New York State Department of Social Services, DAB No. 759 (1986)

GAB Decision 759

June 13, 1986

New York State Department of Social Services; 

Docket Nos. 85-264 through 85-271;  86-62

Garrett, Donald F.; Settle, Norval D. Ballard, Judith A.

The New York State Department of Social Services (State or New York)
appealed a series of decisions by the Social Security Administration
(Agency or SSA) disallowing $5,097,130 in federal financial
participation (FFP) claimed by the State under section 403(a) of the
Social Security Act (Act) for the period January 1, 1982 through
September 30, 1985. /1/ The Agency found that the costs at issue were
provided in connection with "social services" as defined at section
2002(a)(1) of the Act.  The Agency based the disallowance on section
403(a)(3) of the Act which prohibits federal reimbursement under Title
IV-A for costs associated with the provision of such social services.


New York asserted that the disallowed costs were properly charged to
Title IV-A based on an approved cost allocation plan (CAP).  New York
also maintained that these claims were allowable under statutory
exceptions in section 403(a)(3)(C).  Finally, New York argued that at
least part of these claims were attributable to income maintenance
functions and therefore were allowable under section 403(a)(3).

Based on our analysis below, we conclude that --

* The State has not shown that it had approval for allocating these
costs to Title IV-A.  The State has failed to show that CAP provisions
were approved, when they were effective, and how the provisions
submitted here are consistent with what the State actually did.  In any
event, approval of the general allocation methodology contained in the
State's CAP did not(2) preclude the Agency from disallowing specific
costs associated with the provision of a social service and not within
one of the exceptions specifically enumerated in section 403(a)(3)(c) of
the Act.

* While the State has not shown that all of the costs are allowable
under the statutory exceptions, we have determined that the State should
have a brief opportunity to show on remand what part of the costs relate
to one of the exceptions (the CWEP program described below), given that
this program was not initiated until after the beginning of the
disallowance period and since the parties focused here on legal issues
rather than identification of specific amounts associated with the
various programs.

* Finally, while we conclude that the State has not shown that its
claims include some income maintenance functions for all Title IV-A
recipients involved, the State's evidence submitted with its reply brief
(as well as arguments the State made earlier) raise the issue whether
some of the costs may be allowable because they were incurred in
connection with payments made as part of income maintenance for certain
recipients, rather than in connection with provision of a social
service. We conclude that a remand is appropriate because the Agency has
not made a determination on this issue.  If the Agency determines this
issue in favor of the State, the State would be required to document
what amount is allowable on this basis.

Accordingly, we uphold the disallowance, subject to reduction to the
extent the State can show what part the disallowed amount is allowable
in accordance with this decision or a further determination on remand.

I.  General Background

A.  Title IV-A and Title XX

Title IV-A of the Act provides for grants to states with approved state
plans for aid to families with dependent children (AFDC).  Effective
October 1, 1975, Public Law 93-647 established a new Title XX of the Act
for financing social services for low-income children and families,
including AFDC children.  Title IV-A retained as its primary purpose the
provision of maintenance payments for families with dependent children.
Public Law 93-647 included a provision amending section 403( a)(3), the
authority for(3) paying states for administrative expenditures under
IV-A. Section 403(a)(3)(C) /2/ of the Act now provides --

   . . . no payment shall be made with respect to amounts expended in
connection with the provision of any service described in section 2002(
a)(1) of this Act. . . .


Further, section 403(a)(3)(C) contains four exceptions to the general
prohibition against claiming FFP in administrative costs under Title
IV-A for Title XX social services.  Under the exceptions, costs
associated with social services are allowable when the services are
provided in connection with --

   1.  an employment search program as outlined by section 402(a)(35)B)
of the Act;

   2.  a work incentive (WIN) program as described in section 402(a)(
19);

   3.  a community work experience program (CWEP) under section 409;

   4.  a work supplementation program under section 414.

B.  The Facts

This appeal involves claims for federal funding for administrative costs
incurred by the New York City Agency for Child Development (ACD), an
administrative branch of the City's Human Resources Administration
(HRA).  The ACD administers day care services and provides technical
assistance to community-based agencies in New York City.  Among other
duties, ACD provides aid to community-based agencies in establishing day
care centers and establishes and interprets policy relating to child
care for the centers.  However, ACD has no contact with the children at
the centers and nominal, indirect responsibilities for the delivery of
services.  See New York Brief, p. 4.

