Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Illinois Department of Children and Family Services
DATE: February 8, 1994
Docket Nos. A-93-153 A-93-176
Decision No. 1463
DECISION
The Illinois Department of Children and Family Services (Illinois)
appealed two determinations of the Administration for Children and
Families (ACF) disallowing federal funding totalling $3,647,719 claimed
by Illinois under title IV-E of the Social Security Act (Act). The
disallowance amount was later reduced by $436,432 since this amount was
included in an earlier disallowance. See ACF's brief dated October 12,
1993, at 2. Docket No. A-93-153 involves claims for expenditures for
foster care and adoption assistance training for the quarters ending
March 31 and June 30, 1992, as well as adjustments to prior claims for
such expenditures. Docket No. A-93-176 involves a claim for
expenditures for foster care training for the quarter ended September
30, 1992, as well as adjustments to a claim for the quarter ended
December 31, 1990 for assistance payments and administrative and
training costs.
The disallowed training costs include direct training costs and the
associated indirect costs, both of which Illinois claimed at the
enhanced rate of 75 percent federal financial participation (FFP)
provided by section 474(a)(3)(A) of the Act for expenditures "for the
training . . . of personnel employed or preparing for employment by the
State agency or by the local agency administering the [title IV-E] plan
. . . ." ACF disallowed that portion of Illinois' direct expenditures
for training which ACF found should have been allocated to benefitting
programs other than title IV-E. ACF disallowed all of the indirect
training costs on the ground that the indirect cost rates which Illinois
applied to calculate these costs were developed using costs that were
not allowable as training costs. Finally, ACF disallowed the adjustments
for the quarter ended December 31, 1990 (which included training costs
as well as other title IV-E costs) on the ground that the claim for
these expenditures was not filed within two years after the end of the
calendar quarter in which the expenditures were made, as required by 45
C.F.R. 95.7.
For the reasons discussed below, we remand the appeal of the training
costs to ACF to determine whether the disallowances were premature. We
also conclude that the indirect costs did not constitute training costs
but should instead have been claimed at the 50 percent rate of FFP
applicable to administrative costs. We reverse the disallowance of the
adjusted claim for the quarter ended December 31, 1990 (with the
exception of the training costs included in the claim, which are subject
to the remand), based on our finding that the claim was timely.
Whether the appeal of the training costs should be remanded pursuant to
DAB No. 1422
In Illinois Dept. of Children and Family Services, DAB No. 1422 (1993),
the Board considered a disallowance of training costs claimed by
Illinois for a prior period which was otherwise identical to the
disallowances here. The Board there held that, contrary to Illinois'
contention, the training costs were required to be covered by a cost
allocation plan (CAP) in order to be eligible for FFP. The Board found
that Illinois had submitted to the Division of Cost Allocation (DCA) a
proposed CAP which provided for the allocation of training costs and
which was applicable to the period in question, and that DCA never
advised Illinois that it could not claim FFP based on this proposed CAP.
The Board further found that under these circumstances, ACF was
precluded by 45 C.F.R. 95.517 from disallowing the training costs
unless and until the proposed CAP was finally disapproved by DCA,
provided that the claim was in fact based on the proposed CAP. The
Board remanded the appeal to ACF to determine whether the claim was
based on the proposed CAP.
The Board also determined that the indirect cost rate was calculated
based on costs not allowable as training costs. Accordingly, the Board
concluded that the indirect costs should have been claimed as
administrative costs, which were allowable only at a 50 percent rate of
FFP. However, the Board noted that the amount of indirect costs which
was allowable could not be determined until a final determination was
made regarding the amount of allowable direct costs to which the
indirect cost rate should be applied.
Illinois asserted that DAB No. 1422 governed with respect to the
disposition of the training costs at issue here. ACF agreed that DAB
No. 1422 was dispositive here (except with respect to the training costs
included in the claim which ACF found untimely). ACF brief dated
10/12/93, at 1-3. Accordingly, based on the analysis in DAB No. 1422,
we remand that part of the appeals pertaining to training costs to ACF
to determine whether Illinois' claims for such costs were based on the
proposed CAP. 1/ If ACF decides that the claims were based on the
proposed CAP, then the disallowances are premature. If ACF decides that
the claims were not based on the proposed CAP, Illinois may renew its
appeal of the disallowances within 30 days of its receipt of a written
determination by ACF to this effect. Any such appeal may not raise the
question whether the indirect costs in question here were payable at the
enhanced rate of 75 percent FFP applicable to training costs, since we
also conclude, based on the analysis in DAB No. 1422, that the indirect
costs were instead payable only at 50 percent FFP. 2/
Whether the prior period claim was timely
This appeal also presents the separate issue of whether ACF properly
disallowed the prior period adjustments at issue in Docket No. A-93-176
on the ground that the claim was untimely. For the reasons discussed
below, we conclude that the claim was timely. Accordingly, we reverse
the disallowance of this claim, except with respect to the training
costs included in the claim, which are subject to the remand described
above.
