SUBJECT:

Ohio Department of Human Services

DECISION

The Ohio Department of Human Services (Ohio) appealed an August 6, 1999 determination of the Administration for Children and Families (ACF). ACF disallowed $623,995, of which $411,837 had been claimed as federal financial participation (FFP) for certain administrative costs claimed under the Child Support Enforcement program, Title IV-D of the Social Security Act (Act), for the period of October 1, 1992 through March 31, 1997. The costs at issue were incurred for a training program for county employees who worked in various federally-funded programs including Title IV-D. ACF disallowed the costs for two reasons. First, ACF found that Ohio's allocation method resulted in charging costs to Title IV-D for training that were unallowable under express restrictions on Title IV-D funding (for county staff not working under Title IV-D, for example). Second, ACF concluded that those training courses that were taken by Title IV-D staff did not meet other limitations on the type of training allowable under that program. For the reasons discussed below, we conclude that Ohio did not establish that any of the costs claimed here meet the requirements for allowable training costs under Title IV-D. We therefore conclude that the costs were properly disallowed. However, because a subset of the costs could potentially be allowable, we provide for a further opportunity for Ohio to submit documentation to ACF to identify allowable costs and we provide guidance on how to evaluate such documentation, if submitted.

Factual Background

Ohio has chosen to participate in the Child Support Enforcement program under Title IV-D of the Act and administers direct client services through 88 county level child support enforcement agencies (CSEAs), which constitute Ohio's IV-D agencies. Ohio Br. at 3. ACF conducted a special review of the operation of Ohio's Title IV-D program and issued an audit report dated December 10, 1998. ACF Ex. 1. The report found that Ohio had charged the IV-D program $623,995 in county training costs through a cost pool. Id. at 5.⁽¹⁾ The expenditures in the cost pool were for county-level staff taking courses at various colleges or universities through Ohio's Training Opportunities for Program Staff (TOPS) program.

The costs in the pool at issue had been allocated across the programs administered at the county level, including IV-D, under a methodology described in Ohio's Cost Allocation Plan (CAP). (The CAP was included as part of Appendix C to Ohio's initial brief, and will be cited hereinafter as CAP.) The CAP provided for a two-stage process: (1) dividing the pooled costs among four worker categories (child support, income maintenance, social services, and child welfare) based on annual percentages of salaries and related costs for each worker category, and (2) allocating the costs within the child support category to either Title IV-D or State funds based on a Random Moment Study from the previous year. CAP at 87-88. The auditors concluded that the allocated costs were indirect costs and that FFP was expressly precluded for such indirect training costs under Title IV-D. ACF Ex. 1, at 5.

As part of the audit resolution process, Ohio provided ACF with an exemplar of the billing process which it used during the relevant period to bill costs for the training cost pool. The documents provided identify county employees taking courses and show that many of them worked for agencies other than Ohio's CSEAs. ACF. Ex. 3, passim. The documents also indicate that the particular courses taken by the county child support enforcement workers included such subjects as real estate transactions, criminal justice, internet fundamentals, and introduction to Windows 95. Id. Other county employees whose training costs were included in the pool had taken such basic academic subjects as biology and algebra. Id.

Legal Background

The Child Support and Establishment of Paternity Program was established by Public Law No. 63-457, effective on July 1, 1975, which created Title IV-D of the Social Security Act (Act). The main purpose of Title IV-D is to provide for enforcing child support obligations, including identifying and locating noncustodial parents and ensuring assistance to children in obtaining support. Section 451 of the Act. States with approved state plans may receive FFP in certain of the costs incurred in carrying out those plans. Sections 454 and 455 of the Act.

The regulations implementing Title IV-D provide that FFP is available for those services and activities "made pursuant to the approved title IV-D State plan which are determined by the Secretary [of Health and Human Services] to be necessary expenditures properly attributable to the Child Support Enforcement program," including administrative costs of the State Child Support Enforcement program. 45 C.F.R. § 304.20(b) (emphasis added). The regulations also specify, however, with exceptions not relevant here, that FFP under Title IV-D is not available for "[e]ducation and training programs and educational services except direct costs of short term training provided to IV-D agency staff . . . ." 45 C.F.R. § 304.23(d). Furthermore, no FFP is available under Title IV-D of the Act for activities related to administering Titles I, IV-A, X, XIV, XIX, or XX of the Act. 45 C.F.R. § 304.23(a).

