New York State Department of Social Services, DAB No. 520 (1984)

GAB Decision 520
Docket No. 83-161

February 29, 1984

New York State Department of Social Services;
Garrett, Donald; Settle, Norval Ford, Cecilia Sparks

The New York State Department of Social Services (State) appealed the
disallowance by the Office of Human Development Services (Agency) of
$484,676 in federal financial participation (FFP) claimed under Title XX
of the Social Security Act. The disallowance followed an audit of Title
XX costs claimed under contracts between the State and the Research
Foundation of the State University of New York (SUNY) at Albany.

During the course of the appeal, the parties reduced the amount in
dispute to $339,036. /1/

I. Summary of Decision.

Based on our analysis of the record, we uphold the disallowance of
$23,897 in costs of the College of General Studies, $76,596 for travel
and per diem, $5,299 in tuition and fees, and $13,520 in supplies and
equipment. We also uphold the disallowance of a subcontractor's costs,
except for that portion of the $21,744 which is allowable under 45 CFR
228.84(c)(2) or (g)(2), as discussed below. Further, we remand to the
parties the $197,980 the Agency determined was overallocated to Title XX
for further review of the Agency's method of allocation.

The record here includes the parties' briefs, several letters from
the Board, and a transcipt (Tr.) of telephone conferences we held to
discuss specific questions raised by the Board.

II. Background: FFP in Title XX training costs.

Under section 2002(a)(1) of Title XX, states may be paid FFP equal to
75% of amounts spent during each quarter to provide certain social
services, including amounts spent for "personnel training and retraining
directly related to the provision of those services. . . ." However,
section 2002(a)(2)(A) sets a ceiling (based on each state's population)
on the amount of FFP that may be paid to a state in any fiscal year;
that ceiling does not apply to expenditures for personnel training.

(2) The regulations concerning FFP in Title XX training costs are at
45 CFR Part Part 228, Subpart H. Among other things, the regulations
identify who may receive training (228.81), under what conditions grants
can be made to educational institutions (228.82), and what types of
costs will be reimbursed as training costs (228.84). /2/ The Agency
also issued written responses to questions concerning Agency policy,
called Policy Interpretation Questionnaires (PIQ). The Agency has
characterized the PIQs as a means of providing uniform guidance to
regional offices by furnishing interpretation and clarification of
existing law and regulations. See Montana Department of Social and
Rehabilitation Services, Decision No. 119, September 29, 1980, p. 3.

The disputed costs were claimed by the State as training costs not
subject to the ceiling on Title XX costs. The State had three contracts
with SUNY for training related to the Medicaid, Public Assistance, and
Food Stamp programs, as well as Title XX. The State claimed $4,301,170
in FFP under those contracts, $3,038,638 of which was charged to Title
XX.

III. Discussion of the costs disallowed.

A. Costs for the College of General Studies (CGS). $23,897

These costs are identified in the record as items (1)(c) and (6)(a).
The Agency disallowed $21,897 for salaries of CGS faculty and staff and
$2,000 for improper charges for technical services by CGS. CGS was
responsible for granting continuing education units (CEUs) for
non-credit activity. Continuing education students earn one CEU for
each ten classroom hours of instruction, or the equivalent, in
qualifying courses. CEUs are issued to indicate completion of a
non-credit course.

The Agency disallowed the CGS costs because it determined that: (1)
only costs associated with curriculum development and instruction are
allowable under 45 CFR 228.84(i); and (2) the State did not show that
the CGS costs were for curriculum development and instruction.

The State argued both that the costs claimed were for curriculum
development and instruction, and that the regulation governing grants to
educational institutions, section 228.82, did not limit claims to
curriculum development and instruction costs.

(3) 1. Does the regulation limit FFP to costs associated with
curriculum development and instruction?

The State argued that administering the CEUs was contemplated by
section 228.82(a)(1)(ii) because the regulation allows FFP for
educational programs, not just curriculm development, and therefore, FFP
should be allowed for CGS activities. /3/ The State said that the
parenthetical reference to curriculum development and instruction as
components of an educational program merely illustrated what would be
allowable, but did not preclude FFP for other educational program costs.
The State argued that CEUs were an integral part of the educational
program because they indicated the completion of the program. Further,
a representative of the State said his memory was that federal officials
supported the view that CEUs and the costs of other degrees were part of
an educational program.

The Agency argued that the State's reliance on section 228.82 was
misplaced. The Agency said that section 228.82 concerned when a grant
may be properly made, but that section 228.84 (here, section 228.84(
i)), governed what types of costs may be reimbursed. The Agency argued
that in 228.84(i) the terms "curriculum development and instruction"
were not expanded and were meant to indicate exclusively the types of
costs for which FFP is available. /4/ The Agency pointed to another
part of section 228.84(i) to show that when the Agency meant a term to
be illustrative, it specifically said so. The Agency noted that in
defining "teaching materials and equipment," the regulation included the
words: "for example." The Agency argued that if the drafters of the
regulations had intended the words curriculum development and
instruction to be examples, they would have similarly denominated them
as such. The Agency also argued that the Board should not give great
weight to vague references to past conversations, without further proof.

(4) Board's Analysis.

We find that FFP is limited to costs associated with curriculum
development and instruction. We have said in other decisions that
section 228.84 limits the types of costs for which FFP is available. E.
g., Pennsylvania Department of Public Welfare, Decision No. 451, July
29, 1983; Ohio Department of Public Welfare, Decision No. 453, July 29,
1983. We agree with the Agency that, while section 228.82 describes the
requirements and circumstances associated with grants to educational
institutions, section 228.84 governs which costs would be reimbursed as
training costs not subject to the ceiling on Title XX expenditures.

Section 228.84 is entitled: "Activities and costs matchable as
training expenditures." Section 228.84 then lists by categories of
trainees, trainers, and types of training activities, what costs will be
matched. Although the first line in that section states that costs
matchable for training expenditures "include," the Board has always
interpreted that language as limiting reimburseable training costs to
those listed in that section. In Decision No. 451, at page 3, we said
that "the word 'include,' in the context of this regulation, can not
reasonably be read as a term of enlargement." /5/ Further, in Decision
No. 453, we said that only those administrative costs specifically
enumerated in section 228.84 are matchable as training expenditures.

