Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Illinois Department of Children and Family Services
DATE: August 3, 1995
Docket Nos. A-95-4 and A-95-64
Decision No. 1530
DECISION
The Illinois Department of Children and Family Services
(Illinois) appealed the disapproval of its proposed cost
allocation plan (CAP) submitted May 12, 1992. In the
proposed CAP, Illinois sought to allocate to the federal
foster care and adoption assistance program under title
IV-E of the Social Security Act (Act) its costs for
virtually all types of training for state agency staff
working in its foster care and adoption programs. A
Hearing Officer serving as the delegate of the Regional
Director, Region V, Department of Health and Human
Services, upheld the determination of the Division of
Cost Allocation (DCA) disapproving the proposed CAP on
the ground that it did not provide for allocation of such
costs among all programs which benefitted from the
training and did not specify the subject matter of the
training. In addition, the Hearing Officer found
unacceptable an alternative allocation methodology
subsequently proposed by Illinois.
Illinois also appealed the decision of the Administration
for Children and Families (ACF) disallowing federal
funding in the amount of $1,471,142 claimed under title
IV-E for both direct and indirect costs of foster care
and adoption assistance training for the quarter ended
September 30, 1994. ACF disallowed part of the direct
training costs on the ground that the costs should have
been allocated among all benefitting programs. In
addition, ACF disallowed the amount claimed for indirect
costs to the extent it exceeded the amount claimable at
the 50% rate of federal financial participation (FFP), on
the ground that the indirect cost pool included costs not
allowable as training costs. Only certain training costs
are eligible for 75% FFP.
With the parties' consent, the two appeals were
consolidated for purposes of briefing and decision.
For the reasons explained more fully below, we uphold the
disapproval of Illinois' proposed CAP. The proposed CAP
would result in allocating to title IV-E joint costs that
should be allocated to other programs as well as to IV-E.
In addition, some of the costs Illinois proposed to
allocate to IV-E in their entirety were in fact not even
allocable to IV-E at all and should be charged directly
to state or other federal programs. Illinois' arguments
are based on a fundamental misconception of the nature of
the IV-E program and the types of expenditures properly
incurred to administer this program. Illinois would
shift to IV-E, a program for foster care maintenance and
adoption assistance payments for certain eligible
children, a broad range of training costs related to
child welfare services funded by the state as well as by
other federal programs. While Congress could have
written title IV-E broadly enough to cover these types of
costs, it did not. The interpretation of the statute and
regulations advanced by Illinois is not required and
clearly was not adopted by the Secretary. Our decision
that the proposed CAP was properly disapproved is,
moreover, consistent with decisions the Board has issued
in other cases raising similar issues. Specifically, we
find that --
o DCA had discretion under the applicable cost
principles to require that a CAP provide for
allocation, based on relative benefits received,
among all benefitting programs of all training costs
that did not solely benefit the IV-E program, even
if the principal benefit of the training accrued to
IV-E. Since Illinois' May 12, 1992 proposed CAP did
not provide for this type of allocation, DCA's
disapproval was proper.
o The alternative allocation methodology submitted
by Illinois after its proposed CAP was disapproved
also failed to provide for allocation among all
benefitting programs of all training costs which did
not solely benefit the IV-E program. Thus, DCA had
discretion to reject this methodology.
o DCA could reasonably read the applicable
regulations as requiring that a CAP identify the
subject matter of training in order to ensure that
the costs allocated to IV-E are allowable. DCA
properly found that the list of training topics
proposed by Illinois after disapproval of its
proposed CAP included some topics which were not
related to the activities listed at 45 C.F.R.
1356.60(c)(1) and (2) and thus not within the scope
of the IV-E program. Even where a topic is related
to an activity which is listed in this regulation,
moreover, DCA may require Illinois to allocate the
cost of training on that topic if it benefits
children in addition to those who are either
IV-E-eligible or candidates for IV-E.
We also find with respect to the disallowance that --
o ACF properly disallowed Illinois' claim for
direct training costs for the quarter ended
September 30, 1994 to the extent that the claim
included costs allocable to programs other than IV-
E. However, ACF should recalculate the disallowance
to include in the pool of direct training costs to
which an eligibility ratio is applied the cost of
any training projects which Illinois originally
excluded from its claim but which Illinois shows
benefitted IV-E as well as other programs. ACF may
also recalculate the disallowance to exclude the
cost of any training projects that involved topics
outside the scope of title IV-E.
o ACF properly disallowed the amount of indirect
costs claimed for the quarter ended September 30,
1994 which exceeded the amount claimable at 50% FFP
since the applicable indirect cost rates were
calculated using costs that are not allowable
training costs at the 75% rate under the applicable
regulations. The amount of unallowable indirect
costs must be recalculated if the disallowance of
the direct costs is increased or reduced.
o The disallowance of Illinois' claim for the
quarter ended September 30, 1994 should not be
reversed as premature. Under 45 C.F.R. 95.517,
Illinois was not entitled to payment of a claim
based on a proposed CAP where the claim was
submitted after DCA disapproved the proposed CAP,
even though Illinois' appeal of DCA's decision was
pending.
Below, we review the CAP process, relevant provisions of
title IV-E and the implementing regulations, and the
factual background of the appeals. We then explain our
holding with respect to the allocation methodology and
our holding with respect to the subject matter of the
training. Finally, we discuss our disposition of the
disallowance of the direct and indirect costs.
The Cost Allocation Process
A state participating in the various public assistance
programs under the Act, including title IV-E, is required
to make determinations as to the amount of commonly
incurred expenditures that are allocable to each program
the state administers. A state is required to submit a
plan for cost allocation to the Director, DCA, in the
appropriate DHHS regional office. 45 C.F.R. 95.507(a).
This plan, or CAP, is defined as "a narrative description
of the procedures that the State agency will use in
identifying, measuring, and allocating all State agency
costs incurred in support of all programs administered by
the State agency." 45 C.F.R. 95.505. The CAP must
contain sufficient information to permit the DCA Director
to make an informed judgment on the correctness and
fairness of these procedures. 45 C.F.R. 95.507(a)(4).
If DCA disapproves a CAP or CAP amendment, a state may
seek reconsideration of the DCA decision by the DHHS
Regional Director (or his delegate). 45 C.F.R.
95.513(b) and 45 C.F.R. 75.5. A Regional Director's
negative determination may be appealed to the Board. 45
C.F.R. 75.6(c).
Once approved by DCA, a CAP may continue in effect
indefinitely if the state submits an annual statement to
DCA certifying that the CAP is not outdated. 45 C.F.R.
95.509(b). The circumstances under which a CAP amendment
is required are specified in 45 C.F.R. 95.509(a). The
effective date of a CAP amendment is generally the first
day of the calendar quarter following the event that
required the amendment. 45 C.F.R. 95.515.
In approving a CAP, the DCA Director applies Office of
Management and Budget (OMB) Circular A-87 and "other
pertinent Department regulations and instructions," such
as those governing title IV-E. 45 C.F.R. 95.507(a)(2).
OMB Circular A-87 sets forth general cost principles
which govern the administration of DHHS grants to states
and is made applicable to such grants by 45 C.F.R.
74.171 (1982) (which is specifically made applicable to
title IV-E by 45 C.F.R. 1355.30(b)). OMB Circular A-87
states in relevant part that "a cost is allocable to a
particular cost objective only to the extent of the
benefits received by such objective." Attachment A,
C.2.a. Only costs which are allocable to a grant are
allowable charges to that grant. Attachment A, C.1.a.
In addition, costs must be "necessary and reasonable for
proper and efficient administration" of the grant
program. Attachment A, C.1.a.
ACF issued three policy announcements dealing with the
allocation of foster care and adoption assistance costs
which are relevant here. ACYF-PA-87-05, dated October
22, 1987, states that, with the exception of expenses a
state incurs in training its staff to determine
eligibility, allowable training costs must be allocated
"to title IV-E, State foster care and other State/federal
programs such that each participating program is charged
its proportionate share of such costs." Ex. 3 at 3-4.
It further states that "[t]he allocations may be
determined by case count of title IV-E-eligible children
in relation to all children in foster care under the
responsibility of the State title IV-E/IV-B agency, or on
some other equitable basis." Id. at 4 (emphasis in the
original). ACYF-PA-90-01, dated June 14, 1990, repeats
this language. Ex. 6, at 3. A third policy
announcement, ACF-IM-91-15, dated July 24, 1991, states
that "[t]raining costs for all training, including long-
term educational training (degree programs), must be
allocated among all benefitting programs and may not be
direct-charged to title IV-E, unless title IV-E is the
only benefitting program." Ex. 8 at 2.
Title IV-E
Title IV-E, originally enacted by the Adoption Assistance
and Child Welfare Act of 1980, Public Law No. 96-272,
authorizes appropriations to enable states "to provide,
in appropriate cases, foster care . . . for children who
otherwise would be eligible for assistance" under a
state's title IV-A (AFDC) program and "adoption
assistance for children with special needs." Section 470
of the Act.
Section 474 of the Act establishes several categories of
title IV-E expenditures: foster care maintenance
payments (474(a)(1)), adoption assistance payments
(474(a)(2)), and expenditures "found necessary by the
Secretary for the provision of child placement services
and for the proper and efficient administration of the
State plan" (474(a)(3)). 1/ The expenditures incurred in
the administration of the state plan are further divided
into three categories: expenditures "for the training
. . . of personnel employed or preparing for employment
by the State agency or by the local agency administering
the plan . . ." (section 474(a)(3)(A)); expenditures
"(including travel and per diem expenses) . . . for the
short-term training of current or prospective foster or
adoptive parents and the members of the staff of State-
licensed or State-approved child care institutions
providing care to foster and adopted children receiving
assistance under this part . . ." (section 474(a)(3)(B))
2/; and other expenditures (section 474(a)(3)(C)) 3/.
Section 474 provides for reimbursement of the training
expenditures at the rate of 75% FFP and reimbursement of
the remaining expenditures at the rate of 50% FFP.
Because Congress wanted to encourage states to prevent
improper foster care placements and ensure that children
remained in substitute care only when necessary, it
imposed the following conditions on the receipt of foster
care maintenance payments. First, the state must make
reasonable efforts prior to the placement of a child in
foster care to prevent or eliminate the need for removal
of the child from his home. Section 471(a)(15)(A).
Second, the removal must be pursuant to a judicial
determination with specific findings concerning the
child's welfare and reasonable efforts or pursuant to a
voluntary agreement. Section 472(a)(1). Third, each
child in foster care must have a case plan. Section
471(a)(16).
ACF's regulations implementing title IV-E are codified at
45 C.F.R. Part 1356. Section 1356.60(b) is captioned
"Federal matching funds for State and local training for
foster care and adoption assistance under title IV-E."
It states, with respect to training of persons employed
by or preparing for employment by the state or local
agency, that "[s]hort and long term training at
educational institutions and in-service training may be
provided in accordance with the provisions of 235.63
through 235.66(a) of this title." Section 235.64
specifies the various costs matchable as training
expenditures for staff development personnel assigned to
training functions, agency training sessions, and
training and education provided outside the agency.
Section 1356.60(c) is captioned "Federal matching funds
for state and local administrative expenditures for
foster care and adoption assistance under title IV-E."
Subparagraph (1) specifies certain costs (actually
activities) which are "directly related only to the
administration of the foster care program under this
part" and which "may not be claimed under any other
section or Federal program." Subparagraph (2) lists
"examples of allowable administrative costs necessary for
the administration of the foster care program."