Office of Management and Budget (OMB) Circular A-87 provides general principles governing allowability and allocability of costs incurred by state governments administering federal grant programs. The provisions of OMB Circular A-87 are made applicable to Department of Health and Human Services grants by 45 C.F.R. § 74.27(a) and specifically Title IV-D grants by 45 C.F.R. § 304.10. Direct costs are defined as "those that can be identified specifically with a particular cost objective." OMB Circular A-87, Att. A, ¶ E.1. Such costs may be either charged directly to the grants or programs or may instead be charged to cost objective pools. Id.

Training costs allocated to Title IV-D through the cost pool included costs that were specifically unallowable under Title IV-D regulatory provisions.

ACF argued that the training costs at issue should be considered indirect, and thus not a "direct cost" allowable under 45 C.F.R. § 304.23(d), because the allocation method used made it impossible to determine which costs were directly related to the short-term training provided to Title IV-D agency staff. ACF Br. at 8. Ohio characterized the disallowance as based on the grounds that "direct-training costs cease to be direct costs if the costs are apportioned through the approved" CAP. Ohio Reply Br. at 1.

Ohio contended that its training costs did not lose their character as direct costs merely because they were allocated among various benefitting programs in accordance with Ohio's approved CAP. Ohio Br. at 6-10. Ohio argued further that its allocation of the costs among programs and cost objectives was required by OMB Circular A-87. Ohio Reply Br. at 2.

Ohio's argument has merit to the extent that mere allocation does not render a cost indirect, rather than direct. Ultimately, however, Ohio's argument is based on a straw man, since ACF's disallowance was not based merely on the fact that the training costs were allocated under the CAP. ACF stated in its brief that it did not disagree with Ohio's general discussion that direct costs are not converted to indirect costs simply by virtue of their allocation through a CAP. ACF Br. at 9. Indeed, the Board has previously held that costs are not intrinsically direct or indirect, but the same types of costs may be charged directly or indirectly depending on whether it is reasonably possible to assign the costs to benefitting cost objectives without using an indirect cost rate methodology. Illinois Dept. of Children and Family Services, DAB No. 1530, at 45 (1995). Indirect charging involves use of an indirect cost rate as the allocation methodology.

The difficulty in this case is that the cost pool at issue included both a type of training cost potentially allowable under Title IV-D and a type of training cost specifically excluded from Title IV-D funding. Ohio's allocation methodology did not take this into account. Ohio's argument might have merit if, for example, the cost pool had included only costs potentially allowable under Title IV-D, i.e., for allowable short-term training for Ohio's CSEA workers only, and then the total training cost pool had been allocated among Title IV-D and other programs that benefitted as a result of the CSEA workers' increased training (for example, possibly state child support enforcement programs). In that case, ACF could not have disallowed the costs claimed under Title IV-D merely because they were allocated in accordance with a CAP.

Instead, all training costs of various county staff under the TOPS program, including but not limited to courses taken by CSEA workers, were pooled into the contested cost pool. These pooled costs were then distributed among programs by a two-stage formula reflecting the percentage of workers (based on annual salaries and related costs) associated with each program and only then, for CSEA workers, was a further division of the allocated pooled costs made to reflect the division of their caseload between Title IV-D and non-Title IV-D cases. The necessary effect of pooling training costs in this manner was that at least some training costs were assigned to the Title IV-D program that did not meet the requirements of that program.

This is so because of the regulatory provisions that prohibit use of Title IV-D funding for administrative costs incurred for the benefit of other titles and that limit allowable training costs under Title IV-D to the "direct cost of short term training provided to IV-D agency staff" only. 45 C.F.R. §§ 304.23(a) and 304.23(d) (emphasis added). Because only a limited subset of training costs could be charged to Title IV-D, it was essential that costs meeting those limitations be segregated from costs that did not. At a minimum, therefore, training costs could be included in the allowable costs of administering Title IV-D only where Ohio could show both that those costs were incurred for IV-D agency staff (not other county staff) and were for short-term training courses (not other kinds of training programs). Since Ohio pooled together both training costs of the type allowable under Title IV-D and training costs of kinds not allowable under Title IV-D before it allocated those pooled costs, the resulting charges to the Title IV-D program included unallowable costs in amounts that could not be identified separately.

