New Mexico Human Services Department, DAB No. 382 (1983)

GAB Decision 382

January 31, 1983 New Mexico Human Services Department; Docket No. 82-42
Ford, Cecilia; Teitz, Alexander Garrett, Donald


The New Mexico Human Services Department (Appellant, State) appealed
a decision of the Office of Human Development Services (OHDS, Agency,
Respondent) disallowing $196,599 in federal financial participation
(FFP) claimed under Title XX of the Social Security Act for the period
July 1, 1977 through June 30, 1980 for training and staff development
costs. /1/ The disallowance was based on fndings contained in HHS Audit
Agency Report, ACN. 06-10555. The findings relevant to this dispute
concern: (1) training provided by educational institutions under grants
from the State to ineligible participants; (2) mileage and per diem
charged as training costs for part-time training of provider personnel;
(3) costs of attending meetings of professional organizations charged to
training; and (4) matching requirements not met by the State.


The particulars with respect to each area will be dealt with
separately below.

This decision is based on the parties' written submissions and a
conference call held on October 20, 1982.

I. Training of ineligible participants

a. Parties' arguments

The auditors determined that during the period July 1, 1977 through
June 30, 1979, education insitutions, which were awarded grants by the
State for the purposes of training Human Services Department (HSD)
personnel and service delivery personnel from provider agencies,
provided training to participants whose employment was not associated
with the Title XX agency or with provider agencies. /2/ Appellant's
Appeal File, (2) Exhibit C, p. 9. The Agency determined that the costs
related to the training of these participants totaled $103,542. Of this
amount, $77,656 was the federal share which included $6,458 of
unallowable mileage and per diem payments. /3/ Apellant's Apeal File,
Exhibit C, p. 9.

The auditors determined that under the provisions of 45 CFR 228.80,
FFP was not available for the training of personnel whose employment was
not shown to be directly related to the social services program.
Appellant's Appeal file, Exhibit C, p. 9.

The State argued that the 1976 version of 45 CFR 228.82 provided in
part :

Grants are made for an education program (curriculum development,
classroom instruction, and related field instruction) that is directly
related to the program and provision of services . . . .

(b) Each program of classroom instruction so funded shall contain
students from one or more of the following groups:

(1) Agency employees from the State agency funding the grant.

(3) Service delivery personnel from provider agencies.

Appellant's Brief, p. 1.

The State argued that the issue here is limited to whether there was
improper participation in classroom instruction provided by a
postsecondary educational institution. The State contended that there
was no class which did not include representatives of the groups defined
in 45 CFR 228.82(b)(1) and (3) (1976). Appellant's Brief, p. 2.

In support of its argument, the State quoted a portion of the Title
XX Program Regulation Guide issued by the Community Services
Administration on October 1, 1975 which provided:

Other individuals may participate in these programs as long as at
least some participants are Title XX agency or provider employees, or
student recipients of financial assistance.

Title XX Program Regulation Guide, p. 2812.

(3) The State contended that the regulation and the guideline cited
acknowledged that attendance by non-Title XX related persons at a class
funded by a State grant did not increase the cost of presentation nor
did it detract from the quality. The State argued that it is arbitrary
and capricious for the Agency to interpret the guideline provison as
meaning that participation in classes by individuals other than state
employees not directly associated with the State Title XX agency means
that the State cannot receive FFP for the part of the cost of the
classes allocable to the non-Title XX students.

Essentially the same provision contained in the Title XX Program
Regulation Guide (1975) was contained in the "Guide to Federal Financial
Participation Under Title XX," issued June 10, 1980 by OHDS. /4/ The
State, in response to the draft audit findings, referred to this
provision. The State questioned the auditors' rebuttal to this
reference. The auditors stated at page 16 of the audit report that:

According to HHS regional title XX officials, the cited quotation
applies to long term classes developed as a part of the university
curriculum and does not apply to short-term or part-time in-service
training, which is the type of training in question.

Appellant's Appeal File, Exhibit C, p. 16.

