Washington Department of Social and Health Services, DAB No. 336 (1982)

GAB Decision 336

June 30, 1982 Washington Department of Social and Health Services;
Docket No. 81-187-WA-HD Settle, Norval; Teitz, Alexander Ford, Cecilia


The Washington Department of Social and Health Services (State, DSHS)
appealed the disallowance by the Office of Human Development Services
(Agency, OHDS) of $168,286 in federal financial participation (FFP)
claimed under Title XX of the Social Security Act. The disallowance was
based on an audit of the period October 1, 1975 through September 30,
1978 conducted by federal auditors to determine if the State's claims
for Title XX funds were in accordance with federal regulations. The
federal auditors found problems with several of the State claims and
OHDS ultimately adopted portions of those findings with respect to the
following three areas: (1) allocation of training costs, (2) part-time
training, and (3) a grant to a State College. The particulars with
respect to each area will be dealt with separately below. The Board
upholds the disallowance with respect to the first two issues and
reverses with respect to the third.

This decision is based on the written record, conference calls made
part of the record, and the transcript from a hearing conducted on June
18, 1982.

. COST ALLOCATION

The Agency disallowed $122,500 in FFP for the period October 1, 1976
through September 30, 1978 on grounds that this amount represented
training costs that the State had allocated to Title XX although other
programs had benefited from the training. /1/ The two primary issues
are: (1) whether the training costs should have been charged to
programs receiving actual benefit (2) even though those progams were not
included in the cost allocation plan approved by the Agency, and (2)
whether the Agency was estopped by representations of its Regional
staff.


Regulations

Regulations clearly require allocation of costs among the progams
benefited. 45 CFR Part 74, Appendix C; 45 CFR 205.150; and 45 CFR
228.90. Appendix C of Part 74 and section 205.150 are the Department's
cost allocation regulations and section 228.90 contains the Title XX
genearl provisions for cost allocation.

Section 228.90 allows FFP for expenditures which are identified and
allocated in accordance with the grant administration requirements set
forth in Part 74, and, where appropriate, with the cost allocation
regulations of section 205.150. Part 74 contains specific language
requiring that costs be charged to the programs benefited, and sections
228.90 and 205.150 incorporate Part 74 by reference. The relevant
language from each section is quoted below.

45 CFR Part 74, APPENDIX C --N PRINCIPLES FOR DETERMINING COSTS
APPLICABLE TO GRANTS AND CONTRACTS WITH STATE AND LOCAL GOVERNMENTS

C. BASIC GUIDELINES

2. Allocable costs a. A cost is allocable to a particular cost
objective to the extent of benefits received by such objective.
(underlining added)

45 CFR 228.90 Expenditures for which Federal financial participation
is available.

(a) Federal financial participation is available only for
expenditures which are identified and allocated in accordance with 45
CFR Part 74 and a cost allocation plan in accordance with 45 CFR
205.1509 (underlining added)

45 CFR 205.150 Cost allocation.

(a) A State plan under Titles . . . XX . . . must provide that: (1)
the single or appropriate State agency will have an approved cost
allocation plan on file . . . which identifies and describes the methods
and procedures the State has established for properly charging the cost
of administration . . . and training . . . in accordance with the (3)
Federal requirements set out in 45 CFR Part 74, Appendix C . . . .
(underlining added)

These regulations were in effect during the period in question.

Benefit to Other Programs

The State has argued, in effect, that the meaning of "benefit" was
not clear and that other programs were only "incidentally" benefited.
Arguably, some benefit to other programs may be unavoidable; but the
point here is that the extent of the benefit to other programs has not
been shown to be insubstantial. When asked at the hearing what it meand
by "incidental" benefit, the State responded with examples in which the
training benefitted Title XX but also benefitted other programs. (TR.
p. 97-100) The examples are of little help in determining exactly how
much the other programs did benefit. The State acknolwedged that the
training was general and benefitted programs other than Title XX.(TR. p.
94-103) The State has not argued that the expenditures in dispute were
not identifiable and separable from Title XX training expenditures,
which is the Agency's position.Moreover, the amount in dispute,
$122,500, indicates that the "benefit" to other programs was
significant. If the Agency could identify and separate the
expenditures, arguably the State could too. The State never disputed
this; rather, its primary attack was on collateral bases discussed
below. Based on the evidence presented the Board cannot conclude that
the benefit here was so minimal that it need not have been allocated.

