DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Kentucky Cabinet for Human Resources
Docket No. 87-149
Decision No. 957
DATE: May 19, 1988
DECISION
The Kentucky Cabinet for Human Resources (State) appealed the decision
of
the Social Security Administration (SSA, Agency) disallowing $507,280
in
federal funding claimed for state fiscal years 1975 through 1982
under title
II of the Social Security Act (Act). (SSA later reduced the
amount of the
disallowance to $305,342.) Title II provides full funding
for state
agencies to make determinations of disability for eligibility
for Social
Security benefits. The disallowance was taken on the ground
that the
State improperly included in the cost of performing this
disability
determination function non-SSA costs attributable to Medicaid
disability
reviews which should have been claimed under title XIX of the
Act, thus
receiving 100% of these costs rather than a shared percentage
under
Medicaid.
The State argued that SSA was precluded from disallowing the costs
since
audits covering the period in question had been closed out and
the
records retention period had expired. The State further argued that
it
had not in fact charged SSA for Medicaid costs for some of the years
in
question. Finally, the State argued that the methodology used
by SSA
to calculate the disallowance was improper, and that it owed
only
$181,809 if any reimbursement was required.
For the reasons discussed below, we conclude that SSA is not barred
from
recovering any unallowable costs, and that there were unallowable
costs
for each of the years in question. We further conclude that
the
methodology used by SSA to calculate the disallowance was
reasonable,
and, accordingly, sustain the disallowance in the amount of
$305,342.
Background
The disability determination function for the State of Kentucky
is
performed for SSA by the Division for Disability Determinations
(DDD)
within the Department for Human Services. 1/ In 1975, the Medical
Review
Section (MRS), the State unit which was responsible for
determining
whether individuals were eligible for Medicaid based on
disability, was
placed in DDD. At the time of the organizational
transfer of MRS to
DDD, the State advised SSA that its accounting system
would charge costs
to the appropriate program, i.e., SSA or non-SSA.
Agency's brief,
Attachment 4. The State's accounting system provided
for assigning a
program code to all payment documents so that the costs in
question
could be charged directly to the program identified.
Transcript (Tr.)
of hearing, Vol. 1, pp. 79-80, testimony of William
Esenbock.
Audits of DDD during the period in question 2/ did not raise any
questions
regarding the allocation of costs between DDD and MRS.
However, an inquiry by
SSA in late 1984 led SSA to conclude that the
State was improperly charging
it for costs attributable to MRS.
Specifically, SSA found that since MRS was
"physically and
administratively located within the DDS," there were shared
costs which
should have been borne by MRS. SSA also found that MRS
utilized DDD's
medical consultants on a part-time basis, and that SSA was
not
reimbursed for this. Agency's brief, Attachment 14.
The State thereafter agreed to reimburse SSA for these costs for
state
fiscal years 1983-1986 using the methodology set out in a Memorandum
of
Understanding developed for those years. SSA did not initially
request
reimbursement for prior years since it had some question whether
the
closeout of audits for those years barred recovery. Upon receiving
an
opinion from counsel that recovery was not barred, however, the
Regional
Commissioner of SSA requested that the State reimburse SSA for
Medicaid
work from March 27, 1975 (the official date of the transfer of MRS
to
DDD) through June 30, 1982. SSA directed the State to use
the
methodology in the Memorandum of Understanding. Agency's
brief,
Attachment 24.
The State requested review by the Commissioner of SSA of
this
determination, noting that audits on the years in question had
been
closed out, and that it no longer had, and was not required to
retain,
records for those years. Agency's brief, Attachment 25.
The
Commissioner rejected the State's position that no reimbursement
was
due, and disallowed $507,280 for the years in question.
His
determination stated that this amount was arrived at "based upon
the
same basic methodology that Kentucky established to determine the
amount
to be reimbursed for the years 1983 through 1986," and using the
"best
available information" pertaining to the earlier years. Agency's
brief,
Attachment 26.