Subparagraph (3) provides that "[a]llowable
administrative costs do not include the costs of social
services . . . which provide counseling or treatment to
ameliorate or remedy personal problems, behaviors or home
conditions."
Factual Background
Illinois' Training Institute administers a program of
training for state agency employees, foster and adoptive
parents, and other foster care providers. Illinois first
began to file title IV-E claims for training costs in
fiscal year 1987. Joint Appeal File, Exhibit (Ex.) 48,
2. Claims were initially based on a random moment survey
(RMS) approved by DCA effective July 1, 1987. Ex. 4, at
1 (letter dated 11/12/87). 4/ DCA's approval letter
noted, however, that "[a]greement was not reached
relative to the application of eligibility ratios to
certain elements of . . . RMS categories of activities.
In particular, the lack of application of such ratios to
costs identified with . . . training costs has not been
accepted." 5/ Id. at 2. DCA directed Illinois to
prepare and submit for DCA's approval a CAP "which
described in sufficient detail the methods used by the
department to identify and distribute all direct and
indirect costs to Federal/State programs administered by
your department." Id. at 1. DCA stated that the
acceptability of the CAP would be reviewed in light of a
policy announcement recently issued by the Administration
for Children, Youth and Families 6/, ACYF-PA-87-05, which
DCA indicated required the application of eligibility
ratios. Id. at 2.
Illinois submitted a proposed CAP on January 24, 1989.
Ex. 5. DCA responded to this submission on November 29,
1990, suggesting a number of changes in the RMS. Ex. 7.
These changes included revising the RMS to indicate
specifically which worker activity codes would have
eligibility ratios applied. DCA stated that such
activities should include "costs associated with ongoing
foster care/adoption assistance training . . . ." Id. at
7. 7/
Illinois' next CAP submission was dated May 12, 1992.
Ex. 12. In a cover letter, Illinois stated that "[t]he
account codes and allocation processes are intended to
reflect the codes and procedures used during the state
fiscal year 1991 (July 1, 1990 through June 30, 1991)."
8/ The proposed CAP itself states that "training costs
can be claimed for training of IV-E program related staff
on IV-E topics as defined by DHHS." Section IV,
Introduction.
Section IV.B. of the May 12, 1992 proposed CAP lists the
RMS "survey response categories" used to allocate costs
to various cost pools. The two categories pertaining to
training are "Initial Child Welfare In-service training"
and "Ongoing Child Welfare Training." 9/ Section IV.C.
provides for the application of eligibility ratios to
allocate the salaries and fringe benefits of Division of
Child Protection and Division of Program Operations
staff. Illinois does not claim these costs at the 75%
rate for training, however, since they are not allowable
costs under 45 C.F.R. 235.64. Illinois submission
dated 5/22/95, at 1.
The May 12, 1992 proposed CAP also contains a methodology
for allocating all foster care training costs which are
allowable under 45 C.F.R. 235.64. 10/ The methodology
appears in a description of the various funds maintained
by DCFS, which states in pertinent part:
DEPARTMENT OF CHILDREN AND FAMILY SERVICES TRAINING
FUND (094)
All monies receipted and expended from the Training
Fund are for foster care and adoption training.
Receipts into this fund come from training grants
under Title IV-E of the Social Security Act and
private donations designated specifically for foster
care and adoption training.
Each individual training project is critically
analyzed prior to presentation to determine the
claimability of the project under Title IV-E by
reviewing who is to be trained and what the topics
are for training. All or part of a training project
that is not Title IV-E eligible is either paid from
the General Revenue Fund training appropriation or
from non-Title IV-E money in the Training Fund.
Expenditures from the Training Fund are normally
claimable under Title IV-E Training.
Ex. 12, at Appendix F (last page). 11/
The May 12, 1992 proposed CAP also states that foster
parent training payments "are considered 100% IV-E
claimable," and that "[a]ll training staff personal
services costs are considered to be 100% Title IV-E
eligible." Id., sections III.C.4.b. and IV.1.3.
By letter dated December 21, 1992, DCA advised Illinois
that the CAP amendment submitted on May 12, 1992 was
disapproved "for the following reasons:"
The random moment survey (RMS) is unacceptable as
presented in this amendment. Except for eligibility
determinations and redeterminations, the "results"
of the RMS must be further allocated based on
eligibility ratios. The methodology applicable to
the claiming of IV-E staff training costs is
unacceptable as presented. Indirect costs
reimbursable to the State were to be claimed at an
inappropriate FFP rate. . . .
Ex. 16, at 1. In comments attached to the disapproval
letter, DCA stated in pertinent part:
o The definitions of two RMS codes, initial child
welfare in-service training and ongoing child
welfare training, need to state that all such
training time is limited to those topics "associated
with the activities articulated under" 45 C.F.R.
1356.60(c)(2);
o All staff training costs must have eligibility
ratios applied when calculating allowable Title IV-E
training claims, consistent with ACYF-PA-90-01 and
ACF-IM-91-15;
o The CAP should be clear that only topics that
directly relate to the administrative activities
under 45 C.F.R. 1356.60(c)(2) may be claimed as
title IV-E training costs;
o The allowability of training staff personal
services costs is limited to the activities
described in 45 C.F.R. 1356.60(c)(2) and
calculated consistent with ACYF-PA-90-01 and ACF-IM-
91-15; and
o Indirect costs may be reimbursed only as
administrative costs at 50% FFP.
Illinois requested reconsideration of DCA's determination
disapproving the proposed CAP pursuant to 45 C.F.R. Part
75. Ex. 21. The Acting Regional Director, DHHS Region
V, designated Hiroshi Kanno, Executive Assistant to the
Regional Director, as the hearing officer in this matter.
Ex. 24. During the course of these proceedings, the
parties met several times to try to resolve the case.
Illinois submitted several proposed lists of training
topics "generally considered to relate to Title IV-E."
See Ex. 34, at 7; Ex. 37, at 7; and Ex. 43, at 8th - 9th
unnumbered pages. The last list specified twenty topics,
seven of which are identical to those described in 45
C.F.R. 1356.60(c)(1) and (2).
During the course of the reconsideration proceedings,
Illinois also proposed an alternative allocation
methodology which allocated costs between title IV-E and
other programs based on a "training allocation factor" of
100% less a number of percentage points representing the
"variable cost" of providing the non-IV-E benefit.
Illinois brief dated 12/9/94, at 74; Ex. 43 at 4-5.
Under this methodology, all fixed costs--costs that do
not vary directly with the number of persons being
trained, such as space rental, faculty, communications,
and administration--would be allocated 100% to title IV-
E. All variable costs--such as transportation, food and
lodging for the trainees--would be allocated among
various programs according to the percentages of IV-E and
non-IV-E staff in the state agency (which Illinois said
were equal to the IV-E foster care eligibility ratio).
12/ Thus, according to Illinois, the "incremental cost"
of providing foster care training to non-IV-E staff would
be allocated to non-IV-E programs. Id. at 73 (emphasis
in original). 13/
On August 31, 1994, the Hearing Officer advised Illinois
of his decision upholding DCA's disapproval of the
proposed CAP. Ex. 47. 14/ The Hearing Officer found:
o The cost of training which is not related to the
activities specified in 45 C.F.R. 1356.60(c)(1)
and (2) or which is related to the activities
specified in 45 C.F.R. 1356.60(c)(3) is not
allowable under title IV-E; thus, Illinois is not
entitled to claim FFP under title IV-E for the cost
of providing initial in-service training to Division
of Child Protection workers.
o Neither the allocation method in Illinois' May 12,
1992 CAP proposal nor its alternative allocation
methodology are consistent with the cost principles
in OMB Circular A-87 or with ACYF-PA-90-01 and ACF-
IM-91-15, since these methods would allocate to
title IV-E costs which do not solely benefit the
IV-E program.
o The proposed CAP improperly included indirect
costs as an element of cost reimbursable at 75% FFP,
contrary to the Board's prior holding that these
costs should have been claimed as other
administrative costs at 50% FFP.
o The fact that DCA disapproved the proposed CAP
while an appeal of a disallowance of claims
allegedly based on Illinois' January 24, 1989 CAP
submission was pending before the Board in no way
prejudiced such ongoing litigation, nor was there
even any evidence that DCA timed its disapproval to
coincide with the ongoing litigation.
o The effective date of the proposed CAP, had it
been approved, would have been July 1, 1990,
consistent with 45 C.F.R. 95.515; the CAP proposal
submitted January 24, 1989 was never approved by
DCA.
o It is beyond the scope of the Hearing Officer's
authority to review disallowances of claims which
were allegedly based on the proposed CAP.
Although Illinois did not have an approved CAP for
allocating IV-E administrative costs, it filed quarterly
claims for title IV-E training costs. ACF believed that
these claims included costs which were not allocable to
title IV-E; however, ACF paid most of these claims
pending the conclusion of the Part 75 proceedings on the
proposed CAP in order to keep Illinois' IV-E program
viable. Tr. at 96. Contrary to this general practice,
however, ACF disallowed $1,471,142 of the amount claimed
by Illinois for the quarter ended September 30, 1994. 15/
The claim included direct and indirect costs of foster
care and adoption assistance training incurred during
that quarter as well as increasing adjustments for the
quarter ended December 31, 1992. ACF determined that
since Illinois' claims were made without applying
eligibility ratios, Illinois had not allocated the claim
between title IV-E and state and other federal programs
"in a manner to ensure that each participating program is
charged its proportionate share of costs." Ex. 54 (ACF
letter dated 12/22/94) at 1. ACF recalculated the direct
cost component of the claim by applying a foster care
eligibility ratio of 70.374% to total direct costs
claimed for both foster care and adoption assistance,
disallowing the difference between the resulting amount
and the original claim for direct costs. ACF also
determined that Illinois' claim contained "cost elements
that are not allowable for reimbursement as Training
Costs under 45 CFR 235.64." Id. ACF therefore
recalculated the indirect cost component of the claim,
allowing FFP only at the rate of 50% of the recalculated
allowable direct costs, instead of the 75% rate
applicable to training.
During the proceedings before the Board, ACF stated that
this disallowance was issued "in error" and would be
recalculated following the issuance of the Board's
decision on the CAP. Tr. at 92. However, ACF did not
withdraw the disallowance.
Analysis
I. Allocation Methodology
As indicated above, one of the bases for DCA's
disapproval of the proposed CAP was that the methodology
applicable to the claiming of IV-E staff training costs
was unacceptable. DCA stated by way of explanation that
"[a]ll staff training costs must have eligibility ratios
applied when calculating allowable Title IV-E training
claims, consistent with ACYF-PA-90-01 and ACF-IM-91-15."
The Hearing Officer found that neither the allocation
methodology in the proposed CAP nor the alternative
allocation methodology was consistent with OMB Circular
A-87 or with ACYF-PA-90-01 and ACF-IM-91-15 "since these
methods would allocate to title IV-E costs which do not
solely benefit the IV-E program." Illinois viewed DCA's
initial decision and that of the Hearing Officer, taken
together, as requiring that all types of foster care
training costs which do not solely benefit title IV-E be
allocated among all benefitting programs using an
eligibility ratio. 16/
Illinois acknowledged that its foster care training
benefits non-IV-E-eligible children as well as IV-E-
eligible children. In fact, Illinois stated that it was
unlikely that any foster care training program, no matter
how focused or directed to IV-E, would not in some way
benefit non-IV-E programs as well. However, Illinois
argued that the allocation methodology which DCA sought
to impose was inconsistent with the Act and the
applicable regulations, and was not required by ACF's
policy guidelines. This argument has no merit. As
discussed below, we conclude that joint administrative
costs must be allocated among all benefitting programs,
i.e., on some pro rata basis, and that DCA's disapproval
of Illinois' proposed CAP and its alternative allocation
methodology was therefore proper.
