GAB Decision 750
April 30, 1986
Utah Department of Social Services;
Docket No. 85-179
Ballard, Judith A.; Ford, Cecilia S. Settle Norval D.
The Office of Child Support Enforcement (OCSE) disallowed $42,793
claimed by Utah under Title IV-D of the Social Security Act (Child
Support and Establishment of Paternity). The disallowance was for
interest earned by Utah on undistributed child support collections for
the quarter which ended December 31, 1983. OCSE determined that
interest earned on the collections was income which, under the Act and
certain regulations and guidelines, should have been used to reduce the
amount of Utah's claim for Title IV-D funds.
The case basically presents two issues: whether OCSE should
disallow
amounts attributable to interest and, if so, whether OCSE's
calculation
of the amount was proper. Based on our review of the
record, we uphold
OCSE's determination to disallow interest not properly
accounted for by
the State. Concerning the calculation of the amount of
interest, we
uphold the disallowance in the amount of $7,789, and remand
the
remainder to OCSE so that OCSE may give Utah a reasonable opportunity
to
demonstrate that it actually earned less than OCSE said; however,
we
have determined that the State has the burden of proving that the
actual
amount of interest was less, and in the absence of such proof,
OCSE's
calculation will be upheld in full.
I. Whether OCSE may disallow the interest.
Title IV-D of the Act provides assistance to states under a state plan
for
enforcing child and spousal support, locating absent parents,
establishing
paternity, and generally assisting children to obtain
support. Section
451. Under section 457, part of the amounts collected
as child support are
distributed to the families involved, and part is
used to reimburse the state
and federal governments for assistance
payments made to the families,
including payments made under Title IV-A
of the Act (Aid to Families with
Dependent Children (AFDC)). In fact,
the Title IV-A grant to a State
can be reduced by the estimated federal
share of IV-D collections. See
discussion in OCSE's Brief, pp. 5-8.
Although the two programs are related,
by law they are separately
administered (see section 452(a)) and Title(2)
IV-D provides assistance
in obtaining support for children "whether or not
eligible for aid under
part A. . . ."
Section 455 (a) of the Act contains a formula for determining the
amount
of federal financial participation in a state's IV-D program under
its
approved state plan. The section states that in applying the
formula,
"there shall be excluded an amount equal to the total of any
fees
collected or other income resulting from services provided under
the
plan. . . ."
It was not disputed that during the period in question, Utah's Title
IV-D
funds were deposited in an interest-bearing general state fund.
Transcript of
Hearing (TR), 12-13, 19, 30-32. Utah admitted that it
earned interest
on the undistributed collections under its Title IV-D
program. Utah's
Brief, p. 1.
OCSE issued an Action Transmittal (OCSE-AT-82-8) on September 3, 1982.
See
Disallowance Letter, and first attachment to OCSE's
Supplemental
Memorandum. AT-82-8 was signed by the Director of OCSE,
and was
directed to all State agencies administering federally-funded
child
support enforcement programs. AT-82-8 specified that under
section
455(a) of the Act, "States must reduce their expenditures by the
total
interest earned on collections made under the IV-D State plan. . .
."
Id. at 2. (This was later codified in regulations, 45 CFR
304.50(b)
(1984), not applicable during the time period here.)
Even without the Action Transmittal, we conclude that OCSE
could
reasonably interpret section 455(a) of the Act to include
interest. On
its face, the word "income" in the statute clearly is
broad enough to
include income from interest earned on deposited funds.
Furthermore, even if the Act and the OCSE Action Transmittal did
not
exist, Department-wide rules applicable to all grantees would
require
Utah to account for the interest in substantially the same
manner. 45
CFR Part 74, Subpart F (applicable during the period in
question here)
contains provisions on "program income," which is defined to
mean
"income earned by a recipient from activities part or all of the cost
of
which is either borne as a direct cost by a grant or counted as a
direct
cost towards meeting a cost sharing or matching requirement. . .
." 45
CFR 74.41(a). Interest on funds collected pursuant to the
requirements
of Title IV-D clearly fits within this general definition.