On appeal to the Board, the State again argued that it was not liable
for
the Medicaid costs in view of the audit closeouts and expiration of
the
records retention period. In addition, the State contended that
for
some of the years in question no Medicaid costs were charged to
SSA. It
also challenged the methodology used by SSA to calculate
the
disallowance for the remaining years. The State contended that,
if
reimbursement was legally required, the amount due was
$181,809.
Specifically, the State denied that it improperly charged SSA for
any
medical consultant costs for State fiscal years 1975 through 1977.
It
agreed with SSA's computation of medical consultant costs for the
years
1978 through 1982. With respect to the shared costs, the State
denied
that it improperly charged SSA for any such costs for State fiscal
years
1975 through 1980. The State admitted that it owed substantial
amounts
for shared costs for 1981 and 1982, but calculated these to be less
than
the amounts included in SSA's disallowance.
During the course of the proceedings before the Board, SSA reduced
the
amount of its disallowance pertaining to shared costs by excluding
all
personnel costs (except medical consultant costs) which it had
allocated
to MRS for the years 1975 through 1980. SSA stated that it
appeared
likely from information furnished by the State that, at least for
those
years, the State had not charged SSA with salary costs of any
MRS
personnel. SSA justified its decision not to recoup the costs
of
administrative services performed by other personnel in DDD which
it
believed were allocable to MRS on the ground that such costs
represented
a relatively small share of total personnel costs and could not
be
determined. Closing Arguments of Respondent, pp. 9-10. The
remaining
disallowance for the years 1975 through 1980 consisted of
medical
consultant costs and shared operating costs; the disallowance for
1981
and 1982, however, also included shared personnel costs since the
State
had conceded that it improperly charged such costs to SSA for
those
years.
Recovery Was Not Barred Based on Audit Closeouts.
The State took the position that it was not required to reimburse SSA
for
any costs allocable to MRS for State fiscal years 1975 through 1982
on the
ground that audits covering those years did not find that any
Medicaid costs
were charged to SSA and that the audits were closed out
before SSA raised
this issue. We find no basis for the State's
position. Although
audits ordinarily recommend adjustments for costs
which the auditors find
were not claimed in accordance with applicable
requirements, there is no
authority which entitles a grantee to payment
of any costs not questioned by
the auditors. An audit provides a basis
for disallowing unallowable
costs identified by the auditors, but does
not preclude disallowances taken
on the basis of information obtained in
another manner, such as the inquiry
by program officials in this case.
Moreover, the closeout of an audit does
not mean that no disallowance
pertaining to the period audited may be taken
in later years. See
S.E.R., Jobs for Progress, Inc. v. United
States, 759 F.2d 1 (Fed. Cir.
1985). Thus, simply because the audits
here were closed out without
mention of the costs in question does not mean
that SSA was foreclosed
from disallowing those costs. 3/
The State noted that, not only was no problem concerning Medicaid
costs
raised in the audits performed by independent auditors, but also
fiscal
and administrative reviews by the regional office of SSA as well
as
routine visits by federal program officials during the period
in
question failed to disclose any problem. However, the State cited
no
support for its position that SSA was precluded from taking
a
disallowance because it had not raised the matter earlier. The
State
did not allege that there was any statute of limitations which
barred
the Agency from recovering the funds. 4/ Furthermore, while the
State
did not explicitly argue laches, the Board has held that laches
is
generally inapplicable to the federal government. See Georgia Dept.
of
Medical Assistance, DGAB No. 798 (1986). 5/ Similarly, it is clear
that
recovery by SSA is not precluded by principles of equitable
estoppel,
although the State never specifically argued that it was. The
elements
needed to estop even a private party are not present here; there was
no
prejudice to the State, nor detrimental reliance. In any event,
the
federal government is not in the same position as a private
party.
While it is not clear that the federal government can ever be
estopped,
it certainly cannot be in the absence of affirmative misconduct.
See
Mississippi Dept. of Public Welfare, DGAB No. 700 (1985);
Shenandoah
Professional Standards Review Foundation, DGAB No. 652
(1985). Failure
to question costs earlier is not grounds for estoppel;
inaction is not
affirmative misconduct. See INS v. Miranda, 459
U.S. 14 (1982).
