GAB Decision 464
Docket No. 83-66
September 28, 1983
Maryland Department of Human Resources;
Settle, Norval; Teitz, Alexander Ford, Cecilia
The Maryland Department of Human Resources (State, DHR) appealed the
disallowance by the Office of Human Development Services (Agency, OHDS)
of $326,007 in federal financial participation (FFP) claimed under Title
XX of the Social Security Act. The Agency later revised the amount of
the disallowance to $309,605. The disallowance was based on an audit
report (Audit Control No. 03-20555) reviewing selected costs claimed
under the State's Title XX training program for the period October 1,
1975 to September 30, 1978.
The major issues presented are: whether the Omnibus Reconciliation
Act of 1981, which established the Title XX Social Services block grant
program, affects the Agency's authority to disallow and recover misspent
funds claimed under the prior Title XX provisions; and whether the
State is entitled to FFP under Title XX for the costs of training DHR
employees who ultimately were employed by the State of Maryland, but not
in the State Title XX agency. For reasons stated below, we conclude
that the Agency has the right to disallow and recover misspent funds,
and that the Title XX regulations require that recipients of training
funded by Title XX must be employed in positions directly related to the
Title XX program.
There are no material issues of fact in dispute. We have determined,
therefore, to proceed to decision based on the appeal file and the
parties' briefs.
Regulatory Background
Title XX of the Social Security Act authorized states to implement
programs providing social services to low income individuals and
families. /1/ The Title XX program was (2) administered at the federal
level by the Office of Human Development Services, but states had the
primary responsibility for the overall supervision, control, and
oversight of Title XX activities. 45 CFR 228.6(e)(10) (1977). /2/
Subpart H of 45 CFR Part 228 contained regulations, applicable during
the period relevant here, for personnel training costs, which, if
directly related to the provision of Title XX services, were eligible
for FFP at a 75 percent rate. FFP was available for training only
certain groups of individuals, including:
State agency staff employed in all classes of positions which
directly relate to the operation of the Title XX program. 45 CFR
228.81(a).
FFP is available for the costs of this training, provided that:
State agency employees and service delivery personnel and eligibility
workers of provider agencies who are in attendance full-time at training
programs for 8 consecutive workweeks or longer have a legally binding
commitment to continue to work in the State or provider agency for a
period of time at least equal to the period for which financial
assistance is granted. 45 CFR 228.83(a)(1).
Furthermore, the salaries of State agency employees were only
matchable as training expenditures if the employees were in full-time
training programs of eight consecutive workweeks or longer. 45 CFR
228.84(a)
Statement of the Case
HHS auditors examined the State's Title XX training costs to
determine if costs claimed for training DHR employees were allowable
under federal regulations, and if training costs were allocated on the
basis of benefits received. After (3) reviewing the audit report, OHDS
made the following findings in its notification of disallowance:
DHR claimed costs for the salaries of employees who were not in
full-time training in violation of 45 CFR 228.84;
Four DHR employees, after completing their training, did not remain
with DHR, for a period of time at least equal to the period for which
financial assistance was granted as required by 45 CFR 228.83(a)(1); and
DHR did not adhere to its cost allocation plan when it charged
administrative costs to the Title XX training program.
OHDS concluded that the State was required to return $309,605 in FFP.
Discussion
The State made two arguments. Generally, it disputed OHDS' authority
to penalize the State at all for any misspent Title XX funds because of
the passage of the Omnibus Reconciliation Act of 1981. Specifically
concerning the four DHR employees who left DHR employment after
receiving their training, the State contended that the four employees
remained in other public social service that satisfied the federal
regulations. /3/ Except for those amounts concerning the four DHR
employees, the "(State's) appeal is based solely on its claim that the
(Agency) lacks authority to pursue the claim because of the repeal of
Title XX." (State's Reply Brief, p. 2)
I. The Effect of the Omnibus Budget Reconciliation Act of 1981
(OBRA).
The State argued that the effect of OBRA was to eliminate the
Agency's authority to pursue the claim. The State made the same
argument unsuccessfully in Maryland Department of (4) Human Resources,
Decision No. 344, September 29, 1982, currently being appealed by the
State before the United States District Court for the District of
Columbia (Civil Action No. 82-3402). In the present appeal the State
incorporated the Board's summary in Decision No. 344 of the State's
arguments in the prior case:
The State contended that there are no administrative actions
available to the Agency to disallow and recover these funds. The State
argued that prior to October 1, 1981 the authority for withholding
funds, claimed under Title XX, as a result of a disallowance was
contained in sections 2002(b)(2) and 1116(d) of the Social Security Act.
According to the State, the Omnibus Budget Reconciliation Act of 1981
repealed section 2002(b)(2), the reference to Title XX in section
1116(d), and all other provisions of former Title XX in creating a new
block grant for social services. The new section 2006(b) of the Social
Security Act provides both that states shall repay amounts misspent
under "this title" and that the Secretary may offset such amounts
against any other amount to which a state is entitled under "this
title." The State reasoned that under the new Title XX there is,
therefore, no statutory authority for the enforcement of this
disallowance. Because the State no longer receives Title XX training
funds, the State argued, there is no remedy for misspent funds under the
program from which the disallowance arose. The State contended,
"Withholding under the disallowance would in effect constitute a set off
of funds to which the State is now entitled under the new Title XX for a
debt owed under another program." The State also contended that "no
sanction can be imposed on another program as a result of a Title XX
violation." In the absence of any current statutory or regulatory
authority for the disallowance and withholding of funds by the Agency,
the State contended, the Agency's action is illegal.
p. 4 (emphasis added by the State).