The auditors also stated that it did not consider the 1980 "Guide to
Federal Financial Participation under Title XX" as appropriate criteria
in conducting the audit inasmuch as this guide was not issued by HHS
until after the period covered by the Audit. Appellant's Appeal File,
Exhibit C, p. 16.

The State contended that neigher the regulation nor the guidelines
contained a provision that classroom instruction shall be limited to
long-term classes. The State also contended that no such interpretation
is required by the Social Security Act.

(4) The State also contended that it was arbitrary and capricious to
disallow attendance by HSD personnel employed by an agency division
other than the division directly responsible for Title XX services
because HSD is operated as an integrated entity which allows promotional
opportunities across division lines.

Finally, the State argued that while it recognized the weight given
by the courts to Agency interpretations of its own regulations, such
interpretations must have a rational basis. Appellant contended that
the disallowance here does not have a rational basis. Appellant's
Brief, p. 4.

The Agency argued that 45 CFR 228.82 applies only to long-term
training as part of the university curriculum and not to short-term or
part-time in-service training such as is involved in this disallowance
and therefore, that 45 CFR 228.82 was not applicable to the training in
question.

The Agency also argued that if section 228.82 is inapplicable here
because it applies only to long-term training that under the provision
of both the 1976 and 1977 versions of 45 CFR 228.81, which set forth in
detail those individuals for whom the state may receive federal
financial participation for training, training of the employees listed
in the audit report was not permissible because these employees did not
meet the requirements of being involved in providing or delivery of
Title XX services at the State agency or provider level. /5/


The Agency argued that the language cited by the Appellant from the
Title XX Program Regulation Guide (1975) was quoted out of context.
Respondent contended that this language applies only to long-term
training and is inapplicable to the type of training involved in this
disallowance.

Respondent also contended that the evidence provided by Appellant to
indicate that certain persons were eligible for training was
insufficient.

(5) b. Analysis

(1) Whether section 228.82 precludes the State from receiving FFP for
that part of the cost of classes allocable to non-Title XX students.

It was unclear from the Agency's brief whether it was arguing that if
section 228.82 was applicable here, that section precluded the State
from receiving FFP for part of the cost of classes funded under grants
which were allocable to non-Title XX students. For purposes of
clarification, we will consider this issue. /6/


On August 26, 1976, a Notice of Proposal Rulemaking (NPRM) was
published reflecting the first comprehensive review of the Title XX
regulations since the program began on October 1, 1975.

The preamble to the NPRM referred to only one of the changes made to
section 228.82. The change specifically referred to was the deletion of
the requirement that specified categories of students be included in the
classroom program of instruction funded under grants to educational
institutions. The preamble stated that the requirement that such grants
be evaluated as a condition for continued funding was a substitute for
the earlier provision. The reason stated for the substitution was that
the substituted requirement provided "an alternative for an
administratively infeasible requirement." 41 Fed. Reg. 36156, at 36158,
August 26, 1976.

Although the phrase "notwithstanding Sec. 228.81, FFP is available .
. . for grants to educational institutions" contained in the prior
version of 45 CFR 228.82 (1976) was revised in the NPRM to read "FFP is
available in payments for training furnished under grants to educational
institutions," no specific reason was stated in the preamble why this
change was made, other than the general reasons stated for the overall
revision of Part 228 of 45 CFR, which were to clarify the intent of the
regulations, to eliminate and simplify administrative requirements on
the states, to provide specificity where it was requested, and to
relieve the states of complicated systems for costing out services and
training. The proposed regulations were published as final regulations
on January 31, 1977. The only change made to section 228.82 between the
NPRM and these final regulations was a minor editorial change not
relevant here.