Recovery Was not Barred Based on Expiration of the Records
Retention
Period.
The State also argued that SSA was barred from recovering any
unallowable
costs because records which might have identified such costs
were destroyed
following the expiration of the records retention period.
Applicable
regulations require the retention of records for three years
following the
submission of the last expenditure report for the period
in question, or
until the resolution of an audit or other inquiry
involving the records which
begins within the three-year period. 45
C.F.R. 74.21 and 74.22 (1980).
6/ The State did not specifically
identify what records were
destroyed and when, but asserted that "backup
documentation" for "accounting
system reports . . . is destroyed in
accordance with state and federal
retention regulations," and that
"[a]ccounting records are destroyed as
directed by the Director,
Division for Fiscal Services." State's reply
brief, attachment dated
December 5, 1987, p. 3, item 8.
It is well established in Board precedent that grantees have a
fundamental
obligation to document costs which is not defeated per se by
the passage of
the records retention period. See California Dept. of
Social Services,
DGAB No. 855 (1987); California Dept. of Health
Services, DGAB No. 666
(1985); and Missouri Dept. of Social Services,
DGAB No. 395 (1983).
While the recovery of unallowable costs is not
precluded merely on the ground
that records supporting those costs were
destroyed in accordance with records
retention requirements, "the Board
will take into account the prejudice
a grantee can prove which is
attributable to the . . . innocent loss or
destruction [of records]
after expiration of the record retention period."
DGAB No. 855, p. 3.
The Agency contended there was no prejudice to the State since the
State
had not provided information regarding when its records were
destroyed
or identified precisely the records in question. We agree.
The Agency
pointed out that for the years 1975 through 1979 and 1981,
the
regulations would have required the State to retain its records
until
the latter half of 1984. 7/ SSA's first written inquiry about
the
Medicaid costs was dated December 20, 1984. Agency's brief,
Attachment
12. Since the State did not specify when the records were
destroyed, it
is possible that they were destroyed after the beginning of
SSA's
inquiry, which came only a few months after the audits were
closed.
Indeed, the State provided no evidence to support its contention
that
the records were destroyed after rather than before the audits
were
closed. The State could only claim prejudice if the records
were
destroyed in the short period between audit resolution and the
beginning
of SSA's inquiry. The Agency also pointed out that since the
audit
covering fiscal year 1982 was not closed until February 13, 1985,
the
State had no basis for destroying records pertaining to that year.
Moreover, since the State indicated merely that the records destroyed
were
"accounting records" and "backup documentation" for "accounting
system
reports," there is no clear evidence that the State ever had
records which
would have established that SSA was not charged for
Medicaid costs. It
is also significant that the State failed to comply
with the requirement of
the Disability Insurance State Manual (DISM)
issued by SSA on September 2,
1975 (at Agency's brief, Attachment 2, p.
5) to report the actual costs of
non-SSA program work performed by the
state disability determination
agency. The failure to report such costs
on a current basis 8/
indicates that the State may never have had
adequate records to identify all
costs attributable to MRS.
The State argued that this case was distinguishable from DGAB No.
666
on the ground that, here, unlike that case, the State was not aware
that
there was any problem concerning the documentation of costs.
However,
the Board in DGAB No. 666 found that regardless of the State's
knowledge
of potential claiming problems, the burden to document costs using
some
reasonable method remained. The State also attempted to distinguish
DGAB
No. 395 on the ground that there was some evidence there, but not
here,
that the state had failed to keep adequate records. There is no
basis
for this distinction, however; as discussed above, it is not clear
that
Kentucky ever had adequate records.
Accordingly, we conclude that the records retention requirement is not
a
basis for excusing the State from reimbursing SSA for any Medicaid
costs
improperly claimed under title II of the Act. As discussed
later,
however, there is a further question whether, in the absence of
relevant
records, the methodology used by SSA to calculate the disallowance
was
reasonable.
