DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Indiana Department of Public Welfare
Docket No. 86-76
Decision No. 793
DATE: September 30, 1986
DECISION AND RULING ON JURISDICTION
The Indiana Department of Public Welfare (State) appealed a
determination
by the designee for the Regional Director for Region V
(Agency), disallowing
$6,008,395.38 claimed under titles I, IV-A, X,
XIV, and XIX of the Social
Security Act and under the U.S. Department of
Agriculture (USDA) Food Stamp
program. The costs represented
court-ordered back wages for the period
1960 through 1976 paid to county
welfare department employees administering
the Social Security Act
programs and the Food Stamp program. The costs,
which were required to
be allocated among the various programs pursuant to
the State's cost
allocation plan, were originally allocated by the State
based on time
records for the county welfare department employees for the
quarter
ended June 30, 1982. An earlier determination by the Director,
Division
of Cost Allocation (DCA), which the State appealed to the
Regional
Director under the provisions of 45 CFR Part 75, held that the
costs
were improperly allocated since the time records used to allocate
the
costs did not relate to the period covered by the costs. DCA
therefore
re-allocated the costs for the period April 1, 1973 through
December 31,
1976 based on time records for that period and disallowed the
costs
attributable to the period prior to April 1, 1973 on the ground that
no
time records for that earlier period were available. DCA also held
that
all costs but the recalculated Food Stamp costs were unallowable
because
the State's claims for the costs were not timely filed under
section
1132 of the Social Security Act. In its appeal to the
Regional
Director, the State indicated that it had recalculated its claim
based
on a new allocation methodology. 1/ The Regional Director's
designee,
however, affirmed DCA's
1/ The Social Security Act portion of the State's claim was
originally
made under titles IV-A, IV-D and XIX. The title IV-A costs
were
identified as income maintenance costs. The State's new
allocation
methodology indicated that the income maintenance costs were
properly
claimed under titles I, X, XIV and XVI as well as title IV-A.
- 2 -
finding that all costs but the Food Stamp costs were unallowable
under
section 1132 of the Social Security Act. He also found that all
costs
including the Food Stamp costs were unallowable because of
deficiencies
in the State's new cost allocation methodology. 2/
The State appealed the determination of the Regional Director's
designee
to this Board pursuant to 45 CFR Part 16. The State alleged,
however,
that the Board had no jurisdiction over the Food Stamp costs.
It was
subsequently agreed that the Board would decide this threshold
issue
before reaching the substantive issues relating to the
allocation
methodology. (Board's letter to parties dated May 16, 1986,
p. 1) For
the reasons explained below, we find that this Board has
jurisdiction to
review the issue of whether costs were properly allocated to
the Food
Stamp Program (although USDA has sole authority to allow or disallow
the
State's claims under that program).
With respect to the State's claims under the various titles of the
Social
Security Act, it was agreed that the parties would address only
the threshold
issue whether the claims were timely filed under section
1132 of the
Act. It was further agreed that if the Board held for the
State on this
issue, the Agency could issue a new disallowance on other
grounds which the
State could appeal to the Board. (Board's letter to
parties dated May
16, 1986, p. 1) For the reasons explained below, we
find that the claims in
question were timely filed.
Since it appears that the same issues of allocation methodology are
raised
with respect to the Food Stamp costs and the costs claimed under
the Social
Security Act, we have determined that it is appropriate to
remand the case to
the Agency to make a new determination pertaining to
both the Social Security
Act costs and the Food Stamp costs. In
2/ The Regional's Director's designee also stated that to the
extent
that the State's claims under titles I, IV-A, X and XIV of the
Social
Security Act pertained to the administration of social services prior
to
October 1, 1975, such claims were unallowable under Public Law
95-291,
which required that the claims had to be submitted no later
than
September 11, 1977. He further stated that any claims under titles
I,
X, and XIV would be contingent upon the availability of funds
under
those titles. In light of the State's apparent agreement with
the
Agency regarding this basis for the disallowance, the Board directed
the
parties to discuss their respective positions concurrently with
the
proceedings before the Board on other issues. (Board's letter
to
parties dated May 16, 1986) - 3 -
addition to addressing issues of allocation methodology, the
Agency's
disallowance may address the limitations imposed by Public Law
95-291,
noted in footnote 2 of this decision, to the extent that that matter
has
not been resolved by the parties.