(6) It is apparent from the 1976 version of 45 CFR 228.82 that this
section contemplated that individuals other than hose specified in 45
CFR 228.81 could participate in programs of classroom instruction
provided by educational institutions established under grants to such
institutions as long as each program contained at least one person under
the specified categories. /7/ The NPRM published in August, 1976,
specifically stated that the requirement, that at least one person from
the specified categories must be included in the program of instruction
funded, was changed only in order to provide an alternative for an
administratively infeasible requirement. Because of the reasons stated
in the NPRM, we conclude that the Agency, at the time the regulations
were published in final form on January 31, 1977, intended that other
individuals could attend these programs even if they would not be
eligible for training under 45 CFR 228.81, as long as some of the
participants were Title XX State agency employees, provider employees,
or persons preparing for employment in the State agency. The State
argued, and the Agency did not dispute, that each of the classroom
programs funded under the grants contained representatives from the
State agency or Title XX eligible provider agency employees or persons
preparing for employment. Therefore, the State complied with the
Agency's requirements concerning attendance at classes by non-Title XX
students.


(2) Distinction between section 228.81 and section 228.82.

The Agency argued that the training of the employees listed in the
audit report was not permissible under 45 CFR 228.81 because these
employees did not meet the requirement of being involved in providing or
delivery of Title XX services at the State agency or provider level.
Section 228.81 of 45 CFR provides for FFP in the direct costs of
training certain persons. This section must be read with 45 CFR 228.84
which sets forth the costs which are matchable as training expenses.
Under 45 CFR 228.82, however, the State is not paying directly for an
employee's training. Instead, the State is awarding a grant to an
educational institution to set up a program: to develop a curriculum,
to provide classroom insttruction, and to provide field instruction.
FFP under 228.82 is not paid for the individual employee's costs, i.e.,
travel, education or salary, but rather is reimbursement for the costs
of salaries of instructors of the educational institution, clerical
assistance to those instructors and teaching materials and equipment
used by these instructors in the program funded under the grant. 45 CFR
228.84(i). As we read the (7) regulations, 45 CFR 228.82 funds a
program whereas 45 CFR 228.81 applies to costs which a State may incur
directly for training for employees or certain other persons. As we
discussed above, this reading is supported by both the past and present
versions of the regulations. As we noted, the 1976 version of 45 CFR
228.82, which is entitled "who may be trained," stated "notwithstanding
Sec. 228.81." This regulation by its terms provided that the provisions
of 228.81 need not be considered under a program funded by a grant in
accordance with 228.82. Also, even though "notwithstanding Sec.
228.81" was deleted from 228.82 in 1977, we have determined, as
discussed above, from a reading of the preamble to the NPRM and the
final regulations in 1977 that this deletion was not intended as a
substantive change and that the Agency intended the 1977 version of
228.82 to be interpreted the same as the 1976 version.

(3) Whether the program funded was directly related to the Title XX
services program.

The disallowance letter, which was based on the audit findings,
claimed that the training of the employees listed in the audit report
was not permissible under the terms of 45 CFR 228.80. We do not agree.
The relevant part of the section provides:

Conditions for FFP.

FFP is available in expenditures for personnel training . . . that is
directly related to the services program . . . . The training may
include in-service training, and short and long-term training at
educational institutions.

The auditors' determination appears to have been based on their
assumption that personnel training is only directly related to the
services program if all the participants are eligible. The Agency has
never contended that the content of the educational programs funded by
the grants to the educational institutions here were not directly
related to the provision of Title XX services. Furthermore, it has
never been disputed that the funded programs contained some participants
at the State agency or provider level. Therefore, the programs funded
by the grants fulfilled the requirements of 45 CFR 228.80; the programs
were for personnel training and were directly related to the provision
of services under Title XX.

(4) Whether a grant for a short-term training program is prohibited.

The Agency, during the October 20, 1982 conference call, argued that
the use of the word "accredited" within section 2278.82(a)(2) indicated
that this section applied only to long-term courses. The Agency
contended that short-term courses are not covered under secton 228.82
because an institution or program is not accredited to provide such
courses.

