GAB Decision 725
March 7, 1986
Ohio Department of Health and Human Services;
Garrett, Donald F.; Teitz, Alexander G. Settle, (John) Norval D.
Docket No. 84-256;
Audit Report No. OH-81-AC
The Ohio Department of Human Services (State) appealed a
determination by the Office of Child Support Enforcement (OCSE, Agency)
to disallow $1,350,572 in federal financial participation (FFP) for
operation of its child support enforcement program under Title IV-D of
the Social Security Act (Act) for fiscal year 1981 and prior periods.
The parties have since reduced the amount in dispute to $1,254,170 FFP.
The remaining amount in dispute relates to the State's delegation of the
operation of its program to two counties, Summit and Lucas Counties. /1/
For reasons further explained below, we uphold the Agency's
disallowance
/2/ as it relates to Lucas County because the state failed to
document
that it had repaid to the Agency certain overpayments.
For Summit County, the Board had issued a draft decision
which
tentatively upheld the disallowance based on the record developed
to
that point. Our draft decision did so primarily on two bases:
first,
that the State's implementation of requirements related to
cooperative
agreements was inadequate; and second, that that failure -
albeit
arguably a technical one - nevertheless appeared to reflect
a
substantive failure to assure proper oversight of the use of IV-D
funds.
In response to the draft decision, the State enhanced its arguments
and
presented a better-developed record for Board consideration. In
regard
to the first basis, as we explain below, the State has shown that
there
was a fully reasonable interpretation of OCSE regulations which, in
the
facts of this case, did not render the State's action inadequate in
the
way we originally found. In regard to the second basis, the
State
brought to our attention various State statues and administrative
rules
governing the ongoing operation of the IV-D program in Ohio which,
when
coupled with the audit process used by the State here and other
factors,
showed that our concerns about accountability were not
substantiated.
These determinations, highlighted by the fact that the Agency
has found
no actual improper expenditures in Summit County from the funds
in
question, lead us to conclude that our draft decision was incorrect
and
that the disallowance is improper.
I. LUCAS COUNTY
The Agency's disallowance of $7,674 FFP for Lucas County corresponded
to
several items which federal auditors found were overpaid by OCSE to
the
State. See November 28, 1984 Notice of Disallowance, pp. 2-3;
State's
Opening Brief, pp. 4-5, for a listing of the contested items.
The State
argued that the $7,674 was in fact repaid by the State to the
Agency and
that the disallowance should therefore have been reduced by this
amount.
We uphold the Agency's disallowance for Lucas County, since we find
that
the State has not presented sufficient evidence that any repayments
were
made by the State to OCSE for the items in dispute. With the
exception
of one form submitted with its reply brief, the State's
evidence
concerning this portion of the dispute appears to relate entirely
to
some discrepancy between the State and the County over the
attribution
of certain costs. However, the dispute between the State
and the County
is irrelevant to the question of whether OCSE was
repaid. The State
must demonstrate that it has repaid the money to the
Agency. To do so,
we find that the State must present some direct
evidence that the money
was repaid.
According to the Agency, claims for expenditures in operation of a
IV-D
program by a state are submitted to the Agency on an "OCSE Form
41,
Report of Expenditures." The Acting Regional Representative for
OCSE
stated by affidavit that he examined the OCSE Forms 41 submitted by
the
State for the relevant period and found that the reports "failed to
show
that the(3) (State) had returned the funds in question." Agency's
Ex.
A. The State in its reply brief attempted to refute this by
submitting
a copy of an OCSE Form 41, with the statement that ("the) $60,046
FFP
claim (that would have been $$U68,664 but for the reduction)
was
submitted by appellant to Respondent for funding on the OCSE Form
41,
for the April/May/June 1982 quarter." State's Ex. "d"; State's
Reply
Brief, p. 2.
As we noted in our draft decision, the State's Exhibit "d" refers
to
neither a $60,046 nor$68,664 claim for expenditures.
While the State argued that the $8,618 difference between these
two
figures was explained by affidavits presented with its reply brief,
and
included the $7,674 at issue here, the State clearly admitted that
there
was no direct reference to either a $8,618 or a $7,674 sum in any
forms
submitted to the Agency. State's Comments on Draft Decision,
p. 9.