Generally,
program income must be deducted from total costs before applying
the
federal sharing percentage (unless the terms of the grant
agreement
provide for use of the(3) income as the matching share, or
for
expenditure for additional approved costs). 45 CFR 74.42.
The regulation contains a narrow exception for interest earned by a
state
on certain grant funds. 45 CFR 74.47(b). This
exception
incorporates a statutory provision now codified at 31 U.S.C.
6503(a),
which says that a "State is not accountable for interest earned on
grant
money pending its disbursement for program purposes." In the absence
of
the exception, the general rule is that grantees must remit to
the
Federal Government "any interest or other investment income earned
on
advances of HEW grant funds." 45 CFR 74.47(a). Utah did not press
the
exception and, in any event, we conclude that the exception is
not
applicable here. The interest income earned by Utah was interest
on
sums recovered by Utah through child and spousal support
collections,
not interest earned on the federal grant funds, advanced or
otherwise.
Cf. North Carolina Department of Human Resources, Decision No.
361,
November 30, 1982 (interest on recouped Medicaid overpayments held
not
subject to the exception), upheld in North Carolina v. Heckler, 584
F.
Supp. 179 (E.D.N.C., 1984); New York State Department of
Social
Services, Decision No. 588, October 31, 1984; Wisconsin Department
of
Health and Social Services, Decision No. 623, February 11, 1985. /1/
(4)
Finally, Federal Government-wide cost principles made applicable to
the
grant by 45 CFR 74.171(a) specify that a basic condition of
cost
allowability is that claimed costs must be "net of all
applicable
credits." Federal Management Circular 74-4 (now Office of
Management and
Budget Circular A-87) Attachment A, paragraph C.1.g.
"Applicable
credits" are "those receipts or reduction of
expenditure-type
transactions which offset or reduce expense items allocable
to grants as
direct or indirect costs." Id., paragraph C.3.a. The Board
has held
interest to be an applicable credit. See cases cited
above.
It is clear that OCSE has a valid basis in law, regulation,
guidelines,
and Board precedents for this disallowance. Indeed, Utah
offered
nothing in its original brief challenging the applicability of
the
materials discussed above (Utah's position rested on
collateral
arguments discussed below), and offered only very brief and
conclusory
opposition in its other presentations. See Utah's Brief, p.
2; Utah's
Supplemental Memorandum, p. 2; TR, pp. 8-9, 70-71.
Utah's main opposition to the disallowance depended on two
inter-related
arguments. The first was essentially that it had cash
flow problems
under Title IV-A of the Act which gave rise to "the inequity
of
assessing against the State of Utah the interest earned on the
child
enforcement collections (IV-D) while failing to balance out the
negative
aspect of the same program (IV-A) (where the Federal agency,
otherwise,
gets a free ride on the State's money). . . ." Utah's Brief, p.
1. The
second argument was that there was a Memorandum of Understanding
among
several states and several federal agencies which was designed
to
"resolve the very problem presented" by the disallowance. Id. at
2.
Concerning the first argument, Utah alleged the following
circumstances.
Utah said that most AFDC (Title IV-A) funds were expended
within the
first week of the month in response to warrants, 85% of which are
issued
in cash in the first week. There sometimes are "negative
balances" in
the State's account, "where the State must advance the Federal
share
itself and then recoup later. . . ." Utah's Appeal File, Document 6,
p.
2. The "negative balances" result from "timing problems" which
may
include underestimates of needs and, occasionally, "actions on
the
Federal level where award trimming has occurred." Id.. The State
may
have to wait until a following quarter to receive sufficient
federal
funds to eliminate the deficit. Id.. Child support collections
are
deposited in the State's account relatively proportionately
throughout
the month. TR, p. 34. The State developed a practice
of using the
federal share of IV-D(5) collections to offset a portion of the
Title
IV-A expenditures in the succeeding month, thereby mitigating its
cash
flow problems. Utah said this arrangement "does permit time for
the
investment of the funds on a limited (two week average) basis;
however,
the positive results of this investment is more than countered or
offset
by the negative Federal cash balances held by the State in other
Health
and Human Services programs." Utah's Appeal File, Document 6, p.