It is not sufficient that the costs were allocated in accordance with an approved cost allocation plan. We have previously rejected the argument that training costs claimed under Title IV-D could be considered allowable if they were properly allocated under a cost allocation plan but failed to meet the specific regulatory requirements. We held that this --

New York State Dept. of Social Services, DAB No. 794, at 2-3 (1986).

Ohio also asserted that it was compelled to allocate the training costs at issue as it did by the terms of OMB Circular A-87, and that therefore the Board should hold that the costs so allocated were allowable. Ohio Reply Br. at 2. This argument lacks merit. The relevant provision from the circular on which Ohio relied states that "[t]he cost of in-service training, customarily provided for employee development, which directly or indirectly benefits grants programs is allowable." OMB Circular A-87, Att. B, ¶B.26. However, these general standards for allowability of cost items do not apply where restricted by law. OMB Circular A-87, Att. A, ¶A.1. Furthermore, to be allowable, costs must "[c]onform to any limitations or exclusions set forth in . . . Federal laws, or other governing limitations as to types or amounts of cost items." OMB Circular A-87, Att. A, ¶C.1.c. Training costs allowable under Title IV-D are significantly restricted by specific limitations that do not apply to other Federal or state programs and that supersede the general allowability provisions on training costs in the circular. Only those training costs that meet the additional requirements for Title IV-D are allowable for purposes of funding under that program. Since the cost pooling system resulted in intermingling allowable and unallowable costs for allocation to Title IV-D, ACF properly disallowed the Title IV-D funding.

This decision is in accord with long-standing Board precedent. See New Hampshire Dept. of Health and Welfare, DAB No. 275 (1982). In that case, too, a state allocated training costs to the IV-D agency in a way that intermingled training costs that were explicitly made unallowable for IV-D funding by regulation. New Hampshire argued that it was not cost effective to separate out allowable short-term training costs because of the small size of its IV-D program. Nevertheless, the disallowance was upheld since the state "refused to direct charge" separately the allowable costs.

However, in the present case, it is not clear that Ohio is unable or unwilling to segregate out and claim only allowable costs of short-term training for its Title IV-D staff. It is possible that Ohio could retroactively identify the training costs in the TOPS program that would be allowable under Title IV-D. It appears from the sample submissions that Ohio made to ACF that records were kept identifying the trainees by agency and course taken. ACF Ex. 3. To the extent that the courses taken met the requirements for allowable Title IV-D training costs, Ohio may be able to compile the costs incurred directly by its IV-D staff and identify the share attributable to the Title IV-D program by use of the time study results on staff of the CSEAs. Some of the costs at issue here may thus ultimately be allowable, although we cannot determine what amount that might be in light of the intermingling described above. Therefore, ACF should permit Ohio to submit documentation of allowable costs of the nature explained above.⁽²⁾ If Ohio disputes ACF's determination as to whether particular training costs fit within the explanations in this decision, it may appeal to the Board as to that issue only within 30 days of receiving a final determination. In light of the possibility that some of the costs at issue may need to be reconsidered in this manner, it is necessary for us to reach below the question of what kind of courses would be allowable for Title IV-D.

The allowability of particular courses for Title IV-D funding depends on whether the training would directly improve the trainee's performance in a job in the IV-D agency.

ACF argued that the kinds of courses identified in Ohio's sample submission would not in any case have been allowable for Title IV-D, even if directly charged for Title IV-D staff. Essentially, ACF's position was that the kinds of courses taken by the staff here did not strengthen any skills or knowledge uniquely related to Title IV-D, as opposed to providing general education useful to do any job. ACF Br. at 11-13. Ohio contended that the courses for which the costs were claimed were allowable Title IV-D costs. Ohio Br. at 10-13. Ohio argued that the course subjects were important for employee development for employees generally, and therefore for child support enforcement employees, in order to perform effectively, and that even topics not directly related to child support, such as computer literacy and basic knowledge of the State legal system, were nevertheless particularly important for child support enforcement personnel. Id.

ACF cited to two sources which it contended reinforced the correctness of its conclusion. First, ACF cited to OMB Circular A-87's general requirements that costs, to be allowable, must "be necessary and reasonable for proper efficient administration of grant programs" and must "not be a general expense required to carry out the overall responsibilities of State [or] local . . . governments." OMB Circular A-87, Att. A, ¶C.1.a. Second, ACF relied on the interpretation of the meaning of "short-term training" by its Office of Child Support Enforcement (OCSE) which it concluded precluded funding the courses here.