We emphasize that what is at issue here are training
costs which benefit both IV-E and other programs. Costs
which benefit solely IV-E (i.e., those listed in 45
C.F.R. 1356.60(c)(1)), could properly be entirely
charged to IV-E as long as costs which are solely
allocable to programs other than IV-E are entirely
charged to those programs, in order to ensure consistent
treatment of costs. It appears that Illinois' proposed
CAP provided for direct-charging some costs to state-only
programs. See Ex. 12, at 22. This case also raises the
separate issue, discussed in the next section, of what
costs are properly included in the cost pools which must
be allocated among benefitting programs.
Illinois did not dispute that some allocation of costs is
required, and indeed regarded the methodology in its
proposed CAP as an allocation methodology. See, e.g.,
Illinois brief dated 12/9/94, at 62. However, as
Illinois itself noted, neither title IV-E nor the
applicable regulations contain any requirement specifying
a particular method for allocating costs. 17/ The way in which costs must be
allocated is therefore governed by
OMB Circular A-87, Attachment A, C.2. This provision
states:
(a) A cost is allocable to a particular cost
objective to the extent of benefits received by such
objective.
(b) Any cost allocable to a particular grant or
cost objective under the principles provided for in
this Circular may not be shifted to other Federal
grant programs to overcome fund deficiencies, avoid
restrictions imposed by law or grant agreements, or
for other reasons.
(c) Where an allocation of joint costs will
ultimately result in charges to a grant program, an
allocation plan will be required. . . .
The Board has considered the meaning of this provision in
several decisions, concluding that the concept of
"benefit" requires that there be an "equitable
relationship between the cost and program or programs to
which it is charged." Washington State Dept. of Social
and Health Services, DAB No. 1214 (1990), quoting New
York State Dept. of Social Services, DAB No. 1102 (1989),
at 8. Further, in Oklahoma Dept. of Human Services, DAB
No. 963 (1988), the Board stated that this provision
might reasonably be read to require that the costs of
services used in part by each of several programs be
distributed among those programs "on something like a pro
rata basis." DAB No. 963 at 5. The Board therefore
upheld the disallowance of costs incurred by the state-
level foster care and adoption unit to the extent that
those costs provided no benefit to title IV-E. The Board
further stated, however, that --
the provisions [of OMB Circular A-87] appear to
provide less guidance (and therefore more federal
agency discretion) concerning costs which reasonably
could be deemed fully assignable to each one of
several programs. . . . In the latter situation, it
would appear that an agency has considerable
discretion to determine which of a wide range of
methodologies would be `equitable,' including a pro
rata distribution as well as assignment of the costs
exclusively to one of the fully benefitting
programs.
Id. The Board continued:
Thus, in light of the plain language of the
Circular, we conclude that the Circular does not
generally require a pro rata allocation of costs
(although it would allow an agency to establish such
an allocation requirement in a cost allocation
plan).
Id. Based on this conclusion, the Board reversed in part
the disallowance of the costs of recruiting and approving
foster and adoptive homes which were charged in
accordance with Oklahoma's approved CAP. The Board found
that these costs could reasonably be deemed fully
assignable to IV-E, noting that "recruitment of the
largest possible number of homes was required to meet
IV-E objectives and that virtually all homes served IV-E
children eventually." Id. at 8. However, the Board
further concluded that, once the Agency had notified
Oklahoma that it objected to the methodology in the
approved CAP, a pro rata allocation was required.
Thus, even where the Board found that some types of
foster care and adoption assistance costs could
reasonably be allocated solely to title IV-E, the Board
concluded that DCA had discretion to require the use of a
pro rata allocation to all benefitting programs on a
prospective basis, i.e., once the state was given notice.
DAB No. 963 is directly apposite here. Illinois
acknowledged that the costs in question benefitted both
the title IV-E program and other public assistance
programs. Moreover, Illinois was on notice well before
the submission of its proposed CAP that it must allocate
costs among all benefitting programs, even if the costs
substantially benefitted title IV-E. Illinois
acknowledged that this policy was clearly articulated in
ACF-IM-91-15, dated July 21, 1991 (although, as discussed
later, Illinois disputed that this policy statement was
binding). Illinois was also put on notice of this policy
by DCA's November 12, 1987 letter approving Illinois'
RMS, which stated that ACYF policy required the
application of eligibility ratios to allocate costs to
IV-E. Thus, DCA properly required that Illinois' CAP
provide for allocation of the costs to other benefitting
programs in addition to title IV-E.
Illinois attempted to distinguish DAB No. 963 from the
case now before us on the ground that Oklahoma agreed to
amend its CAP to provide for a pro rata method of
allocation. This distinction is simply not warranted by
the facts. DAB No. 963 clearly notes that Oklahoma
advised DCA that it disagreed with its allocation policy
and that it only agreed to amend its CAP "in view of
[ACF's] policy interpretation . . . ." DAB No. 963, at
12. The mere fact that Oklahoma acquiesced in ACF's
position, while Illinois pursued an appeal under 45
C.F.R. Part 75, does not justify a different result in
this case.
Moreover, the Board found the ruling in DAB No. 963
dispositive in another case, New Jersey Dept. of Human
Services, DAB No. 1069 (1989), rejecting New Jersey's
attempt to distinguish its case from DAB No. 963 on the
same basis as Illinois advanced here. The Board found
that DCA properly disapproved New Jersey's proposed CAP
amendment providing for the allocation to title IV-E of
all costs of recruiting foster care and adoptive homes,
stating:
[A]n interpretation which limits allowability of
costs to recruitment of homes for IV-E children is
consistent with basic cost principles that require
that costs be allocated to a particular program to
the extent of benefits received by the program.
DAB No. 1069, at 5.
Illinois also asserted that ACF had a different policy on
allocation prior to the issuance of ACF-IM-91-15.
Illinois then argued that, since ACF-IM-91-15 changed
prior policy, it was a substantive rule which should have
been published pursuant to notice and comment rulemaking
under the Administrative Procedure Act, 5 U.S.C. 553(c),
and that absent such publication, the policy it
articulated was not enforceable. We are not persuaded
that ACF articulated a different policy in its earlier
policy announcements. 18/ Illinois contended that the
requirement in ACYF-PA-87-5 and ACYF-PA-90-01 for
allocation of costs among "participating programs" so
that each bears its "proportionate share" of the costs
can be read to permit allocation of all training costs to
title IV-E because, where training costs substantially
benefit one program, that program might reasonably be
considered the only "participating" program, even though
other programs might also benefit incidentally from those
costs. Illinois brief dated 12/9/94, at 59. We see no
basis for this strained reading of the policy statements.
In our view, it is contrary to their plain meaning to
conclude that a program which benefits from a cost is not
a "participating program." Thus, there is no merit in
Illinois' argument that notice and comment rulemaking was
required because ACF-IM-91-15 represented a change in
policy.
Even if ACF did change its policy, there was no
requirement for notice and comment rulemaking. ACF-IM-
91-15 merely described the position ACF will take when
DCA consults with ACF about allocation of costs to title
IV-E. 19/ It did not change any right of the states or
impose any new obligations on them because the title IV-E
regulations provide that states may claim costs
(including administrative and training costs) only in
accordance with an approved CAP (or, in certain
circumstances, a proposed CAP as we held in DAB No.
1422). It was thus a general statement of policy which
was excepted from the notice and comment procedures. 5
U.S.C. 553(b)(3)(A); see also New York State Dept. of
Social Services, DAB No. 1358 (1992) (a general statement
of policy does not substantively change what a state is
required to do in order to be entitled to FFP). Thus, as
long as the policy in ACF-IM-91-15 was a reasonable one
(which we find it was), DCA could properly disapprove
Illinois' proposed CAP based on that policy.
Illinois argued further that it was clear from the
language of the statute that title IV-E was intended to
reimburse all of a state's expenditures for training its
staff in the areas of foster care and adoption
assistance. In support of its position, Illinois cited
provisions of section 474(a)(3) of the Act which
authorize 75% FFP for expenditures for training personnel
employed by or preparing for employment with the state
agency as well as for training foster or adoptive parents
and staff of State licensed or approved child care
institutions providing care to IV-E-eligible children.
Illinois would have us conclude that these provisions
authorize charging to title IV-E any and all costs
incurred for training state agency personnel, foster or
adoptive parents, or staff of child care institutions
simply because the provisions do not specifically state
that only those costs which benefit IV-E may be charged
to IV-E. However, Illinois' argument ignores the
language in section 474(a)(3) of the Act which authorizes
federal funding for expenditures found necessary by the
Secretary for the proper and efficient administration of
the state plan. This clearly gives DCA, as the delegate
of the Secretary, the authority to limit the expenditures
which are reimbursable as training.
Illinois also argued in support of its position that the
benefit of the training to non-IV-E children is
"incidental to the predominant purpose of the training
and not substantial in a quantitative sense." Illinois
brief at 64. According to Illinois, 78.5% of Illinois'
foster care cases were IV-E-eligible during the relevant
period (on average). 20/ Illinois contended that "[t]he
entire cost of providing . . . training is driven by the
needs of that predominantly IV-E population, and the
entire cost benefits that IV-E program." Illinois reply
brief dated 4/19/95, at 18. We question whether Illinois
can legitimately claim that there was no substantial
benefit to non-IV-E-eligible children where over 20% of
its caseload--hardly an insignificant percentage--
consisted of such children. In DAB No. 963, where as
little as 15% of the costs in question provided no
benefit to title IV-E, the Board rejected the State's
argument that this amount "was so insubstantial that
allocating those costs to title IV-E can be justified on
the basis of administrative convenience." DAB No. 963,
at 14. Thus, in view of the percentage of non-IV-E
children here, it was proper to require Illinois to
allocate a share of the training costs to non-IV-E
programs. (We need not decide whether DCA is correct
that such an allocation was required regardless of the
percentage of non-IV-E children.)
Illinois argued in addition that the application of
eligibility ratios was inequitable under the
circumstances of this case. Illinois asserted that the
amount of "benefit" to a particular program will vary
from activity to activity according to the particular
subject matter and the identity of the trainees.
Illinois asserted that, if a given training program were
100% related to IV-E in terms of subject matter content
and the trainees spent 10% of their time on non-
IV-E cases, it would be inequitable to allocate only 78%
of the costs of the training program to title IV-E, the
result if Illinois' eligibility ratio is applied.
However, Illinois has many training projects, and it is
possible that the trainees in some of those projects may
spend more than 22% of their time on non-title-IV-E
cases, in which event Illinois would benefit from the
application of a 78% training ratio. Thus, Illinois'
example does not establish that the application of a 78%
training ratio was inequitable overall.