Section 1132(a) of the Act and the implementing regulations at 45 C.F.R.
95.7 require that a claim for FFP for expenditures under title IV-E be
filed within the two-year period which begins on the first day of the
quarter following the quarter in which the expenditures were made. The
costs in question here were claimed for the quarter ended December 31,
1990. 3/ ACF found that the claim, which was submitted under cover of a
letter dated December 30, 1992, was untimely. 4/
Neither the regulations at 45 C.F.R. Part 95 nor the title IV-E
regulations specify how a claim is to be filed or require any specific
proof of timely mailing. The parties agreed, however, that if the claim
was put into the U.S. mail on or before December 31, 1992, it met the
two-year filing deadline. 5/ There is no documentary record of when the
claim was mailed, however. Although Illinois alleged that it mailed the
original of the letter to ACF's central office in Washington, D.C., and
a copy to ACF's Regional Office in Chicago, ACF was unable to produce
the envelope for either the original or the copy. 6/ Moreover, the
letters were sent via regular U.S. mail, which does not provide any
receipts. However, the copy received by the Regional Office was stamped
as received by the Regional Office on January 7, 1993. ACF argued that
it should be inferred from this that the letter was mailed after
December 31, 1992, as the letter would have arrived earlier than January
7 had it been mailed by December 31. ACF noted in this connection that
under Internal Revenue Service (IRS) regulations, receipt is presumed to
occur five days after mailing unless there is reasonable evidence to the
contrary.
Illinois asserted that such an inference was not justified. It noted
that there were seven days, including only four business days, from
December 31, 1992 (which fell on the Wednesday prior to the New Year's
holiday) to January 7, 1993. Illinois also asserted that delivery could
have been delayed because the volume of mail at that time of year is
much heavier than at most other times. In addition, it noted that the
time it takes for the U.S. Post Office to deliver mail varies widely.
Moreover, based on the testimony of a Regional Office employee who
stated that mail went through the Regional Office mailroom to the
Regional Administrator's office before being opened and date-stamped,
Illinois argued that the letter might have been received by the Regional
Office earlier than January 7.
Furthermore, Illinois took the position that there was sufficient
evidence to establish that the claim was mailed on December 30. The
Illinois employee who prepared the claim, Tayseer Rehan, testified that
he asked the assistant to the Chief of the Office of Financial
Management to sign the claim at 2:00 p.m. on December 30, and that he
put the original and a copy of the claim into the mail bin in his
department within a few minutes thereafter. Tr. at 10-12; Illinois Ex.
J, Second affidavit of Tayseer Rehan at 2. The mailroom supervisor
employed by Illinois stated that it is standard practice for all
outgoing mail placed in such bins to be collected at 8:30 a.m., 11:30,
a.m., and 2:30 p.m. He also stated that all mail collected each day is
stamped with the proper postage, bundled into U.S. Post Office mail
bags, and placed into a U.S. Post Office lock box at approximately 4:30
p.m. the same day. He further stated that a U.S. Post Office employee
picks up the mail bags from the lock box at approximately 5:30 p.m. each
day. Moreover, he stated that this procedure was followed every day of
the year, including December 30 and 31, 1992. Illinois Ex. K, Affidavit
of Thomas G. Yemm, dated 11/17/93.
We find that there is ample evidence in the record to establish that the
claim was filed on time. We disagree with ACF's suggestion that
Illinois had to establish this with documentary evidence (other than the
dated cover letter). While ACF could have imposed such a requirement,
no such requirement existed during the time in question here. Thus, we
must consider the other evidence offered by Illinois.
ACF did not deny that the statements of Mr. Rehan and Mr. Yemm, if true,
were probative of timely mailing (other than to suggest that only
documentary evidence should be accepted). However, ACF challenged Mr.
Rehan's credibility, noting that he admitted on cross-examination that
he had no recollection of when he mailed the claim for the quarters
immediately prior and subsequent to the quarter in question here. In
addition, ACF noted that Mr. Rehan admitted (Tr. at 19-20) that he
prepared as many as 100 letters a year and could not recall the names of
the addressees to whom letters were sent during a given week.