In May 1981, the United States General Accounting Office (GAO) issued a
report based on its review of Title IV-A CAPs in New York and three
other states. The GAO Report noted that New York City had been
allocating part of its day-care placement and purchase-of-service costs
as AFDC administrative costs for a number of(4) years.  The Report found
that, except for receiving referrals from AFDC eligibility workers to
provide day care services to AFDC recipients, ACD had little connection
with AFDC program administration.  The GAO concluded that these costs
did not benefit AFDC administration and should have been charged to
Title XX since they were for services covered by that program.  See
Agency EX. A, p. 9.

In June 1981, the Department of Health and Human Services Division of
Cost Allocation (DCA) provided the State with a draft Conformance Report
based on a review of various administrative costs claimed by HRA.  DCA's
Report noted that administrative costs associated with ADC's involvement
in day-care activities were being improperly charged to Title IV-A.  The
DCA draft Report noted that the State would have to revise its CAP to
properly allocate the ACD costs and that those costs were properly
chargeable to Title XX.  See Agency Brief, p. 5;  Agency Ex. B, pp. 4-5.

HRA responded to the draft report indicating that the costs were
properly allocated under its CAP as expenses incidental to employment
and therefore properly chargeable to Title IV-A.  In a separate
response, the State said that there were provisions in its CAP which
justified charging these costs to the Title IV-A program.  DCA's final
Report reiterated its finding that administrative expenses associated
with ACD's involvement in day-care activities were improperly allocated
to Title IV-A, but said that this issue was being referred to the
Agency's central office for a final determination.

The Agency subsequently disallowed all ACD costs allocated to Title IV-A
for the period January 1, 1982 through September 30, 1985.  The Agency
determined that the expenditures were not within the exception
provisions in section 403(a)(3)(C) and that the costs provided a Title
XX social service and therefore should be charged to Title XX.

II.  Argument and Analysis

The State presented three arguments for reversal of this disallowance.
Below, we address each argument, incorporating into our analysis the
relevant aspects of the Agency's response.

A.  The Administrative Expenses as Allowable Costs Under the State's
Approved CAP

Citing our decision in New Jersey Department of Human Services, Decision
No. 648, May 17, 1985, New York maintained that these (5) claims were
submitted pursuant to an approved CAP and therefore the disallowance
should be reversed.  New York maintained that the Agency granted the
State the authority to charge these costs to the Title IV-A program when
it approved Local Cost Allocation Manual 143b (Manual 143b) in 1976,
more than one year after the enactment of Public Law 93-647.  The State
argued that it had not been properly notified of a defect in its CAP.
The State claimed that it first received the GAO Report when the Agency
submitted its brief in this case (April 3, 1986).  The State also
contended that this document provided inadequate notice of deficiencies
in its CAP as the GAO Report was an internal document from one federal
entity to another and not intended to be published for the State's
benefit.  Further, New York argued that the final Conformance Report
left open the question of the proper allocation of these costs.  See
Agency Ex. E, pp. 5-6.  New York argued that the lack of formal
notification of deficiencies in the CAP along with the ambiguous nature
of the GAO Report and the draft and final Conformance Reports did not
provide an adequate basis for the Agency disallowance.  Additionally,
New York argued that this disallowance was improper since the Agency had
not followed its own procedures for implementing CAP amendments as
outlined at 45 CFR Part 95, Subpart E.

The State's argument based on its CAP is wholly unpersuasive since the
State has failed to show what CAP provisions were approved, when they
were effective, how the provisions submitted are consistent with what
the State actually did, and how approval of the CAP in any event would
preclude the Agency from disallowing costs not allowable under the
statute.

The Agency letter which the State alleged approved the CAP in 1976 (New
York Exhibit 7) was not an unqualified approval of whatever the State
put into its Manual 143b.  The approval is limited to specific State
instructions (identified by transmittal numbers) informing local
districts concerning cost allocation.  The first transmittal is
identified as Manual 143b and the others as amendments.  The approval
letter indicates that those instructions were in effect during the
period July 1, 1974 to December 31, 1975 (most of which is prior to the
enactment of Public Law 93-647).  The letter does not specifically
approve the State's use of those instructions for a later time period.