Finally, Illinois took the position that its alternative
allocation methodology, submitted in negotiations with
DCA, should have been accepted by the Hearing Officer if
the methodology in Illinois' proposed CAP was not
acceptable. 21/ Illinois asserted that the alternative
allocation methodology would allocate training costs to
title IV-E at a rate that would vary but would be greater
than the eligibility ratio and less than 100%. Illinois
claimed that this was a reasonable compromise in light of
the fact that there is no "mathematically precise way of
measuring the `benefit' that flows to various federal and
state programs from a particular training course or group
of courses." Illinois reply brief dated 4/19/95, at 26.
While we agree with Illinois that "benefit" generally
cannot be precisely measured, we conclude that DCA could
properly disapprove Illinois' alternative methodology.
By Illinois' own admission, the alternative methodology
allocates to other benefitting programs only the
incremental cost of providing the training. Even
assuming that the "fixed" costs identified by Illinois
remain the same regardless of whether there are any
trainees who spend time on non-IV-E matters (which is not
readily apparent), that does not necessarily mean that
the fixed costs do not benefit non-IV-E work to the
extent the trainees are engaged in such work. Thus, DCA
could properly require that Illinois allocate the fixed
costs as well as the variable costs among all benefitting
programs.
Since Illinois did not propose another equitable method
of allocating costs, the effect of this holding may be to
require Illinois to apply an eligibility ratio to
allocate its costs, unless the parties agree on another
method not yet identified.
II. Subject Matter of Training
A proposed CAP must not only provide for a methodology
for allocating costs but must also include a description
of the administrative activities to be allocated. 45
C.F.R. 95.507(b)(3). (This section also requires an
explanation of the benefits provided to federal programs
"where not self-explanatory.") Moreover, the
"descriptions of allowable title IV-E administrative
activities must be as clear and as detailed as necessary
to ensure that only those activities authorized by
regulation are allocated to the IV-E program." New York
State Dept. of Social Services, DAB No. 1428 (1993).
As previously indicated, one of the grounds on which DCA
disapproved Illinois' May 12, 1992 proposed CAP was the
lack of an adequate description of the subject matter of
training which would be allocated to IV-E. In its
initial letter disapproving the proposed CAP, DCA stated
that the CAP must state that all such training time is
limited to those topics "associated with the activities
articulated under" 45 C.F.R. 1356.60(c)(2). Ex. 16,
Attachment at 1. In response, Illinois submitted during
the reconsideration process a list which included most of
the types of costs specified in 45 C.F.R. 1356.60(c)(1)
and (2) as well as a number of other types of costs. In
Illinois' view, it could properly allocate to title IV-E
all of the costs of training related to the "topics" on
this list. 22/
The Hearing Officer did not specifically consider whether
any of the listed topics were eligible for IV-E funding.
Accordingly, the Board requested that DCA review the list
of topics provided by Illinois. DCA determined that
Illinois could not properly claim title IV-E funds at the
75% training rate for any expenditures for training on
four of the topics proposed by Illinois. 23/ DCA further
found that all of the remaining topics "are listed at or
closely related to those listed at 45 C.F.R.
1356.60(c)(2)." Agency submission dated 5/3/95,
enclosure at 4. (Some of the remaining topics are in
fact listed at 45 C.F.R. 1356.60(c)(1) rather than
1356.60(c)(2) as stated by DCA.) DCA nevertheless found
that training on most of these topics should be limited
in some fashion.
Illinois argued that DCA's position was unduly
restrictive. 24/ Illinois asserted that the Act
contained no limitation on the subject matter of
training, and that section 1356.60(c) of the regulations
did not apply to training costs. Thus, according to
Illinois, all training costs which are related to the
fundamental purposes of title IV-E, including the purpose
of preventing removal from the home, are properly charged
to IV-E, as long as the costs are reasonable and
necessary in accordance with OMB Circular A-87. Illinois
further asserted that all training it provided would meet
this standard, and argued that its proposed CAP should
"be revised and approved to permit claiming of training
costs related to all" of its proposed training topics.
Illinois brief dated 12/9/94, at 42.
As discussed below, we conclude that DCA properly found
that no IV-E funds are available for four of the training
topics proposed by Illinois. We further conclude that
DCA erred in restricting most of the other training
topics, although DCA could properly require Illinois to
specify that training must be allocated among all
benefitting programs if it benefits children in addition
to those who are IV-E-eligible or candidates for IV-E.
Thus, Illinois' proposed CAP would not have been
approvable if it had included the list of topics in
question here as activities the costs of which would be
allocated to IV-E at 75%.
A. Training topics which DCA found wholly ineligible for
IV-E funds
DCA found training on four topics (numbered in the order
listed by Illinois) wholly ineligible for IV-E funds:
Topic 17: Services to prevent or eliminate the need
for removal of children from their home and to make it
possible for the return to their home;
Topic 18: Any other activity designed to preserve
and strengthen the family;
Topic 19: Activities directed to determining whether
a situation exists which requires, or may require, the
removal of the child from the home and into state
custody, such as:
-comprehensive assessment services which includes
risk assessment,
-receiving and responding to reports of emergency
situation, and
-assuring or providing preventative services,
shelter, or case management; and
Topic 20: Any other activity related to
implementation of the Title IV-E State Plan.
DCA determined that Topic 17 involves social services for
which the Act precludes reimbursement, that Topic 19 does
not advance the limited goals of the IV-E program, and
that both Topics 18 and 20 are vague and overbroad. DCA
also argued generally that title IV-E funding is
available only for activities related to placement of a
child in foster care. Illinois asserted that all of the
topics in question are related to requirements of the
statute, primarily the requirement that reasonable
efforts be made to prevent the child's removal from home.
In Illinois' view, IV-E funding should therefore be
available for training on these topics even if they
relate to preplacement activities.
As discussed in detail below, we conclude that Illinois'
position has no merit. Title IV-E provides funding for
foster care maintenance and adoption assistance payments
and for costs, including training, determined necessary
by the Secretary to administer the provision of those
payments. Title IV-E imposes certain conditions on
obtaining IV-E funding for foster care maintenance and
adoption assistance payments, such as the requirement for
a judicial determination that reasonable efforts have
been made to prevent the child's removal from home.
However, the costs of services provided to meet these
conditions are not within the scope of the IV-E program.
Indeed, Congress provided federal funds under programs
other than title IV-E for some of the costs incurred in
meeting these conditions. Similarly, costs of training
related to services provided to meet these conditions are
not reimbursable administrative costs of the IV-E
program. Furthermore, the Secretary did not determine
that these costs were necessary costs of the IV-E
program.
The Board addressed the scope of permissible IV-E
administrative costs at length in DAB No. 1428. The
Board there upheld DCA's determination that the costs of
four activities included in a proposed amendment to New
York's CAP were unallowable because they were neither
listed in the regulation as allowable costs nor closely
related to a listed allowable cost. 25/ The Board
declared:
Unless an activity is specifically listed or is
closely related to a listed cost, New York could not
reasonably consider an activity to be one which had
been "found necessary by the Secretary . . . for the
proper and efficient administration" of title IV-E,
as required under section 474(a)(3)(C) of the Act.
DAB No. 1428, at 10. The Board also rejected New York's
argument, similar to the argument made here by Illinois,
that the activities should be covered because they were
necessary to comply with the mandates of title IV-E, such
as the requirement for a judicial "reasonable efforts"
determination. The Board concluded that the disputed
activities "are not unique to the title IV-E program and
do not further the specific limited goals that program
was designed to meet." Id. at 14. The Board continued:
Title IV-E is a program of limited purposes; its
primary component involves funding maintenance
payments for children in foster care who would
otherwise be eligible under title IV-A. It is at
the far end of a continuum of government programs
which seek to ensure that children are not abused or
maltreated. [footnote omitted] New York did not
identify any authority to indicate that Congress
intended title IV-E to participate in the initial
stages of a state's child abuse prevention system,
i.e., the process of identifying children who had
been subjected to abuse or maltreatment. These
activities are integral to New York's child welfare
services system and would have occurred even if
title IV-E did not exist.
Id. at 14-15 (emphasis in original). The Board also
noted that "[t]he title IV-E regulations limit FFP
primarily to costs which are incurred after a decision
has been made that the child should be placed in foster
care," and stated that "[h]ad ACF considered initial
investigative activities to be part of title IV-E, they
would presumably have been identified in the
regulations." Id. at 16. In addition, the Board
observed that it was clear from the prohibition on social
services in section 1356.60(c) that ACF did not intend
the cost of services provided to prevent the child's
removal from home to be funded by title IV-E. See DAB
No. 1428, at n.9.
We conclude that the Board's analysis in DAB No. 1428 is
applicable here as well. Although DAB No. 1428 involved
administrative costs rather than training for employees
administering the IV-E program, we see no basis for
permitting states to charge to title IV-E the cost of
training related to activities which are not themselves
allowable title IV-E activities.
Illinois argued that it is appropriate to charge title
IV-E for training on services that are not themselves
chargeable to IV-E because employees need training on
"all phases of the child protection service continuum" in
order to effectively administer the title IV-E program.
State reply brief dated 4/19/95, at 12. Illinois also
noted that section 1356.60(c), which lists allowable IV-E
activities, specifically applies to "other administrative
costs," while training costs are addressed in section
1356.60(b), and that the latter section does not require
that training costs relate to any of the "other
administrative costs."
We do not find these arguments persuasive. In our view,
there is a compelling basis for requiring that training
be related to the allowable administrative activities in
section 1356.60(c)(1) and (2), notwithstanding the lack
of an express requirement in the regulations. The effect
of Illinois' position that training need not be related
to the other administrative costs would be to make title
IV-E the funding source for all training on child welfare
services. This is clearly contrary to congressional
intent since, as the Board stressed in DAB No. 1428, the
primary purpose of title IV-E is to provide funding for
foster care maintenance and adoption assistance payments.
Indeed, the statement of purpose in section 470 of the
Act refers only to the provision of "foster care . . .
programs for children who otherwise would be eligible for
assistance under . . . part A and adoption assistance for
children with special needs . . . ." The "assistance"
available under part A of title IV (Aid to Families With
Dependent Children) is financial assistance to meet basic
needs. Section 401. Thus, title IV-E is intended to
provide the same kind of assistance on behalf of children
who are not eligible for AFDC payments because of their
removal from home. Section 470 authorizes additional
expenditures only "as may be necessary to carry out the
provisions of this part." The discretion to determine
what constitutes necessary expenditures rests with the
Secretary, who has clearly not found the expenditures in
question here to be necessary. 26/
Nor do we agree with Illinois that DAB No. 1428 was
wrongly decided in that it sets out an overly narrow
construction of the purposes of title IV-E as primarily
funding maintenance payments for children in foster care.
Illinois asserted that one of the principal purposes of
title IV-E is to prevent removal of the child from the
home, which is part of the broader purpose of
deemphasizing the use of foster care and promoting
permanency. Illinois argued that the requirements
imposed by title IV-E to achieve these purposes, such as
the requirement at section 471(a)(9)(A) for reporting
abuse and neglect and the requirement at section
471(a)(15)(A) for reasonable efforts to prevent removal,
could not simply be read out of the Act. Illinois
claimed that the training topics in question were clearly
related to these requirements, and noted that some of the
disputed topics even track the statutory language.