The State has not shown why any costs not related to curriculum
development and instruction should be funded under this section.
Therefore, based on the analysis above, we conclude that under section
228.84(i), only costs associated with curriculum development and
instruction can be matched as training costs. /6/

2. Did the State show that CGS costs were associated with
"cirriculum development and instruction"?

The Agency argued that the services performed by CGS were provided
after the training was completed and were not related to curriculum
development or instruction. The Agency maintained that, although the
State argued generally that CGS staff assisted in curriculum development
(5) and instruction, the State did not document such activities. The
Agency said the auditors specifically informed the State that general
comments were not sufficent proof that CGS in fact furnished curriculum
development aid. Tr., p. 10.

The State initially said that CGS processed and maintained trainee
records, issued the CEU certificate, and provided transcripts of
non-credit activity, as well as assisting with curriculum development.
The State later argued that CGS staff were predominantly professional
staff, and much of the CEU process was a curriculum development process.
Tr., p. 9. The State said CGS staff discussed and documented the
objectives of the instructional program and who the instructors would
be, assured that the instructors had proper credentials, indicated at
least in an outline format the content areas and educational approach to
be used based on who would be in these programs, and assured that an
appropriate, sound instructional approach was used. Tr., pp. 8-9. The
State described the technical service costs as: costs of certificates,
file cards, and paper to issue and respond to inquiries about the CEUs.
The State argued that federal officials had always interpreted
curriculum development and instruction in PIQs and program guides to
include a wide range of activities. The State said, further, that it
should not be required "to document without having been asked to
document," arguing that the auditors should have requested more
documentation if what the State had provided was not sufficient. Tr.,
pp. 10-11.

Board's Analysis.

We find that the State has not shown that the disallowed costs were
incurred in connection with curriculum development and instruction
activities. The State's briefs made general claims that the CGS salary
costs were related to curriculum development and instruction, but
described only CGS activities related to the CEU transcripts and
certificates. That description of CGS responsibilities referred mainly
to activities such as processing CEU records and providing transcripts
of CEU activities. The described activities occurred after the
completion of the courses and, therefore, cannot reasonably be said to
be connected with curriculum development or instruction. The same is
true for the technical service costs (costs of certificates, file cards,
and paper to respond to inquiries about CEUs).

During a telephone conference, the State offered a description of CGS
staff activities which could arguably be related to curriculum
development and instruction. However, even that description did not
include any specific information, such as references to courses or
instructors, or relating that description to the disallowed costs.
Without any detailed explanation and supporting evidence, there is no
basis for the Board to find that the activities of CGS staff were in
connection with curriculum development and instruction for courses
directly related to the Title XX program.

(6) We are not persuaded by the State's claim that it is able to
support these costs but did not do so because the auditors did not ask
for additional documentation. Tr., pp. 7, 10-11. First, as we have
said in other decisions, a grantee has the initial burden to document
costs and show that its claim for reimbursement was proper. New York
State Department of Social Services Decision No. 204, August 7, 1981;
New York State Department of Social Services, Decision No. 407, April
14, 1983; New York State Department of Social Services, Decision No.
433, May 31, 1983. Second, the Agency repeatedly informed the State
that it had not provided sufficient specific information concerning the
nature of any curriculum development and instruction activities
involving CGS staff. Audit Report, p. 26; Disallowance Letter, p. 1,
at 1(c); Agency Response, pp. 6, 13-14; Tr., p. 10.

The State did not provide sufficient evidence to prove that the costs
claimed were for curriculum development and instruction related
activities for which reimbursement is appropriate, even though it had
many opportunities to do so. Therefore, we uphold this portion of the
disallowance.

B. Travel and Per Diem costs. $76,596.

These costs are identified on the record as item (3). The Agency
determined that training of less than five consecutive days is part-time
training for which travel and per diem costs are not allowable under 45
CFR 228.84(a) and PIQ 77-88. The Agency also cited Montana Department
of Social and Rehabilitation Services, Decision No. 119, September 20,
1980, which upheld the Agency's definition of part-time training. /7/
There is no dispute that the disallowed costs were for travel and per
diem associated with training of less than five consecutive days. The
issue is whether training that spans less than five consecutive days is
"part-time" within the meaning of section 228.84(a).

1. The Agency's definition of part-time training.

The State asked the Board to reconsider Decision No. 119, arguing
that the regulations and PIQ 77-88 were ambiguous in defining part-time
training. The State noted that the Agency issued four modifications of
PIQ 77-88 in order to clarify its policy on part-time training. The
State argued that no disallowance should be taken for any time prior to
the issuance of the fourth version (7) of the PIQ 77-88 in September
1979, and cited New Mexico Human Services Department, Decision No. 382,
January 31, 1983, as support.

The Agency asked the Board to decide this case as we decided Decision
No. 119. The Agency argued that the PIQ very clearly stated that
"part-time training is training lasting less than a full day even though
it is on a recurring basis or less than a full week even though
including one or more full days." The Agency noted that there is no
contrary definition in the regulations, and since part-time training was
not specifically defined in the regulations, the PIQ was issued to
clarify that point. The Agency maintained that the subsequent versions
of PIQ 77-88 did not change the definition of part-time training.

The Agency said that its position here is consistent with Board
Decision No. 382 because, in that case, the Board did not allow the
Agency to apply PIQ 77-88 until the State had actually received a copy
of it. The Agency said it acted in accordance with that decision and
did not disallow costs for any period prior to this State's receipt of
the PIQ in October 1977. Tr., p. 13.

Board's Analysis.

We find that the State has not presented any persuasive arguments why
the Board should not here rule as it did in Decision No. 119. In that
case the Board said that the Agency articulated its policy with respect
to reimburseable training costs in PIQ 77-88, and that actual knowledge
of the Agency's policy interpretations was sufficient to bind a state to
their terms. The Board there held that, when a state received actual
notice of the PIQ, it was bound by the interpretation that training of
less than five full days was part-time, and therefore, not eligible for
FFP in travel and per diem costs. The Board has upheld that decision in
several other cases. E.g., Alabama Department of Pensions and Security,
Decision No. 128, October 31, 1980; Wisconsin Department of Health and
Social Services, Decision No. 379, January 27, 1983.