The Approved Plan

The parties agreed that the document at Tab 12 of Appellant's file is
the approved plan for the period in question and that item 2.b of that
document identifies the programs to which the costs in question were
allocated. (TR. p. 43) Item 2.b showns that effective October 1, 1975
costs would be charged to Titles XX, IV-A, and LEAA (Law Enforcement
Assistance Administration). In mid-1976 the LEAA program was phased out
and the State thereafter divided training costs between Title XX and
IV-A. The parties agreed that programs other than those appearing at
item 2.b benefitted from the training that was charged to Tile XX. (TR.
pp. 89, 101, 128, 129)

The State contended that, even if other programs benefitted, the
costs wre allowable since the Agency approved the plan and the State
allowed it . However, the Agency stated that it was unaware when it
approved the plan that costs would be allocated to Title XX which
benefitted other programs. (TR. pp. 82, 93, 142) On its face, the plan
does not show benefit to the other programs involved in the Agency's
determination. We cannot find for the State merely on grunds that the
Agency had approved the plan, because there was no showing that the
Agency was aware, from the plan or otherwise, at the time of (4)
approval that other programs benefitted. The regulations (which
preceded the plan) require allocation of costs among benefiting
programs. Approval of a cost allocation plan does not constitute
approval to deviate from the applicable regulations. In addition, the
regulations place a burden on the State to revise its plan as necessary
or face possible deferrals or disallowances. (45 CFR 205.150(b)(1) and
(2))

PIQ 79-35 -- Retrocative Application of Agency Interpretation

The State argued that the first clear guidance which called for
allocation of the expenditures in dispute did not come unitl PIQ 79-35,
so that imposing its requirements is an unreasonable retroactive
application of an Agency interpretation, since the PIQ was not issued
unitl after the period in question.

PIQ 79-35 required allocation of costs for "training that is not
specific to Title XX" to the other benefitted programs. Attached to the
PIQ is a chart which, under the column entitled "Content of Training"
next to item 2, gives examples of "training not specific to Title XX."
The State admits that the expenditures in question here were for those
"general" types of training which in fact benefitted other programs.
(TR. p. 100-101)

The Board concludes that the interpretation in PIQ 79-35 requires no
more than the regulations themselves. Therefore, requiring the State to
allocate expenditures for the types of training set forth at item 2 of
the above mentioned chart attached to PIQ 79-35 is not an unreasonable
retroactive application of an Agency interpretation; rather, it is a
restatement of policies and requirements already published at the time.

Representations by Regional Staff

The State argued essentially that by not indicating that there was
anything wrong with the way the State was claiming training costs under
the plan, the Agency led the State to believe that the costs did not
have to be allocated to other programs. The State argued that it
detrimentally relied on the Agency's actions and inactions so that the
Agency should be equitable estopped from taking this disallowance.

The State's witness at the hearing testified to the close working
relationship between State and Regional program officials. The witness
stated that the Regional officials never indicated that there was
anything wrong with State allocation procedures and in fact commented on
how they were impressed with the State's "particularly systematized"
monitoring procedures. (TR p. 23) (5)

In a meeting on April 28, 1978 with State officials, Regional staff
informed the State that where "a significant amount of time" was spent
on Title XX assignments, the entire cost of training would be charged to
Title XX. (Affidavit of Contract Officer (retired September 30, 1980),
attached to Appellant's Brief)

The State's witness testified that the State's first knowledge that
there might be a problem with its allocaton methodology came in a letter
dated June 2, 1978, from Donald C. Sutcliff, Regional Commissioner.n2
The letter was in reference to the IV-A program and indicated that
certain training costs must be allocted to all benefiting programs. (TR
p. 19, 32; Appellant's Brief, p. 3) The witness testified that upon
receipt of the Sutcliff letter, the State contacted Regional officials
to determine exactly what the federal policy was regarding cost
allocation. (TR., p. 21; Appellant's Brief, p.3 and attached Affidavit
of Contract Officer (retired September 30, 1980), DSHS)


A subsequent letter from Mr. Sutcliff dated April 17, 1979 stated
that:

. . . funds may be claimed without allocation to other benefiting
programs when: (1) the program is designed to provide skills and
information needed to carry out AFDC programs responsibilities; (2) the
worker's primary program responsibility is AFDC. (Appellant Brief, p.
4; Appellant's File, Tab 5, p. 13)

On May 31, 1979 the Central Office issued the policy interpretation
discussed above, PIQ 79-35, which gave guidance on when and how to
allocate Title XX training costs. A letter dated June 25, 1979, from
Regional personnel, transmitted PIQ 79-35 to State personnel and noted
that the PIQ required allocation of training costs, "where in the past
we had been (6) using a less restrictive interpretation." (Appellant's
brief, p. 4 and attached affidavit of retired Contract Officer) A
subsequent memo, dated July 30, 1980, from the same Regional Training
Specialist stated that another PIQ, 80-13, contained "a more liberal
interpretation of allowable costs which may be charged to Title XX
training", than contained in PIQ 79-359

The Agency has not denied that the above events described by the
State took place. The inference that can arguably be drawn from the
testimony of the State's witness is that the Agency was aware of the
State's method of charging Tile XX training costs to the program which
in the State's view "primarily" benefitted and that the Agency never
said it was wrong and may even have encouraged it. The April 17, 1979
letter shows that, with respect to AFDC, the Regional officials
indicated that costs of training for AFDC program skills could be
charged without allocation where the worker's primary program
responsibility was AFDC. If such guidance had been provided all along
it is easy to see how the State could believe it could charge Title XX
costs the same way.The June 25, 1979 letter from Regional staff
transmitting PIQ 79-35 and the July 30, 1980 memo from the same
individual both indicate that the Region had previously had a "less
restrictive interpretation" of the requirements for costs allocation.

However, the evidence does not conclusively establish a specific
point (aside from the April 28, 1978 meeting) prior to or during the
period in question, at which the Region advised the State that it did
not have to allocate among programs benefitted. All of the events took
place well into or after the disallowance period. Accordingly, the
State has not shown that information was provided on which it
detrimentally relied. Furthermore, the Region's advice was ambiguous
(we do not know what it means when a program "primarily" benefits), so
that on its face it need not necessarily be read to condone the
disproporitionate allocation to one program which apparently occurred
here.

A problem with the testimony of the State's witness is that,
admittedly, she was not directly involved in negotiating the cost
allocation plan or familiar with cost allocation concepts. (TR. pp.
19, 21; Appellant's File, Tab 5, p. 14) /3/ Accordingly, she could not
definitively establish what information the Agency provided the State
prior to the April 28, 1978 meeting. The (7) State simply alleged that
the Agency policy for allocation of Title XX training costs wer
"ambiguous, changing, . . . in conflict with . . . requirements in Title
IV-A programs, ... informal and verbal." The absence of definitve policy
guidance cannot overcome the clear regulatory requirements for
allocation to benefiting programs. Furthermore, the State presumbaly
was operating at a level of sophistication with federal grant programs
such that it was at least familiar with the cost allocaton methods and
concepts and could have inquired at the outset directly to Central
Office if it observed an apparent conflict in guidance.


For the above reasons and those set forth in section D below, the
Board concludes that the State has not made a case for equitable
estoppel.

B. PART TIME TRAINING

The Agency disallowed $27,526 in FFP for the period April 17, 1978
through September 30, 1978, on grounds that this amount represented the
State's claim for travel and per diem for part time training whereas the
regulations provede FFP for travel and per diem only when it is
associated with full time training. The issue in dispute is whether the
Agency is equitabley estopped from taking the disallowance because of
representations by Regional officals who indicated that training lasting
for one to five days could be considered full time training.

The Policy and Interpretation Contained in PIQ 77-88

On April 17, 1978 the State received the Agency response to a policy
interpretation question on this issue. That response, PIQ 77-88, stated
that "training activities of less than one week" were not eligible for
FFP under 45 CFR 228.84 (a)(2) (providing, inter alia, FFP in costs of
travel and per diem).

On April 28, nine days after the State received PIQ 77-88,
administrators from DSHS met with a Regional Title XX Training
Specialist. During that meeting the Training Specialist indicated that
the interpretation contained in PIQ 77-88 was incorrect and that Region
X was requesting a reinterpretation. (Appellant's Brief, p.7;
Appellant's File, Tab-5, p.7)

Thereafter, in meeting on June 28 and 29, 1978, Region X staff
advised DSHS that regulations governing allowable costs for (8) travel
and per diem would be changed by October 1, 1978 so the State could
receive FFP for travel and per diem for workshops of one or more days
and that under the revised regulations the State would be "held
harmless" for previous claims. (Appellant's Brief, p.8; Appellant's
File, Tab 5, p.8).