Illinois' argument confuses the purpose of the Adoption
Assistance and Child Welfare Act with the purpose of
title IV-E, which was only a part of this Act. At the
time that this legislation was enacted, Congress was
concerned that the public child welfare system
responsible for serving dependent and neglected children
had become a holding system for children living away from
their homes. Congress therefore enacted a number of
provisions designed "to encourage greater efforts to find
permanent homes for children either by making it possible
for them to return to their own families or by placing
them in adoptive homes." S. Rep. No. 336, 96th Cong.,
1st Sess. 1 (1979). The requirement for a judicial
determination that reasonable efforts were made to
prevent the child's removal from home was one such
provision. However, that requirement is independent of
the purpose of title IV-E to provide funding for foster
care maintenance and adoption assistance payments.
Instead, it is a condition on the availability of these
payments, designed to further the general purpose of the
Adoption Assistance and Child Welfare Act. Courts have
upheld other conditions on federal funding even where the
conditions have entailed substantial increased outlays of
non-federal funds. Oklahoma v. Schweiker, 655 F.2d 401
(D.C. Cir. 1981) (cases cited at 413). Thus, the
reasonable efforts requirement is a part of title IV-E
notwithstanding the lack of funding for activities a
state engages in to comply with the requirement; the
state obliges itself to comply with this requirement when
it voluntarily undertakes a title IV-E program.
Moreover, as the Board pointed out in DAB No. 1428,
"states fund and administer a range of child welfare
services, including child abuse reporting systems, child
abuse investigation systems, protective services,
preventive services, foster care, and adoption services."
DAB No. 1428, at 14. In light of the fact that states
"retain primary responsibility for the safety and welfare
of the children who live within their jurisdictions"
(id.), Congress did not intend, in enacting title IV-E,
that the federal government would assume the
responsibility for overall funding of child welfare
programs. Furthermore, funding for social services to
comply with the requirement for reasonable efforts is
available under federal child welfare programs other than
title IV-E. 27/ Congress was therefore aware when title
IV-E was enacted that there were other sources of funding
for costs that might be incurred to comply with this
requirement.
Thus, the fact that the Act conditions the availability
of IV-E payments for a child on a judicial finding that
reasonable efforts were made to prevent the child's
removal from home is not a basis for finding that funding
is available under title IV-E for activities, including
training, related this condition.
Illinois also argued that DAB No. 1428 was inconsistent
with Missouri Dept. of Social Services, DAB No. 844
(1987), citing the statement in the latter decision that
there is "no reason why the State must be forced to
allocate the costs elsewhere when they are specifically
undertaken to fulfill IV-E requirements." DAB No. 844,
at 9. Illinois also cited that decision for the
proposition that the regulations afford states
flexibility to choose the programs to which they will
charge costs incurred in administering title IV-E.
Illinois' reliance on DAB No. 844 is misplaced, however.
One factor in the Board's decision that the costs in
question there were properly allocated to title IV-E was
the Agency's failure to explain what relationship the
costs in question would have to another program. In
contrast, Illinois itself acknowledged that the staff
training costs in question here are related to other
programs in addition to IV-E. Where costs are joint
costs benefitting more than one program, it is reasonable
to require their allocation among the benefitting
programs. Moreover, although the preamble to the notice
of proposed rulemaking for section 1356.60, cited in DAB
No. 844, states that the regulation "provides flexibility
to the States to choose which programs to charge these
costs . . . ," (DAB No. 844, at 9, n.5, quoting 45 Fed.
Reg. 86,817, 86,826 (December 31, 1980)), the preamble
also states that "the costs of direct services to
children, parents or foster parents to ameliorate
personal problems . . . go beyond the activities
specified in the regulation [and] are to be funded from
other programs." As noted below, Topics 17 and 19 may
involve training related to such services.
Illinois also argued that the legislative history of
title IV-E showed that costs which are related to
implementation of the reasonable efforts requirement are
eligible for IV-E funding. Illinois cited the conference
report on the bill that amended section 472(a)(3)
effective November 5, 1990. The report states in
pertinent part:
Under current law and regulation, federal matching
for administrative costs includes matching for
activities that involve placement of the child in
foster care, as well as what are ordinarily
considered administrative "overhead" costs. These
include activities related to child protections
mandated by the Child Welfare and Adoption
Assistance Amendments of 1980, such as referral to
services at time of intake; preparation for, and
participation in, judicial determination;
development of a case plan for the child; periodic
reviews of the child's case plan; and case
management and supervision.
H. Conf. Rep. No. 101-964, 101st Cong., 2d Sess. (1990).
However, while a judicial determination that reasonable
efforts have been made is a mandated child protection,
the services which a state provides as part of the
required reasonable efforts (and training on the
provision of these services) are not. Furthermore, the
examples given by the report of activities that would be
funded are all activities that appear in 45 C.F.R.
1356.60(c)(1) and (2). 28/ Thus, the report does not
support the conclusion that Congress intended to fund
other activities as well.
We therefore conclude that, where training relates to an
activity which is outside the scope of permissible title
IV-E activities, the cost of the training is also
impermissible. To the extent that the topics listed by
Illinois are not listed in section 1356.60(c)(1) and (2)
or closely related to listed topics, the costs of
training on those topics would not be costs which were
determined "necessary by the Secretary" within the
meaning of the statute.
None of the four topics in question here is included in
the list of title IV-E activities in section
1356.60(c)(1) and (2). Moreover, all four topics are so
general that it is impossible to say that they are
closely related to any of the specific activities listed
in this regulation. To permit Illinois to include these
broadly drawn topics in its CAP would defeat the purpose
of requiring a CAP to specify the costs that will be
allocated under the plan--to prevent unallowable costs
from being charged to federal programs. Moreover, these
topics are inconsistent with the narrowly drawn
regulations, which are written to specify the activities
necessary for the administration of the IV-E program.
Thus, DCA properly determined that these topics could not
be included in Illinois' CAP.
Illinois suggested that the topic "referral to services"
in section 1356.60(c)(2)(i) covered at least some of the
activities in question since ACYF-PA-87-05 states that
section 1356.60(c)(2)(i) covers referrals "specifically
designed to further the statutory goal of section
471(a)(15) [the reasonable efforts requirement]," and the
activities were designed to further this goal. However,
the Board held in DAB No. 1428 that referral to services
is limited to providing information to the individual so
that the individual can obtain the services. While it
appears that training on referrals could therefore
legitimately address (1) what services are available and
(2) how to decide what services are appropriate, there is
no indication that either Topic 17 or Topic 19 is limited
to such training. Moreover, the fact that Illinois
listed "referral to services" as a separate topic
suggests that Illinois did not regard these topics as
subsumed in "referral to services."
Illinois also asserted that prevention of removal,
addressed in Topic 17, is linked to two other activities
listed in section 1356.60(c)--case planning and judicial
determinations. According to Illinois, this nexus is
provided by the requirement in the IV-E regulations (at
45 C.F.R. 1356.21) that a state's case plan discuss the
services offered and provided to prevent removal from the
home and by the requirement in section 472(a)(1) of the
Act for judicial determinations that reasonable efforts
have been made. However, the fact that the regulations
require prevention of removal to be addressed in the case
plan and in the judicial determination does not mean that
prevention of removal is closely related to the listed
activities within the meaning of DAB No. 1428. A close
relationship means that the activities are similar in
nature, not simply that some connection between them can
be made.
Thus, the four topics in question are not acceptable as
closely related to a listed activity.
Moreover, it is not clear that Topic 17--services to
prevent removal from the home or to make return home
possible--does not involve "counseling or treatment to
ameliorate .. . home conditions," within the meaning of
section 1356.60(c)(3), which prohibits title IV-E funding
for such "social services." In addition, the
"preventative services" described in Topic 19 may
constitute prohibited social services. 29/
We therefore conclude that DCA properly found that title
IV-E funding is not available for training on Topics 17
through 20. Accordingly, DCA could reasonably refuse to
approve a CAP which identified these as topics of
training to be allocated to IV-E.
B. Training topics which DCA found should be limited
DCA agreed that the 16 remaining training topics proposed
by Illinois were either listed in section 1356.60(c)(1)
and (2) or were closely related to listed topics.
Nevertheless, DCA determined that various restrictions
should be imposed on 13 of these topics in order for the
training to be eligible for IV-E funding. (DCA imposed
no restriction on training for Division of Program
Operations (DPO) staff on three of the 16 topics, and
noted that Illinois had acknowledged that Division of
Child Protection (DCP) staff did not perform the
functions on which training would be provided.) As
discussed below, we conclude that DCA may properly
require Illinois to clarify that training which benefits
children in addition to IV-E eligibles or candidates must
be allocated on a pro rata basis, and that training on
compliance with federal requirements is limited to
requirements which have a bearing on the administration
of the IV-E program. We further conclude, however, that
the topics as proposed by Illinois are otherwise
approvable. 30/
Topics 1, 4 and 7 DCA determined that only limited
training of DCP staff on certain topics could be funded
by title IV-E. Specifically, DCA found that only
"rudimentary" training or a "broad-based contextual
background" may be provided to DCP staff on
"Determination/redetermination of IV-E eligibility;"
"Administration of foster care/adoption assistance;" and
"Federal and state substantive and/or procedural law
relating to termination of parental rights and adoption
and other foster care/adoption-related subjects." Agency
letter dated 5/3/95, at 4-5. The basis stated by DCA for
this restriction was that DCP staff do not perform the
tasks in question. 31/
Illinois argued this restriction is unreasonable because
DCP staff in fact perform the functions identified in the
four training topics. Illinois admitted that DCP staff
performed investigative functions which were not eligible
for IV-E funding, but asserted that DCP staff also
perform the functions in question "simultaneously" with
the investigative functions. Tr. at 24-25. Illinois
further asserted that even if DCP staff are not
responsible for performing the functions in question
here, they need to have a "common understanding" of these
functions with other staff who rely on their work in
performing these functions. Tr. at 26.
We conclude that the restriction is unreasonable under
any circumstances. As Illinois pointed out, even if DCP
staff are not responsible for performing the functions in
question here, their work may affect the work done by
other staff. For example, even though DCP staff do not
make eligibility determinations, their processing of a
case may determine whether a child is ultimately found
eligible for IV-E. In addition, DCP staff may need
training on conditions on title IV-E funding, such as the
reasonable efforts requirement, in order to effectively
administer the IV-E program, even though the program
itself does not fund services provided to meet this
requirement. DCA acknowledged that title IV-E benefitted
by "rudimentary" training of DCP staff on functions for
which DCA determined they were not responsible. In our
view, however, it is both unnecessary and unworkable to
distinguish between "rudimentary" training and more
advanced training on such functions. It is unnecessary
because a state must be presumed to have made a
reasonable judgment that this training (for which it must
pay a share of the costs) would be useful to its staff.
It is unworkable because it would require an
extraordinary degree of federal involvement in curriculum
development in order to implement this distinction.
Accordingly, we conclude that the CAP could properly have
provided for training on Topics 1, 4, and 7 without the
restriction which DCA sought to impose.
Since we conclude that the restriction is unreasonable
even if DCP staff are not responsible for performing the
specific functions in question, we need not decide here
what in fact the functions of DCP staff are.
Topic 14 DCA determined that IV-E funds are available
for training on "Foster care issues, such as visitation
and the role of the natural parents, the state agency,
and the courts" only to the extent that the duties of the
employees trained actually require the application of
such knowledge. For the reasons discussed with respect
to Topics 1, 4, and 7, we conclude that this restriction
is unreasonable, and that the CAP could properly have
provided for training on Topic 14 without restriction.
Topics 2 and 6 DCA determined that only employees who
actually participate in judicial determinations and fair
hearings and appeals may receive training on "Fair
hearings and appeals" 32/ and "Preparation for and
participation in judicial determinations." 33/ Illinois
objected to this restriction on the ground that even
staff who do not participate in these proceedings need to
understand the process.