I. Board's Jurisdiction Over Food Stamp Costs
The Agency took the position that the Board has jurisdiction over
the
determination regarding Food Stamp costs. We agree. 3/
The costs in question constituted administrative expenses of
county
welfare departments which must be allocated to the various
federal
programs that benefit from the costs in accordance with the
methodology
set out in the State's approved cost allocation plan. The
Board's
jurisdiction in this case stems from that fact. Specifically,
under OMB
Circular A-87 (made applicable to the State by 45 CFR 74.171), a
single
cognizant federal agency is responsible for negotiation, approval
and
audit of cost allocation plans of state agencies operating federal
grant
programs. (OMB Circular A-87, J.4.b.) The Department of Health
and
Human Services (DHHS) has been designated as the cognizant
federal
agency for the State. (45 Fed. Reg. 13396, 13399 (February 28,
1980))
Implementing OMB Circular A-87, DHHS regulations at 45 CFR 95.501
et
seq. provide for the review and approval of cost allocation plans
by
DCA. These regulations further provide that if costs claimed
under
certain programs, including the Social Security Act titles in
question
here, "are not claimed in accordance with the approved cost
allocation
plan" and "the issue affects the programs of more than one
Operating
Division or Federal department," then:
the Director, DCA, after consulting with the
Operating Divisions,
shall determine the amount
inappropriately claimed under each
program.
The Director, DCA, will notify the State of this
determination, of the dollar affect [sic] of the claims made
under
each program, and will inform the State of its
opportunity for
reconsideration of the determination
under 45 CFR Part 75. The
State will subsequently be
notified by the appropriate Operating
Division as to
the disposition of the funds in question.
3/ Under 45 CFR 1b.7, the Board Chair determines whether an
appeal
meets the requirements of Appendix A of Part 16, which defines
the
Board's jurisdiction. For purposes of convenience, the Board
Chair's
jurisdictional ruling in this case is incorporated in the decision of
a
three-member Panel, of which the Board Chair is one member. - 4 -
(45 CFR 95.519(b)(1)) This regulation indicates that DCA is
responsible
for determining whether costs charged to more than one
program,
including programs administered by other federal departments,
are
claimed in accordance with a cost allocation plan, although the
actual
disallowance of costs determined not to be properly claimed rests
with
the affected program office. This is consistent with guidelines
issued
by DHHS for implementing OMB Circular A-87, which provide that:
costs approved by the cognizant agency will be
recognized by all
Federal departments and
agencies. Likewise, costs not approved by
the
cognizant agency will not be recognized.
(A Guide for State and Local Government Agencies, OASC-10, December
1976,
p. 3) Furthermore, the role of DCA with respect to the costs in
question here
was expressly acknowledged by USDA. In a letter dated
December 3, 1984
concerning the State's Food Stamp claim, USDA wrote:
Pending a determination by DCA-DHHS, the cost in
question may be
subject to deferral or disallowance
by the Food and Nutrition
Service [part of
USDA].
(State's Ex. K) This procedure was also consistent with USDA
regulations
at 7 CFR Part 277. Section 277.9(d) provides in part:
All State agency Cost Allocation Plans for
determining the costs of
administering the program
must be approved by the cognizant Federal
agency.
Appendix A, Paragraph (I)(6), of Part 277 further provides:
The cognizant Federal agency, in collaboration with
Federal
agencies concerned, will be responsible for
negotiation, approval,
and audit of cost allocation
plans.
In view of DCA's authority to make a determination regarding whether
the
costs in question were properly allocated to the Food Stamp program,
it
is clear that the Board has jurisdiction. This is so because
DCA's
determination is made under 45 CFR Part 75, which provides
for
reconsideration of DCA's determination by the Regional Director or
his
designee. (45 CFR 75.5, 75.6(d)) Section 75.6(c) in turn requires
that
the Regional Director's decision inform the grantee of its right
to
appeal the decision to the Departmental Grant Appeals Board under 45
CFR
Part 16.
- 5 -
Moreover, the Board's regulations themselves recognize such disputes
as
subject to the Board's jurisdiction. Appendix A, Paragraph D, of 45
CFR
Part 16 provides:
The Board reviews final written decisions in
disputes which may
affect a number of HHS programs
because they involve cost
allocation plans or rate
determinations. These include decisions
related to cost allocation plans negotiated with State or
local
governments. . . . The "final written
decision" for purposes of
Board review of these
disputes is the decision issued as a result
of the
preliminary appeal process at Part 75 of this title.