The State has argued that based on these representations it continued
to claim FFP through September 30, 1978. In past decisions the Board
has upheld the disallowance of FFP for travel and per diem for training
lasting less than five full days, from the date the State received
actual notice of the policy interpretation contained in PIQ 77-88.
(Montana Department of Social and Rehabilitation Services, Decision 119,
September 30, 1980; Alabama Department of Pensions and Security,
Decision No. 128, October 31, 1980)

Following the past Board decisions, the agency took the disallowance
only from the date the State received PIQ 77-88. The Agency has not
denied that the April 28 and June 28 and 29 meetings took place or that
Regional staff made the representations which the State claimed they
did. /4/ Rather, the Agency has argued that the State relied on the
representations at its own risk.


The State has admitted that it received PIQ 77-88 on April 17, 1978.
(Appellant's Brief, p.7) The State, nevertheless, has contended that
even after receiving the PIQ it could not be sure what qualified as full
time training becuse of the conflicting information provided by Region
X. The State has argued that it detrimentally relied on representations
by Regional staff and, therefore, the Agency is equitably estopped from
making the disallowance.

The State chose to disregard a definitive interpretation officially
issued by the Agency. The State assumed the risk of this disallowance
by relying on statements made by regional program officals which were
contrary to the interpretation in PIQ 77-88. Here the State and the
Regional program officials were equally informed of the Agency's
interpretation upon receipt of the PIQ. The Agency is not estopped from
taking this disallowance merely because program officials in Region X
disagreed with the Agency's interpretation (9) and the State, hoping for
a reversal by the Agency, filed its claims accordingly. We cannot
conclude that the State relied to its detriment where it relied on an
interpretation which was to its benefit but ultimately received FFP in
accordance with the policy it knew of but hoped would change.

For these reasons and others set forth under section D below, the
Board finds that the State has not proven a case for estoppel.

C GRANT TO UNIVERSITY OF WASHINGTON

The Agency disallowed the State's claim for $18,260 in FFP for
training expenditures on grounds that the State's grant to the
University of Washington did not provide for curriculum development and,
therefore, was not a grant for an educational development under 45 CFR
228.82. The issue in dispute is whether the grant in question provided
for curriculum development.

The audit report stated that four grants awarded by DSHS were
feasibility studies whose main purpose was to assist the Agency in
determining whether it could develop a particular educational program
and were not for curriculum development, classroom instruction, and
related field instruction. The audit concluded that the four grants
were not eligible for FFP under the Title XX training program since,
although the grants had established that an educational program was
feasible, DSHS had not taken steps to have the curriculum developed.
The auditors invited DSHS to submit documentation that "curriculm
development was the main purpose of the grants and the direct outcome
was a course of study." (Appellant's file, Tab 5, p. 12) The Agency
stated that since the grant documents did not show on their face that
curriculum had been developed, the auditors examined the additional
documents to determine whether curriculum development had occurred.
(10)$TThe Agency ultimately disallowed the costs on grounds that
"curriculum development was not present for the University of Washington
grant." (See Disallowance letter, p. 2)

Discussion

The Agency has stated that it has been unable to locate any specific
guidance regarding how 45 CFR 228.82 should be interpreted. The Agency
has stated that the application of the regulation was in the hands of
the auditors but that the Agency has no information regarding what
standard the auditor's used to determine whether the grant was for
curriculum development. The Agency admitted that the audit report does
not elaborate a great deal on why the judgment was made that curriculum
development was not present.

The Agency has not pointed to specific flaws in the proposal, grant
agreement, or other grant related documents for its conclusion that
curriculum development was not present. The State, on the other hand,
has cited specific language in specific documents for its contention
that it was. The State has pointed out that the grant proposal stated:

This proposed unit would serve several purposes. . . . expand the
curriculum of the School of Social Work to include more content on the
public social services . . .