(8) We do not agree with Respondent's argument that 45 CFR 228.82
applies only to long-term training as part of the university curriculum.
The use of "accredited" in the regulation merely means, in our view,
that the educational institution to whom the grant is awarded must be
accredited, and the particular department of the institution responsible
for providing the training services, such as a Department of Social
work, must be accredited by the specialized accrediting body for that
type of program if such a body exists. Whether an institution's social
work program receives accreditation has nothing to do with whether such
progam offers a short-term classroom instruction in addition to its
normal curriculum of study. Therefore, we cannot conclude that the use
of "accredited" within section 228.82(a)(2) limits grants to educational
institution to only long-term training courses.

Furthermore, section 2002(a)(1) of the Social Security Act, which is
cited almost word for word in 45 CFR 228.80 (see above), provides in
part:

From the sums appropriated therefore, the Secretary shall . . . pay
to each State . . . 75 per centum of the total expenditures during that
quarter for the provision of other services . . . including expenditures
for . . personnel training and retraining directly related to the
provision of those services (including both short- and long-term
training at education institutions through grants to such institutions .
. .).

Both the Social Security Act and the regulations provide that the
training for which a state may receive FFP may include short-term
training at educational institutions, and we conclude that the training
programs at issue here, which consisted of training lasting at least one
full day and up to three full days, is short-term traning for purposes
of section 228.80.

We are assuming here that short-term training, as specified includes
training of less than one work week, because part-time training is not
specifically mentioned within 228.80, and short-term training, as stated
in this section, is not limited to short-term full-time training. /8/
The programs funded under these grants, to which the auditors took
exception, were short-term training programs provided by educational
institutions. Therefore, we cannot agree with Respondent.


(9) (5) Expenditures reimbursable under section 228.82.

However, we do agree with the Agency that the amount of $6,450
included in the disallowance of $77,656 was improper. The amount of
$6,450 relates to mileage and per diem payments for participants
unrelated to the State Title XX or provider agencies attending the
program. Under 45 CFR 228.84(i), the costs matchable as training
expenditures under payments to educational institutions do not include
any costs expended by the individual students attending these courses.

Therefore, for the reasons stated above, we sustain the disallowance
in the amount of $6,450, and overturn the disallowance in the amount of
$72,206.

II. Mileage and per diem for part-time training

a. Parties' arguments

The auditors questioned $3,970 of mileage and per diem costs of
provider agency participants who attended Title XX training sessions of
less than one week's duration. The auditors did not question mileage
and per diem cost for State agency employees in part-time Title XX
training because of Montana Department of Social and Rehabilitation
Services, Decision No. 119, dated September 30, 1980, which concluded
that FFP is not allowable for any such expenditures incurred subsequent
to actual notice to the State that such costs are unallowable. The
auditors determined that the State may not have been put on notice until
March 7, 1979 that the mileage and per diem costs of State agency
personnel in part-time training were unallowable, and concluded that the
State took corrective action shortly after this notice was received.
However, the auditors determined that the State was notified by letter
dated May 11, 1977 from the Agency, that mileage and per diem costs of
part-time training participants from provider agencies were not
allowable for FFP, and had incurred costs, of which $3,970 was the
federal share, for such expenses after the notice was received.

The State acknowledged the past Board decisions on this issue and
pointed out that it believed there was a difference between part-time
educational leave and part-time training programs as contained in the
regulations which we discuss below. The State argued that educational
leave is a status granted on a case-by-case basis to individual
employees who wish to continue their education in a degree oriented
program, whereas in-service training is conducted on office time with
employees in a duty status and attendance mandated by management. The
State argued that because of this distinction, the programs in question
were full-time programs of less than eight consecutive weeks and not
part-time educational leave and therefore, mileage and per diem are
reimbursable expenditures under 45 CFR 228.84(e)(2).

(10) The Respondent argued that the State agency had been put on
notice by the Agency's letter dated May 11, 1977 that mileage and per
diem costs of part-time training participants from provider agencies
were not allowable for FFP under 228.84(e)(3). The Respondent also
pointed out that the Appellant did not dispute these facts in its brief.

b. Analysis

Although the Appellant did not dispute the facts in its brief, during
the conference call between the parties and the Board on October 20,
1982, the question of whether the May 11, 1977 letter was notice was put
into issue. For the reasons discussed below, we do not agree with the
Agency that the May 11, 1977 letter was sufficent notice to the State.