Before turning to an evaluation of the State's evidence about the
disputed
sum, we note that the State in its reply brief admitted the
difficulty of
making any firm conclusions on the basis of the type of
indirect evidence
which it presented. The State submitted that "except
through an audit,
neither (the State) nor OCSE would know what, if any,
adjustments to billings
might have occurred. Apparently, even upon
audit, the tracking of such
adjustments from (one County agency's)
billings through (another County
agency) through (the State) to OCSE is
not without some difficulty." State's
Reply Brief, p. 12. Further, the
Agency concluded in a telephone
conference before the Board that the
tracking appears to be impossible.
Tape of October 18, 1985 Telephone
Conference Call.
In its "Comments on Draft Decision," the State nonetheless sought
to
explain in great detail how a "reduction in billing" amounting to
$7,674
was passed on from the County to the State to OCSE. State's
Comments on
Draft Decision, pp. 7-10. The State referred to affidavits
attached to
its Reply Brief, which the State appeared to argue demonstrated
some
type of chain of custody the reduced billing. Yet, we find that
this
argument and the accompanying affidavits are not sufficient to
support
the State's claim.
First, the amount which the State in its brief argued was passed on to
the
County, then to the State, and then to OCSE was $8,618, not the
$7,674 at
issue here. The State offered no explanation of what
additional amount
the $8,618 also included, and why this additional sum
was included with the
money which "passed through." This imprecision
colors the validity of the
State's claim. The State has a clear
responsibility to document its
claim for federal funds.(4)
Secondly, the affidavits submitted by the State referred to neither
an
$8,618 sum, nor to $7,674. The affidavits instead referred to
a$
60,046.91 sum, which the State appeared to contend reflected a
downward
adjustment of $8,618, which included the $7,674. The State
submitted
the affidavits over three years after the funds were said to have
been
passed on, and the State offered no explanation as to how the
affiants
precisely recalled the dollar amounts that were claimed at each
level of
the process and how the alleged total claim of $60,046
necessarily
reflected a downward adjustment of either $8,618 or $7,674.
The State argued that the Agency was being inconsistent in not
allowing
the present claim for FFP, since the Agency "(honored) the
reduced
billing concept in regard to other audit findings," citing the
Agency's
audit report, State's Exhibit 2, page 13, paragraph H. State's
Comments
on Draft Decision, p. 10. Yet, the State has not presented
the
circumstances of why the Agency was able to accept a reduced billing
in
this other case; presumably, the Agency was certain there that
an
appropriate adjustment had been made. In the present case, we
are
unable on the evidence before us to conclude that there existed
a
downward adjustment in billing that might cause us to overturn
the
disallowance.
We therefore conclude that the State has failed to show that
costs
relating to Lucas County were paid to OCSE and uphold the
disallowance
in the amount of $7,674 FFP.
II. SUMMIT COUNTY
The original basis of the disallowance for Summit County was that FFP
was
"claimed during periods for which no valid Cooperative Agreement was
in
effect. While there were Cooperative Agreements, they had not
been
approved in accordance with State policy. "n3 Notice of
Disallowance
dated November 28, 1984, p. 4. The Notice of Disallowance
cited a
federal regulation which required compliance by a State with its
own
policies. See 45 CFR 304.11.
In section A below, we explain our conclusion that we cannot uphold
the
Agency's initial basis for the disallowance, relying upon the
Statre's
own approval policies, since the record shows tat the State
has
interpreted its own laws to(5) allow it to waive the policies (and,
in
any event, had the power to ratify (or "retroactively approve")
a
transaction which resulted in no otherwise unallowable costs).
In section B, we address the Agency's argument that federal
regulations
otherwise require a specific prior approval by the State IV-D
agency of
the cooperative agreements involved here, and we conclude that
the
regulations are not as clear as the Agency argued, particularly in
view
of our decision in section A. In context, the Board's crucial
concern
(as reflected in the draft decision) was the apparent purpose of
the
regulations: to assure that a state adequately oversees how Title
IV-D
funds are spent. Based on the enhanced record, we find that the
State
had adequate accontability mechanisms, at least in the context of
this
case. For surrounding all the considerations above is one
important
contextual factor: there is no dispute that the Title IV-D
funds were
properly used in Summit County. There has been an audit, and
there is
nothing in the record which suggests that any of the funds in
question
were used in Summit County for other than allowable costs
fully
consistent with Title IV-D program requirements. The dispute here
is
over a collateral procedural issue which, while it is an
important
matter, is unrelated to any substantive failure in the County's
actual
program operations. In any event, as we determined above,
the
regulation does not require the result the Agency argued.