We are not persuaded by the State's argument that it did not have
actual notice when it received a copy of the PIQ in October 1977 because
the PIQ was confusing or because the Agency issued four versions of PIQ
77-88. We find that the PIQ clearly stated the Agency's position. The
PIQ raised the question:

Are full-time, short term, in service training activities of less
than one week eligible for FFP under 228.84(a)(2)? (emphasis supplied)

The response was direct: "No they are not." PIQ 77-88, p. 2. The
PIQ said further that only education costs were allowed for part-time
(8) training, defined as "less than a full day even though on a
recurring basis or less than a full week, even though including one or
more full days . . . ." PIQ 77-88, p. 3. The later versions were merely
addenda to the primary document and neither added to nor subtracted from
the language defining part-time training in the initial issuance.

We also reject the State's reliance on Decision No. 382 in support of
its position that no disallowance should be taken prior to September
1979. The Board in Decision No. 382 followed the analysis in Decision
No. 119 and held that the disallowance could be taken only from the date
on which the state received actual notice of PIQ 77-88. In that case
the record indicated that the State received actual notice in March
1979, and the Board held that the State was not bound by the PIQ prior
to that date. In this case, the State was sent a copy of PIQ 77-88 in
October 1977. Since the Agency did not disallow FFP in travel and per
diem costs prior when the State here received its copy, the Agency acted
consistently with Decision No. 382.

2. Other arguments why the Board should reverse Decision No. 119.

The State argued that if the Agency was changing its policy it should
have done so by regulation rather than by using a PIQ. The State said
that it had been the Agency's practice to allow travel and per diem
costs for training as long as it was one full day and that the State had
in fact received FFP for that type of cost.

We agree with the Agency that PIQ 77-88 was a policy interpretation
meant to clarify a term used in a regulation. Interpretive rules can be
used to explain the meaning given by the Agency to a particular word or
phrase in an Agency regulation. See Batterton v. Marshall, 648 F.2d 694
(1980). Further, as we said in Decision No. 119, at p. 4, published
policy statements (such as a PIQ) represent a valid definition of those
training costs eligible for federal sharing. We find that the State has
not made any persuasive arguments why the Agency can not use the PIQ
format to clarify section 228.84(a), which does not define part-time
training.

We also find that it is not relevant that the State may have been
paid for training of less than five consecutive days. The Agency
explained that it did not review payments for travel and per diem costs
until the audit process, and that the auditors did not look at any
period prior to October 1977 (when the State received the PIQ) because
of previous Board decisions on that matter. Tr., p. 24.

Further, the State's argument that these costs should be allowed
because it relied on past Agency practice in making its contract with
SUNY, is not persuasive. The State has not shown that it could not have
renegotiated the contract. As we said in Decision No. 119, at page 6,
"it probably would have been inconvenient to (9) reschedule training for
the first month or two followed notification of the duration
requirement, but there is no obvious reason why it could not have been
done." As the Agency pointed out, in this case, the State was able to
amend its contract with SUNY for other purposes; the State did not show
why it could not likewise amend the contracts to accommodate PIQ 77-88.

The State also claimed the costs should be allowed because, when the
first PIQ was issued, a regional Agency representative told the State
that the PIQ was contrary to the intent of the language in the
regulation and told the State to disregard it.

We are not persuaded that the appeal should be granted even if
regional officials made such representations. The State here was on
notice of the Agency's interpretation of part-time training in PIQ
77-88. We have said that if the State choise to disregard a definitive
interpretation officially issued by the Agency, "the State assumed the
risk of the disallowance by relying on statements made by regional
program officials which were contrary to the interpretation in PIQ
77-88." Washington Department of Social Services, Decision No. 336, June
30, 1982, p. 8.

The State also argued that there is no basis for distinguishing
between full day training of more or less than one week, and said the
Agency should apply Internal Revenue Service and U.S. Department of
Labor travel policies. The Agency argued that the IRS and Department of
Labor regulations are irrelevant to this determination. We agree. The
Board is bound by applicable laws and regulations, and here the Agency
has by regulation stated its policy on what costs will be reimbursed.
(See discussion of section 228.84, above.) The State has not shown that
the Agency's interpretation of the regulation is unreasonable. We will
not reverse a disallowance because the State profers a reasonable
interpretation of a regulation, without a showing that the Agency's
interpretation is unreasonable.

C. Subcontracts -- Expert Training Support Costs. $21,744

These costs are identified in the record as item 4 (a). /8/ The
Agency determined these support costs were not allowable under section
228.84(c)(1) and (g)(1), which the Agency said governed claims for costs
incurred by outside experts. The costs were (10) incurred in connection
with a contract between SUNY and the Parsons Center, a child and family
center. The Parsons Center contracted to develop and conduct an
adoption training program for agency caseworkers. /9/ The contract also
called for Parsons to establish a training laboratory for graduate
students in social welfare in the adoption area. Audit Report, p. 37.

The State argued that, since the expenditures were paid to an
educational institution (SUNY) rather than an expert, provisions at
228.84(c)(1) did not apply. The State said that 228.82 allows grants to
educational institutions and does not restrict the costs in the same
manner as section 228.84. The State also argued that PIQ 78-2 allows
the educational institution to subcontract portions of its training
program without requiring that the costs be limited to those in sections
228.84(a)(1) and (c)(1). The State argued that the Title XX Guide to
FFP, issued June 1980, does not prohibit subcontracting, or claiming for
the costs at issue.