We conclude that the restriction is unreasonable.
Section 1356.60(c) specifically includes "[p]reparation
for" as well as "participation in judicial
determinations" as an allowable IV-E activity. In any
event, it is clear that even non-participants may have
responsibilities directly relating to these topics. For
example, a worker might be responsible for preparing the
petition for a judicial determination, but not appear at
the court proceeding on the petition. Moreover, even if
a worker has no responsibilities directly related to
these proceedings, the CAP could properly have provided
for training without restriction for the reasons
discussed with respect to Topics 1, 4, and 7.
Topics 5, 8, 9, 13 and 16 DCA determined that title IV-E
funds are available for training on the following topics
only to the extent that the skills and knowledge acquired
are employed on behalf of IV-E-eligible children and/or
candidates: "Referral to services;" "Placement of
children;" "Development of case plans, including the
assessment of the family's problems and the family's
needs in relation to the Department's services;"
"Adoption issues;" and "Crisis intervention services."
34/ Illinois asserted that this restriction is
unreasonable, arguing that IV-E activities can occur
before a child becomes a IV-E candidate as that term is
defined in ACYF-PA-87-05. Illinois also argued that the
restriction is inappropriate because the extent to which
training will be applied on behalf of IV-E eligibles or
candidates is unknown at the time training is provided.
We conclude that the restriction is a reasonable one.
The Board has previously considered the question whether
the definition of "candidate" in ACYF-PA-87-05 is
contrary to the Act and regulations. ACYF-PA-87-05
limits allowable IV-E costs to costs incurred on behalf
of children who are IV-E-eligible or whom "the State
reasonably views as candidates" for IV-E payments, and
describes the following "acceptable methods of
documentation indicating a child is a candidate for
foster care benefits:"
(1) A defined case plan which clearly indicates
that, absent effective preventive services, foster
care is the planned arrangement for the child, (2)
an eligibility determination form which has been
completed to establish the child's eligibility under
title IV-E, or (3) evidence of court proceedings in
relation to the removal of the child from the home,
in the form of a petition to the court, a court
order or a transcript of the court's proceedings.
ACYF-PA-87-05, at 3. In DAB No. 1428, the Board
concluded that this definition of a "candidate" is a
reasonable interpretation of title IV-E and the
implementing regulations. The Board stated:
The methods of documenting candidacy in ACYF-PA-87-
05 involve activities which occur at a point when
the state has initiated efforts to actually remove a
child from his or her home or at the point the state
has made a decision that the child should be placed
in foster care unless preventive services are
effective. . . .
* * * *
The scope of allowable administrative expenses must
be determined in light of title IV-E's basic
purpose: to fund maintenance payments for title IV-
A eligible children who have to be placed in foster
care. ACF's restriction of allowable expenses to
children whom a state is trying to place in foster
care or who a state concludes should be placed in
foster care absent effective preventive services is
consistent with title IV-E's limited purpose.
DAB No. 1428, at 19-20. The Board also concluded that
"ACYF-PA-87-05's focus on children whom the state has
determined need to be placed in foster care absent
effective preventive services reasonably coincides with
the nature of the activities identified in the
regulations," which the Board described as "activities
which typically occur after a state has made a
determination that a child has been abused and maltreated
and is at risk of being placed in foster care." Id. at
20. 35/
Illinois did not offer any persuasive reasons for
reaching a different result here. It is obvious that, as
Illinois asserted, it cannot ensure that the knowledge
and skills acquired in training on the topics in question
will be applied solely on behalf of IV-E eligibles or
candidates, since its staff must provide services to
children regardless of their status. However, the
restriction, reasonably read, does not mean that Illinois
cannot provide training if it will not be applied solely
on behalf of IV-E eligibles or candidates, but rather
that Illinois can claim IV-E funds only to the extent
that the training is applied on behalf of IV-E candidates
or eligibles. The amount of training costs which may
properly be charged to title IV-E can be determined by
using an equitable allocation methodology such as an
eligibility ratio. Thus, if the approved CAP contains
such a methodology, this restriction will be essentially
self-implementing. (We note, however, there are other
topics on Illinois' proposed list which are specified in
section 1356.60(c)(1) as related only to title IV-E.
Since the proposed CAP provides for the allocation of
some costs to state programs only, Illinois should not
have to allocate the cost of activities which solely
benefit IV-E using a methodology like an eligibility
ratio.)
Accordingly, we conclude that DCA could properly require
Illinois to allocate to all benefitting programs the cost
of training which benefits children in addition to IV-E
eligibles and candidates for IV-E.
Topic 11 DCA determined that IV-E funds are not
available for training DCP staff on "Case management and
supervision, including case management requirements for
specialized population of clients," because the
"overwhelming majority of cases to which DCP employees
are assigned involve neither Title IV-E-eligible children
nor Title IV-E candidates." Agency submission dated
5/3/95, at 5. We conclude that this restriction is
unreasonable. DCA recognized that some children with
whom DCP employees worked were either title IV-E
eligibles or candidates. Thus, training on this topic
would clearly provide some benefit to IV-E. There is no
basis for concluding that the inclusion of the costs of
this training in the cost pool to be allocated on a pro
rata basis would not result in an equitable distribution
of the costs among IV-E and other programs, given that
other training costs included in the cost pool might be
for training employees who were assigned mostly IV-E
cases.
Topic 15 DCA sought to limit the topic "Compliance with
federal requirements" to training on compliance with
title IV-E requirements only. We agree with DCA that the
topic as proposed by Illinois is too broad since it could
be read as describing training which has no bearing on
the administration of the IV-E program. If this were the
case, then the training should be charged entirely to
programs other than IV-E. However, DCA has stated its
restriction too narrowly. As long as the training
provided addresses compliance with federal requirements
which affect the administration of the IV-E program as
well as other programs, Illinois could claim the costs as
a joint cost properly allocated among all benefitting
programs, including IV-E.
III. Disallowance of Title IV-E Costs
A. Whether the Claim Was Properly Based on the Proposed
CAP
Illinois raised several issues with respect to the
disallowance of training costs claimed for the quarter
ended September 30, 1994. Illinois argued first that the
methodology it used to allocate the costs in question to
title IV-E was proper and that ACF's application of an
eligibility ratio to determine the amount of allowable
costs was contrary to law. We concluded above, however,
that DCA properly disapproved the methodology in the
proposed CAP, based on which Illinois' claim was
apparently calculated. We further concluded that, in the
absence of another approved equitable allocation
methodology, DCA could properly require Illinois to
allocate its title IV-E administrative costs using an
eligibility ratio.
Illinois also argued that, even if the Board were to find
that the application of an eligibility ratio was proper,
the disallowance was improperly calculated.
Specifically, Illinois argued that the direct costs to
which the eligibility ratio was applied should have
included certain costs which Illinois had not allocated
to title IV-E using the methodology in the proposed CAP
and which were therefore excluded from Illinois' IV-E
claim. According to Illinois, there may have been
training projects which it previously determined were not
sufficiently related to title IV-E topics to be charged
to IV-E, but which nevertheless benefitted title IV-E to
some extent. Illinois asserted that, in excluding the
cost of these projects from the direct costs to which the
eligibility ratio was applied, ACF was applying its
allocation method "on top of the State's allocation
method." Illinois reply brief dated 4/19/95, at 36.
We agree that the disallowance should be recalculated as
requested by Illinois. The eligibility ratio is designed
to allocate joint administrative costs among benefitting
programs to the extent of the benefit the programs
received from the costs, so that each program is charged
only its allocable costs. If some training costs which
benefitted IV-E as well as other programs are excluded
from the pool of direct costs to which the eligibility
ratio is applied, the amount allocated to that program
will not fully reflect the benefits IV-E received from
training costs. Accordingly, ACF should add to the
direct cost pool the cost of any training projects
originally excluded from Illinois' claim which Illinois
can show benefitted title IV-E as well as other programs.
36/
Further recalculation of the claim may also be required
consistent with our decision on the proposed CAP. We
concluded in section II of the Analysis that some of the
training topics which Illinois proposed to specify in its
CAP as IV-E training topics are outside the scope of the
title IV-E program. However, there is no indication in
the record that ACF considered whether the training
projects included in Illinois' claim involved any
training topics outside the scope of IV-E. Accordingly,
ACF may require Illinois to identify any such training
projects and may recalculate the claim to exclude their
costs.
If Illinois is not satisfied with ACF's recalculation of
the disallowance, it may return to the Board on this
limited issue by filing an appeal pursuant to 45 C.F.R.
Part 16 within 30 days after receiving written notice of
the recalculation.
B. Whether Indirect Costs Were Properly Claimed at 75%
FFP
Illinois also argued that the disallowance of indirect
costs which exceeded the amount claimable at 50% FFP was
improper. 37/ ACF found that the indirect cost rate
which was used to calculate the indirect costs was itself
calculated using costs which were not allowable training
costs under 45 C.F.R. 235.64. ACF identified the
unallowable costs as "[g]eneral administrative costs such
as departmental administrative, data processing and
telecommunications costs . . . ." Disallowance letter
dated 12/22/94, at 1. ACF therefore concluded that the
indirect costs were not properly claimed at the 75% rate
of FFP applicable to training costs, but only at the 50%
rate applicable to other administrative costs. 38/ ACF
recalculated the allowable indirect costs by first
applying the eligibility ratio to the indirect costs and
then multiplying the result by 50%.
In DAB No. 1422 and DAB No. 1463, the Board upheld
identical determinations by ACF with respect to
disallowances for prior quarters. The Board found that
section 235.64 on its face limited the types of costs
which may be reimbursed as training expenditures to the
costs listed there. Accordingly, the Board concluded
that, if the indirect cost rate was calculated using any
costs not listed in this section, Illinois could not
properly claim indirect costs at the 75% FFP rate
applicable to training.
Illinois did not deny that the indirect cost rate in
question here was calculated using costs which were
unallowable training costs under section 235.64.
However, Illinois argued that the Board's holding in DAB
Nos. 1422 and 1463 that "indirect cost rates must exclude
all costs that are unallowable as training" was
"inconsistent with the notion of what indirect costs
are." Illinois brief dated 12/9/94, at 81 (emphasis in
original).
Illinois' argument is based on a misunderstanding of the
Board's prior holding. The Board did not hold that the
cost pools used to develop indirect cost rates must
necessarily exclude costs that are not allowable as
training costs. DCA presumably would not have approved
Illinois' indirect cost rate if it had not been
calculated properly. Instead, the Board held that
indirect costs associated with allowable direct costs of
IV-E training may not be charged at the 75% rate of FFP
applicable to training costs if the indirect costs are
based on rates developed using cost pools containing
unallowable training costs. Thus, the Board's decision
does not imply that Illinois' approved indirect cost
rates were improper, but simply that Illinois was not
entitled to charge its indirect costs at an enhanced rate
of FFP.
As the Board has pointed out elsewhere, an enhanced FFP
rate "is an exception to the generally available
reimbursement rates, and a state must accordingly meet a
higher standard of proof to justify a claim at an
enhanced rate." Colorado Dept. of Social Services, DAB
No. 1277, at 14 (1991); see also New York State Dept. of
Social Services, DAB No. 1008, at 3 (1989). Otherwise, a
state might try to improperly shift costs to programs, or
parts of programs, with enhanced funding. Here, the
regulation limits the types of costs which are allowable
at the 75% training rate. Thus, in order to claim FFP at
this rate, Illinois would have to show that its indirect
costs consisted entirely of allowable costs. Illinois
admitted that this was not the case, however.