A. The State's interpretation of its own laws regarding the waiver
of
the State's approval policy
Initially, the Agency's sole basis for its disallowance was a
federal
regulation that required a state to comply with its own "laws,
rules,
regulations and standards." Notice of Disallowance, November 28,
1984,
p. 4, citing 45 CFR 304.11; see also OMB Cir. A-87, Att. A,
sections
C(1) (b) and (c). The State had two policy issuances which
required
prior approval of cooperative agreements. Public Assistance
Letter No.
694-A, State's Ex. "b"; public Assistance Manual 629,
section 8203,
Agency's Ex. C.
Essentially, the State's position was that under its own law, it
could
waive administrative requirements. The State said that the Agency
must
consider Ohio case law which, the State argued, recognized the
ability
of an administrative agency to waive its own regulations, and,
by
implication, policies or standards. See Columbus Motor Express,
Inc.
v. Public Utilities Commission of Ohio, 126 Ohio St. 11, 183 N.E.
782
(1932); Lane v. Industrial Commission of Ohio, 24 Ohio App. 196,
156
N.E. 508 (1927). The court in Columbus Motor Express held that
an
administrative agency could waive the enforcement(6) of its
own
regulation regarding the publication of notice of the transfer of
title
"if the public interest was not thereby affected." 183 N.E. at 783.
/4/
The Agency sought to rebut the State's argument that State law allows
an
administrative agency to waive its own policies by citing another
State
case, State ex rel. Robison v. Henderson, 162 Ohio St. 504, 12 N.
E. 2d
150 (1955). That decision upheld a mandamus action by the
State
Department of Public Welfare to compel the county commissioners of
the
State to comply with certain provisions of a State plan regarding
record
keeping and the filing of reports. The State plan was needed to
make
the State eligible for federal funding for "poor relief." The court
held
that the counties were compelled to comply with the terms of the
State
plan. We find that this case is not controlling here because
it
concerned an action by the State to compel compliance with its
own
policies and standards, rather than an effort by the State to waive
its
own standards, as in this appeal. The court did not consider
the
question of waiver of policies or regulations at all.
We conclude that the Agency has not convincingly rebutted the
State's
interpretation of its own law regarding the waiver of regulations and
we
are therefore unable to affirm the Agency's disallowance on this
ground.
As we found in another decision, "where the law of the State
reasonably
encompasses the meaning attributed to it, the Board will not
substitute
its interpretation for that of the State, absent substantial
evidence
that the State's interpretation is unsupportable." California
Department
of Social Services, Decision No. 393, March 28, 1983 at p.
6; see also
Florida Department of Health and Rehabilitative Services,
Decision No.
414, July 22, 1983, p. 21. /5/ Furthermore, as we discuss below,
the
State made a reasonable argument that it could "retroactively
approve"
(or, in our view, ratify) a transaction like that involved here.
B. The State's Approval" of the agreements
Although the Agency initially based its disallowance on the issue of
the
State's enforcement of its own approval policies, the Agency later
urged
that the Senate agency's approval was (7) also mandated by
federal
regulation and was, in any event, an implicit part of any
reasonable
scheme of accountability. See Tape of October 10, 1985
Telephone
Conference Call. /6/
1. Whether the State "entered into" cooperative agreements
As to the Agency's interpretation of specifically applicable
regulations,
we are not convinced that federal regulation or the Child
Support Enforcement
Act specifically required the State IV-D agency to
sign any cooperative
agreements. The applicable statute provides in
pertinent part:
A State plan for child and spousal support must--
(7) provide for entering into cooperative arrangements
with
appropriate courts and law enforcement officials (A) to assist
the
agency administering the plan, including the entering into of
financial
arrangements with such courts and officials in order to assure
optimum
results under such program, and (B) with respect to any other matters
of
common concern to such courts or officials and the agency
administering
the plan. . . .
Section 454(7) of the Act.
42 CFR 302.34 tracks this statutory provision:
Sec.302.34 Cooperative arrangements.
The State plan shall provide that the State will enter into
written
agreements for cooperative arrangements with appropriate courts
and
law-enforcement officials.