Although the Board specifically asked the State to submit the plan
provisions on which it relied, the State submitted a version of Manual
143b which bears effective dates of 1984 and 1985.  The State did not
explain how the provisions submitted were relevant or how they supported
the State's position.  While these provisions show some allocation of
purchase of service costs to the ADC program, they also indicate that
costs related to ADC were,(6) at least in some instances, considered to
be a subcategory of Title XX costs.  See New York Ex. 6 (Manual 143b),
pp. 9-2, 9-12.  We found nothing on the face of the provisions submitted
which clearly indicates that the State intended to allocate to Title
IV-A costs associated with the provisions of social services and not
within the exceptions in section 403(a)(3)(C).

The most complete statement given by the State concerning how it
actually implemented the CAP appears in the State's (HRA's) response to
the HHS Conformance review, Agency Exhibit C.  This document states that
the portion of the ACD day-care administrative expense charged to the
IV-A program under the CAP "represents the portion of expenses
proportionate to the percentage of children in day care whose expenses
are paid for under the ADC program as an 'expense incidental to
employment.'" Agency Ex. C, p. 3.  The GAO and Conformance Reports
suggest, however, that the State was allocating ACD costs to Title IV-A
based on the recipients' eligibility for Title IV-A benefits in general,
rather than on the basis that the child care was paid as an "expense
incidental to employment" (which arguably could be considered part of a
IV-A maintenance payment -- see below) instead of being provided as a
social service (which then should have been allocated to Title XX).
While the State submitted with its reply brief two affidavits which talk
about ACD activities associated with determining eligibility of ACD
recipients for child care payments as an "expense incidental to
employment," we consider these affidavits to be an insufficient basis
for finding that none of the costs here related to IV-A recipients whose
day care was (or should have been) provided as a social service
claimable under Title XX.  Indeed, one of the affidavits indicates that
ACD was providing day care not only to IV-A recipients in
employment-related programs, but also to IV-A recipients in programs
designed to reduce or prevent institutional care for children and
protective service programs for children.  See New York Ex. 12, p. 3.
Additionally, New York City's IM Operational Handbook at part IV, page
133, indicates that child care services are also available from ACD to
Title IV-A parents engaged in vocational or rehabilitative programs or
seeking their high school degrees.  See New York Ex. 11.

As we discuss in the next section, to the extent ACD costs are
associated with the provision of a social service as defined in section
2002(a)(1) of the Act, they are reimbursable as Title IV-A
administrative costs only if they meet one of the exceptions in section
403(a)(3)(C).

Thus, the problem appears to be not with the State's methodology but in
how it categorized certain individuals.  Given this, we cannot conclude
that the State has demonstrated any inconsistency(7) between approval of
the CAP in 1976 and the disallowances here.  Moreover, even if the
State's intent to claim under Title IV-A costs associated with the
provision of social services not meeting the exceptions were clear on
the face of the CAP, the State could not have reasonably relied on
approval of the CAP as a basis for its claims.

As the Agency noted, this Board has previously held that approval of a
cost allocation plan does not constitute approval for charging any item
of cost to a particular program since a plan functions to delineate the
proper cost allocation procedures and by its nature does not address all
the substantive aspects of a particular program.  Joint Consideration:
Reimbursement of Foster Care Services, Decision No.  337, June 30, 1982.
We have also found that Agency approval of a CAP does not allow a state
to charge costs in a manner inconsistent with federal law.  See Michigan
Department of Social Services, Decision No.  370, December 28, 1982, and
cases cited therein.  Further, as New York is aware, a cost allocation
plan cannot be viewed as a policy judgment by the Agency regarding cost
allowability and is not binding on the Agency where the plan is contrary
to a controlling statute.  New York State Department of Social Services,
Decision No. 449, July 29, 1983; Joint Consideration, supra.
Additionally, New York has taken our decision in New Jersey Department
of Human Services, supra, out of its proper context.  In New Jersey,
there was no dispute that the costs at issue were allowable and
allocated pursuant to an approved plan.  Rather, the issue was the rate
of FFP available for those costs.  Id.  at 1.  Thus, Decision No. 648 is
irrelevant to our analysis here.

We also are not persuaded by the State's argument that the disallowance
should be reversed because the State never received formal notice that
its CAP was defective.  As noted above, the record does not show that
the difficulty was in the methodology set out in the CAP rather than in
how the State was applying the CAP.  Moreover, it should have been clear
to the State that there was a question about what it was claiming.  The
record indicates that the State was asked to comment on the GAO Report
before the Report was issued to the U.S. House of Representatives
Subcommittee on Oversight, Agency Ex. A, p. 2. Further, both the HRA and
the State Department of Social Services commented separately on the
draft Conformance Review Report.  Agency Exs. C and D.  Additionally,
Agency Exhibit E indicates that the final Conformance Report was sent to
the State Commissioner of Social Services on or about June 15, 1982.