ACF cited several times to the requirement that all administrative costs incurred must be reasonable and necessary for the grant and must not simply represent general governmental operating costs. However, ACF never explained why providing employee development programs to staff members who operate federally-funded programs in subjects "ultimately useful to do any job" would not be reasonable and necessary to administering those programs. The Title IV-D agency benefits from having staff possessing improved skills in areas like computer literacy and familiarity with the legal system. A blanket denial of the necessity of in-service training costs appears to conflict with OMB Circular A-87, which treats such costs as generally allowable where "customarily provided for employee development, which directly or indirectly benefits grant programs." Att. B, ¶B.26. Therefore, we do not consider this authority as independently supporting ACF's disallowance of training courses here. We turn next to the questions of whether such training is a general governmental expense and then to what training meets the specific allowability restrictions under the regulations for Title IV-D funding.

A useful touchstone in analyzing whether a cost is unallowable as a general governmental expense is to consider whether it is incurred to meet "underlying obligations that would continue to exist absent any federal program requirement." Kentucky Cabinet for Human Resources, DAB No. 931, at 6 (1988)(denying funding under Title IV-D for guardians ad litem appointed by the courts under state law for minor defendants in child support enforcement cases); see also Arkansas Dept. of Human Services, DAB No. 998 (1988) (costs of housing prison inmates used as labor in nursing facility denied under Medicaid); Pennsylvania Dept. of Public Welfare, DAB No. 398 (1983) (disallowing costs of prosecutions by county welfare fraud unit). ACF does not argue that all training provided to Title IV-D staff is merely a general governmental expense, but rather that such training is not allowable where it does "not directly improve an individual's ability to perform" a Title IV-D related job by addressing "particular or unique aspects of understanding Title IV-D." ACF Br. at 12.

Absent Ohio's undertaking to operate the Title IV-D program, Ohio would not have to incur the costs of providing training aimed at improving the skills and morale of staff whose efforts implement Title IV-D. Hence, even if the training is not limited to subjects directly addressing Title IV-D topics, training Title IV-D staff is not merely a general government expense. Such training is thus not like the state's penal or court system which a state would be normally be expected to fund whether or not federal programs received some benefit from their operation. Thus, we do not find that this provision of OMB Circular A-87 is an independent basis to disallow the costs at issue.

However, in the case of Title IV-D, as previously noted, regulations explicitly restrict FFP in training costs that might otherwise be allowable under OMB Circular A-87.⁽³⁾ As discussed above, the only training costs which may be charged to Title IV-D are for "short term training provided to IV-D agency staff." 45 C.F.R. § 304.23(d). Even assuming Ohio successfully identified those direct costs associated with training Title IV-D staff, therefore, it would also be necessary to determine whether the training provided was "short term."

The concept of "short term training" for purposes of IV-D was interpreted in an OCSE action transmittal issued on September 11, 1981. There, "short term training" was defined to mean --

ACF Ex. 2, at 1 (OCSE-AT-81-18).⁽⁴⁾

This definition liberalized the pre-existing OCSE policy which had interpreted short-term training to include only training of eight weeks or less in duration that was not part of an educational program leading to a degree. Id. Two examples were given of the type of training which would qualify under the expanded interpretation: a 12-week course in investigative techniques taken by a Title IV-D investigator which earns credit hours toward a degree and a 10-week management seminar taken by a IV-D worker about to undertake a supervisory position in the IV-D program. Id. ACF argued that these examples both illustrated training that "directly related to an integral aspect of working within Title IV-D." ACF Br. at 12. Ohio argued to the contrary that the same examples supported its case because the training described was not narrowly focused on child support but rather, like the courses at issue, amounted to courses of general value for employees in many kinds of work. Ohio Reply Br. at 4-5.

The documents submitted with the appeal file in this case were described as exemplars of the courses included in the cost pool over the years and on their face include only courses from a single college quarter (Summer 1998). ACF. Ex. 3. Consequently, it is impossible to make specific determinations based on this record as to the allowability of FFP in the cost of each course taken by a CSEA employee over more than four years. It is possible, however, to provide some guidance to ACF to apply if Ohio chooses to submit further documentation to ACF as discussed in the preceding section.