The Agency agreed that SUNY could subcontract with Parsons Center to
provide some of the training SUNY was to provide. The Agency
maintained, however, that, since Parsons is not an accredited
educational institution, it does not meet the requirements for payments
to an educational institution, and must, therefore, be treated as an
outside expert. The Agency cited Colorado Department of Social
Services, Decision No. 243, December 31, 1981, to support that position.
The Agency said that regulations at 45 CFR 228.84(c)(1) limit FFP to
salaries, fringe benefits, travel and per diem costs of the expert
trainer. The Agency asked the Board to reconsider its ruling in
Pennsylvania Department of Public Welfare, Decision No. 451, July 29,
1983. There the Board held that the State may receive reimbursement for
costs specified in (c)(2) even when such costs were incurred by outside
experts. The Agency argued that there would have been no need to devide
section (c) into two parts if the costs for outside experts could be
funded under both (c)(1) and (c)(2). The Agency said that if outside
experts could be reimbursed for supplies and materials, allowed under
(c)(2) but not (c)(1), the trainers could use those materials for other
activities beyond the contract. The Agency said that there should be no
FFP in expenditures for things the trainer can use again.

(11) Board's Analysis.

We find that the Agency properly determined that these costs were
incurred by an expert trainer, rather than an educational institution,
but as we held in Decision No. 451, costs described under section
228.84(c)(2) as well as (c)(1) are allowable even if incurred by an
expert trainer.

Under section 228.84, the type of cost that will be reimbursed
depends on the length of the training, and who are the trainer and the
trainee. Ordinarily, costs described at section 228.84(i) can be
claimed under grants to an educational institution such as SUNY. Here,
however, because SUNY contracted with Parsons to conduct a portion of
that training grant, section 228.84(i) does not apply. For the State to
receive funding for training conducted by an educational institution,
the institution must meet all the requirements in section 228.82. See
Colorado Department of Social Services, Decision No. 243, December 31,
1981. One requirement is that the institution must be accredited.
Section 228.82(a)(2). Since it is undisputed that Parsons was not an
accredited educational institution, the State can not be reimbursed
under section 228.84(i) for training conducted by Parsons. Although the
State relied on PIQ 78-2 in support of its position, PIQ 78-2 provides
that when an educational institution subcontracts to have another
institution perform the training function (rather than just assisting
the grantee) that institution must meet the definition of an educational
institution under section 228.82 in order to receive funding under
section 228.84(i).

Further, the Agency has not presented any arguments that persuade us
to reverse our holding in Decision No. 451 that the State may receive
FFP in costs listed at section 228.84(c)(2) even if incurred by outside
experts. /10/ We do not agree with the Agency's claim that, because
(12) subsection (c) was divided into two parts, FFP in costs of State
agency training activities incurred by outside experts are permitted
only if the costs are the type described in (c)(1). /11/ Subsection
(c)(1) relates to reimbursement of personnel costs, while (c)(2) relates
in general to the costs of space and materials. These types of costs
are mutually exclusive. We note that in the description of the types of
costs allowed when State agency staff conduct the training (section
228.84(b)), the costs listed are the same as the personnelcosts for
outside trainers in 228.84(c)(1). Yet, the State may be reimbursed for
costs described in (c)(2) when training is conducted by personnel
described in 228.84(b), as costs of State agency training activities.

Since both 228.84(c)(1) and (c)(2) are listed under the heading of
"state agency training activities," it is reasonable to conclude that
training conducted by an outside expert, referred to in (c)(1),
constitutes a state agency training activity. Thus, as we said at p. 4
of Decision No 451, "the costs specified in section 228.84(c)(2), which
in its text refers to state agency training activities, are allowable
even if incurred by an outside expert as opposed to the state itself."

Therefore, within 15 days of receiving this decision (or such greater
time as the Agency allows), the State should provide the Agency with
information showing which of the disallowed costs the State believes are
allowable under 228.84(c)(2) and (g)(2). Although the parties
interchangeably referred to the applicable regulations as section
228.84(c) and (g), (c)(2) allows certain costs not allowed under (g)(2).
The State must, therefore, distinguish whether particular costs were for
"state agency training activities" under (c) or "provider agency
activities" under (g). If the Agency does not accept the State's claim,
the Agency should, in writing, explain to the State why. The State may
return to the Board to contest the Agency's written determination within
15 days of receiving it.

Except as we discussed above we uphold the remaining disallowance of
subcontractor's costs.

(13) D. Tuition and Fees. $5,299

These costs are identified in the record as item (7). The costs
included tuition of $4,739 for ten State employees enrolled in graduate
courses in Business and Public Affairs at SUNY, and $560 in student
health fees for certain unidentified students enrolled at SUNY. Audit,
p. 54.

1. Tuition Costs.

The State argued that these costs could be charged to Title XX and,
in the alternative, that the costs were not in fact charged to Title XX.
Further, the State argued that, since the State had already been
reimbursed for these funds, it was the Agency's burden to show that the
State claims were invalid.

(a) Can these costs be charged to Title XX?

The State argued that costs of a class may be charged to Title XX as
long as two or more Title XX eligible students were enrolled in the
class. The State said at least two Title XX students were enrolled in
each class at issue here. The State cited an Agency letter and Board
Decision No. 382, supra, for the proposition that as long as there are
two students from the Title XX program being trained, the costs can be
allocated to Title XX. Appeal Brief, Exhibit O. The State also argued
that the regulations permit the costs of curriculum development and
education, and that tuition costs are part of curriculum development and
field instruction, and, therefore, should be allowed.

The Agency argued that section 228.81 governed FFP in training costs
of individuals whose jobs are directly related to Title XX. The Agency
said the State charged to Title XX costs of employees who worked in
areas unrelated to Title XX, or related only indirectly. The Agency
said these employees worked with Medicaid, personnel assistance, income
maintenance, and manpower training.

Further, the Agency explained that, if a course is directly related
to Title XX, the costs of the course can be charged entirely to Title XX
as long as at least two Title XX eligible employees are enrolled. If a
course cuts across program lines, however, the Agency said the costs
must be allocated among those programs. The Agency said that the
courses at issue -- Business and Public Affairs courses -- were not
directly related to Title XX. The Agency said further that the letter
to which the State referred concerned supplies, not tuition costs.

(14) Board's Analysis.

We find that these tuition costs can not be charged to Title XX. The
State did not dispute the Agency's claim that the particular employees
whose costs were disallowed were not Title XX employees and that the
subject matter of the courses was general management rather than
specific to Title XX.