The Board in Maryland was not persuaded by these arguments. The
Board noted that the State had not pointed to anything to indicate that
Congress, in passing the Omnibus Budget Reconciliation Act of 1981,
intended to abrogate the Secretary's authority concerning the
disallowance of old Title XX funds:
(We) do not believe that it was the intention of Congress to
foreclose, effective on (October 1, 1981), all of the Agency's
administrative actions to account for funds, whether properly or
improperly expended, under the old Title XX. The authority to disallow
claims arising under the old Title XX was not (5) specifically removed
by the passage of the Omnibus Budget Reconciliation Act. We therefore
conclude that the Agency did not exceed its authority when it issued
this disallowance.
p. 5.
The State did not deny that the Agency could take judicial action to
recover misspent funds. The Board, moreover, disagreed with the State
that no remedies, short of judicial action, were available to the Agency
to recover funds misspent under the old Title XX. The Board rejected
the State's contention that State of New Jersey, Dept. of Education v.
Hufstedler, 662 F.2d 208 (3rd Cir. 1981) supported the State's position
that the Agency's only remedy to recover misspent funds is by way of
judicial action. Hufstedler interpreted Title I of the Elementary and
Secondary Education Act (ESEA) of 1965 as amended. The Court held that
an administrative agency has no authority to order repayment of funds
unless Congress had declared, at the time the funds were received, that
the Agency has authority to exercise such a remedy. The Board
concluded, however, that Hufstedler was not dispositive of issues
arising under the Social Security Act. Without declaring what
administrative sanctions the Agency could utilize, the Board noted that
the regulations implementing the new Title XX did not necessarily
preclude a broader statutory interpretation allowing for an offset of
former Title XX funds.
Since the Board issued its decision in Maryland the Supreme Court has
reviewed Hufstedler and, in Bell v. New Jersey, U.S. , 103 S.Ct. 2187
(1983), reversed the holding of the Court of Appeals. After reviewing
the language and legislative history of the Elementary and Secondary
Education Act and its 1978 amendments, the Court held that the Federal
Government could determine administratively the amount of the debt owed
to the Federal Government arising from the misuse of federal funds by
the states.
In the course of the present appeal, the Board asked the parties to
address the effect of Bell on the merits of this case. The Agency,
declaring that Bell was based on an interpretation of the ESEA, argued
that Bell has no relevance to this appeal and the Board's Maryland
decision was controlling. The State, while also noting that Bell was
limited to the ESEA, argued that to allow the Agency to reduce non-Title
XX funds for violations of Title XX will result in the punishment of
beneficiaries of current programs for past violations in an abolished
program, an effect Congress certainly did not intend.
While we agree with the parties that the scope of Bell is confined to
the ESEA, we nevertheless believe that the Court's reasoning has some
relevance here. The language of (6) the legislation in question in Bell
is sufficiently similar to the Title XX provision which supported the
Board's decision in Maryland. The ESEA included this requirement:
The Commissioner shall . . . from time to time pay to each State, in
advance or otherwise, the amount which the local educational agencies of
that State are eligible to receive under this part. Such payment shall
take into account the extent (if any) to which any previous payment to
such State educational agency under this Title (whether or not in the
same fiscal year) was greater or less than the amount which should have
been paid to it. Section 207(a)(1).
This section of the ESEA gave the Commissioner a right to recover the
amount of any funds overpaid. 103 S.Ct. 2193. Section 2002(b)(2) of
the Social Security Act contained similar language:
The Secretary shall then pay to the State, in such installments as he
may determine, the amount so estimated, reduced or increased to the
extent of any overpayment or underpayment which the Secretary determines
was made under this section to the State for any prior quarter and with
respect to which adjustment has not already been made under this
subsection.
In Maryland we concluded that this section, and section 1116(d), at
the time the funds in question were authorized and expended, gave the
Secretary the authority to disallow and recover funds. We therefore
stand by our previous Maryland decision and hold that the amendment of
Title XX to establish the Title XX Social Services block grant program
does not preclude the Agency from administratively disallowing misspent
funds and taking appropriate action to recover those funds. Prior to
the enactment of Pub. L. 97-35, OHDS had the right to disallow and
recover misspent Title XX funds under the provisions of the Social
Security Act; those rights have not been extinguished.
II. FFP for the Training Costs of Individuals Employed in Non-Title
XX Positions.
As stated above, the State appealed specifically the disallowance of
FFP for four individuals who had their training costs paid with Title XX
funds. The audit report summarized the history of these four DHR
employees as follows:
Employee A, immediately after receiving a master's degree, obtained a
position in the State Department of Mental Health and Hygiene. This
position was funded (7) under Title XIX. Title XX, however, paid for
two years of her training.