1. A
Utah witness alleged that Utah lost about $900,000 a year in
interest by
financing federal programs in advance of receipt of the federal
funds.
TR, pp. 24, 27-28. In effect, Utah argued that OCSE added insult
to
injury by seeking recoupment of interest on Title IV-D collections
while
Utah was losing considerably more interest by pre-financing
federal
programs. Utah took this argument to its logical extension by
suggesting
that no interest was "earned" if one views the IV-D/IV-A
funding
relationship overall, and by suggesting that Utah had no "income"
from
the interest if you viewed income in a larger sense as an "increase
to
the State." TR, pp. 9, 12.
While it is possible to sympathize with Utah's cash flow problem, and
to
be drawn to the simple notion of offsetting interest earned in
one
federal program against interest lost in another, we are compelled
by
the clear requirements applicable to Title IV-D collections to
find
Utah's argument unavailing. There is no question that interest
was
actually earned on the deposited collections, and the
applicable
provisions of law, regulations and guidelines--not
specifically
challenged by Utah--make it clear that the interest income must
be
accounted for in a certain way. AFDC and Title IV-D are quite
separate
programs, in terms of their federal oversight, their operation,
and
their appropriations structure. See OCSE's Brief, pp. 9-10;
OCSE's
Supplemental Memorandum, p. 7. Nothing in the law or otherwise
in the
record here authorizes OCSE to ignore the requirements in Title
IV-D
because of a cash flow problem in Title IV-A or, for that matter,
any
other federal program.
The State's argument also ignores its apparent statutory right to
retain
interest earned on the direct advances of federal funds (such as
Title
IV-A funds) it receives, which arguably mitigates (and
theoretically
might even surpass) the amount of interest lost on State funds
used for
"pre-financing" in certain programs. 31 U.S.C. 6503(a),
discussed
above. Furthermore, there is nothing in the record to suggest
that an
underestimate of needs (allegedly leading to the State's need
to
pre-finance) is any more likely or frequent than an overestimate;
and
in any event, it is the State which does the estimating.
We also find Utah's argument about the Memorandum of
Understanding
unpersuasive. Utah submitted with its original brief a
copy of(6) an
undated "Memorandum of Understanding for Financing Federal
Assistance
Programs." Utah's Appeal File, Document 2. A State witness
said the
Memorandum was signed sometime in 1983. TR, p. 26. /2/ The
Memorandum
was signed by the representatives of five states (not including
Utah)
and officials of the U.S. Department of the Treasury, Office
of
Management and Budget, and Department of Health and Human Services.
The
Memorandum confirms agreements by a joint state/federal cash
management
reform task force, including certain attached policy
documents. The
Memorandum said that the signatories "agree to work
toward acceptance by
and implementation of these policies in the State and
Federal
Governments" by, among other things, "undertaking . . . pilot tests
of
the various funding alternatives provided by the policies. . . ."
Utah's
Appeal File, Document 2, p. 1.
Utah pointed to two provisions it thought important. The first,
a
provision in a policy attachment, stated, "Intergovernmental
cash
management practices should be such that neither the Federal nor
State
Governments benefit financially or suffer financially as a result of
the
transfer of cash in support of Federal assistance programs." Id.
first
(unnumbered) page following the Memorandum, paragraph 2. The
second
provision stated, "The Federal Government shall pay to or credit
the
appropriate State Treasury interest on the balance of state
cash
advanced on Federal programs. . . ." Id. paragraph 10.
OCSE argued essentially that the Memorandum provisions dealt with
the
transfer of cash and advances for program expenditures, and simply
did
not deal with treatment of income identifiable to particular
programs.
OCSE's Brief, p. 9. We find that to be an accurate
statement. We also
find that, contrary to the State's implication, the
Memorandum did not
even remotely approach the status of a contract binding
the Department;
it was essentially, by its own terms, an agreement to promote
certain
basic policies--indeed, policies which, on their face one can
hardly
find controversial, nor violated by OCSE's pursuit of interest income
it
is required to exclude by law. One might make an agrument that
the
Memorandum would envision a fairer funding flow in the Title
IV-A
program itself, but that is not a matter before us for decision.