Although there may be situations where, even when non-Title XX
students are also enrolled, the costs of a course can be charged
entirely to Title XX under section 228.84(i), we are not here dealing
with the costs of producing a course. The disallowance here concerns
tuition costs for employees enrolled in certain courses. Under section
228.84(a) FFP is available for tuition costs of State agency employees,
but section 228.81 limits which employees may be trained and reimbursed
under Title XX. Section 228.81 states:

FFP is available for training only the following individuals: (a)
State agency staff employed in all classes of positions which directly
rrelate to the operation of Title XX programs.

It is undisputed that the employees here did not hold "positions
which directly relate to Title XX." Therefore, we find that there is no
basis for charging these tuition costs to Title XX.

(b) Were these costs charged to Title XX?

Having determined that these costs may not be charged to Title XX, we
move to the State's alternate argument. The State said that it had
several contracts the costs of which were allocated between Title XX and
non-Title XX programs, and that Title XX was only charged costs of Title
XX staff. The State said it estimated the number of people from the
various programs (Title XX and non-Title XX) who would be attending a
course and using those figures, developed a percentage of costs to be
allocated to each program area. Tr., p. 28. The State said that
vouchers on which the Agency relied were from SUNY to the State for its
actual costs of providing training. The State said SUNY is not
obligated to divide those vouchers among the various titles and
programs; that was the State's responsibility. The State argued that
the auditors had not met their primary burden of justifying what was
disallowed enough to shift the burden to the State to show that it did
not charge the costs to Title XX. Tr., p. 33.

The Agency said that the auditors traced these costs as having been
charged to Title XX based on quarterly expenditure reports and certain
vouchers which the auditors determined were charged to Title XX. Tr.,
pp. 34, 48, 52, 53. The Agency said that it provided the State with the
voucher number and contract number to show which costs the Agency
considered charged to Title XX. Disallowance Letter, item 7.

(15) The Agency said it was the State's burden to refute the
auditors' findings that these costs were charged to Title XX, and cited
45 CFR 74.61(b) and (g), and Board Decisions No. 204 and 407, concerning
the State's burden to document.

Board's Analysis.

The State has not presented evidence to show that these costs were
properly charged; instead the State argued that it was unable to show
that these costs were not charged to Title XX because the Agency had not
met its burden to show that these costs were charged to Title XX. We
are not persuaded by this argument and find that the State has not
sufficiently justified its claim for federal funding. As we have said
in order decisions: "the State has the initial burden to . . . show
that the claim for reimbursement is proper." New York State Department
of Social Services, Decision No. 204, August 17, 1981, p. 5. We also
said:

"the burden of establishing the allowability of costs (is) on the
grantee. . . . Accordingly if an audit report makes findings that
certain costs or claims for expenditures are not proper, the standards
discussed above impose an obligation on the grantee to show in response
to its audit report that its claim is proper. Id.

Further, federal cost principles require that the State be able to
show that costs claimed are necessary and reasonable for the
administration of the grant program, are allocable to the program, and
are incurred for the benefit of the program. 45 CFR Part 74, Appendix
C, Part I, C.1. Therefore, even if the State believed it did not have
sufficient information to refute specific audit findings, the State
should be able to justify its claim, independent of any audit
determination. The State, however, did not offer any evidence to
justify its claims. /12/

(16) We reject the State's argument that it did not have sufficient
information about the disallowed costs to be able to defend its claims.
The auditors identified the claims which they determined were improperly
made against Title XX. They explained how the determination was made
and provided the State with information concerning the contract number
and the voucher number relating to the disallowed costs. Although the
State argued that these documents do not indicate how the costs were
claimed, the Agency never asserted that the auditors based their
determination solely on the existence of these documents. The Agency
said that it used these documents to trace the costs to the State's
expenditure reports, which would reflect the program to which these
costs were charged. The State did not submit any evidence or arguments
which persuade us that the auditors' methods or findings were
unreasonable.

2. Student Health Fees.

The Agency said that the regulations which provide FFP in educational
costs specify reimbursement for books and supplies, and do not provide
for costs of fees. Section 228.84(a)(1) and (e)(1). Further, the
Agency argued that the State did not identify the students or their
course enrollment, even after the auditors noted the lack of that
information as a basis for disallowing the costs.

The State said that, since the health fees were part of the costs
required by SUNY, they should be allowed. Tr., p. 34. The State said
that costs associated with contract agreements with colleges and
universities should be interpreted in a very broad sense and any
legitimate administrative costs, such as those associated with student
health fees, could be reimbursed. The State said it would be easy to
identify the students and courses associated with these costs.

Board's Analysis.

We find there is no basis for charging student health fees as Title
XX training costs. As we discussed at pages 3-4 of this decision, FFP
is limited to those types of costs described in section 228.84. There
is no provision in that section for the costs of student health fees.
We agree with the Agency that section 228.84(a) defines allowable
education costs as tuition, books, and supplies. We also find that this
record does not include sufficient information for us to determine
whether the students for whom these health fees were paid were Title XX
eligible. The Agency on several occasions said that it did not know the
identity of these students; the State said it could identify them, but
the State never provided that information. However, that is not now
relevant since we find that regardless of the identity of the students,
FFP is not available for these health fees.

(17) E. Overallocation of costs to Title XX. $197,980

These costs are identified in the record as item (9). The auditors
reviewed anumber of courses funded under the SUNY contracts which
addressed needs that benefited both Title XX and non-Title XX
participants. The auditors determined that Title XX was improperly
charged a portion of training costs of other programs because the State
allocated training costs based on estimates of who would be trained,
without adjusting the allocation to reflect actual enrollment.

The State raised arguments concerning: (1) the need to formally
adjust figures to actual; (2) the Agency's methods in determining the
overallocation; and (3) other reasons why the appeal of these costs
should be granted. We will discuss them separately below.

1. Did the State claim based on estimated rather than actual
enrollment data?

The State argued that it did not adjust estimated counts of who would
be attending courses from the various program areas to actual because
contractors generally adhered to the contracts and insured that the
appropriate number of staff from program areas participated. Tr., p.
10. The State argued that "our figures would show that who did actually
attend and who was planning to attend were pretty close, if not the
same." Tr., p. 42.