The State Did Not Show That It Properly Allocated Shared Costs or
Medical
Consultant Costs to MRS for Any of the Years at Issue.
The State took the position that it did not charge SSA for any
Medicaid
costs for some of the years at issue. Specifically, it
asserted that it
properly allocated shared costs to MRS for State fiscal
years 1975
through 1980, and that it properly allocated medical consultant
costs to
MRS for State fiscal years 1975 through 1977. We conclude that
this
assertion is not supported by the record, however.
The State relied heavily on the fact that it had in place a program
code
system designed to charge costs directly to the appropriate
program. As
indicated previously, the State had advised SSA when MRS
was transferred
to DDD that its accounting system would assure that no SSA
funds were
obligated for MRS. However, the system works only if payment
documents
are correctly coded. The mere existence of the program code
system is
not significant since the State did not establish that the
payment
documents were coded to reflect all costs allocable to MRS.
The
director of DDD stated that the determination of how costs other
than
personnel costs should be charged was made at the department
level.
Tr., Vol. 1, p. 68, testimony of Ben Fannin. However, the
Director of
Fiscal Services testified that he relied on the various
organizational
units to determine to what program costs should be
charged. Tr., Vol.
1, p. 84, testimony of William Esenbock. Thus,
no one was responsible
for seeing that payment documents identified
non-personnel costs
allocable to MRS. (As indicated previously,
personnel costs--other than
medical consultant costs--for 1975 through 1980
are no longer included
in the disallowance). 9/
The State did submit a schedule showing costs directly charged to MRS
in
the years 1975 through 1982. State's reply brief, attachment
dated
December 5, 1987, Schedule II. However, the schedule does not
show any
direct charges for 1975 and shows medical consultants as the only
direct
charge in 1976, with no charge for medical consultants in any
other
year. There is no charge for supplies until 1982, a charge for
premises
only for 1978, and a charge for capitalized equipment only for 1977
and
1979. To the extent that recurring costs were not directly charged
to
MRS, SSA must have borne the costs.
It is also significant that the State admitted that no changes were
made
to its accounting system during the period 1975 through 1986.
State's
reply brief, attachment dated December 5, 1987, p. 1, item
2. Thus,
the State's inconsistent treatment of the costs during that
period could
not be explained by a change in the State's accounting
system. The
State failed to advance any other plausible explanation
why, if costs
were properly allocated up to a certain point in time (through
1980 for
shared costs and 1977 for medical consultant costs), the same type
of
costs then ceased being allocated to subsequent periods. 10/
Further, the State's current position that costs were properly
allocated
to MRS for some of the years in question is contradicted by a
letter
from the director of DDD dated February 12, 1985 which responded to
an
inquiry by SSA regarding the processing of non-SSA work by MRS. In
that
letter, the DDD director stated, inter alia, that "the last time.
.
.[MRS] was charged for medical consultant time was for FY 76 (July 75
-
June 76)," that there was "no record of this unit having been
charged
for space," and that "[e]lectricity was not charged to this unit
until
beginning July 1984." Agency's brief, Attachment 13, p. 2. Again, it
is
apparent that SSA must have been charged for these costs rather
than
MRS. The DDD director asserted at the hearing in this case that
he
meant only that no record of charges for these costs existed for
the
periods indicated, not that MRS was not in fact charged. Tr., Vol.
1,
p. 63, testimony of Ben Fannin. However, since no such meaning
is
apparent on the face of the letter, we cannot accept the
director's
clarification, which was offered solely for purposes of this
appeal
proceeding. We also note in this regard that the State did not
contend
until this appeal was taken that costs were properly allocated to
MRS
for some of the years in question. Although the State is of course
not
precluded from raising new arguments on appeal, it is unclear why
the
State would not have made this contention earlier if there was
evidence
to support it.