When the regulations were revised in 1977, the provisions relating to
costs matchable as training expenditures were revised. Up until this
time, the regulations provided for travel, per diem, and educational
expenses of employees while they were attending training programs for
less than eight consecutive work weeks, and payment of educational
expenses for employees on part-time educational leave (part of working
week, evenings and mornings). When the regulations were revised and
published in final form in 1977, section 228.84 included separate
provisions for State agency employees and provider agency personnel.

The sections relevant here were revised to read:

Costs matchable as training expenditures include:

(a) State agency employees.

(2) For State agency employees in full-time training programs of less
than eight consecutive work weeks: per diem, travel and educational
costs;

(3) For State agency employees in part-time training programs (part
of work week, evenings, mornings): Education costs.

(e) Provider agency personnel . . . .

(2) For provider agency employees in full-time training programs of
less than eight consecutive work weeks: per diem, travel, and education
costs;

(3) For provider agency employees on part-time educational leave:
education costs(.)

(11) In Decision No. 119, the Board found that even though the
Agency's central office may have had a policy which precluded federal
sharing in travel and per diem for training sessions lasting less than
one week, the Agency's field components followed a different practice.
In that decision the Board noted specifically the distinction the field
units made between part-time educational leave activities and in-service
training. Many of the components interpreted in-service training
lasting at least one full day but less than five days as "training
programs for less than eight consecutive work weeks," thus allowing
travel, per diem and education costs under sections 228.84(a)( 2) and
(e)(2). The Board noted that the Agency was asked to provide an
official response to a policy interpretation question (PIQ) because of
the confusion over these interpretations and because it appeared that
the amended 1977 regulations omitted "educational leave" in 228.84(a)(
3) pertaining to State agency employees.

This response, which was designated as PIQ 77-88 and was issued on
September 14, 1977, stated that the central office policy was that
part-time training included training of less than a full week. Several
other addenda to this PIQ were issued subsequent to September 14, 1977.
The Board noted that on August 23, 1979, the Agency issued Information
Memorandum HDS-IM-79-10 (APS) which transmitted a complete set of the
PIQs to the State agencies administering Title XX. That memorandum
stated that since these PIQs had not been held accountable for
administering their programs in accordance with PIQs issued up to and
including September 1, 1979 until receipt of them, unless they
previously had been given actual notice of the interpretation.

In addition, there was an addendum to PIQ 77-88 issued April 20, 1978
which addressed the problem at issue here and which was included in the
set of PIQs transmitted to the State agencies by the Agency on August
23, 1979. The central office was asked to provide an official response
to Region VIII's query that the Agency reconsider its previous
interpretation of "part-time training" and "costs allowable" given in
PIQ 77-88 because that interpretation appeared inconsistent with the
Region's understanding of section 228.84, regarding costs allowable for
employees of provider agencies. The Region indicated that under its
interpretation of section 228.84, part-time in-service training was not
educational leave, and since in-service training is typically for less
than 8 weeks, it cncluded that section 228.84(e)(2) identified the costs
allowable for part-time in-service training. This indicates that there
was still some confusion in the Region concerning a distinction between
part-time educational leave and part-time in-service training and the
allowable reimbursement for these two types of training.

(12) For the same reasons stated in Board Decision No. 119, we
conclude that we will not hold the State accountable for the Agency's
policy interpretaion until such time as the State received actual notice
of it. While the Agency argued that the May 11, 1977 letter to the
State from the Agency provided it with specific notice that only
education costs were allowable, this letter merely states that federal
financial participation in the costs of training provider agency staff
on part-time educational leave is limited to education costs. This
letter does not define what is meant by "part-time educational leave"
nor does it address the question of whether part-time in-service
training is considered "part-time educational leave" under 45 CFR
228.84(e)(3). Also, the Agency has not shown that the PIQs in question
were sent to the State when they were issued or that the State had
actual notice of the Agency's interpretation as contained in the PIQs as
early as May 11, 1977. Instead, the record indicates that the State
received actual notice of the Agency's policy interpretation with regard
to part-time training programs for provider agency employes on March 7,
1979, the same time the auditors established that the State had received
actual notice of the Agency's policy interpretation with regard to
part-time training programs for State agency employees. Appellant's
Exhibit C, p. 11 and letter from Acting Regional Program Director to
HSD, dated March 7, 1979.

