New York State Department of Social Services, DAB No. 1410 (1993)
Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATE: May 13, 1993
Docket Nos. A-93-35 A-93-102 A-93-136
Decision No. 1410
DECISION
The New York State Department of Social Services (New York) appealed
three
determinations by component agencies of the Department of Health
and Human
Services (Department) disallowing claims for federal financial
participation
(FFP) related to the costs of conducting New York's 1991
fiscal year single
state audit. The Department based the disallowances
on findings that,
in charging the costs of the single audit to various
federally supported
programs, New York had claimed the single audit
costs at higher percentages
of FFP than authorized by the programs. New
York originally had claimed
FFP from each of the programs at a rate of
100 percent for the single audit
costs allotted to each program, but in
the course of the appeals lowered the
rates of FFP at which it was
claiming the audit costs for each of the
programs, so that the amount of
FFP at issue in these appeals is now
$16,768.
While New York lowered the rates of FFP it was claiming for the
audit
costs, the Department maintained that even those reduced rates
exceeded
the FFP allowable under the various programs. For the reasons
discussed
below, we uphold the Department's finding that New York's claims
for the
audit costs were excessive and accordingly affirm the
disallowances.
Background
In support of the disallowances, the Department relied on provisions
of
the Social Security Act as setting the level of FFP for
general
administrative costs for each of the programs involved in these
appeals:
section 1903(a)(7) (Medicaid); section 455(a)(2)(C) (Title IV-D);
and
section 474(a) (Title IV-E). New York's position is based on
the
argument that the provisions of the Single Audit Act should
be
controlling here.
The Single Audit Act of 1984 (Act), Pub. L. No. 98-502, 31 U.S.C. .
7501
et seq., requires state or local governments to have a single
audit
performed for any year in which they receive $100,000 or more in
federal
funds. The Act directed the Office of Management and Budget
(OMB) to
prescribe policies, procedures, and guidelines to implement the
Act,
with each federal agency promulgating "such amendments to
its
regulations as may be necessary to conform such regulations" to
the
Act's requirements and the policies, procedures, and guidelines.
31
U.S.C. . 7505(a). The Act called for the policies, procedures,
and
guidelines to include criteria that would determine "the
appropriate
charges to programs of Federal financial assistance for the cost
of
audits" and that would prohibit a state or local government
from
charging to any program "more than a reasonably proportionate share
of
the cost" of a single audit. 31 U.S.C. . 7505(b)(1). The Act
stated
that the criteria --
shall not, in the absence of
documentation
demonstrating a higher actual cost,
permit (A) theratio of (i) the
total charges by a
government to Federal financial assistance
programs
for the cost of audits performed pursuant to this
chapter,
to (ii) the total cost of such audits, to
exceed (B) the ratio of
(i) total Federal financial
assistance expended by such government
during the
applicable fiscal year or years, to (ii) such
government's total expenditures during such fiscal years or
years.
31 U.S.C. . 7505(b)(2).
In accord with the Act, OMB subsequently issued Circular A-128,
entitled
"Audits of State and Local Governments." In August 1985, the
Department
promulgated regulations incorporating OMB Circular A-128.
See 45 C.F.R.
. 74.62(a)(2), incorporating Circular A-128 as Appendix J to 45
C.F.R.
Part 74.
OMB Circular A-128 provides in relevant part:
Generally, the percentage of costs charged to federal
assistance
programs for a single audit shall not exceed the percentage
that
Federal funds expended represent of total funds expended by
the
recipient during the fiscal year. The percentage may
be
exceeded, however, if appropriate documentation
demonstrates
higher actual cost.
Section 16(b).
Discussion
The sole issue in these appeals is at what rates of FFP for each of
the
programs involved New York can claim the costs of the single audit.
New York asserted that it was entitled to claim FFP for the
costs
associated with the single audit at rates higher than those
for
administrative activities under the programs. New York argued that
the
proper interpretation of section 7505(b)(2) of the Act requires
that
single audit costs be reimbursed at the overall FFP rates for
the
programs involved in these appeals. New York argued that an overall
FFP
rate for each program could be determined by dividing the
federal
contribution for a fiscal year by the total dollar amount (federal
and
state) expended for that program in that year. See, e.g., New
York
Exhibit 1 in Docket No. A-93-35. The overall rate thus would
encompass
expenditures for specific activities funded at enhanced rates along
with
all other activities funded at the general FFP rate. New York
claimed
that its overall FFP rates were as follows: Medicaid, 66
percent; IV-D
program, 70.61 percent; and IV-E program, 61.98 percent.
According to
New York, it is entitled to claim the costs of single audit at
these
enhanced rates.
New York referred to the Act's legislative history to support
its
position:
[T]he Federal Government's share of the payment for a
single
audit could not exceed the ratio of total Federal
assistance
spent by the recipient during the year being audited to
the
recipient's total expenditures for the year. In other words,
if
expenditures of Federal assistance represented one-fourth of
the
recipient's total expenditures, then Federal funds could not
be
used to pay more than one-fourth of the audit costs. . .
.
[T]his limit may be exceeded if a State or local government
can
document that the actual cost of auditing Federal
programs
exceeds the amount allowed by the cap.
1984 U.S.C.C.A.N. 3955, 3968.
New York contended that this language demonstrates Congress' intent
to
provide enhanced levels of FFP for single audits. New York
further
argued that both HCFA and ACF have failed to follow the Act's
directive
to amend their regulations to conform to the Act's
requirements. New
York pointed out that the various regulations cited
by HCFA and ACF to
support their disallowance determinations, e.g., 42 C.F.R.