We
find nothing in the Memorandum which can, or even purports to,
take
precedence over the specific requirements applicable to accounting
for
income in the IV-D program. (7)
Although the later Memorandum (the version dated November 1, 1985) is
more
developed than the one on which Utah relied initially, it provides
no more
support for the State's position. The Memorandum contains a
number of
proposed legislative and regulatory changes related to
intergovernment cash
management, and these and other proposed policies
might well change the cash
flow situation under Title IV-A. But, again,
we find nothing in this
version of the Memorandum which in any way
modifies OCSE's responsibility to
exclude interest income from the
amount claimed for FFP under Title IV-D.
Based on all the foregoing, we conclude that OCSE correctly
determined
that it should exclude the amount of interest income earned by
Utah from
the Title IV-D grant to Utah. The remaining issue concerns
whether
OCSE's approach in calculating how much interest was earned
was
reasonable.
II. Whether the amount of interest OCSE established was reasonable.
Utah submitted evidence that child support collections under Title
IV-D
were "deposited by ORS (the responsible Utah agency) and transferred
to
the State Treasurer via Bank Link, so interest is earned
almost
immediately." Utah's Appeal File, Document 3, p. 1. According to
the
OCSE auditors, the State Treasurer put the transferred funds in
the
State General Fund. Id. Document 1, p. 1. Other State
evidence
indicated that the IV-A/IV-D pre-financing arrangement in a
typical
month "does permit time for the investment of the funds on a
limited
(two week average) basis. . . ." Id. Document 6, p. 1. OCSE
auditors
did an analysis which suggested that if the State did use Title
IV-D
funds to pre-finance the federal share of Title IV-A, interest
would
have been earned for about "the first two and two-thirds of
the
quarter." Id. Document 1, p. 2. In its initial brief, Utah
admitted
that it "earned some interest from undistributed child
support
collections. . . ." Utah's Brief, p. 1. At the hearing, the
Financial
Manager of the Utah Department of Social Services testified that
Utah
earned interest on the Title IV-D funds "as a part of the pool" in
the
State Treasury. TR, pp. 12-13. It is therefore clear that
some amount
of interest was earned. It is important to understand this,
because the
record also includes statements of counsel and witnesses to the
effect
that interest or interest income was not earned; in context,
these
statements essentially relate to the State's position, already
discussed
above, that it used Title IV-D funds to pre-finance Title IV-A and
lost
money overall. See, e.g., Utah's Supplemental Memorandum, p.
1; TR,
pp. 9, 12. We must reject this argument of the State,
because we find
that(8)some amount of interest clearly was actually earned by
Utah, and
because we conclude, for reasons already discussed, that this
interest
cannot be ignored as income merely because of the
pre-financing
arrangement Utah chose to use or because the federal funding
flow in
Title IV-A was too slow.
Furthermore, the record contains an argument that, from the
State's
perspective and calculation, "The correct amount of interest is . .
.
$7,789." Utah's Brief, pp. 4, 7; TR, pp. 16-17. Given
our
determination on substantive issues above, we view this as an
admission
of part of the disallowance, and uphold the disallowance to this
extent
without further analysis.
The dispute over the remaining portion of the disallowance concerns
OCSE's
determination of the length of time IV-D collections earned
interest.
OCSE's witness at the hearing, a financial program specialist
who was part of
the audit team which established the amount of the
disallowance, testified as
follows:
Our instructions had been that interest was to be computed from
the
date of deposit of the collections until date of distribution, and
the
distribution was defined as the date that the federal office
would
receive the federal collection report. TR, p. 39. (emphasis
added)
This meant that the "opening" balance of collection amounts used as
a
starting point for calculating interest earned during the period
of
October 1, 1983 through December 31, 1983, was a figure (showing
total
collections deposited) drawn from a quarterly report for the
prior
quarter received by OCSE on November 4, 1983. Id. In
effect, OCSE had
established the point of "distribution" of Title IV-D
collections on
deposit (the point at which interest stopped accruing) as the
date of
receipt by OCSE of a quarterly report. TR, pp. 39-41.