Furthermore, we agree that the State's position is reasonable that
there is a distinction between "educational leave" and "in-service
training," the distinction being that educational leave is a leave
status granted on an individual basis to allow employees to be excused
from their normal job responsibilities for a period of time per day or
per week to continue their education through programs not available
through in-service training whereas in-service training is conducted on
office time with employees in duty status and attendance mandated by
management. The State argued and the Agency did not dispute that the
programs attended by the provider agency employees were in-service
training.

Therefore, to the extent the amount of $3,970 disallowed represents
costs of travel and per diem for provider agency employees in part-time
training incurred after the State received notice on March 7, 1979 of
the Agency's interpretation, the disalloance is sustained; for all such
costs incurred prior to March 7, 1979, the disallowance is overturned.

III. Costs claimed as training expenditures for students who
attended meetings and conferences of professional organizatons

The audit agency questioned $9,117 in FFP for costs claimed for
expenditures for students attending meetings and conferences of
professional organizations. The auditors questioned these costs on the
basis of 45 CFR 228.85(d) (1977) which provides:

(13) FFP is not available for the following as expenditures outside
the State's allotment for social services. Such expenditures are
matchable as administrative costs (not training expenses) under the
State's allotment for services.

(d) Attendance at meetings or conference of professional
organizations.

The State argued that 45 CFR 228.85(d) is concerned with State and
provider agency personnel and not with students enrolled under a
long-term training program with a university. The State argued this
interpretation in light of the statement contained in 228.85, which
provides "(such) expenditures (meaning for attendance at meetings and
conferences of professional organizations) are matchable as
administrative costs under the State's allotment for services." The
State pointed out that attendance at meetings and conferences by
students is an essential learning experience and contributes toward a
well-rounded education.

The Agency argued that the regulation clearly prohibits FFP for these
expenditures as training costs and that Appellant has not provided
evidence that these expenditures are matchable as administrative costs
pursuant to 45 CFR 228.90.

We conclude that while attendance at meetings or conferences by
students may be desirable, FFP is not available for training costs for
attendance at such meetings or conferences by undergraduate students.
Although the State reads 228.85(d) as concerning only State and provider
agency personnel and not students, the Board finds that the regulation
does not make such a distinction. In fact, a reading of all of section
228.85, which is titled "Activities and costs not matchable as training
expenditures," indicates that all of the subsections other than (d)
contain specific references to whom those sections apply. See, 45 CFR
228.85(a)(b)(c) and (e). Subsection (d) is the only section which is
not directed at a particular group. Based on this reading, we have
determined that if section 228.85(d) was intended to apply only to State
agency and provider agency employees, those groups would have been
specified within that subsection. Since these employees were not
specified, we conclude that section 228.85(d) prohibits the State from
receiving FFP in expenditures for training costs for anyone attending at
a meeting or conference of a professional organization. Therefore, we
sustain the disallowance as to this issue.

(14) IV. Matching requirements

a. Parties' arguments

The auditors determined that the State had overclaimed $95,496 in FFP
because, contrary to federal regulations, the State agency used
certified expenditures for fiscal year (FY) 1978 and restricted
donations from a private organization in FY 1979 to satisfy the required
25 percent non-federal portion of incurred costs. According to the
auditors, this resulted in an overclaim of $41,237 FFP in FY 1978 and an
overclaim of $54,259 FFP in FY 1979. The State conceded the overclaim
in FY 1978. Therefore, the amount in dispute here involves the alleged
overclaim of FFP in FY of $54,259.