The State argued that this provision gives the Board jurisdiction
over
cost allocation disputes only to the extent that they affect
DHHS
programs, citing the reference to "disputes which may affect a number
of
HHS programs." The Agency maintained, however, and we agree, that
this
language means merely that some HHS funds must be involved in order
for
the Board to have jurisdiction (or indeed, in order for HHS to be
the
cognizant agency in the first instance). This latter reading
is
consistent with the intent expressed in 45 CFR Part 75 that the
Board
have jurisdiction to review the Regional Director's decision in all
cost
allocation disputes.
The State also asserted that USDA has its own mechanism for dealing
with
disputes concerning the types of costs in question here.
USDA
regulations provide for the disallowance by the Administrator of
the
Food and Nutrition Service (FNS) of administrative costs of the
Food
Stamp program based on state agency failures to comply with the
Food
Stamp Act, regulations, or the FNS-approved State Plan of
Operations.
(7 CFR 276.4) The regulations further provide that a state agency
may
appeal such a disallowance to the State Food Stamp Appeals Board.
(Id.,
section 276.7) However, these procedures do not clearly preclude
the
determination by a single cognizant federal agency of costs allocable
to
the Food Stamp program pursuant to a cost allocation plan. In light
of
the recognition in Appendix A, Paragraph (I)(6), of 7 CFR Part 277
of
the authority of the cognizant federal agency to audit cost
allocation
plans, the more reasonable view is that the appeals process of
the
cognizant federal agency takes precedence over the Food Stamp
appeals
process for this limited purpose. (It appears, however, that
where the
cognizant federal agency determines that costs are not
properly
allocated to the Food Stamp program, the Administrator of FNS
would
remain responsible for making a disallowance determination.)
The State argued, however, that Appendix A, Paragraph (I), of 7 CFR
Part
277 (concerning cost allocation plans) applied only to indirect
costs,
and that the wages in question here were direct costs. Appendix
A,
Paragraph (I)(1), states: "A cost - 6 -
allocation plan will be required to support the distribution of
any
indirect costs." The term "indirect costs," however, appears to be
used
here in a broad sense to encompass any costs not on their face
clearly
chargeable to a particular program, regardless of whether the costs
once
allocated to various programs are charged as direct or indirect
costs.
Since the State did not deny that the back wages were subject to a
cost
allocation plan, it follows that Paragraph (I) is applicable.
The State also argued that the reconsideration decision by the
Regional
Director's designee was illegal because DCA's initial
determination
allowed the Food Stamp costs. The State asserted that it
did not
request reconsideration of this aspect of DCA's determination and
that
this matter was therefore not properly before the Board. The
State's
request for reconsideration stated:
Pursuant to 45 CFR 95.519(b)(1) and (2). . . , we
are requesting
reconsideration of your disallowance
determination of claims
submitted by this agency for
court-ordered back wages to County
Welfare
Department workers.
(Letter dated December 12, 1985, from Blinzinger to Stanton, p. 1)
Since
DCA in fact allowed only $398,525 of the $1,460,321 originally
allocated
by the State to the Food Stamp program, it is not clear that the
State's
reconsideration request was not challenging DCA's determination
with
respect to the Food Stamp costs. In any event, the State did not
simply
request reconsideration of the earlier determination but presented
to
the Regional Director a recalculation of its claim, based on a
new
allocation methodology. This recalculation necessarily re-opened
the
issue of whether costs were properly allocated to the Food
Stamp
program. This is so because the costs incurred by a state agency
in
administering various federal programs must be allocated to
those
programs on a uniform basis. Thus, the State cannot rely on
one
methodology--the methodology used by DCA--to determine the
costs
allocable to the Food Stamp program and on another methodology--its
new
methodology--to determine the costs allocable to the Social Security
Act
programs. To do so might result in the State's being reimbursed
for
either more or less than the total amount of costs actually
incurred.
In fact, the State's new allocation methodology resulted in
the
reduction of its Food Stamp claim below the amount allowed by DCA and
an
increase in the total claimed for all programs. Thus, the State
clearly
intended that the allocability of the costs charged to all
programs,
including the Food Stamp program, be reconsidered based on its
new
allocation methodology.
