures. Since the State has not in this case provided
any support for its contention that the Agency did not use actual costs
to make the appropriate allocations, we sustain the disallowance.
Conclusion
For the foregoing reasons, we sustain the disallowances of $46,924
claimed under the title IV-A subcontracts and of $34,015 of
administrative costs and remand the case to the Agency to determine
whether any of the costs disallowed for (8) outside experts are the
types of costs listed in 45 CFR 228.84(c)(2), and, if so, to reduce the
$358,701 disallowance for that item in the appropriate amount. /1/ The
costs incurred by subcontractors of the Community College of
Philadelphia and disallowed were: communications expenses, space
charges, equipment charges, and food and refreshment charges. (Audit
Control No. 03-20557, p. 3) The costs incurred under the direct training
contracts and disallowed were: postage, telephone, supplies, indirect
costs, printing, equipment rental, other rentals, utilities, custodial
services, and staff development. (Audit Control No. 03-20557, p. 5,
and Appendix B) /2/ The only written interpretation referred to
by the Agency in support of its position was PIQ 78-13; however, the
Agency decided not to rely on this interpretation and did not furnish a
copy of the PIQ for the record. Confirmation of Telephone Conference,
dated July 7, 1983, p. 1.
NOVEMBER 14, 1984