The standard ACF used to find that none of the courses included in the submission would qualify is considerably narrower than the standard articulated and exemplified in the action transmittal. The action transmittal does not inform Ohio, as ACF suggested, that allowable training must directly relate to "an integral aspect of working within Title IV-D." Cf. ACF Br. at 12. In fact, the action transmittal states that ACF's policy is "to encourage rather than discourage individuals from taking training that will improve their ability to perform their current job or other IV-D related jobs." ACF Ex. 2, at 1. This statement does not suggest that the only kind of training that will improve job performance in an appropriate way is training addressing "particular or unique aspects" of Title IV-D. Cf. ACF Br. at 12. It does suggest that the training should be directly relevant to the skills that individual is using or will use in a particular position within the IV-D program (and not, for example, prepare that individual for a different career or educational goal). This accords with the two examples offered in the action transmittal. An investigator taking a course in investigative techniques and a future supervisor learning management methods are certainly not unique to the Title IV-D setting. They are, nevertheless, training in subjects directly related to their job paths within the IV-D agency. Similarly, training on a computer program which a IV-D staff person uses or will use in a position in the agency appears directly related to their program job, whereas training in a computer skill which that individual would not use to perform a task related to their Title IV-D job would not qualify. General educational background courses, while in a general sense useful to improving skills and employability, would not qualify unless tied to a particular position. Thus, it is unlikely that introductory math or algebra can be shown to have this sort of targeted benefit to performing a particular job.

Ohio has the burden of identifying allowable costs. To do this, Ohio would first have to identify those costs which related only to the training of CSEA workers. Ohio should then provide documentation to ACF to demonstrate that particular courses taken by CSEA workers in the TOPS program would "directly improve" their ability to perform their jobs (or other jobs they might undertake within the IV-D agency), rather than serving merely as generally useful education or simply a stepping stone to a degree or certificate. The parties should cooperate as much as possible in deciding what kind of documentation would be necessary to permit ACF to make this determination either based on course topics and, where necessary, information about individual trainees' positions.

For the reasons explained above, we sustain ACF's disallowance. Ohio may submit directly to ACF (within a reasonable time period to be set by ACF) any documentation for the appropriate share of direct costs of those short-term training costs taken by Child Support Enforcement Staff that were allowable under Title IV-D in light of the discussion above. As noted above, if Ohio disputes ACF's determination as to the allowability of particular trainingcosts under this decision, Ohio may appeal that narrow issue only to the Board within 30 days of receiving ACF's determination.

Cecilia Sparks Ford

M. Terry Johnson

Judith A. Ballard
Presiding Board Member

1. Ohio acknowledged that it incorrectly claimed $14,769 of the $623,995 that was disallowed for Title IV-D administrative costs, leaving $609,226 (and the FFP associated with that amount) in dispute. Ohio Br. at 1, n.1; see also ACF Br. at 5, n.2.

2. If Ohio seeks to identify and segregate the direct costs of training IV-D staff, these costs would have to be treated in a manner that avoids duplicative claims through the cost pool and that affords consistent treatment under appropriate accounting principles. The parties would need to address these questions in any subsequent process to resolve allowability, and should consult with Division of Cost Allocation in doing so.

3. Furthermore, as we noted above, OMB Circular A-87 itself requires that any cost, to be allowable, must "conform to any . . . governing limitations as to types or amounts of cost items," so that training costs made unallowable by governing regulations and policies would also be unallowable under the circular. OMB Circular A-87, Att. A, ¶C.1.c.

4. ACF argued that the Board "has previously agreed with this concept," in that the Board held (in a case involving training costs under Title IV-E) that FFP "may be unallowable for training if the training is not reasonably related to the administration of the program." Illinois Dept. of Children and Family Services, DAB No. 1530 (1995). It is not clear in what sense ACF means that the Board's decision in Illinois agreed with its "concept" of short-term training in the action transmittal, given that the language interpreted in the action transmittal applies only to Title IV-D training costs, not Title IV-E. General cost principles provide that only costs necessary and reasonable for efficient administration of a grant program are allowable, but ACF pointed to no specific language from Illinois that would provide additional support to the action transmittal discussion. In any case, we find that the interpretation in the action transmittal is a reasonable reading of "short-term training" and that Ohio had adequate notice that the action transmittal represented ACF's policy.