Employee B obtained a position with Spring Grove Hospital, a State
operated facility, only seven and one-half months after she received a
Master's degree paid from Title XX Training funds.
Employees C and D received Master's degrees paid for by Title XX
training and then left their Title XX positions to join the Eastern
Shore Mental Hospital, a state operated facility. These who employees
remained with the State Agency for only 4 and 17 months, respectively,
after receiving their degrees.
Audit report, p. 7.
The audit report concluded that the effect of the transfer of these
employees from DHR employment to employment in other State of Maryland
agencies was to remove them from any work in the Title XX field. The
auditors, using a ratio of length of training versus length of DHR
employment after completion of training, calculated that $49,167 was
improperly expended in the salary and related training costs of the four
individuals. OHDS, in the notification of disallowance, adopted the
auditors' findings and concluded that the failure of the four employees
to remain with DHR for a period of time at least equal to the period of
their training violated 45 CFR 228.83(a)(1).
The State contended that the Agency's interpretation of the Title XX
regulations was overly rigid. The State argued that the purpose of the
Title XX training program was to improve the quality of social services
provided by the states. According to the State, the four individuals in
question did remain in public social service after completion of their
training, and thus the purpose of improving social services was served.
The State further contended that the "plain language" of 45 CFR
228.83(a)(1) offered alternative methods for employee training to
qualify for FFP: the employees had to either work for the State or in
an agency providing Title XX services.
The Board examined a similar question in Louisiana Department of
Health and Human Resources, Decision No. 397, March 14, 1983. There
OHDS disallowed FFP for the Title XX training costs of individuals who
were preparing for employment in the Louisiana Title XX state agency
because the individuals ultimately were employed by Louisiana in
non-Title XX positions. Among its arguments, Louisiana contended that
many of the functions of the concerned individuals were indirectly
related to the Title XX program, and that, (8) therefore, their training
expenditures should qualify for FFP.
The Board, however, sustained the disallowance, finding that the
exclusive focus of 45 CFR Part 228 was the Title XX program and that the
regulatory references limited FFP to training for positions directly
related to the provision of Title XX services. /4/ See, e.g., 45 CFR
228.51(a) and 228.80. The Board additionally declared:
Nor do we believe that employment in a part of the single State
agency that does not administer Title XX services is sufficient. It is
unreasonable to suppose that it was the intent of Congress that scarce
Title XX funds be used for the training of personnel who would not be
employed in Title XX positions.
p. 4.
While Louisiana dealt with individuals who were training to become
State employees under 45 CFR 228.83(a)(2), we believe that the same
reasoning is applicable to current DHR employees who received training
under 45 CFR 228.84(a). When this regulation and the other Title XX
regulations are read in their entirety, it is clear that, contrary to
the State's argument, the word "State" modifies "agency."
The regulation
does not mean that an employee who has received Title XX-funded training
can work in any state position. Rather, the employee must be in a
position "directly related" to the Title XX program. We add that this
interpretation of the regulations does not conflict with the underlying
statute, as Title XX of the Social Security Act referred only to
personnel training "directly related" to the provision of certain
services. See, e.g., sections 2002(a)(1) and 2002(a)(2)(A).
Accordingly, we sustain the disallowance of FFP for the training costs
of the four individuals. /5/
(9) Conclusion
For reasons stated above, we sustain the disallowance in the amount
of $309,605. /1/ Effective October 1, 1981 the provisions of Title XX
at issue were amended by provisions establishing a new Title XX
social services block grant program. Omnibus Budget Reconciliation Act
of 1981 (Pub. L. 97-35). /2/ During the period relevant here,
October 1, 1975 to September 30, 1978, the Title XX regulations were
amended once (effective January 31, 1977). The amendments affecting the
issues here were not substantive. We use the 1977 codification
throughout this decision. This codification has the regulations in Part
228. A 1980 recodification moved the regulations from Part 228 to Part
1396. /3/ Both the State and the Agency in their briefs referred
to $49,167 as the amount of FFP disallowed for the training of these
four employees. Analysis of Attachment A of the disallowance
notification, however, reveals that $49,167 is the total amount of funds
expended on the training for these individuals. The actual amount of
FFP in dispute on this particular issue should be 75% of $49,167, or
$36,875. /4/ The Title XX training regulations were redesignated
as 45 CFR Part 1396 on August 25, 1980 (45 Fed. Reg. 56707). The
Louisiana decision referred to this later codification. /5/ In Missouri
Department of Social Services, Decision No. 391, February 28,
1983, we did not reach the question whether 45 CFR 228.83(a)(1) must be
read to require the completion of the work commitment to meet the
conditions for FFP. See, n. 3. We do not reach that issue here either
since the employees' commitment did not meet the regulatory requirement,
as we have interpreted it. The State's agreement with the employees did
not require them to remain in a position directly related to Title XX.
Audit Report, p. 7. Moreover, even if the regulation required only that
the necessary commitment be made, not that it must be fulfilled, we
think that the State would at least be required to show that it made a
good-faith effort to enforce the commitment.
NOVEMBER 14, 1984