The State also argued that it did not use estimates to make this
allocation. Tr., p. 46. The State said that it did review its claims,
and argued that it should not be penalized simply because it did not
submit a statement saying that, having compared estimates to actual
figures, nothing needed to be changed. The State argued that
Pennsylvania Department of Public Welfare, Decision No. 451, January 29,
1983, did not apply in this case because the State here claimed based on
actual costs.

The Agency argued that the State can not, as it did here, use cost
allocations developed at the beginning of each contract period which
were never adjusted to reflect actual enrollment. The Agency argued
that in Decision No. 451, the Board upheld a disallowance of costs
allocated based on budgeted figures which were never adjusted to actual.
The Agency said the Board's analysis in that case applies here. The
Agency also noted that the State has since developed a system to adjust
to actual.

Board's Analysis.

The State has not made any persuasive arguments why it is
unreasonable to require that the State claim costs based on figures of
who actually (18) attended classes, rather than just based on estimates
of who was expected to attend. The State did not cite any authority to
support that method of claiming costs, or otherwise explain why it is an
unreasonable burden to adjust estimated enrollment to actual at the
completion of the training contracts. We said in Decision No. 451 that
a state is only entitled to be reimbursed for its acual, as opposed to
estimated, expenditures. The State has not here shown why that should
not apply in this case. Although the costs claimed under the SUNY
contracts are not estimated in the sense that they represent the actual
total expenditures of the various programs under the contracts, they do
represent estimates of expenditures under Title XX.

In fact, although the State initially argued that it did not have to
make an adjustment to actual, the State later argued it had made the
adjustment without actually reflecting the change because the figures
were so similar. However, there is no evidence in the record to show
that, at the completion of the contracts, the State (or SUNY) reviewed
enrollment figures to determine who was expected to attend, who did in
fact attend and whether the program areas were represented in the same
proportions as the State estimated at the beginning of each contract.
If the State did perform such a review, the State should have presented
evidence to support its unsubstantiated claim.

Therefore, we uphold the Agency's determination that the State must
adjust its claims to reflect actual enrollment. The remaining issue is
whether the amount of the overcharge was properly calculated.

2. Did auditors properly compute the overcharge to Title XX?

The Agency explained that the overcharge was computed by comparing
what was actually allocated to Title XX on the State's quarterly
expenditure reports with the auditors analysis of costs which they
believed were appropriate Title XX costs.

The State argued that, even if we find that the State's claim must be
adjusted to reflect actual enrollment, the use of estimates would not
account for the Agency's finding that $197,980 was overallocated to
Title XX. The State said that the allocation process involved a great
many judgments about the nature of the courses and the trainees. The
State argued that the Agency may have determined that the State
overallocated costs because of how the auditors characterized the job
classifications of the trainees. The State argued that the Agency never
provided the State with information about the auditors' determinations
with respect to specific employees, and therefore, the State has been
unable to defend against the disallowance.

(19) The State also claimed that, when the auditors allocated the
costs they considered chargeable to Title XX, the auditors merely took a
head count of Title XX and non-XX trainees, failing to account for
variations in attendance on an activity basis and for differences in the
costs per activity.

The Agency rejected State arguments that its allocation method and
determinations were inappropriate. The Agency said that, to determine
there was an overallocation, it used allocation methods similar to the
State's method. /13/ The Agency explained the auditors' procedures, as
follows. First, the auditors determined which training programs could
be charged entirely to Title XX because they were directly related to
that program, and which should be excluded from Title XX charges because
they were directly related to non-Title XX programs. The auditors then
reviewed the courses which benefitted more than one program and
developed cost allocation percentages which, according to the Agency,
allocated costs based on actual benefits derived by each program (32.4%
for Title XX; 67.6% for non-Title XX training). Audit report, p. 64.
The auditors determined the extent of benefit by visiting 22 of 27
county offices and reviewing personnel and work files for 192 trainees
who attended the training sessions. The Agency said that the auditors
decided how to characterize employees based on a determination process
used in allocating the State's administrative costs to the various
programs. Tr., p. 44. The auditors also reviewed the salaries paid
trainers, based on the trainers' area of responsibility. /14/

The Agency argued that auditors allocated to each benefiting program
its appropriate share of the costs, as required by OMB Circular A-87,
which provides that costs be allocated to a particular cost objective
only to the extent of benefits received by that objective.

Board's Analysis.

We find that given the circumstances and the information available to
the Agency, it made areasonable effort to reallocate that State's costs
based on actual enrollment. Further, we note that the Agency (20) on
several occasions said that it would have considered alternate
allocation methods, but the State did not propose any. In addition, we
find that it is reasonable for the Agency to use the State's existing
process for allocating administrative costs to determine the extent to
which an employee is a "Title XX employee" for purposes of allocating
training costs.

However, we also find that the State raised legitimate questions
about its ability to refute the auditors' determinations here. /15/
Although, as we have said in several other parts of this decision, the
State has the burden to document its claims, the State must have have
sufficient information about the nature of the auditors' findings to be
able to understand and, if necessary, challenge, those findings. The
State here claimed that it did not have such information. In our
discussion of burden in other parts of this decision, we said that the
State could not claim it lacked sufficient information to rebut where
the Agency made repeated references to the specific costs disallowed and
to the basis for that determination. Here, however, the focus has been
on the State's failure to allocate based an actual enrollment figures
rather than on the Agency's method in computing the overallocation. The
audit report does not state that the Agency used the State's process for
allocating administrative costs; rather, the report implies that the
auditors made independent determinations based on reviews of employee
records in county offices. Audit Report, pp. 63-65. The Agency also
said it allocated "by analyzing the workload of each person who attended
the training course." Tr., p. 42. The first mention that the Agency
"piggy-backed" on the State's process for allocating administrative
costs was near the conclusion of a telephone conference we had after all
briefs had been filed. Tr., p. 44. We, therefore, find that it is
plausible that the State was confused about how the Agency computed the
amount overallocated to Title XX.