In our view, however, Mr. Rehan provided a convincing explanation of why
he specifically recalled when this claim was mailed. According to Mr.
Rehan, Illinois was unable to determine its current quarter expenditures
because of computer problems. Thus, in order to assure that the claim
for the prior quarter adjustments was timely filed, Mr. Rehan filed it
separately from the claim for current quarter expenditures, contrary to
the usual procedure. Tr. at 13, 29-30. (In fact, a Regional Office
employee testified that he called Mr. Rehan after receipt of the claim
for the prior quarter adjustments because the claim appeared
"incomplete." Tr. at 41.)
Mr. Rehan also explained that he remembered the timing because this
particular claim was not signed for the Department Director by the Chief
of the Office of Financial Management (who was out of the office), but
by the Chief's assistant. Mr. Rehan had to wait to have the claim
signed until the return from lunch of the assistant, who regularly
lunched from 1:00 to 2:00 p.m. Tr. at 11.
In view of these circumstances, Mr. Rehan had reason to remember
precisely when the claim was filed. Moreover, the December 30 date on
the cover letter could have refreshed his recollection concerning the
circumstances of the mailing, whereas the dates of the cover letters for
the prior and subsequent quarters were not brought to his attention.
ACF argued that, if the claim was not ready until December 30 or 31, Mr.
Rehan would have sent the claim by registered or certified mail, called
the Regional Office to notify ACF that he was mailing the claim, or
faxed the claim to the Regional Office. ACF stated that the fact that
Mr. Rehan did not take any of these actions suggests that the claim was
not filed on time. We see no reason why Mr. Rehan would necessarily
have taken any of these actions simply because the claim was mailed
immediately prior to the expiration of the two-year filing deadline. As
noted above, ACF did not require any particular mailing procedure for
claims. In addition, Mr. Rehan stated that Illinois had not had any
problem in the past with mail to the Regional Office being delayed and
had always used regular mail for its claims until this issue came up.
Tr. at 12-13. Furthermore, if the claim was mailed on time, there was
no reason to take any additional steps such as faxing it or calling the
Regional Office.
On the whole, we found Mr. Rehan's oral and written testimony credible
since he gave reasonable and consistent explanations of what happened.
7/
Furthermore, the fact that the letter transmitting the claim was
date-stamped received January 7 in our view supports rather than
undermines Illinois' assertion that the claim was filed on time. The
Regional Office employee testified that if a letter is received in the
Regional Office's mailroom in the afternoon, it is unlikely to be
date-stamped the same day. He referred to a "lag time," which could
vary. Tr. at 39-40. Thus, it is entirely possible that the claim was
received on January 6 (or earlier) rather than on January 7. In that
case, there would have been no more than five days, excluding the
intervening New Year's holiday and Sunday, from December 30, when
Illinois asserted the claim was mailed, until the date it was received
by the Regional Office. Since ACF took the position that it was
reasonable to allow five days for mailing, this is an additional basis
for finding that the claim was filed on time. 8/
Accordingly, we conclude that Illinois' claim for prior quarter
adjustments was filed within two years after the expenditures were
incurred, as required by section 1132(a).
Conclusion
For the foregoing reasons, we remand the appeal with respect to the
training costs to ACF to determine whether the costs were claimed based
on the methodology in the proposed CAP and the disallowances of these
costs were thus premature. Illinois may renew its appeal if ACF
determines that the disallowances were not based on this methodology;
however, Illinois may not in any such appeal raise the question of the
rate of FFP applicable to the indirect costs, which we conclude is 50
percent. We also conclude that Illinois' claim for adjustments to its
claim for the September 30, 1990 quarter was timely, and reverse the
disallowance pertaining to all costs included in this claim except the
training costs, which are subject to the remand.
___________________________ Cecilia Sparks
Ford
___________________________ Norval D.
(John) Settle
___________________________ Judith A.
Ballard Presiding Board Member
1. Illinois contended that the training cost claims for the
quarters ended March 31 and June 30, 1992 were materially
indistinguishable from the claims at issue in DAB No. 1422. Illinois
noted, however, that the claim for the quarter ended September 30, 1992
differed from the claims at issue in DAB No. 1422 because in DAB No.