The auditors found that under the provisions of 45 CFR 228.54(a)(2)
(1979), a state may not use restricted donations as its 25 percent match
for training costs under Title XX. The auditors contended that the
State's practice, as set forth in its contract with a private non-profit
educational institution for training, to require the institution to
provide periodic cash donations in amounts equal to 25 percent of the
contract expenditure billed to the State amounted to a restriction to
use the institution's donation for a training program provided by the
donor institution. The auditors concluded, therefore, that under the
provision of 45 CFR 228.54(a)(2) such a restricted donation could not be
used by the State to satisfy the required 25 percent non-federal match.

Essentially, the State's argument was that it had complied with the
provisions of 45 CFR 228.54(a)(1), (2) and (3) in that the cash donation
had been transferred to the State agency and was under its
administrative control, the donor institution had not placed any
restrictions that the funds be used for training, and that since the
donor was a private non-profit organization, the State agency could
purchase services from the donor institution because the State's
decision was an independent one. The State also argued that the
restriction expressed in (a)(2) is applicable only to service providers.

The Agency argued that donations were restricted and the disallowance
was proper. The Agency pointed out that the State agency contracted
annually with a private college for the provision of training services
and each contract required the college to donate 25 percent of the
contract price back to the State. The practice required the college to
pay the State in advance 25 percent of the next voucher to be submitted
by the college for payment by the State agency, and the State agency
remitted the full voucher amount to the college. In effect, the State
agency was reimbursing the college for only 75% of its total training
(15) costs. The Agency stated that although the contract between the
State and the college did not contain an express use restriction, the
payments to the college for services performed were expressly contingent
on receipt by the State agency of an amount equal to 25 percent of the
contract, to be paid to the State agency in installments. The Agency
also pointed out that the budget submitted by the college and
incorporated into the contract contains an entry "College share of
Project -- 25%." The Agency inferred from this statement that the
college considered itself to be participating in the cost of the
training project. The Agency noted that stubs of the checks from the
college to the State agency include notations indicating that the checks
represent the college's match.

b. Analysis

We do not agree with the Agency that the payment by the college is a
restricted donation prohibited by the provisions of 45 CFR 228.54(a)(
2). That regulation provides: /9/

(a) Funds available for matching.

Funds donated from private souces for services or administrative
functions may be considered as State funds in claiming FFP only where
such funds are:

(1) Transferred to the State or local agency and under its
administrative control;

(2) Donated to the State, without restrictions as to use, other than
restrictions as to the services, administration or training with respect
to which the funds are to be used imposed by a donor who is not a
sponsor or operator of a program to provide those services, or the
geographic area in which the services with respect to which the
contribution is used are to be provided; and

(3) Not used to purchase services from the donor unless the donor is
a nonprofit organization and it is an independent decision of the State
agency to purchase services from the donor.


The Agency did not dispute that the funds were, in fact, transferred
to the State agency and were under its administrative control. The
Agency agreed that the transaction was a donation but contended that the
transaction between the State agency and the college results in (16) an
inferred or "constructive" restriction being placed on the funds.
However, section 228.54(a)(2) can be read as applying only to
restrictions placed on funds by the donor. The fact that the State
agency may have made its payments to the college contingent on receipt
by the State of its payment, does not necessarily imply a restriction
placed on these funds by the donor.

Moreover, under 228.54(a)(3), funds donated may be used to purchase
services from the donor if the donor is a non-profit organization and it
is the independent decision of the State to purchase services from the
donor. Although section 228.54(a)(2) prohibits a donor from restricting
its donation and the Agency has argued that under the circumstances here
the college as donor effectively restricted its donation to the purchase
of services from it, section 228.54(a)(3) allows the State to use the
funds donated to purchase services from the donor, if the donor is a
non-profit institution, and if it is the State's independent decision.
Therefore, the kind of restriction the Agency infers here as being
contrary to section 228.54(a)(2) is allowable under the provisions of
section 228.54(a)(3). Furthermore, the record indicates that the
college involved here was a non-profit organization and the evidence
does not show that it was not an independent decision of the State
Agency to purchase services from the college.