The State and HRA comments on the draft Report specifically addressed
the issue currently at the heart of this appeal.  See(8) Agency Ex. C,
p. 5;  Agency Ex. D, p. 3.  Additionally, we do not find that the DCA
statement in the final Conformance Report, that the issue of ACD's
administrative costs associated with day care was "open", rendered the
final Report ambiguous in light of the GAO and draft Reports, so that
New York could now claim it did not have sufficient notice of the
Agency's position.  The Conformance Report at page 45, item 4, addressed
the comments to the draft Report regarding the Agency's position that
Title IV-A contained no provision for reimbursement of ADC's costs
associated with day care and that the CAP must be revised to properly
allocate those costs to Title XX.  DCA noted that the Agency had been
consulted on this issue and had reiterated that --

   . . . the subject day care administrative costs are not allocable
expenses under Title IV-A but (we) are submitting the issue to SSA/OFA
Central Office before a final decision is communicated to the State.
Consequently this issue remains open until that decision is reached.

Agency Ex. E, pp. 5-6.

Although this statement is not definitive, it is consistent with the
Agency's position here, and our conclusion above, that this is not a
matter of cost allocation but is a matter of cost allowability.  The
statement certainly was sufficient to inform the State that it could not
rely on approval of its CAP as a basis for considering the questioned
costs allowable.

Additionally, we find that the State's reliance on the cost allocation
plan requirements of 45 CFR Part 95, Subpart E is misplaced.  The
regulation at 45 CFR 95.509(a)(2) provides in general that upon
discovery of a material defect, a State shall promptly amend its cost
allocation plan.  Further, the regulation at 45 CFR 95.515(b) indicates
that where a previously approved cost allocation plan is later found to
violate a Federal statute or regulation, ". . . the same as the plan or
plan amendment that contained the defect." These regulations clearly
support a conclusion that mere approval of a CAP cannot preclude a
disallowance of costs found to be unallowable under the relevant federal
statute.

We next turn to the issue of whether the costs associated with the
provision of a social service are allowable under section 403(a)(3)(C)
of the Act solely on the basis that they are employment-related
expenses.  (9)

B.  Costs Associated with the Provision of Social Services

   1.  Employment-related costs in general

As indicated above, the State presented nothing which directly
contradicts the Agency's assertion that the claims at issue include
administrative expenses associated with the provision of social services
to AFDC recipients.  Rather, New York took the position that child care
provided in the context of employment-related activities are
reimbursable under Title IV-A even if not within the specific exceptions
enumerated at section 403(a)(3)(C) of the Act.  The State argued
generally that federal programs are not designed to be all-embracing and
that it has a vested interest in encouraging its citizens capable of
working to do so.  Citing the decision of the United States Supreme
Court in New York State Department of Social Services v. Dublino, 413
U.S. 405 (1973), the State reasoned that since federal work programs
cannot pre-empt state and local work programs, these costs were properly
charged to Title IV-A.

New York's argument ignores the legislative history and development of
Titles IV-A and XX.  In Joint Consideration, supra, we were presented
with a cogent summary of the congressional purpose in creating a social
services program.  There the Agency indicated --

   Overall, P.L. 93-647 repealed most of the then existing provisions of
the Social Security Act that provided for social services to welfare
recipients and created instead a new Title XX.  P.L. 93-647, sections
3(a) and (b).  In addition, section 403(a)(3) was substantially amended
to include the language at issue in this case and to delete reference to
the legislative cap on expenditures.  Section 1130 itself (which for the
prior 3 years had capped social services) was repealed by section
3(e)(1) of P.L. 93-647, and all references to it deleted by section 3(
e)(2) of P.L. 93-647.

   What resulted then was enactment of a comprehensive (albeit "capped")
program for social services funding to each State on an allocation basis
in Title XX, simultaneous repeal of nearly all of the social services
authorizations under Title IV-A, and simultaneous removal of the cap
from Title IV-A to Title XX.