Illinois further asserted:
The negotiated indirect cost rates are intended to
reflect the level of indirect costs associated with
support of the direct costs of a particular
administrative unit, based on the actual experience
of that unit. The process of determining the
indirect cost rate for a given unit should not have
to exclude costs that are unallowable as training.
It should be sufficient that the rates be calculated
and agreed in the normal manner and then applied to
a proper pool of direct training costs. The purpose
is to determine the total actual costs of providing
allowable training.
Id. (emphasis added). Illinois' position appears to be
that all of the indirect costs actually incurred by a
unit should be included in calculating its indirect cost
rate. This argument ignores the basic rule that costs
which are generally unallowable under the applicable cost
principles may not be included in a cost pool for the
purpose of calculating an indirect cost rate. See, e.g.,
Humanics Associates, DAB No. 860 (1987); The Johns
Hopkins University, DAB No. 1393 (1993). Accordingly,
the exclusion of other types of unallowable costs from
the indirect cost rate calculation would be consistent
with the way in which indirect cost rates are generally
calculated. As noted above, however, Illinois was not
required to exclude unallowable training costs from the
indirect cost pools used to calculate the indirect cost
rate applicable to training costs; nevertheless, once
having done so, it was precluded from charging its
indirect costs at the training rate.
The salient question here is whether section 235.64 was
intended to limit allowable indirect costs as well as
direct costs. We conclude that this was the intent. A
cost is not intrinsically a direct or an indirect cost.
OMB Circular A-87 defines direct costs as those that can
be identified specifically with a particular cost
objective. OMB Circular A-87, Attachment A, E.
Indirect costs are those (a) incurred for a common or
joint purpose benefitting more than one cost objective,
and (b) not readily assignable to the cost objectives
specifically benefitted, without effort disproportionate
to the results achieved. Id., F. Thus, the same types
of costs may be charged either directly or indirectly,
depending on the circumstances. Accordingly, the
regulation necessarily limits both direct and indirect
costs which may be charged as title IV-E training costs.
Illinois asserted, however, that it charged all the costs
specified in section 235.64 as direct costs, so that a
holding that the regulation applied to indirect costs
would have the effect of precluding it from recovering
any indirect training costs. As noted above, however,
ACF did not preclude Illinois from recovering indirect
costs, but merely found that indirect costs were not
properly chargeable at the enhanced rate applicable to
training costs.
Illinois also argued that the Board's reading of section
235.64 was inconsistent with the provisions of the IV-E
statute and regulations for 75% FFP for training costs.
We disagree. The regulation does not limit the rate of
FFP for training costs, but identifies what costs may
properly be charged as training costs at that rate.
Illinois further argued that ACF treated Illinois
differently from other states because it permitted other
states to charge indirect costs calculated like those in
question here at the 75% training rate until the states
received notice that this was not permitted. Illinois
relied on an internal ACF memorandum written in April
1994 which took the position that such indirect costs
should be charged at the 50% rate, but stated that, in
view of the New York Regional Office's reliance on a
prior opinion by the Office of General Counsel which
found the statute and regulations unclear on this point,
"[w]e see no reason to require a decreasing adjustment
for a State's prior indirect cost claims at the 75% rate
of FFP." Ex. 52 (April 1994 memorandum from Director,
Office of Financial Management, ACF, to Assistant
Regional Administrator for Financial Operations, Region
II), at 2. In this instance, however, there is no
evidence that ACF misled Illinois regarding the rate at
which such indirect costs should be charged; indeed, ACF
had already disallowed similar indirect costs claimed by
Illinois when this claim was made. Since Illinois was
clearly on notice before the costs were incurred that ACF
did not regard the costs as claimable at this rate, there
is no basis for Illinois' claim of inconsistent
treatment.
We therefore conclude that ACF properly disallowed the
amount claimed by Illinois for indirect costs to the
extent that it exceeded the amount claimable at 50% FFP.
Since the indirect cost rate used to determine these
costs was calculated using costs which were not allowable
training costs, Illinois overstated the amount of
allowable training costs when it claimed the indirect
costs at 75% FFP. However, the amount of indirect costs
which is unallowable cannot be determined until a final
determination is made by ACF regarding the amount of
allowable direct costs to which the indirect cost rate
should be applied.
C. Whether the Disallowance Was Premature
Finally, Illinois argued that the disallowance should be
reversed as premature pursuant to 45 C.F.R. 95.517.
That section states in pertinent part:
A State must claim FFP for costs associated with a
program only in accordance with its approved cost
allocation plan. However, if a State has submitted
a plan or plan amendment for a State agency, it may,
at its option claim FFP based on the proposed plan
or plan amendment, unless otherwise advised by the
DCA.
Illinois took the position that since there has been no
"final Departmental disapproval" of the proposed CAP by
this Board acting on behalf of the Secretary, Illinois
had not been "otherwise advised" by DCA that the
methodology on which the claim was based was
impermissible. Illinois reply brief dated 4/19/95, at
36. Illinois also pointed out that even the Hearing
Officer's August 31, 1994 decision was not issued until
after the beginning of the quarter in which the costs
were incurred.
We note at the outset that, although there is now a final
decision of the Department upholding DCA's disapproval of
the proposed CAP, Illinois' argument is not moot. If the
disallowance was premature at the time it was issued,
then any interest charges on the disallowed funds were
improper. We conclude, however, that the disallowance
was not premature. In DAB No. 1422, where Illinois made
the same argument, the Board stated that section 95.517
permits a state to claim FFP based on a proposed CAP "as
long as the state has not been told by DCA prior to
making the claim that it cannot do so." DAB No. 1422, at
15 (emphasis in original). 39/ The Board further
indicated that a "final decision" by DCA on the
approvability of the proposed CAP would communicate this
to the state. Id. Here, DCA's final decision was
rendered on December 21, 1992. Illinois submitted its
claim for the disallowed costs by letter dated November
21, 1994 (received by ACF on November 22, 1994). Ex. 54,
at 1. Illinois thus was advised "prior to making the
claim" that the claim could not be based on the
methodology in its proposed CAP.
Contrary to what Illinois argued, it need not have
received either the decision of the Hearing Officer or
the decision of the Board in order to be precluded from
making a claim based on the methodology in the proposed
CAP. The regulation refers specifically to "DCA." The
Hearing Officer's decision was issued pursuant to
authority delegated to the Regional Directors (of the
Department's Regional Offices) to review the decision of
the Director, DCA. See 45 C.F.R. Part 75. The Board
issues decisions in cost allocation cases pursuant to
authority delegated by the Secretary to review "the
decision issued as a result of the preliminary appeal
process at Part 75 . . . ." 45 C.F.R. Part 16, Appendix
A, D. Thus, neither of these decisions is the decision
of DCA. Accordingly, Illinois was "otherwise advised by
the DCA" when the Director of DCA, Region VI, disapproved
the proposed CAP on December 21, 1992.
We also find no merit in Illinois' position that DCA's
advice must be given prior to the time the costs are
incurred, rather than prior to the time the claim is made
as the Board found in DAB No. 1422. The claim in
question here included increasing adjustments for the
quarter ended December 31, 1992, so that some costs
included in the claim may have been incurred prior to
DCA's December 21, 1992 decision disapproving the
proposed CAP. The regulation does not specify when DCA's
advice must be provided; however, it refers to the making
of a "claim" for FFP and contains no reference to the
time the costs claimed are incurred. Accordingly, based
on the language of the regulation, we conclude that the
critical date is when the claim was made.
We therefore conclude that the disallowance was not
premature and uphold the disallowance in principle,
subject to recalculation by ACF consistent with the
analysis above.
Conclusion
For the foregoing reasons, we uphold the Hearing
Officer's decision that DCA properly disapproved
Illinois' proposed CAP dated May 12, 1992. We also
uphold in principle ACF's disallowance of title IV-E
training costs claimed for the quarter ended September
30, 1994, but remand the appeal to ACF to recalculate the
disallowance in accordance with this decision. Within 30
days of its receipt of ACF's determination with respect
to the recalculation, Illinois may appeal this limited
determination to the Board pursuant to 45 C.F.R. Part 16.
___________________________
Judith A. Ballard
___________________________
M. Terry Johnson
___________________________
Cecilia Sparks Ford
Presiding Board Member
1.
Prior to November 5, 1990, section 474(a)(3) referred
only to expenditures "found necessary by the Secretary
for the proper and efficient administration of the State
plan." This language was amended by Public Law No. 101-
508, 5071(b).
2.
Subparagraph (B) of section 474(a)(3) was added
effective October 1, 1989. Pub. L. No. 101-239,
8006(a).
3.
Subparagraph (C) of section 474(a)(3) was redesignated
subparagraph (E) effective October 1, 1993. Pub. L. No.
103-66, 13713(a)(1).
4.
Under a RMS system, randomly selected state agency
employees identify the type of activity in which they
were engaged at randomly selected times during a quarter
using one of several codes. The results are used to
determine activity percentages as a basis for allocating
costs among benefitting federal and state programs. See
Illinois Dept. of Children and Family Services, DAB No.
1462 (1995), at 5, n.4.
5.
The term "eligibility ratios" in this context refers
to the percentages of children in Illinois' foster care
and adoption assistance caseload who were eligible and
ineligible for title IV-E funding. See Ex. 12, at 4.
The parties agreed that a "lagging statistic" would be
used to determine a number of pending IV-E cases (in
which IV-E eligibility had not yet been determined) to be
included in the calculation of the numerator of the IV-E
eligibility ratio. Ex. 35, at 2.
6.
ACYF was part of the Office of Human Development
Services. Due to organizational changes in the
Department, ACYF became part of ACF in April 1991.
7.
Illinois argued that the January 24, 1989 proposed CAP
should be deemed approved by DCA because DCA failed to
approve or disapprove the proposal within the time
required by 45 C.F.R. 95.511(a). A similar argument
was rejected in State of Missouri v. Bowen, 638 F. Supp.
37 (W.D. Mo. 1986), aff'd, 813 F.2d 864 (8th Cir. 1987).
Moreover, in Illinois Dept. of Children and Family
Services, DAB No. 1422 (1993), the Board found,
consistent with Illinois' representation to this effect,
that the May 12, 1992 proposed CAP was submitted "as part
of a continuing process of seeking approval of a CAP, and
thus related back to the January 24, 1989 submission."
DAB No. 1422, at 14. Thus, DCA's disapproval of the May
12, 1992 submission constituted disapproval of the
earlier submission as well.
8.
The parties disagreed as to what the effective date of
the May 12, 1992 proposed CAP would have been had it been
approved. We need not reach this issue since we
determine that it was properly disapproved.
9.
The RMS states:
"Child Welfare" describes the broad range of
preventive and protective services that are
designed to prevent child abuse and neglect.
Protecting children from continued abuse and
neglect and arranging alternative care for
children are also included when continued care is
no longer possible in the child's own home. The
service activities include all activities that
are designed to preserve and strengthen the
child's own family, and all activities that are
related to developing permanency for the child
when reunification with his/her parents is no
longer possible. Child Welfare includes
protective services; safekeeping services; and
alternative care, including foster, adoptive and
relative care . . . .