The State also submitted in support of its position a time audit
report
for the period ending June 15, 1976 which showed that the DDD
director
allocated his time between SSA and non-SSA work. State's appeal
file,
Ex. III, Attachment C. The State argued that, in the absence of
any
other records, it could be inferred that all other costs were
allocated
correctly. However, this inference is not justified since the
time
audit report also included other DDD personnel, none of whom
allocated
any portion of their time to MRS.
The Methodology Used By the Agency to Determine Non-SSA Costs
Was
Reasonable.
There is no dispute concerning the methodology employed by SSA
to
calculate the amount of medical consultant costs which was allocable
to
MRS. (The State's contention that it properly allocated those costs
to
MRS in 1975 and 1976 was addressed above.) However, the State
objected
to the methodology SSA used to calculate the amount of shared
costs
allocable to MRS, which consisted of operating costs for the years
1975
through 1980 and both operating and personnel costs for 1981 and
1982.
SSA calculated MRS's share of the costs in question for each year
by
applying to DDD's total costs as shown on the State Agency Report
of
Obligations for SSA Disability Programs (except medical consultant
costs
and, where appropriate, personnel costs) the ratio of MRS staff to
total
DDD staff. The ratio used by the Agency, referred to as a
"staff
percentage," was 1.5% for each year at issue, the same ratio applied
to
determine non-SSA costs for the years 1983 through 1986.
This
methodology assumes that MRS's share of DDD's costs was proportional
to
the size of MRS staff in relation to the size of the entire DDD
staff.
The Agency asserted that the methodology followed the memorandum
of
understanding utilized by the parties to determine MRS costs for
the
period 1983 through 1986. p. 2. The memorandum provided that
indirect
personal services costs applicable to MRS "will be computed based
on
staff percentages. . . ." It further provided that all other
costs
(excluding medical costs) would be allocated on the same basis,
except
those costs "that can be identified directly to MRS," which "will
be
direct charged to MRS programs." Agency's brief, Attachment 15, p. 3.
The State took the position that SSA applied the staff percentage to
the
wrong costs. It asserted that the Agency should have excluded
from
total DDD costs those costs which were "100% SSA" costs. The
State's
point was apparently that unless such costs were excluded, MRS
would
bear more than its fair share of costs, since it would be allocated
both
a portion of shared costs and a portion of costs directly
attributable
to SSA. Excluding costs which it identified as "100% SSA,"
the State
calculated the non- SSA costs (excluding medical consultant costs)
for
1981 and 1982 using a staff percentage of 2.72% for 1981 and 2.36%
for
1982, arriving at amounts which were significantly less than
those
calculated by the Agency. The "100% SSA" costs identified by the
State
were taken from computer-generated financial reports for DDD,
dated
1/6/82 and 3/11/83. State's appeal file, Ex. III, Attachments H
and I.
Unlike the Report of Obligations, these reports were never submitted
to
SSA. The State also asserted that its methodology followed
the
memorandum of understanding.
The Agency argued, however, that it was unable to verify the alleged
"100%
SSA" costs. An Agency official stated that he could not reconcile
these
figures with the amounts shown on the State Agency Report of
Obligations for
each of the two years in question. According to this
official, even
after adjusting for the fact that each State financial
report was prepared on
a State fiscal year basis while the Report of
Obligations was prepared on a
federal fiscal year basis, the total shown
on the latter report exceeded that
shown on the former report by
approximately $300,000 for 1981 and $600,000
for 1982. The Agency
official stated that it was likely that the
inclusion of MRS costs in
the DDD costs shown on the Report of Obligations
accounted for some of
the difference. Tr., Vol. 2, pp. 282-284,
testimony of Greg Weiand.
A State official testified in response that the discrepancy between
the
State Agency Report of Obligations and the State's financial reports
was
explained by the fact that the State Agency Report of
Obligations
included as costs of the fiscal year being reported obligations
which
were liquidated after the end of the fiscal year, while the
State
financial reports included such obligations as costs of the year
in
which they were liquidated. Tr., Vol. 2, p. 235, testimony of
William
Esenbock. However, the official admitted that he did not have
figures
which would allow him to reconcile the documents in question.