Utah's witnesses testified that Title IV-D monies actually were paid
out
on a monthly basis, and that by the time OCSE had received the
quarterly
report on November 4, most amounts reported as deposited -- which
OCSE
auditors computed accurately -- had been paid out, generally to
redeem
Title IV-A warrants (because of the pre-financing scheme Utah
used).
TR, pp. 14-25.
The State argued that only collections it reported as undistributed at
the
end of a quarter should be used as a basis to start computing
interest.
TR, p. 14. The State argued that the approach used by OCSE
"grossly
inflated" the amount of collections earning interest, and that
federal
auditors "should have(9) been tracking and tracing the IV-A
welfare warrants
as they redeemed to come up with a daily balance." TR,
p. 19. The State
argued that OCSE's approach produced "fictitious"
interest, and that the
actual disbursement of funds had no direct
relationship to the dates on which
reports are received by the Federal
Government. Utah's Supplemental
Memorandum, pp. 3-4.
OCSE did not specifically dispute Utah's evidence that some Title
IV-D
funds were actually expended during the quarter. OCSE's
primary
argument was as follows:
It is the Agency's position that the Title IV-D collections
remain on
deposit from the date of collection until the date of their
distribution
to the Federal Government, which is the date that the Federal
Government
receives from the State the quarterly IV-A expenditure report,
reducing
State Title IV-A expenditures by the net Federal share of
AFDC-related
Title IV-D collections. In this instance, the Title IV-D
collections
for the quarter ended September 30, 1983, were on deposit until
November
4, 1983, the date the quarterly expenditure report and form
OCSE-34
(Quarterly Report of Collections) were received by the
Federal
Government. OCSE Supplemental Memorandum, pp. 4-5 (emphasis
added).
The Agency submitted a June, 1983, memorandum known as "PIQ 83-9" from
the
Deputy Director, OCSE, to the OCSE Regional Representative in Region
II
(headquartered in New York) which contained a statement that interest
on
Title IV-D collection accrued until OCSE received a IV-A expenditure
report
"that reduces State IV-A expenditures by the net Federal share of
IV-D AFDC
collections." OCSE Appeal File, Document I, p. 2; see also,
OCSE's
Supplemental Memorandum, p. 5. We are not convinced that this
document
is dispositive of the dispute here, for the following reasons.
PIQ 83-9 was dealing specifically with a special problem in New York
State
which, although it may occur elsewhere, does not appear from the
record to be
the problem here. That problem had to do with the fact
that much
distribution of Title IV-D collections was done at the local
level. As
the document stated, "interest would be easier to compute if
all distribution
was done at the State level." The response which
contains the phrase
referring to the Title IV-A report was primarily
dealing with the
circumstance of accounting for interest earned by both
local and state
entities; the emphasized portion of the response said
that the interest
which must be excluded "includes interest earned on
all IV-D AFDC
collections, regardless of where (or in whose(10)
possession) a collection,
or portion thereof is at a given point in
time. . . ." (emphasis in
original). The issue is not before us here,
but that part of the
response appears correct. The remaining portion of
the phrase, the part
that concerns us here, deals with a different issue
and, in context, is
tantamount to dicta; more important, a response to
a later question in
the same memorandum appears to conflict with the
phrase, in that it contains
the following statement:
As you know, section 455(a) of the Act requires the States to
reduce
their quarterly expenditure claims for FFP by the total interest
earned
on support collections made under the IV-D State plan. Thus,
any
interest earned on IV-D AFDC collections before those collections
are
distributed in accordance with section 457 of the Act and
the
implementing regulation at 45 CFR 302.51 must be excluded from
the
State's quarterly expenditure claims for FFP. p. 3.
PIQ 83-9, in this response, implies a distinction between the point
of
distribution and the quarterly reporting mechanism. The answer
points
to a distinction between the reporting of interest earned, and
the
actual point of distribution.