In reaching the result here, we take notice that there may be program
considerations for prohibiting restricted donations from being allowable
as the State's non-federal match. However, we have determined that this
regulation is ambiguous in certain respects and that there is an
internal contradiction between the provisions contained in 228.54(a)(2)
and (3). Until the State is given actual notice of the Agency's
interpretation of this regulation, where such interpretation is not
immediately apparent from the face of the regulation and is more obsure
than the apparent reading of the regulation, we can not hold the State
to such a standard. /10/ We, Therefore, overturn the disallowance as it
relates to this issue.


(17) Conclusion

Based on the foregoing, the Board overturns and upholds the
disallowance in part as follows:

(1) Upholds $6,450 of the disallowance for travel and per diem costs
under grants to educational institutions;

(2) Overturns $72,206 of the disallowance of costs claimed under
grants to educational institutions;

(3) Sustain the disallowance for mileage and per diem of provider
agency employees to the extent the amount disallowed represents costs
incurred after the State received notice on March 7, 1979; for all such
costs incurred prior to March 7, 1979, the disallowance is overturned;

(4) Sustains the disallowance of $9,117 for costs claimed as training
expenditures for student attendance at meetings and conferences of
professional organizations; and

(5) Overturns the disallowance in the amount of $54,259 relating to
State matching requirements. /1/ Appellant is not challenging $10,360
of the disallowance relating to indirect costs overclaimed.
Therefore, the actual amount of dispute before the Board is $186,239.
/2/ The grant agreements entered into between the State and the
education institutions specifically reference the regulation governing
grants to education institutions, 45 CFR 228.82. /3/ During the
October 20, 1982 conference call, the State explained that the auditors
arrived at the amount disallowed here by determining, out of the total
amount of the grant, the allocated share of the cost of the training
program for the ineligible participants. The Agency did not dispute the
accuracy of the State's explanation. /4/ Section 3 H. 17 of the
"Guide to Federal Financial Participation Under Title XX," dated June
30, 1980 states, as follows: Other individuals may participate in these
programs; however, for classroom instruction at least two or more
participants must be State Agency or Title XX eligible provider agency
employees, or persons preparing for employment in the State Agency.
/5/ Both parties cited the 1976 version of 45 CFR 228, Subpart H as the
regulations in effect during the period July 1, 1977 through October 1,
1977. However, a substantive revision of 45 CFR Part 228 was published
as a final regulation on January 31, 1977 at 42 Fed. Reg. 5812. This
Regulation was effective 90 days after publication or earlier at state
option with certain exceptions not pertinent to this dispute. It is
this version of the regulation which appears in the 1977 CFR. Therefore,
the regulations appearing in the 1977 CFR are applicable to the audit
period in question. /6/ During the period relevant to this
dispute, Subpart H of 45 CFR 228, which contains the provisions relevant
to training and retraining under Title XX, was last revised on January
31, 1977. /7/ The Appellant cited a statement contained in the
Title XX Program Regulation Guide (1975), which is quoted above, in
support of this interpretation. We cannot rely on the Program Guide as
direct support of this argument as the guide was issued only in draft
form. /8/ There is a distinction here between the general phrase
short-term training, which may include training of less than one work
week, and the more specific term used in 45 CFR 228.84, full-time
training of less than 8 weeks. The former refers to any training,
whether part-time or full-time, whereas the latter, which is used for
determining reimbursement of expenditures, is limited to full-time
training of less than eight weeks. /9/ Section 228.54 is based
on, and recites, essentially verbatim, Section 2002(a)(7)(D) of the
Social Security Act (1978). /10/ In the "Guide to Financial
Particpation Under Title XX of the Social Security Act," issued June 10,
1980 by OHDS, the Agency stated its policy with regard to this issue and
its interpretation of the pertinent regulation. However, the guide was
not issued until after the period in question here, and the Agency has
not offered any official documents to indicate that this interpretation
was communicated to the State during the relevant period at issue.

OCTOBER 22, 1983