For the foregoing reasons, we conclude that the Board has jurisdiction
to
review this dispute. - 7 -
II. Timeliness of State's Claims
The expenditures in question here were required by the decision in King
v.
State of Indiana, No. S175-1143 (Marion County Superior court),
aff'd, State
v. King, 413 N.E.2d 1016 (Ind. App. 1980), which held that
the State
illegally established separate salary schedules for county
welfare department
merit employees that were unequal to those for other
State employees
performing comparable work. The trial court appointed a
Commissioner to
determine the amount of back wages owed to each member
of the affected
class. The State paid $14,401,799 into court on May 4,
1982, and
another $545,194 into court on May 11, 1982 pursuant to court
orders
approving the Commissioner's initial and supplemental reports. 4/
The State
filed claims for federal financial participation in these
expenditures in
July 1984 and August 1984.
DCA and subsequently the Regional Director, by his designee,
determined
that all costs but those claimed under the USDA Food Stamp program
were
unallowable because they were not filed within two years of the date
the
expenditures were made, as required by section 1132 of the
Social
Security Act. Both decisions noted that section 1132 contains
an
exception for "court-ordered retroactive payments," but concluded
that
the claims should have been filed within two years after the State
made
the payments to the court. We find, however, that this
interpretation
of the exception for "court-ordered retroactive payments" is
clearly
inconsistent with regulations promulgated by DHHS to implement
section
1132. Accordingly, we conclude that the State's claims were
timely
filed.
Section 1132(a) 5/ of the Social Security Act provides as follows:
Notwithstanding any other provision of this Act (but
subject to
subsection (b)), any claim by a State for
payment with respect to
an expenditure made during
any calendar quarter by the State--
(1) in carrying out a State plan approved under title I, IV,
X,
XIV, XVI, XIX, or XX of this Act, or
4/ These amounts exclude interest paid by the State. The
State did
not claim federal financial participation in the interest
payments.
5/ Subsection (b) of section 1132 provides that the Secretary
shall
waive the time limit if he determines that there was good cause for
late
filing.
- 8 -
(2) under any other provision of this Act which provides (on
an
entitlement basis) for Federal financial participation
in
expenditures made under State plans or programs, shall be
filed
(in such form and manner as the Secretary shall by
regulations
prescribe) within the two-year period which begins on the
first
day of the calendar quarter immediately following such
calendar
quarter; and payment shall not be made under this Act on
account
of any such expenditure if claim therefor is not made
within
such two-year period; except that this section shall not
be
applied so as to deny payment with respect to any
expenditure
involving court-ordered retroactive payments or
audit
exceptions, or adjustments to prior year costs.
The implementing regulations at 45 CFR 95.7 (1981) articulate the
general
rule as follows:
[W]e will pay a State for a State agency expenditure
made after
September 30, 1979, only if the State
files a claim with us for
that expenditure within 2
years after the calendar quarter in which
the State
agency made the expenditure. Section 95.19 lists
the
exceptions to this rule.
Section 95.19 provides:
The time limits in sections 95.7 and 95.10 do not apply to
any
of the following--
(a) Any claim for an adjustment to prior year costs.
(b) Any
claim resulting from an audit exception. (c) Any
claim
resulting from a court-ordered retroactive
payment. (d) Any claim
for which the Secretary
decides there was good cause for the
State's not
filing it within the time limit.
The State argued that those regulations impose no restriction on the
time
for filing a claim resulting from a court-ordered retroactive
payment.
The Agency also acknowledged that this was the literal meaning
of the
regulations. There is nothing in the preamble accompanying
the
publication of these provisions in the Federal Register which
indicates
a contrary intent. However, the Agency asserted that the
literal
meaning of a regulation should not be accepted where that meaning
would
conflict with the statute, and argued that the statute requires a
state
to file a claim within two years of the quarter in which it makes
a
court-ordered retroactive payment.
We find the reading proposed by the Agency here to be a strained
one,
which is neither mandated by the plain language of the statute
nor
required in order to fulfill the statutory - 9 -
purposes. Moreover, even if the Agency's reading of the statute is
a
reasonable one, it is clear from the regulations that DHHS has adopted
a
different interpretation. Accordingly, the interpretation that
should
apply is the one articulated in the published regulations, on which
the
State was entitled to rely.