We are unable to conclude, on the facts of this case, that
these
provisions require the signature of an official of the State
IV-D
agency. The statute and regulation do not speak to the details
of
execution. Rather, the provisions are authorizing, and requiring,
the
State to have agreements covering the delivery of IV-D services.
We
analyze below both the language of section 454(7) of the Act and of
45
CFR 302.34(8) and the context in which they operate, and we
conclude
that the State properly interpreted the phrase "State," in the
context
of this case, to not refer specifically to officials of the State
IV-D
agency, but, rather, to the political subdivisions of the State as
well.
An important consideration in this regard, as noted on page 4, is
that
the cooperative agreements at issue here considered as a party
the
County, rather than the State IV-D agency. Since it was not
disputed
that the proper County official signed the agreements, the State
has
demonstrated that this fulfilled the requirement that the "State"
enter
into agreements.
First, as argued strongly by the State, the regulatory provision
refers
only generally to the "State" entering into cooperative agreements
and
not more specifically to the State "IV-D Agency." (The statute does
not
specify at all who shall "enter" into agreements.) The two terms
are
separately defined in the regulations. "State" is defined as
"the
several States, the District of Columbia, the Commonwealth of
Puerto
Rico, the Virgin Islands, and Guam. . . ." 45 CFR 301.1(f).
"IV-D
Agency" is defined as the "single and separate organizational unit
in
the State that has the responsibility for administering or
supervising
the . . . State plan. . . ." 45 CFR 301.1(g). Further, the
two terms
are both used throughout the regulations, with the term
"State"
apparently intended to have a broader meaning than the term
"IV-D
Agency," as reflected in the definitions. The State argued that
its
counties are not separate entities so much as constituent parts
(or
"political subdivisions") of the State.
As further support of its broader reading of 45 CFR 302.34, the State
also
noted that 45 CFR 302.10, entitled "Statewide operations," provides
in part
that "(t)he State plan shall provide that: . . . (b) If
administered by
a political subdivision of the State, the plan will be
mandatory on such
politicasl subdivisions." The regulation appears to
provide a state the
option of administering the program at a local level
rather than only by the
central state IV-D agency. Also, the State
submitted with its Comments
on Draft Decision a portion of its State
plan, in which the State had clearly
chosen that the plan be
administered at a local level. The excerpt from
the State plan,
entitled "Statewide Operation," provides a pre-printed option
that the
plan be "State-administered," or that it be "Administered by
political
subdivisions of the State and mandatory on such political
subdivisions."
The State clearly marked the second option. State's
Ex. 1 to its
Comments on Draft Decision.
A third reason that we agree with the State's reading of the regulation
is
that, if the Agency wished to impose a specific requirement that the
State
IV-D agency itself grant prior written approval of any
cooperative
agreements, the Agency(9) could have done so more simply and
directly.
Other regulations of the Department explicitly contain a
requirement of
written prior approval for the delegation of program
operations. See,
e.g., 45 CFR 74.177(b)(3) (1983).
Therefore, we conclude that the State could reasonably have
interpreted
the statute, regulations, and the State plan to require only
County
approval of the cooperative agreements in question here, and there is
no
dispute that the County approved the agreements in this
case.
Furthermore, the State argued that it had "retroactively approved"
the
transactions in question through its audit processes and otherwise.
If,
as we have concluded, the State had apparent authority to waive
the
State's requirement in the first place, it is not unreasonable
to
conclude that the State might also ratify the transaction in
question
(at least where the transaction otherwise produced no
unallowable
costs).
In short, the record does not substantiate OCSE's procedural
concerns
about approval of the cooperative agreements. Furthermore, as
we said
in the draft decision, these issues have meaning only as an adjunct
to
the fundamental underlying issue of accountability. As we
discuss
below, we find that the State has established a record showing that
the
accountability concern has been met.
2. The Issue of Program Accountability
In a conference before the Board, the Agency expressed the concern
that
the State must be accountable for any funds it receives for operation
of
its IV-D program. As we articulated in our draft decision, the
Board
acknowledges the significance of this basic grant principle and we
were
then concerned that the State had not demonstrated its
accountability
for IV-D funds. See December 9, 1985 Draft Decision, pp.
4-9. However,
after considering the evidence presented by the State in
its comments on
the draft decision, we are now convinced that the State here
has made a
sufficient showing that it was accountable for funds.
