GAB Decision 342
September 16, 1982 Michigan Department of Social Services; Docket No.
82-67-MI-HD Ford, Cecilia; Teitz, Alexander Settle, Norval
The Michigan Department of Social Services (State) appealed a
decision by the Office of Human Development Services (Agency) to
disallow $16,088 in federal financial participation (FFP) claimed by the
State as indirect costs under Title XX of the Social Security Act. The
amount of FFP contested by the State represented administrative costs
totaling $11,511 and equipment costs in the amount of $4,577. During
proceedings before this Board, the Agency withdrew the portion of the
disallowance regarding the administrative costs, leaving only the
disallowed equipment costs for our consideration. For the reasons
discussed below, we uphold the Agency decision to disallow the equipment
costs.
Background
An Agency audit for the period October 1, 1975 to September 30, 1978
found that amounts claimed by the State for Title XX equipment were
overstated by $6,102, resulting in an excess federal share of $4,577.
The State had claimed FFP for the total cost of the equipment rather
than depreciating the cost or taking a use allowance. See, Audit
Report, Audit Control No. 05-20557, p. 10. The Agency found that the
State's action violated 45 CFR 205.160(a)(3) (1978), which provides:
Non-expendable personal property acquired by a State and assigned for
use to organizational elements of a single State agency . . . which are
treated as indirect cost centers or pools in an SRS cost allocation plan
shall be capitalized and depreciated (or be subject to a use allowance)
when it has an acquisition cost of $300 or more . . .
The State did not deny that the equipment was non-expendable personal
property with an acquisition cost of $300 or more, or that the State had
claimed FFP for the total cost of the equipment, rather than
depreciating it or taking a use allowance. Instead, the State argued
that the controlling rule should be a proposed revision of 45 CFR
205.160 which would allow a state agency to immediately charge the cost
of an item of equipment having an acquisition cost of $25,000 or less to
its grant rather than depreciating the equipment. See, 46 Fed. Reg.
38280, July 24, 1981. (2) The Agency contended that the proposed
regulation was not yet in effect, and there is no indication in the
language of the proposed regulation or its preamble to indicate that it
was meant to be applied retroactively. Further, the Agency argued, a
retroactive application of the proposed regulation would produce chaotic
results throughout the programs covered by the regulation by reopening
claims for equipment costs previously unallowable. The State did not
deny that the regulation was merely "proposed," but rather argued
that
it would be ludicrous to not apply it retroactively after all the effort
expended to get the regulation revised. See, State's Notice of Appeal,
April 16, 1982.
On September 10, 1982, the Board held a conference call involving the
parties, in which the State contended that its understanding was that
the revised version of 45 CFR 205.160 had been approved by the Secretary
and the Office of Management and Budget, and that it was to become
effective in approximately five weeks from the date of the call. The
State reiterated its request for retroactive application of the
regulation. The Agency maintained its position that the State's request
for retroactive application of the regulation was unfounded.
Analysis
The State has not demonstrated that the proposed revision of 45 CFR
205.160 is applicable, but merely argued that it sould have retroactive
application. We are concerned only with the regulation applicable to
the claims in question, since we are bound by all applicable laws and
regulations. 45 CFR 16.14 (1981). The State has not denied that it
did, in fact, violate the version of 45 CFR 205.160 in effect during the
period for which the disallowance was taken. The Agency has articulated
a reasonable basis for determining not to apply the proposed revision
retroactively. In any event, whether the revised regulation when
published as a final rule should provide for retroactive applicability
is a matter of discretionary agency policy beyond the scope of this
dispute.
(3) Conclusion
We uphold the disallowance of $4,577 in equipment costs because the
State did not depreciate or apply a use allowance to the full costs of
the equipment purchased, as required by the applicable regulation.
OCTOBER 22, 1983