Id., p.
315. 11/
We conclude that the exclusion of the alleged "100% SSA" costs was
not
required under the circumstances of this case. Thus, the
methodology
used by the Agency to calculate the disallowance was
reasonable.
We note at the outset that this issue is not clearly resolved
by
application of the memorandum of understanding. The memorandum
states
that costs allocable to MRS will be determined by application of a
staff
percentage except in the case of costs which can be directly charged
to
MRS. It does not indicate that costs which are 100% chargeable to
SSA
are to be excluded before the staff percentage is applied. One
might
conclude from the fact that the memorandum provides only for
the
exclusion of directly chargeable MRS costs that there was no intent
to
exclude "100% SSA" costs. On the other hand, it is arguable that it
was
implicit that the staff percentage was not to be applied to "100%
SSA"
costs because the purpose of the memorandum was to facilitate
the
determination of MRS costs. The record does not indicate whether or
not
100% SSA costs were excluded from total DDD costs in determining
the
amount to be reimbursed for 1983 through 1986, the years for which
the
memorandum of understanding was developed.
Nevertheless, the exclusion of "100% SSA" costs seems reasonable as
a
general proposition. As noted above, if the staff percentage
was
applied to DDD costs which included 100% SSA costs, MRS would
be
allocated both a portion of shared costs and a portion of 100%
SSA
costs. The Agency argued, however, that the State did not show
that
this was in fact the result of applying the Agency's methodology.
The
Agency contended that, instead, it was likely that the DDD costs
which
it used included both some 100% SSA costs and some 100% MRS
costs. If
the staff percentage was applied equally to 100% SSA costs
and 100% MRS
costs in addition to shared costs, MRS would have been allocated
a fair
share of the costs.
The Agency did not conclusively establish that the DDD costs to which
it
applied the staff percentage included "100% MRS" costs as well as
"100%
SSA" costs. However, it did establish that there was a
substantial
discrepancy between DDD costs reported on the State Agency Report
of
Obligations and DDD costs reported on the State's financial report
for
each of the two years in question which could reasonably be
accounted
for by the inclusion of some "100% MRS" costs in the former but not
the
latter report. The existence of this discrepancy also calls
into
question the accuracy of the figures to which the State applied
the
staff percentage, since they cannot be tied to any amounts
previously
reported to SSA. Under these circumstances, the State bears
the burden
of explaining the discrepancy by more than merely asserting that
the
Report of Obligations included costs liquidated after the end of
the
fiscal year. That the burden rests on the State is clear;
this Board
has consistently held that grantees have "a fundamental obligation
to
account for federal funding . . . ." See DGAB No. 855, supra, p.
3.
Accordingly, in the absence of an adequate explanation, we conclude
that
the methodology employed by the Agency to calculate the non-SSA
costs
for the period 1975 through 1982 was reasonable because it appears
to
have allocated all DDD costs, including those which were
directly
charged to SSA or MRS, on a proportional basis. Moreover, even
if the
exclusion of "100% SSA" costs were clearly required, the
State's
methodology is not acceptable because the State has not established
that
it correctly identified these costs. Thus, we are compelled to
sustain
the disallowance as calculated by SSA.
It is also significant that the disallowance calculated by SSA
was
conservative in amount. As noted above, the Agency applied a
staff
percentage of 1.5% to total DDD costs for each year from 1975
through
1982. This figure was based on the actual staff
percentages for the
years 1983 through 1986. However, an Agency
official asserted, and the
State did not dispute, that the actual staff
percentage for the earlier
years was probably higher, since DDD had been
smaller, while the size of
MRS had remained constant. Tr., Vol. 2, pp.
296-297, testimony of Greg
Weiand. Moreover, the State itself, in calculating
a disallowance for
1981 and 1982, used staff percentages which were
considerably higher
than 1.5%. Thus, the fact that the Agency applied
the staff percentage
to a larger amount of costs than did the State is
mitigated to some
extent by the fact that the Agency used a smaller staff
percentage than
could have been justified.