Since the focus of the auditors and the Agency's explanation in
taking this disallowance was on the issue of estimated versus actual
enrollment, we have decided to remand this portion of the appeal to
allow the State to review the Agency's methods and findings in computing
the amount determined to be overallocated to Title XX. The Agency
should cooperate with the State's review by providing the State
information concerning exactly how the auditors' made their findings,
for example: (1) Name the trainees and courses which were the basis of
the auditors' determinations; (2) State the (21) percentage of Title XX
benefit that was attributed to each named course and trainee and exactly
how that percentage was determined; and (3) State how the auditors then
determined the overall percentage of benefit to Title XX.

Although we are asking the Agency to provide that information, we
emphasize that the burden is on the State to show that the auditors'
determinations are incorrect, and to demonstrate what amount of the
disallowed costs may be charged to Title XX. The State should make that
showing to the Agency within 15 days of receiving the information
discussed above (or within such greater time as the Agency allows). If
the Agency does not accept the State's claim, the Agency should, in
writing, explain to the State why. The State may return to the Board to
contest the Agency's written determination with 15 days of receiving it.

3. Other State arguments about this part of the appeal.

The State also argued that at least two Title XX students attended
each of these classes, and therefore, all costs can be claimed under
Title XX. The State cited as support a letter from an Agency official.
State's Exhibit O. The State argued, further, that Title XX was
primarily benefited by this training, therefore the costs can be charged
to Title XX even if other programs incidentally benefited. The Agency
said that only if a course is directly related to Title XX can its costs
be charged entirely to that program when two Title XX trainees enrolled.
The Agency said the letter on which the State relied is consistent with
that position. The Agency quoted from page 3 of the letter:

In instances where the State Agency provided training grants to
institutions of higher learning to address needs that cut across program
lines. . . costs must be allocated between the several titles.

The Agency said the auditors only looked at courses which benefited
more than one program in developing the cost allocation percentages.

The State also argued that, even if these costs were inappropriately
charged to Title XX, the Agency should not require the State to allocate
expenditures to another title because "it would be an exercise in
futility since the same amount of reimbursement would accrue." Appeal
Brief, p. 11. Further, the State said that, if it is required to
allocate to titles other than XX, the two year limit in Section 306 of
the Adoption Assistance and Child Welfare Act should not apply. The
State requested that the Agency invoke the audit exception at 306(a)(
2).

(22) The Agency argued that the federal share of the SUNY contracts
must be properly allocated to the benefiting program. The Agency
maintained that OMB Circular A-87, Section C.2, provides that any cost
allocable to a particular grant may not be shifted to other federal
grant programs to overcome grant deficiencies, avoid restrictions
imposed by law of grant agreements, or for other reasons.

Board's Analysis.

We reject both of the State's arguments. Sections 228.82 and 228.84
clearly state that FFP is available for educational programs directly
related to the Title XX program and the provision of services. The
State's argument, that any time two Title XX students are enrolled in a
course the entire costs of the course should be charged to Title XX, is
inconsistent with the regulations and would lead to absurd results.
Under the State's interpretation, any time two Title XX students were
enrolled in courses of general interest, or even if the courses
specifically related to another program, the costs would be charged to
Title XX. As the Agency noted, the letter on which the State relied
does not support the State's position. Further, although the State
argued that these courses primarily benefited Title XX, with incidental
benefit to other programs, it provided no evidence or information to
support that claim. The Agency explained that it had excluded from this
overallocation computation those courses which could be charged entirely
to Title XX because they were directly related to that program.

We are also not persuaded by the State's "all from the same pot"
argument. First, although the State claimed that it would receive the
same amount of FFP even if these costs were allocated among other
titles, the State did not provide any information or evidence to support
that claim. And, in any event, the cost principles at 45 CFR Part 74
and OMB Circular A-87 require costs be allocated to programs only to the
extent of benefit received by each program.

We do not here decide whether these costs are allowable under other
Agency programs. Agency auditors made determinations only with respect
to whether these costs were allowable under Title XX; they did not
review whether the costs can be claimed under other federal programs.
Audit Report, p. 6. It is premature for the Board to rule on whether
the State can be reimbursed under other titles of the Social Security
Act, since no claim has been made under those titles and no final
decision has been issued denying such a claim.

F. Supplies and Materials. $10,867

Equipment Charges and Repairs. $2,653

The record identified Supplies and Materials as item (10), and
Equipment Charges and Repairs as item (11). The Agency disallowed (23)
these costs as unrelated to Title XX since costs included production and
updating of video tapes dealing with situations that may arise during
food stamp interviews (no. 10) and the cost of program charts designed
for training food stamp program staff (no. 11). The State argued that
the food stamp training was not charged to Title XX. The State
maintained that the contract costs were divided among Title XX and other
programs, and that the vouchers cited by the Agency were not charged
exclusively to Title XX.

The Agency said that the auditors found that these costs had in fact
been charged to Title XX. Exhibit B, p. 40, 51. The Agency said that
the vouchers for these costs were traced to quarterly expenditure
reports representing claims to Title XX. The Agency maintained that the
State was supplied with specific information concerning the disallowed
costs and that it was the State's burden to show that it claimed
properly. The Agency asserted that it was not enough for the State to
make a general reference that these costs were divided among the various
programs. Further, the Agency said there was no reason to "split charge
these costs"; the Agency said these costs should have been charged
entirely to non-title XX programs.

Board's Analysis.

We find that these costs are unallowable charges to Title XX and that
the State has not shown that these costs were not charged to the Title
XX program. The Agency has repeatedly provided the State with the basis
of its disallowance of these costs and with its determination that these
costs were traced as charges to Title XX. Audit Report, pp. 40, 51;
Response Brief, pp. 28-29; Tr., p. 49. The State has not refuted the
Agency's claim that none of these costs should have been allocated to
Title XX since they do not benefit the Title XX program. Further, as we
have already said in this decision, if the auditors raise reasonable
objections to the claims, the State has the burden to show that it
claimed properly. The State's only argument in support of its position
is that the Agency has not offered sufficient information to allow the
State to rebut. However, the State has not shown that it made any
effort to support its claim. The Agency explained how the auditors
traced these costs to Title XX expenditure reports. Tr., pp. 49-55.
See also, footnote 12 of this decision. The State did not, in response,
show that the auditors made incorrect determinations, or otherwise show
that the State properly claimed its costs. It is not enough for the
State to merely claim that costs were not charged to Title XX without
making some additional effort to support that claim.