   The only uncapped, open-ended funding provisions for social services
remaining under Section 403(a)(3) (after operation of the exception)
were specifically included by Congress and(10) stated in legislative
history:  WIN and emergency assistance for needy families.  At least one
of those two programs was already effectively capped by appropriations
limitations.  There is no evidence that Congress intended to uncap Title
IV-A and let foster care social services (previously capped under Title
IV-A) explode, i.e., as soon as the cap of the Title XX allocation was
used up.

Id. at 11-12 (emphasis in original).

It is clear from the legislative history of Public Law 93-647 that
Congress was deeply concerned about the prospect of unchecked federal
spending for social services.  See also, Revenue Sharing Act of 1972,
Pub. L. 95-512.

New York's contention that employment-related activities in addition to
those enumerated by 403(a)(3)(C) are reimbursable from Title IV-A
funding is unsupported by the Act, its amending legislation, or its
legislative history.  Title XX was developed to enable the Federal
Government to maintain close control over its expenditures for social
services.  Except in limited instances, FFP for child care is not
available as an administrative cost under Title IV-A.  There is no
evidence that the Congress intended funding for the costs of providing
child care to be available under Title IV-A to any greater extent than
that delineated by the exceptions at 403(a)(3)(C).  Contrary to New
York's contention, the Act and accompanying legislative history support
a conclusion that funding for child care as an administrative cost under
Title IV-A is limited to the exceptions specifically enumerated in the
Act.

Finally, the State's allegation that federal employment programs do not
pre-empt State or local employment programs is irrelevant.  The issue
here is not whether such programs are pre-empted, but whether funding is
available under section 403(a) for costs associated with social services
provided to AFDC children and not qualifying under one of the
specifically enumerated exceptions to the funding bar in section 403(
a)(3)(C) of the Act.

   2.  Application of the 403(a)(3)(C) exceptions

   Employment Search Program

Section 403(a)(3)(C) provides that FFP for section 2002(a) services may
be available under section 403(a) if the social services for which FFP
is claimed are provided in accordance with an employment search program
as described at section 402(a)(35)(B).  As the Agency noted, New York's
State Plan indicated that the State did not operate an employment search
program during the period(11) involved in this disallowance. New York
Ex. 10, Sec. 2.7, p. 9.  New York did not specifically challenge the
Agency's position on this issue.  Accordingly, we conclude that the
403(a)(3)(C) exception for social services provided incidental to an
employment search program is not available to the State.

   Work Supplementation Program

Section 403(a)(3)(C) provides that FFP for child care may be availabe
under Title IV-A if the child care is provided in connection with a work
supplementation program as described in section 414 of the Act.
However, New York's State Plan indicated that the State did not operate
a work supplementation program during the period in question.  Id. at 6.
Accordingly, the 403(a)(3)(C) exception for social services provided in
connection with this program is not available to the State.

   Community Work Experience Programs

Section 403(a)(3)(C) provides that FFP for child care may be available
under Title IV-A for services provided in connection with a CWEP as
described in section 409 of the Act.  The State did not have a CWEP
prior to April 1, 1983.  Id. at 2-2A.  Thus, the State may not avail
itself of this exception for the period January 1, 1982 through March
31, 1983.

The Agency argued that for the period from April 1, 1983 onward, the
State's expenses under this program exception would be minimal since a
1984-1985 State Report on Employment Programs for Public Assistance
Recipients indicated that individuals not requiring child-care services
were targeted for CWEP.  See Agency Exhibit G, p. 2.  No matter how
"minimal" the State's ultimate social service expenses in connection
with CWEP might be, the State nonetheless has a right to FFP for
allowable child-care costs incurred from the effective date of the CWEP
as provided by the Act.  However, the State has the burden to document
its claims for FFP for costs associated with the CWEP.  See generally,
New Jersey Department of Human Services, Decision No. 688, August 26,
1985.

The position of both parties here has been complicated by the fact that
the CWEP started during the period covered by the disallowance;  the
State had not been told how to revise its methodology with respect to
CWEP (there was no CWEP during the exchanges of documentation concerning
the Conformance Report).  Moreover, if the State had prevailed on its
general legal arguments here, there would have been no need to relate
the costs to specific statutory exceptions.  Thus, we have determined
that the State should be given a limited opportunity to identify
allowable child-care costs properly allocated to the CWEP (see
below).(12)

   Work Incentive Program

Section 403(a)(3)(C) provides an exception permitting Title IV-A funding
for social service costs incurred in connection with a WIN program.
Section 402(a)(19) establishes participation in the WIN program as a
precondition to eligibility for AFDC.  Section 402(a)(19)( G) provides
that child care should be available to WIN participants.