The Agency's argument regarding the meaning of the statute relies on
the
fact that section 1132 states that the two-year filing limit "shall
not
be applied so as to deny payment" of certain types of
expenditures,
including court-ordered retroactive payments. The Agency
argued that
this language:
does not eliminate the two-year filing limit with
respect to such
expenditures, but only precludes an
application of the limit which
would bar
reimbursement based on the expenditures themselves,
without regard to the state's actions in filing its claims.
(Agency's brief dated August 18, 1986, p. 19) This argument, however,
is
based on the mistaken premise that, in the absence of the exception
for
court-ordered retroactive payments, even if the State had filed
its
claims immediately after making the payments into court, payment
of
federal financial participation would have been precluded on the
ground
that the back wages related to a period more than two years before
the
State's claims were filed.
In fact, however, section 1132 requires that a claim be made within
two
years after the date of the expenditure, without consideration of
the
period to which the expenditure relates. The regulations issued by
DHHS
defining when an expenditure is made state in pertinent part:
We consider a State Agency's expenditure for
administration or
training under title I, IV-A,
IV-D, IV-E, X, XIV, XVI (AABD), or
XIX to have been
made in the quarter payment was made by a State
agency to a private agency or individual. . . .
45 CFR 95.13(d). Thus, the expenditures in this case were clearly
made
no earlier than the time that the State made the payments into court,
6/
so that the two-year limitation would
6/ The State argued that the expenditures were not made until
the
distribution of the back wages to individual class members was
completed
in 1984, so that its claims would be timely even absent the
exception
for court-ordered retroactive payments. In view of our
interpretation
of that exception, however, we need not address this
contention. - 10 -
not have barred payment had the State's claims been filed
immediately
thereafter. Accordingly, the rationale advanced by the
Agency to
support its view that the exception for court-ordered payments
merely
tolls the two-year filing deadline until the State makes a
court-ordered
retroactive payment is defective.
We do not here decide that the Agency's reading of the statute
proposed
here is an unreasonable one, and we note that the Agency could
implement
such a reading in its regulations. We do not agree with the
Agency,
however, that the State's interpretation, which is the one
plainly
articulated by the regulation, defeats the general purpose of
the
two-year limit to permit DHHS to plan its budget based on
predictable
claims by the states. Since, as the Agency itself noted,
the
courtordered retroactive payments here related to a period of
years
beginning in 1960, it would appear to make little difference to DHHS
for
budget planning purposes whether the State filed its claims
immediately
after it made the payments into court or years thereafter, since
the
expenditures were not made on a current basis and could not have
been
predicted.
The Agency also noted that, in decisions construing the exceptions
for
audit exceptions and adjustments to prior year costs, this Board
has
consistently indicated that the exceptions were to be
construed
narrowly. However, those decisions addressed the scope of
the
individual exceptions and not the question presented here whether
the
two-year limit applies to expenditures within the scope of
the
exceptions. It is arguable, moreover, that a narrow construction of
the
individual exceptions is necessary precisely because the two-year
filing
limit does not apply at all to the types of expenditures covered by
the
exceptions, in which case a broad construction of the
individual
exceptions would render the general rule almost meaningless.
Accordingly, since DHHS in duly promulgated regulations has
clearly
interpreted section 1132 of the Social Security Act as not imposing
any
time limit on the filing of claims for court-ordered
retroactive
payments, we reverse the Agency's determination based on a
contrary
interpretation.
Conclusion
For the foregoing reasons, we conclude that the Board has jurisdiction
to
review the Agency's determination that expenditures claimed by the
State as
costs of the Food Stamp program were not allocable to that
program. We
further conclude that the Agency erroneously disallowed the
State's claims
for expenditures under the Social Security Act programs
as untimely
filed. We therefore remand the case to the Agency, which
may proceed to
issue a new determination with - 11 -
respect to both the Food Stamp costs and the Social Security Act
costs
based on the State's allocation methodology and on the
limitations
imposed by Public Law 95-291 to the extent that the latter matter
has
not been resolved by the parties.
________________________________ Norval D. (John) Settle
Board
Chair
________________________________ Alexander G. Teitz
________________________________ Judith A. Ballard
Presiding
Board