As explained by the State in its Comments on Draft Decision, the
State
exercises prospective control over the delegation of
responsibilities
from the State IV-D agency to the counties by various Ohio
statutes and
administrative rules. See State's Comments on Draft
Decision, p. 11.
State regulations are specific in defining the role and
duties of county
departments of human services in implementing the
program. See Chapter
29 of 5101:1 of the Ohio Administrative Code.
Furthermore, as we concluded above under our discussion of whether
the
State "entered" into agreements, the statute and applicable
regulations
allow the State the option of having(10) its State plan
administered by
the counties; Ohio's plan specifically chose this
option for the period
at issue here. Therefore, contrary to how we
tentatively concluded in
our draft decision, the State was prospectively
accountable for use of
program funds through the County's approval
process. Further, the State
IV-D agency would still have the ability to
oversee operation of the
program by monitoring any decisions made by the
County, in accordance
with its general responsibility under the
regulations.
Finally, and as significant as the State's demonstration of
prospective
control over program operations, is that the Agency has never
disputed
that the State exercised retrospective control over program
operations
in assuring that the disallowed sum pertaining to Summit County
was an
otherwise allowable cost. The State itself audited the costs
claimed by
the County, and the State disallowed some portion of the
County's
initial claim before submitting the State's total claim to OCSE.
See
State's Reply Brief, pp. 7-9. The State, therefore, examined how
the
program operated and submitted no claims to OCSE of any
unallowable
costs. The Agency has never questioned the efficacy of the
State's own
audit process, and we conclude that the audit process was an
important
part of the State's responsibility to be accountable for use of
federal
funds.
In conclusion, we find that the "State," as referred to in 45 CFR
302.34,
was reasonably interpreted in the facts of this case to pertain
generally to
the State, including its political subdivisions, and that
the State here
chose to have the plan administered at a local level
rather than by the State
IV-D agency. Further, the State met its
general responsibility of
accountability for the IV-D funding
retrospectively through its own audit
process, as well as prospectively
by the various Ohio statutes and
administrative rules which govern
program functions. /7/
(11)
CONCLUSION
For the reasons explained above, we uphold the Agency's disallowance
for
Lucas County and we reverse the disallowance for Summit County. /1/
At
the State's request, the Board
allowed Summit and Lucas Counties
to participate in the appeal. We do
not distinguish arguments made by
the Counties and the State for purposes of
this decision. See
Confirmation of Telephone Conference, April 4, 1985, for
an explanation
of the limits on the intervention of the
Counties. /2/ In course
of
this appeal, the Agency withdrew its disallowance for $5,894 FFP for
the
duplicate billing of identfied on page 12, Subpart F, of the
federal
auditor's report, State's Ex. 2. See Tape of October 10, 1985
Elephone
Conference Call. /3/
The "cooperative agreements" are not
agreements between the State IV-D agency
and counties; rather, they are
between the counties and various courts
and other entities implementing
aspects of the title IV-D program.
See,e.g., Agency's Brief, p. 6.
/4/ The State also cited a prior Board
decision for the principle that a
state may waive its own standards or
policies, Ohio Department of Public
Welfare, Decision No. 637, April 2, 1985.
The "accounting methodology"
at issue there was not considered a formal
policy or standard, so the
case is not dispositive of the issue here.
/5/ We presented in our
draft
decision essentially this analysis of the State's law on
the waiver of
regulations. /6/ The State
objected to the Board's
consideration of a new basis for the disallowance
relating to Summit
County. See, e.g., State's Comments on Draft
Decision, pp. 2-6.
Generally, the Board does not preclude a party from citing
new authority
or arguing new theories during the course of an appeal.
The State was
not prejudiced by any new arguments of the Agency, since the
State was
granted a full opportunity to respond in briefing to any new
arguments
and did so. /7/ The
State argued that the Agency's decision with
regard to Summit County was not
a disallowance but was rather a
determination of "plan non-conformity," so
that the denial of FFP would
be limited by federal statute to five percent of
the funding amount at
issue, according to the State. State's Opening Brief,
pp. 17-18;
State's Reply Brief, pp. 19-20. We explained in our
draft decision why
we considered the Agency's action to be a
disallowance. Since we find
for the State in this part of the decision,
we do not repeat or explain
further this analysis.
MARCH 28, 1987