The State's CAP indicates that State recognized this and allocated child
care costs separately to WIN, presumably charging Title IV-C rather than
Title IV-A.  See New York Ex. 6.  Indeed, the State did not specifically
allege that any of the disallowed amounts were the costs of child care
services to children of WIN participants.  Rather, the State used this
exception to argue by analogy that the costs of any work-related child
care should be fundable under Title IV-A.  Citing regulations which
provide that WIN participants are entitled to child care services (45
CFR 224.30(4)(C)(1) and 45 CFR 224.34(4)), New York argued that
"(regulatory) authority supports the Congressional intent that Title
IV-A recipients are entitled to child care services when they join in an
employment search or employment related activities." New York Brief, p.
11.  These regulations cannot be read to override the specific language
of section 403(a)(3)(C).  However that language makes it clear that
Congress intended that FFP for child care services be available as an
administrative cost under Title IV-A only within well-prescribed
boundaries, i.e, when provided in connection with employment activities
under the programs specifically listed. /3/


In summary, we conclude that, to the extent the costs here were
associated with the provision of child care as a social service, they
are not allowable unless meeting one of the specific exceptions in
section 403(a)(3)(C).  Moreover, it is not sufficient to show that the
recipient was in a program related to employment.  The State must show
that the employment program is one of the (13)

C.  The ACD Administrative Activities as Income Maintenance Functions.

In our Acknowledgement of Notice of Appeal (December 30, 1985), we asked
the State to identify disallowed costs the State claimed were
specifically attributable to income maintenance functions.  We did this
because the Agency has recognized that a disallowance of this nature may
contain costs allowable as purely Title IV-A administrative functions,
associated with income maintenance.  See Joint Consideration, supra at
2;  also New York State Department of Social Services, Decisions No.
449, July 29, 1983;  No. 552, July 16, 1984; No. 614, December 20, 1984;
and No. 716, January 7, 1986.  (As recently as Decision No. 716, the
Board recognized that under Title IV-A the State may be reimbursed for
income maintenance activities or other allowable costs not subject to
the claiming bar of section 403( a)(3).  Id. at 2.)

Below, we first address the question of whether the State has shown that
ACD activities for all Title IV-A eligibles included some activities
which could be charged as administrative costs to Title IV-A on the
basis that they were part of the process of determining or redetermining
the recipients' eligibility for AFDC benefits in general.  We then
discuss the issue of whether some of the ACD costs might be allowable as
administrative costs of Title IV-A on the basis that the child care was
not provided to these recipients as a social service but was instead
paid as an "expense incidental to employment" as part of the recipients'
maintenance payments under Title IV-A.

   1.  Title IV-A eligibles in general

In its appeal submission, the State provided a "functional analysis"
paralleling ACD and income maintenance functions (New York Ex. 8). With
its reply brief, the State submitted excerpts from New York City's IM
Operational Handbook (New York Ex. 11);  and affidavits from Assistant
Deputy Administrators at ACD and HRA (New York Exs. 12 and 13).
However, the State's documentation failed to identify the dollar amount
attributable to the alleged income maintenance functions. Further, we
find that the State has failed to demonstrate the extent to which the
functions performed by ACD for AFDC eligibles in general are anything
other than the type of functions ACD would be required to perform in
connection with the Title XX program.

The State attempted to legitimize these claims as costs allowable under
Title IV-A program based on the requirement that IV-A participants
engage in various employment programs.  However, the affidavit of the
ACD official indicated that ACD(14) determined the eligibility of "all
applicants" for publicly funded day care programs.  New York Ex. 12, p.
3.  This would include day care provided to Title IV-A recipients who
were not in employment-related programs within the section 403(a)(3)
exceptions;  this day care could not be reimbursed as an administrative
cost of Title IV-A if the day care was provided (or should have been
provided) as a Title XX social service (see discussion above).

Generally, the affidavits do not show how activities which otherwise
relate to the provision of Title XX child care services are, in this
context, income maintenance activities.  Indeed, the activities
described in the affidavits as "income maintenance activities" are
described as being provided in connection with "Title IV-A day care
services," not Title XX day care.  It appears that income maintenance
payments may have been made to AFDC recipients for child care as
"expenses incidental to employment." While, as discussed below, this may
mean that some ACD costs might be reimbursable under Title IV-A, these
statements do not support a conclusion that ACD was performing IM
functions for all recipients of child care who were Title IV-A
eligibles.