. 433.15,
predate the Act and have not been amended to conform to the
Act.
The Department's position was that the Act does not provide authority
for
reimbursement of single audit costs at an enhanced rate. According
to
the Department, while the costs of the single audit are clearly an
allowable
cost, they are to be reimbursed at only the FFP rate
authorized by the Social
Security Act for unspecified administrative
activities associated with each
particular program: Medicaid, 50
percent; Title IV-D, 66 percent; and
Title IV-E, 50 percent. According
to the Department, while certain
specified administrative activities
qualify for enhanced FFP, costs of the
single audit are considered
general administrative expenditures that do not
merit FFP at an enhanced
rate.
The Department argued that implementing regulations for each of
the
federal-state programs at issue here clearly establish the percentage
of
FFP a state is entitled to receive for its administration of
the
particular program. For example, FFP rates for administrative
costs
associated with the Medicaid program are set forth at 42 C.F.R.
.
433.15. These regulations set enhanced rates of FFP for
certain
specified activities such as the administration of family
planning
services and the development of mechanized claims processing
systems.
"All other activities" for the proper and efficient administration
of
the State Medicaid plan, however, are to be reimbursed at a FFP rate
of
50 percent. 42 C.F.R. . 433.15(b)(7), implementing 42 U.S.C
.
1396b(a)(7). According to the Department, these regulations
therefore
do not allow for any FFP rate higher than 50 percent for the
costs
associated with the single audit or any other type of audit.
Similarly, the Department continued, the amounts a state expends for
the
operation of the Title IV-D program are reimbursable at a
statutory
limit of 66 percent FFP. See 42 U.S.C. .
655(a)(2)(C). The Title IV-E
program sets a limit of 50 percent FFP for
administrative expenditures
necessary for the proper and efficient
administration of the Title IV-E
State plan. See 45 C.F.R. .
1356.60(c).
New York's rationale for enhanced reimbursement is faulty because
the
subject of section 7505(b) is the initial allocation of single
audit
costs among benefitting programs, rather than the splitting of
those
costs between state and federal partners in those programs. The
purpose
of this section is to prevent state and local governments, which
likely
have some non-federal programs that are included in the single
audit,
from charging federal programs more than their proportionate share
of
the costs of a single audit. The Act's legislative history
confirms
this. Congress wanted to be sure that audit costs were
proportionately
shared by all benefitting programs unless a state or local
government
could document that auditing federal programs in particular was
actually
more expensive. This section has no bearing on the allocation
of costs
between the federal government and state partners in these programs
once
the proper allocation among programs is made. In these cases,
the
Department did not question New York's allocation of costs to
the
programs or rely on this provision as setting the levels of
FFP.
Consequently, this provision is not relevant here.
Thus, while New York is correct that the formula it used to determine
the
applicable rate of FFP is essentially the same as the formula
specified in
this section of the Act and the corresponding provisions in
the OMB Circular,
this formula does not determine the rate at which a
state is entitled to be
reimbursed. Contrary to New York's arguments,
this provision simply
does not mandate a rate of reimbursement for
single audit costs. Our
review of the rest of the Act revealed no other
provisions setting a
reimbursement rate. As explained below, we
conclude that, in the
absence of a provision for an enhanced rate of
reimbursement for single
audits, New York was entitled to be reimbursed
only at the rates provided by
the program statutes and regulations for
administrative costs.
As indicated previously, the program statutes and regulations specify
the
rates of FFP in administrative costs of the programs. Although
the
single audit costs are administrative costs, New York is seeking
funding
of these costs at enhanced levels of FFP, at rates above
those
specifically provided for administrative costs. We have held
before
that eligibility for enhanced funding is "special," must be provided
for
specifically by statute or regulation, and is available only when
the
state meets all the qualifications for enhanced funding. New York
State
Dept. of Social Services, DAB No. 1405, at 16-17 (1993);
Pennsylvania
Dept. of Public Welfare, DAB No. 996, at 3 (1988); Missouri
Dept. of
Social Services, DAB No. 395, at 6 (1983). As discussed above,
the Act
did not mandate enhanced funding for the costs of a single
audit.
Moreover, there is nothing in the program regulations which
specifically
authorizes enhanced FFP for single audit costs. While New
York
correctly noted that the regulations setting the rate for
general
administrative costs predate the Act, Congress has subsequently
included
in the Social Security Act explicit provisions requiring
enhanced
funding for certain administrative activities. See, e.g., 42
U.S.C. .
1396b(a)(3)(D). Single audit costs are not included among
those
"special" activities. This reinforces our view that the costs of
the
single audit are properly reimbursable at the FFP rates set by
the
regulations implementing the Social Security Act.
We also do not find persuasive New York's argument that its
interpretation
should be adopted because the Department and its
constituent agencies failed
to enact or amend regulations to comply with
the Act. The Act did not
mandate that agencies adopt any particular
rate as their reimbursement rate
for single audit costs. The Department
did incorporate OMB Circular
A-128 into its regulations at Appendix J to
45 C.F.R. Part 74.
Furthermore, while the Act required each federal
agency to "promulgate such
amendments to its regulations as may be
necessary to conform such
regulations" to the Act (31 U.S.C. . 7505(a)
(emphasis added)), the
Department already had in place a mechanism which
could be used to reimburse
the audit costs. Thus, there was no need by
the Department to amend its
regulations to comply with the Act.
Conclusion
For the reasons discussed above, we sustain the three disallowances
in
their full amount.
___________________________ Donald F. Garrett
___________________________ Norval D.
(John)
Settle Presiding Board Member
___________________________ M. Terry
Johnson
Presiding Board Member