(Appellant's File, Feb. 4, p. 4) At the hearing the State also cited
the following language from the grant proposal:

The students at the University of Washington School of Social Work
receive the core of their clinical training through an integrated
approach combining methods, research, and field training . . . .
Although the students have a thorough grounding in social work methods
and evaluation, they will probably have had only one course in income
maintenance and health care policy. Thus it will be important to
develop a seminar that will occur simultaneously with the field
placement. The seminar would be coordinated by the unit supervisor and
the faculty consultant. This seminar will address the pertinent issues
confronting the students and DSHS social service workers as they
collaborate around practice concerns. The seminar should be held at the
agency. (underlining added)

(TR. p. 119) The Agency auditors themselves quoted the following
language apparently from either a solicitation for a contract to carry
out part of the project in question or the grant proposal:

The University of Washington School of Social Work is interested in
expanding its curriculum to include more content and training on service
clients in the public social services. Toward this end, the School
would like to explore the possiblity of establishing a clinical
fieldwork unit within the Community Social Services Division of the
state Department of Social and Health Services. The unit would provide
social work students with training and practice experience in service
provisioning within the public social services. (11)$T(Agency Reply
Brief, March 31, 1982, p. 10; Audit Report, p. 16)

All three above-referenced quotes support the State's position.

The Agency has presented nothing in rebuttal beyond its conclusory
statements.

Moreover, the Board notes that the regulation reads ". . .
educational program (curriculum development, classroom instruction, and
related field instruction) . . ."; by using parentheses after the
workds "educational program" the Agency apparently intended the words
following to be descriptive of the types of activities which could be
considered to be an educational program.There has been no showing that
the list was intended to be exhaustive. The materials quoted above
describe an activity which, even if not curriculum development, could
still be reasonably construed to be for an educational program under the
regulation. This certainly appears reasonable in the absence of some
more specific technical meaning of "educational program" from the
Agency.

Under these circumstances the Board concludes that the Agency has not
demonstrated that the requirments of the regulation were not satisifed
by the grant in question. Accordingly, The Board reverses this portion
of the disallowance.

D. EQUITABLE ESTOPPEL

The State argued that a thread running throughout this case is the
State's detrimental reliance on representations of Regional officials.
The State argued that it is unfair not to be able to rely on Regional
personnel and inequitable for Central Office to issue disallowances on
grounds that are contrary to information provided by the Region and that
if the Board upholds the disalllowance the State will no longer be able
to rely on Regional representaions and grave damage will be done to the
federal-state relationship.

The State contended that equitable estoppel should be applied against
the Federal government. (U.S. v. Ruby 588 F.2d 697 (9th Cir. 1978) The
State noted five elements from Ruby which must be established for
equitable estoppel to apply against the government. They are:

1) The party to be estopped must know the facts;

2) He must intend that his conduct shall be acted on or must so act
that the party asserting the estoppel has a right to believe it is so
intended;

3) The latter must be ignorant of the true facts;

4) He must rely upon the former's conduct to his injury. (12)$T(5)
(And there must be) an affirmative misrepresentation or affirmative
concealment of a material fact by the government.

The State then applied the above criteria to this case as follows:

First, the Department of Health and Human Services knew the facts
since they enforced the law and issued the applicable PIQ's. They were
also in communication with Region X who informed DSHS as to how the Code
to Federal Regulations would be interpreted. Secondly, DHHS intended
that DSHS would act and rely upon statements issued by Region X
administrators. Thirdly, DSHS had no way of knowing that Region X's
statements were not an accurate representation of DHHS' position; and
fourthly, the fact that DHHS has disallowed the State of Washington
$168,286.00 in spite of representations made by its Region X
administrators is evidence that DSHS had relied upon the conduct of DHHS
to its detriment.

The last element of affirmative misrepresentation is best seen on
examination of the verbal and written statements from Region X that the
State of Washington, in continuing to rely upon the representations of
Region X administrators, would be "held harmless" for travel and per
diem expenditures made by DSHS (cf. Issue II). Without this
"affirmative misrepresentation," DSHS would have stopped expenditures
and would have assumed that the appropriate PIQ was in fact the last
word on the subject. Had DSHS done this, it would not have been
disallowed the federal funds by DHHS. Consequently, all the elements
for equitable estoppel as laid out in Ruby are met in the present case.
This should be persuasive to the Grant Appeals Board to rule in favor of
the State of Washington, based upon the general principles of doing what
is just and equitable.