New York's Exhibit 8 is a "functional analysis" developed by the State
which attempts to demonstrate that the ACD "provides a reasonable
approximation of the effort required to comply with the Title IV-A
eligibility requirements for day care." However, the analysis indicates
that the majority of ACD functions listed are either not applicable to
the AFDC program or that the Income Maintenance Unit is performing an
equivalent function.  (To the extent the activities might be
duplicative, there is a further question about whether the costs are
"necessary for the proper and efficient administration" of Title IV-A as
required by section 403(a).) Exhibit 8 further indicates that at least
some functions performed by ACD and relied upon by the Income
Maintenance Unit were performed through computer entry and in any event
would have been made for Title XX purposes.  Thus, to the extent any
benefit accrued to the Title IV-A program from information sharing
between ACD and the Income Maintenance Unit, it is not clear that the
benefit to the IV-A program is anything more than incidental.

The fact that child care services may have been provided to Title IV-A
recipients does not detract from the fact that, when child care service
is a social service as described in section 2002(a) of the Act,
reimbursement for associated administrative costs is(15) available
through Title IV-A only if one of the exceptions is met. /4/


   2.  Payments as an expense incidental to employment

There is one limited area where the State's evidence may provide a basis
for reversing part of this disallowance.  As mentioned above, the
affidavits refer to child care payments for AFDC recipients included in
income maintenance as an "expense incidental to employment." If the
State properly considered these payments as income maintenance, rather
than social services, as the State alleged it did, it is arguable that
at least some of the related costs of determining eligibility for the
payments would be reimbursable under Title IV-A.  This issue is not ripe
for decision, however.  SSA's determination here was premised on its
view that all ACD expenses were associated with child care which was (or
should have been) provided as a Title XX social service.  Although the
State repeatedly alleged in its statements contesting the Conformance
Report and the subsequent disallowance action that child care was paid
as an "expense incidental to employment," the affidavits submitted with
the State's reply brief for the first time clarified what the State
meant by this and provided evidence that ACD incurred costs for
activities such as determining eligibility for such payments.  Since SSA
has not responded to the State's reply brief and did not previously
address the implications of the State's allegation, we do not know
whether SSA would allow ACD administrative expenses associated with
determining an AFDC recipient's eligibility for an income maintenance
payment to cover child care costs as an expense incidental to
employment.  Accordingly, we remand to the parties for consideration of
this issue.  If the Agency determines that such costs are allowable, the
State, of course, would have the burden of documenting the extent to
which such costs are involved.

Conclusion

Based on our analysis above, we uphold the disallowance subject to the
State's ability to document, within 30 days or such other reasonable
time as determined by the Agency, what part of the disallowed costs are
attributable to child care provided to CWEP participants and what part
of the ACD costs were associated with child care paid as an "expense
incidental to employment." If the(16) Agency determines that ACD
administrative expenses associated with determining an AFDC recipient's
eligibility for income maintenance payments to cover child care costs as
an expense incidental to employment are allowable, the Agency should
then reduce the disallowance to the extent the State has documented what
amount of these costs were included in its claims.  The Agency should
also reduce the disallowance to the extent the State has documented what
amount of ACD administrative costs were incurred in providing child care
for CWEP participants.  If the parties are unable to resolve these
matters, they may return to the Board on those limited issues.  /1/ The
        State received nine notices of disallowance, and appealed each
to the Board.  The parties agreed to joint consideration of these
appeals.  For convenience, we generally refer to the total amount in
dispute as if there were one disallowance.         /2/ Formerly section
403(a)(3)(B).         /3/ SSA argued that no FFP was available under
Title IV-A for WIN-related child care since funding for WIN activities
is available at a 90% rate under Title IV-C.  This position would appear
to be contrary to the plain language of section 403(a)(3)(C), but we do
not need to reach this issue since the State did not specifically
alleged that any WIN costs were included in the claims here, and New
York Exhibit 6 indicates that the State was separating WIN costs from
ADC-non-WIN         /4/ As indicated on page 11 above, the State will
have an opportunity to show the extent to which the costs fall within
the CWEP exception.