(24) IV. Conclusion.

Based on the analysis above, we uphold the disallowance of items
characterized in the record as 1(c), 6(a), 3, 7, 10, and 11, totalling
$119,312 in FFP.

We also uphold the disallowance of the costs claimed for item 4(a),
except for that portion of the $21,744 which the Agency determines is
allowable under 45 CFR 228.84 (c)(2) or (g)(2), persuant to our
instructions at pages 11-12.

Furthermore, in accordance with the discussion at pages 19-20, we
remand item 9 and direct the Agency to disclose to the State information
concerning exactly how it determined the amount of the overallocation
and to allow the State to challenge that determination. /1/ Of the
$484,676 initially appealed, the State withdrew its appeal of
$77,915 (Appeal Brief, p. 2; Tr., p. 27) and the Agency withdrew its
disallowance of $67,725 (Response Brief, p. 3; Tr., p. 25).
/2/ The period covered by the audit is 1975 to 1977, and although 45 CFR
Part 228, Subpart H, was amended January 1, 1977, 42 Fed. Reg. 5848, we
will refer to the 1977 version of the regulations in this decision
because the parties cited that version. The parties agreed that the
changes in the regulation during the disallowance period are not
material to the issues raised here. Tr., p. 3. /3/ The parties agreed
that, although the State contracted with SUNY for training, the
regulations governing grants to educational institutions apply here.
Tr., pp. 4-5. Section 228.82(a)(1) provides in part that FFP is
available in payments for training furnished under grants to educational
institutions if the grants are made "(ii) For an educational program
(curriculum development, classroom instruction and related field
instruction) that is directly related to the Title XX program and
provision of services." /4/ Section 228.84 provides: (i)
Payments to educational institutions. Under conditions specified in Sec.
228.82, for curriculum development, classroom instruction and field
instruction: salaries, fringe benefits and travel of instructors;
clerical assistance; teaching materials and equipment --for example,
books and audio-visual aids. /5/ Although in Decision No. 336
the Board said that educational programs can be more than curriculum
development and instruction, there we were deciding whether a particular
grant was for an educational program as defined by 228.82, not what
types of costs would be allowed under that grant. /6/ We do not
here decide whether these administrative costs are allowable under
section 228.90, which is subject to the ceiling on Title XX costs.
/7/ The Agency said that it disallowed costs only for the period after
the State received a copy of PIQ 77-88 on October 27, 1977, in
accordance with Decision No. 119. That decision said the Agency could
not disallow costs based on PIQ 77-88 until such time that the State had
actual notice of the PIQ. /8/ During the course of the appeal, the
parties resolved their differences concerning $20,962 of the
$42,706 originally disallowed, thus leaving in dispute $21,744. The
State withdrew its appeal of $9,229 (Appeal Brief, p. 2; Tr., p. 27)
and the Agency withdrew its disallowance of $11,733 (Response Brief, p.
3; Tr., p. 25). /9/ Both parties referred to section 228.84,
subsections (c) and (g), as governing the allowability of the disputed
costs. Subsection (c) refers to state training activities, subsection
(g) refers to provider agency training activities. In the Board's
analysis of this issue we will refer to subsection (c) only as a
convenience. We do not by this reference imply that subsection (c) is
the controlling regulation for all disallowed subcontractor costs. As
we will discuss later, the parties will have to decide which is
applicable to the training costs here disputed. /10/ The Agency
argued, as an example of costs which should not be reimbursed under
(c)(2), that if an outside trainer purchased slides for a training
course, the cost of those slides should be borne by the outside expert
who could reuse the slides. This example, however, raises a substantial
question of whether the State would be incurring a necessary and
reasonable cost, allowable to Title XX training, if the State were to
bear the total cost of slides which simply were shown during a training
course. In Decision No. 451, we recognized that the State is not
precluded from receiving FFP for the types of costs listed in (c)(2)
merely because the State incurs the cost through payments to an outside
expert. However, neither that decision, nor this one, renders
inapplicable the requirements that costs be directly related to Title XX
to be claimed as training costs, and that costs claimed must be
reasonable, necessary and allowable. /11/ Section 228.84 provides: (c)
State agency training activities, (1) For experts outside the
State agency engaged to develop or conduct special programs: salary,
fringe benfits, travel and per diem; (2) For state agency training
activities directly related to Title XX program, including cost of use
of space, postage, teaching supplies, and purchase or development of
teaching materials and equipment -- for example, books and audiovisual
aids. /12/ The Agency determined that these costs were charged
to Title XX by reviewing all the State's claims under these contracts
with SUNY. The Agency first separated from the State's claim of $4.3
million FFP those costs which were to be charged entirely to non-Title
XX programs and those costs which were to be charged entirely to Title
XX. The auditors then made determinations about how to allocate the
remaining costs. The Agency's claimed that these tuition costs should
have been charged entirely to non-Title XX programs because they were
for non-Title XX personnel enrolled in courses which were not directly
related to Title XX. The method of allocating costs which benefited
multiple programs is discussed at pages 16-20 of this decision, where we
discuss the Agency's determination that the State overallocated $197,980
to Title XX. /13/ The Agency specifically said it did not have
aproblem with the State's method of cost allocation, just with the use
of estimated figures. Agency Response, p. 33. The Agency explained
that it took this disallowance "in the absence of alternate methodology"
from the State. Disallowance letter, item 9. /14/ The Agency
explained that it used these methods to review the State's claim because
the State did not provide a breakdown by cost category of the
expenditures under the contract, except to show that of the $4.3 million
in FFP claimed, $3 million was charged to Title XX. Tr., pp. 48-49, 55.
/15/ The State described the type of information it needed to understand
the disallowance, as follows: "the names of the people that they
allocated in which fashion and to where -- how they derived the formula,
whether they used total overall costs to particular costs of of the
program, . . . ." Tr., p. 45.

NOVEMBER 14, 1984