1422, the proposed CAP was disapproved by DCA after the claims were
filed, whereas the proposed CAP was disapproved before the claim for the
quarter ended September 30, 1992 was filed. Illinois nevertheless
asserted, based on the wording of DCA's disapproval letter, that the
conclusion in DAB No. 1422 that DCA had not advised Illinois that it
could not claim FFP for the training costs applied to expenditures made
in the quarter ended September 30, 1992 as well. Since ACF did not
dispute this assertion, there is no need for Board review of this
matter.
2. Although Illinois agreed that DAB No. 1422 was dispositive here,
it asserted that "remand potentially represents an unnecessary step,"
both because ACF had not contested that the claims were made in
accordance with the methodology in the proposed CAP and because a
determination of whether the disallowances are premature is only an
"interim resolution" pending reconsideration by DCA of its disapproval
of the CAP. Illinois brief dated 8/27/93, at 12-13, n. 3. As noted in
DAB No. 1422 (at 7), however, the parties agreed that the case should be
remanded to ACF to determine whether the claims were in fact based on
the methodology in the proposed CAP. In our view, remand continues to
be appropriate here. By indicating that a remand was necessary, ACF
effectively took the position that the claims were not based on this
methodology. Moreover, the parties gave no indication as to when a
final decision on the proposed CAP by DCA could be expected.
3. There is an unexplained discrepancy between the amount disallowed
by ACF for this quarter and the amount actually claimed by Illinois.
ACF disallowed $2,240,688, which it stated consisted of $2,158,633 for
assistance payments, $60,122 for administrative costs, and $21,933 for
training. Illinois Exhibit (Ex.) F at 1-2. However, the claim also
included $12,799 for adoption assistance payments (in addition to the
$2,240,688, which was for non-voluntary foster care assistance payments)
and a decreasing adjustment of $6,836 for administration related to
adoption assistance. Illinois Ex. C at fourth unnumbered page. This
resulted in a total claim of $2,246,651, which exceeded the amount
disallowed.
4. The notice of disallowance issued by ACF identified this claim as
being for the quarter ended September 30, 1990. Letter from Mottola to
Ryder dated 5/7/93, at 2. There would have been no question that the
claim was untimely had it been for this quarter. ACF subsequently
issued a notice of payment of the claim which identified the correct
quarter. ACF Ex. 2. ACF nevertheless maintained during the proceedings
before the Board that the claim was untimely.
5. A memorandum to the Regional Administrators from the Associate
Commissioner for Public Assistance dated November 14, 1983 stated that
claims must be received within two years after the calendar quarter in
which the state made the expenditure. ACF Ex. 4. However, ACF stated
that it applied a more permissive policy here which accepted mailing as
filing. ACF brief dated 12/27/93, at 4-5; Transcript of 1/18/94 hearing
(Tr.) at 71. The latter policy was also applied by ACF in Ohio Dept. of
Human Services, DAB No. 1177 (1990).
6. ACF took the position that the envelopes would not have
established when the claim was mailed because Illinois used a private
postage meter for its mail. ACF asked that the Board take judicial
notice that private metered mail does not bear a United States Post
Office postmark. ACF brief dated 12/27/94, at 3; Tr. at 73-74.
Illinois offered evidence to show that such mail is sometimes
postmarked, and argued that an adverse inference should be drawn from
ACF's failure to produce either envelope. Illinois letter dated
1/21/94, enclosure; Tr. 58-59. We need not resolve this issue, however,
since we find that there is other evidence adequate to establish the
mailing date.
7. ACF also suggested, through a line of questioning at the hearing,
that Mr. Rehan might have had a personal motive to lie about when the
claim was mailed if he could have had a problem or "difficulties"
caused
by the late filing of the claim. Tr. at 23-25. Mr. Rehan responded
that since the claim was filed on time, there was no problem, and that
there also would be no problem if the claim had been late because it
would not have been late unless there was a reason. Id. ACF counsel
then withdrew her last question concerning this matter and did not
question Mr. Rehan's credibility on this basis in her oral argument.
Tr. at 25, 68-69. In any event, there is nothing in the record which
establishes that Mr. Rehan would have been held responsible if the claim
was not filed on time. We note that the December 30, 1992 date on the
cover letter to the claim is typed in the same type-face as the rest of
the letter. Since the date was apparently on the letter when it was
signed, there is less likelihood that Mr. Rehan backdated the letter to
protect himself than if the letter had been signed and subsequently
date-stamped.
8. The IRS regulations on which ACF relied do not by their terms
apply here nor were they ever made applicable by ACF. Moreover, they do
not in any event apply on the facts of this case since they are intended
to establish the date of receipt where there is proof of mailing and not
vice