Conclusion
For the foregoing reasons, we conclude that the State charged SSA
for
Medicaid costs for the years 1975 through 1982, that the State
remains
liable for those costs despite the closing of audits of those years
and
the expiration of the records retention period, and that the
methodology
used by the Agency to calculate the disallowance was
reasonable.
Accordingly, we uphold the disallowance in the amount of
$305,342.
_______________________________ Donald
F.
Garrett
_______________________________ Norval
D.
(John) Settle
_______________________________ Alexander
G.
Teitz Presiding Board Member
1. DDD is also referred to in the record as
"DDS," Disability
Determination Section.
2. There were three audits, covering the period July 1,
1973 through
March 31, 1979; fiscal years 1976 and 1977; and the years ending
June
30, 1982 and June 30, 1983.
3. The lack of any reference by the auditors to the
Medicaid costs
may be explained in the case of the audit covering the period
July 1,
1973 through March 31, 1979 by the fact that the auditors were unable
to
express an opinion on the State's financial accountability
statements
due to the State's inadequate record-keeping. Agency's
brief,
Attachment 6. Under these circumstances, it would have been
difficult
for the auditors to detect the improper charges.
4. The arrangement for disability determinations for Social
Security
by the states was originally in the form of a written
agreement.
Agency's brief, Attachment 3. Subsequently the arrangement
was codified
in Section 221 of the Act. Subsection (e) authorizes the
Secretary of
Health and Human Services to make adjustments for "any prior
period" in
which the amount paid a state for disability determinations was
less (or
greater) than it should have been. The agreement and the
statute, as
well as the implementing regulations (20 C.F.R. 404.1626(f)
(1981)), all
specifically provide that any monies paid a state used for
purposes
other than disability determinations shall be returned to the
Treasury
of the United States. Nowhere is there any mention of a
limitation
period.
5. Even assuming that laches was available as a defense,
the State
did not establish that it was prejudiced by any lack of diligence
on
SSA's part, as discussed below.
6. Similar requirements were contained in earlier
regulations at 45
C.F.R. 74.20 and 74.21 (1973).
7. The audit covering the years 1975 - 1979 was resolved
July 30,
1984, at which time the records retention period ended. Since there
was
no audit for 1981, the records retention period ended three years
after
the State submitted its last expenditure report for that year.
8. The costs should have been included in the State
Agency Report of
Obligations for SSA Disability Programs. We need not
decide here
whether the DISM required the State to report all MRS costs or
only
those not directly charged to MRS, since the State reported no MRS
costs
even for the years it admits there were some shared costs.
9. Moreover, it is unclear from the record whether
the program code
system applied to other than personnel costs. Although the
director of
Fiscal Services implied that this system assured the proper
allocation
of all costs, the Director of the DDD stated on cross-examination
that
the program code system applied only to personnel costs. Tr., Vol.
1,
p. 57, testimony of Ben Fannin.
10. One State official speculated that this might
have occurred
because DDD moved to a different building in 1977; however, he
admitted
that he had no personal knowledge that this was the case. Tr.,
Vol. 2,
pp. 156, 165, testimony of Miles Murphy. In any event, this
would not
explain why non-personnel costs were allegedly allocated properly
until
1981. The official also noted that costs were properly allocated
until
the departure in 1981 of the then director of DDD. Tr., Vol. 1,
p. 157,
testimony of Miles Murphy. However, as noted above, the
director of DDD
(who returned to his post several years later) testified that
he was
familiar only with the allocation of personnel costs, which are
no
longer at issue for the years prior to 1981. Thus, his absence
would
not have had any impact on the allocation of the non-personnel costs
at
issue, nor on the allocation of medical consultant costs before 1981.
11. The State also asserted in defense of its
methodology that the
Agency failed to make "any necessary on-site visits to
clarify
concerns." State's Closing Statement, p. 2.
However, in view of the
State's inability to come up with documentation to
explain the
discrepancy between the Reports of Obligations and its
financial
reports, an on-site visit by the Agency would not have
been