There is another problem with reliance on PIQ 83-9. The document,
by
juxtiposition of two sentences in the critical response, appears
to
establish section 455(a) as the basis of the requirement that
interest
be earned until OCSE receives the quarterly report:
. . . section 455(a) of the Act requires the State to exclude
all
interest earned on IV-D AFDC collections from the State's IV-D
quarterly
expenditure claims for FFP. This includes interest earned on
all IV-D
AFDC collections, regardless of where (or in whose possession)
a
collection, or portion thereof is at a given point in time, from
the
date of collection until the date the Federal government receives
from
the State a IV-A expenditure report. . . .
Section 455(a) does require exclusion of interest on IV-AFDC
collections,
and on all collections; but on its face, section 455(a)
contains no
requirement for assessing interest until receipt of the IV-A
expenditure
report. Whether the Act may be interpreted to permit such a
reading is
not the issue; the document contains no explanation
whatsoever for what
would have to be an interpretation based on some
reasoned and
reasonably-explained policy. Section 455(a) does establish
a payment
process which focuses on quarters, but it merely says that
"in(11)
determining the total amounts expended by any State during a
quarter," income
shall be excluded. In and of itself, the provision is
silent on when
interest stops accruing, and to depend on it as the lone
basis for OCSE's
policy means that the policy risks being viewed as
arbitrary. OCSE may
have a reasonable basis for such a policy, but the
OCSE document makes
nothing more than a bald and conclusory statement
that section 455(a)
requires the result OCSE seeks, when it does not.
In short, PIQ 83-9 is not a dispositive basis for upholding
the
calculation of the disallowance. In fact, when viewed in light
of
section 455(a), OCSE's own published regulations, and OCSE's
Action
Transmittal AT-82-8, it seems that the troublesome phrase in PIQ
83-9
may simply be inartfully worded. We note that OCSE's regulations
do not
specify the policy in question, but say only that the State
"must
exclude from its quarterly expenditure claims an amount equal to . .
.
all interest and other income earned during the quarter. . . ." 45
CFR
304.50. This implements section 455(a) correctly, but saying that
the
State must exclude interest from its quarterly expenditure claims
is
considerably different from saying that the State must calculate
the
interest to be excluded as of the date of the quarterly claim
(or
accompanying reports). So, too, OCSE's Action Transmittal AT-82-8
says
only that states must exclude from their quarterly claims an
amount
equal to all income under Title IV-D, including interest. The
document
does not say that the excluded interest is calculated by assuming
no
distribution of principal amounts until the quarterly report is
received
by OCSE. OCSE's Supplemental Memorandum, p. 2, and attached
Document A,
p. 2.
Nonetheless, while the policy of assessing interest constructively
beyond
an actual point of distribution of the principal sum is of
questionable
validity generally, we conclude that this is not a
sufficient basis per se
for overturning the disallowance here, without
further inquiry, for the
following reasons.
The State's interest-bearing account was a general account not
restricted
to Title IV-D funds; it was described as a "pool" by Utah
witnesses in
which funds from various State and federal sources were
"commingled." TR, pp.
12-13, 19, 30-32. The account included Title IV-A
funds received from
HHS, collections under Title IV-D, and certain Utah
revenues. TR, p.
30. Title IV-D collections came in throughout each
month. TR, pp.
33-34.
The commingling of funds represents a major cause of the dispute
before
us. If the State had earmarked its Title IV-D collections
somehow,
whether by using a separate account or otherwise, the amount of
interest
would have been easy to determine. The State(12) clearly bears
a burden
generally of accounting for liabilities such as program income
(see,
e.g., 31 U.S.C. 6503(b)), and under section 455(a) clearly shares
the
responsibility of accounting for income under Title IV-D. It
is
reasonable to conclude that the State bears a burden of justifying
its
determination of how much interest was or was not earned in a
commingled
account, since it chose to use that mechanism and thereby
complicated
the accountability process. If the State can offer no
specific
justification of actual amounts earned, then OCSE ought to be able
to
establish its best determination of the actual amount earned. This
is
not creating fictional interest or imputing interest; rather, it
is
using the best means available of measuring the amount of
interest
actually earned in the absence of an actual,
dollar-for-dollar
determination.