With respect to part time training the State has also argued that:

'Affirmative misrepresentation' is equivalent to affirmative
misconduct with respect to the Federal Government. The Ruby decision
cites Moser v. United States, 341 U.S. 41, 71 S. Ct. 553, 95 L. Ed. 729
(1951), and states that the Supreme Court in Moser noted ". . . that the
government had created 'misleading circumstances' upon which Moser
'justifiably relied' and as a result was technically debarred from
citizenship." Id. at 702. (13)

Moser was a Swiss national who "sought an exemption from military
service and was debarred from obtaining United States citizenship." For
the State of Washington to be informed that it will be "held harmless"
and then turn around and charge the State for those same actions
constitutes the kind of affirmative misrepresentation and conduct that
the Ruby decision envisioned.

We conclude that the State has done no more than make incomplete and
conclusory arguments. Furthermore, the State has failed to apply the
fifth element at all to the issue of cost allocation. Moreover, the
State has not shown that it detrimentally relied on the Agency
representations concerning either issue. To establish detrimental
reliance the State needed to show that it would have behaved differently
but for the representations. The State's mere assertions that it would
have behaved differently do not persuade the Board. The Board is not
convinced that the State necessarily would not have incurred the same
training costs had it had different information; it is clear that if
the State had followed the correct information it would not have claimed
the costs so it would not have been in any different situation than it
is now.

The State has argued estoppel to the Board before, most recently in
Washington Department of Social and Health Services, Decision No. 282,
April 23, 1982. There the Board noted that in a recent case, Schweiker
v. Hansen, 450 U.S. 785 (1981), the Supreme Court mentioned in the
majority opinion certain factors which may be relevant in considering
equitable estoppel against the government. Those factors included a
consideration of whether the "public fisc" is threatened and whether the
statements are written or oral. (Washington, p. 10) Nevertheless, the
State has not addressed these factors or even mentioned Hansen.

In Hansen, a Social Security employee had not complied with
instructions in a claims manual, and in response to an oral inquiry had
erroneously told claimant that she was not entitled to Social Security
mother's insurance benefits. Claimant therefore did not file, although
filing was a prerequisite to obtaining benefits. The Court summarily
reversed a court of appeals finding for claimant on the ground of
estoppel.

Certainly the facts of the Washington dispute go no further than
Hansen, where it was established that the Social Security claimant did
indeed rely on representations of the federal employee. Given all these
factors the Board must view the State's estoppel argument as the Court
viewed the estoppel argument in Hansen. There the Court suggests, as
the dissent states, that estoppel may be justified in some
circumstances, but this is not such a case. (pp. 791-792) (14)

E. Conclusion

Based on the foregoing, the Board upholds the cost allocation
disallowance of $122,500 and the part-time training disallowance of
$27,526; the Board reverses the disallowance of $18,260 pertaining to
the grant to the University of Washington. /1/ The Agency originally
argued that the State had failed to follow its approved cost
allocation plan; language in the audit report indicated that Title XX
and Food Stamps were part of the approved plan so that costs should have
been allocated to those programs as well. (Appellant's File, Tab-5, p.
9) During the hearing the Agnecy acknowledged that there was no evidence
that Title XIX and Food Stamps were part of the approved plan.
(Transcript of Hearing (TR.) p. 43) The parties agreed that
characterizing the dispute as involving a failure to follow an approved
plan made no real difference since the underlying issue of whether
certain programs received benefit from training that was charged to
Title XX did not change. (TR. pp. 43, 89) /2/ During the hearing this
witness initially testified that the State's first knowledge of
a problem regarding allocation was the draft audit. (TR. p. 23) The
record does not indicated when the State first received the draft audit
although a letter from the State's Assistant Secretary for Management
Services, DSHS, indicates that the State may have first received it on
June 29, 1979. (Appellant's File, Tab 5, Appendix, p.1) /3/ The
witness did attend the meeting where the question of how to allocate
costs was discussed with federal officials and where a matrix showing
which costs to allocate was devised. /4/ During a telephone
conversation on June 118 1982, the Agency attorney specifically conceded
that the April 28, 1982 and June 28 and 29, 1978 meetings did occur and
the representations alleged to have been made by Regional staff were
made.

OCTOBER 22, 1983