While OCSE's measure is certainly administratively convenient, as
OCSE
argued, and the parties might otherwise agree to or acquiesce in
its
use, the difficulty is that it cannot be upheld here in the face of
a
potentially more accurate (and lower) figure -- assuming Utah
can
actually develop one.
In reality, Utah's projection of interest appears to us to be
as
questionable as OCSE's. For example, a bottom-line figure
of
undistributed principal amounts figured monthly or quarterly is not
a
very accurate description of the amount of interest earned during
those
periods. As explained by the State, we find that the quarterly
reports
provided only what was in effect a snapshot of circumstances at a
given
point, and provided only a partial reflection of the cash
flow
circumstances in the State. TR, pp. 65-66, 69, 71; Utah's
Supplemental
Memorandum, Exhibit Y. And we reiterate that this problem
is largely a
result of Utah's pre-financing arrangements and commingling of
funds.
A Utah witness testified that while one could determine actual
interest
amounts, it would be a "very long exercise" and "extremely
difficult"
(apparently because one would have to track redemption of
warrants
against collections on a daily basis). TR, pp. 69-71. It
may be that
OCSE can agree to some surrogate measure or formula which can
ease this
burden, and we encourage OCSE to explore this possibility with
the
State. (This would seem particularly appropriate here, where
the
dispute concerns primarily the interest earned during the quarter
prior
to the quarter of the disallowance in order to establish a
beginning
figure for the quarter of the disallowance.) However, we conclude
that
the ultimate burden here is on Utah to document, rather than
speculate
on, how much interest it earned less than the amount which one
can
calculate simply from the face of the quarterly report. In the
absence
of such documentation, the(13) quarterly report is the
second-best--but
unfortunately the only definitive -- measure.
Conclusion.
We conclude as follows:
* OCSE correctly determined that interest on child
support
collections under Title IV-D must be accounted for as income
under
section 455(a) of the Act. The disallowance is therefore upheld
in
principle, and in amount to the extent of $7,789.
* However, measuring the amount of such interest by establishing
that
interest is always measured as of the date of a quarterly expenditure
or
collection report is, as a binding general policy, not supported by
the
Act or applicable regulations or guidelines.
* Nevertheless, it is clear that Utah largely created the
problem
here by its commingling and cash flow practices. Utah bears the
burden
of establishing through reasonable documentation the actual amount
of
interest earned. If Utah does not do so, then the OCSE determination
of
the amount of the interest will be upheld.
* Utah is given 30 days from receipt of this decision (or such
longer
period as OCSE determines appropriate) to develop and submit
its
documentation to OCSE. If Utah disputes OCSE's further
determination,
it may return to this Board within 30 days after receiving
that
determination.
* As stated above, the parties may wish to consider whether
there is
any formula or other method which would be acceptable as a
reasonable
measure of actual interest earned. /1/ It can be argued that
since the
Title IV-D collections
are apparently in large part recoveries
of amounts originally paid out as
AFDC payments, and since OCSE offsets
the IV-A grant by estimated IV-D
collections, that the IV-D collections
are, in a constructive sense, IV-A
funds. It is questionable, however,
whether such a construction is more
than an attenuated legal fiction,
since it ignores the practical matter that
the State clearly did earn
interest on the collected amounts which, from any
perspective, HHS ought
to be able to consider in establishing the amount of
the federal grants
(IV-A or IV-D). More important, our analysis here,
which essentially is
that the warrant process appears to be the actual point
of distribution
(if the State can evidence it), essentially means that the
funds retain
their character as IV-D collections while they are earning
interest.
This gives full meaning to section 455(a) in the context of the
IV-A/
IV-D program
relationship. /2/ Later, the
State submitted an
undated and expanded version dated November 1, 1985. TR,
p. 26; Utah's
Supplental Memorandum, Exhibit X.
MARCH 28, 1987