Ex. 12 at Appendix B, RMS Form at 1.
10.
The specific types of costs which would be subject to
this methodology are: Training Institute staff costs (for
staff development personnel--including support staff--
assigned full or part-time to training functions);
Training Institute non-personal services costs; Initial
in-service training; Master/Bachelor of Social Work
intern programs; Ongoing training for state agency
employees; Foster parent/private agency training; and
payments to educational institutions providing training.
Illinois submission dated 5/22/95, at 1-3.
11.
The same provision was contained in Illinois' January
24, 1989 proposed CAP. See DAB No. 1422, at 7.
12.
Illinois stated that it did not in fact segregate the
staff receiving training into IV-E and non-IV-E staff,
but nevertheless "assumed a division in accord with the
eligibility ratios. . . ." Transcript of May 22, 1995
oral argument (Tr.) at 111. Illinois did not provide any
documentary support such as time studies to show that the
time spent by staff on IV-E cases was equal to the
percentage of IV-E eligible cases.
13.
Illinois argued that it was not given a sufficient
opportunity to provide adequate substantiation for its
alternative allocation methodology prior to the Hearing
Officer's decision. However, when specifically asked by
the Board whether it had additional material to
substantiate this methodology, Illinois indicated that it
had none. Illinois reply brief dated 4/19/95, at 28.
14.
Illinois argued that the Hearing Officer decided the
case before the reconsideration proceedings were
concluded and therefore deprived Illinois of a full
opportunity to argue its position. Illinois also
asserted that the Hearing Officer may have had ex parte
communications with DCA. The reconsideration procedures
at 45 C.F.R. Part 75 are specifically described in
section 75.1 as "informal procedures," however. Section
75.6 provides that the Regional Director (who here
delegated his authority to the Hearing Officer) "may
consult the DCA, other regional officials, Departmental
central office officials, and other individuals in
conducting the review." Thus, the procedures clearly
contemplate that there may be ex parte communications.
Moreover, even if Illinois would have preferred a fuller
opportunity to argue its position before the Hearing
Officer, we conclude that Illinois was not prejudiced
since it had a full opportunity to present its arguments
to the Board in writing and orally.
15.
ACF also disallowed Illinois' IV-E training claim for
the period July 1, 1991 through September 30, 1992. In
DAB No. 1422 (1993), and Illinois Dept. of Children and
Family Services, DAB No. 1463 (1994), the Board remanded
Illinois' initial appeals of these disallowances to ACF
to determine whether the disallowances were premature
under 45 C.F.R. 95.517. Illinois' appeal of ACF's
subsequent determination affirming the disallowances
(Docket No. A-95-73) has been stayed pending the issuance
of this decision.
16.
However, DCA took the position in briefing before the
Board that it was not requiring the application of an
eligibility ratio, although some method of pro rata
allocation was required. This is consistent with ACYF-
PA-87-05 and ACYF-PA-90-01, which indicate that an
eligibility ratio is just one "equitable basis" for
allocating costs.
17.
There is, however, clear authority for requiring some
allocation of costs. It is implicit in section 474(a)(3)
of the Act that some allocation of costs will be required
in order to identify costs which are necessary for the
proper and efficient administration of a state's IV-E
plan. Moreover, 45 C.F.R. 1356.60(c) states that
"[t]he State's cost allocation plan shall identify which
costs are allocated and claimed under this program."
Furthermore, section 95.507 of 45 C.F.R. Part 95 (made
applicable to title IV-E by 45 C.F.R. 1355.30(c))
provides that a state's CAP shall contain "[t]he
procedures used to identify, measure, and allocate all
costs to each benefiting program and activity."
18.
In a letter dated June 14, 1984, the Director, Office
of Fiscal Operations, Office of Human Development
Services, Region II, advised New York that training
related to foster care and adoption services might be
allocated entirely to title IV-E where the staff members
attending the course or courses spent their time
primarily on title IV-E activities. Ex. 2A. However, as
DCA pointed out, this was the opinion of a single HHS
regional official regarding the circumstances of one
particular state, not an official policy statement.
19.
Under 45 C.F.R. Part 95, DCA, and not the individual
program agencies, has the authority to approve a state's
allocation methodology. Thus, ACF itself had no
authority to enforce the policy statements.
20.
DCA contested this figure. Agency brief dated 2/21/95,
at 27-28, n. 23. We need not decide whether this figure
is correct since, even if it is, the result in this case
would not change.
21.
Although the Hearing Officer specifically found that
the alternative allocation methodology was unacceptable,
DCA initially took the position that the acceptability of
this methodology was not properly before the Board
because DCA had not made a final determination on this
matter. DCA nevertheless agreed with the Hearing Officer
that the methodology was unacceptable and subsequently
took the position that the Board could properly consider
this matter. Tr. at 91.
22.
However, Illinois said it would allocate to title IV-E
only those training costs which are allowable under 45
C.F.R. 235.64 even if the topic of the training was in
Illinois' view a IV-E topic.
23.
DCA thus left open the possibility that some of these
topics might involve costs chargeable at the 50% rate of
FFP.
24.
Illinois disputed what it viewed as the Hearing
Officer's finding that only topics actually listed in
section 1356.60(c)(1) and (2) were permissible. However,
the Hearing Officer's decision in fact states that the
topics must be "related to" those listed in the
regulation, which is the position that DCA adopted in the
proceedings before the Board. Illinois also argued that
the Hearing Officer erred in finding that IV-E funding is
not available for initial in-service training of Division
of Child Protection staff, and contended that the Hearing
Officer should instead have determined which of the
training topics actually proposed by Illinois are
permissible. DCA subsequently considered whether each of
the proposed training topics involves an allowable IV-E
activity, thus mooting Illinois' argument.
25.
The activities in question were 1) determining the
nature, extent and cause of injuries; 2) risk assessment;
3) processing investigation forms; and 4) arranging for
other services.
26.
Illinois also cited 45 C.F.R. 235.61(b) to support
its position that this case is distinguishable from DAB
No. 1428. Section 235.61(b) provides:
(b) Continuing training means an on-going program
of training planned to enable employees to: (1)
Reinforce their basic knowledge and develop the
required skills for the performance of specific
functions, and (2) acquire additional knowledge and
skill to meet changes such as enactment of new
legislation, development of new policies, or shifts
in program emphasis.
Illinois asserted that it was clear that training to
provide "basic knowledge" (as distinct from "skills")
need not be related to IV-E activities. Illinois'
reliance on this regulation is misplaced, however. The
regulation necessarily applies only to training properly
allocated to IV-E, and does not expand the substantive
allowability of particular training. In any event, the
regulation was promulgated prior to the enactment of
title IV-E. See 45 Fed. Reg. 29,833 (May 6, 1980).
Thus, the regulation was never intended to define the
types of training activities that could properly be
funded by title IV-E. (Moreover, this provision is not
specifically incorporated in the title IV-E regulations.
Section 1356.60(c) of title 45 C.F.R. incorporates by
reference only sections 235.63 through 235.66(a),
although section 235.61 defines terms in those sections.)
27.
The preamble to the IV-E regulations indicated that
funding for "treatment-oriented services" which "are
vital to the goals of Pub. L. 96-272" was available under
title IV-B (Child Welfare Services Program) as well as
title XX of the Act (Social Services Block Grants). 47
Fed. Reg. 30,922, 30,923 (July 15, 1982). DCA asserted
that funds for training in the delivery of these social
services were also available under titles IV-B and title
XX.
28.
DCA also contended that the language of the November 5,
1990 amendment itself made clear that no preplacement
costs are allowable. As noted previously, this amendment
changed the provision authorizing reimbursement of
expenditures as found necessary by the Secretary "for the
proper and efficient administration of the State plan . .
. , " to authorize reimbursement of expenditures ". . .
for the provision of child placement services and for the
proper and efficient administration of the State plan."
We do not view this language as dispositive, however. It
is clear from the conference report that Congress
intended "child placement services" to include some
preplacement activities. Moreover, some of the training
topics approved by DCA here (including some costs listed
in section 1356.60(c)(1) and (2)) involve activities
which would occur prior to a child's placement. In
addition, the fact that title IV-E authorizes funding for
adoption assistance as well as foster care maintenance
payments shows that the 1990 amendment could not have
been intended to limit title IV-E funding to activities
related to foster care placement.
29.
Illinois argued that, to the extent that section
1356.60(c)(3) precludes funding for the cost of
activities related to the purposes of title IV-E, it is
inconsistent with the statute and therefore unlawful. We
need not consider this argument since the Board is bound
by all applicable laws and regulations. 45 C.F.R.
16.14. In any event, as discussed previously, title IV-E
provides funding only for foster care maintenance and
adoption assistance payments and necessary administrative
activities, not for all related activities. Thus, the
regulation is consistent with the statute.
30.
As indicated below, DCA considered not only whether the
subject matter of the training was allowable under IV-E
but also whether the training could be appropriately
provided to DCP and DPO staff. DCA did not state whether
or to what extent training for foster care providers on
any of these topics would be eligible for IV-E funding.
However, both parties agreed that this was not an issue
presented in this case. Agency letter dated 6/15/95, at
3; Illinois letter dated 6/19/95, at 1-2.
31.
Topic 7 also includes federal and state substantive
and/or procedural law relating to placement, children's
rights, and parental rights. DCA did not indicate any
restriction on training on these aspects of the topic.
32.
Section 471(a)(12) requires a state to provide an
opportunity for a fair hearing before the state agency to
any individual whose claim for benefits under title IV-E
is denied or is not acted upon with reasonable
promptness.
33.
DCA noted the restriction on Topic 2 only for DPO staff
since Illinois acknowledged that DCP staff did not
perform this function. DCA noted the restriction on
Topic 6 only for DCP staff. It is not clear why DCA did
not take the position that the same restriction applied
to DPO staff as well.
34.
DCA noted the restriction on Topics 5, 8 and 9 only for
DCP staff. It is not clear why DCA did not seek to
impose the same restriction with respect to DPO staff.
DCA noted the restriction on Topic 13 only for DPO staff
since Illinois acknowledged that DCP staff do not perform
the functions in question.
35.
DCA asserted here that a child is not a candidate for
foster care until "the very point where the state
determines that reasonable efforts to keep the child at
home have failed." Agency brief dated 2/21/95, at 19.
We agree with Illinois that this view is inconsistent
with the position articulated by ACF in ACYF-PA-87-05,
which clearly contemplates that a child can become a
candidate before reasonable efforts are made.
36.
This issue was raised, but not decided, in DAB No.
1422. The Board noted, however, that ACF "appeared to
agree" that eligibility ratios should be applied to
training costs that were not included in Illinois' claim.
DAB No. 1422, at 37, n.2.
37.
Illinois had a provisional indirect cost rate of 20.7%
of direct salaries and wages (excluding fringe benefits)
applicable to "all locations" effective July 1, 1993
until amended. Ex. 41, 3rd page. The "locations" are
identified in the March 28, 1994 indirect cost rate
agreement as (A) Management Services, Director's Office
and Employee Services; (B) Program Operations & Child
Protection Services; (C) Youth & Community Services; (D)
Program Services; and (E) Quality Assurance.
38.
This determination was consistent with the
determination made by DCA and upheld by the Hearing
Officer's determination disapproving the proposed CAP,
that indirect costs may be reimbursed only as
administrative costs at 50% FFP. Although no explanation
of the latter determination was provided, the
determination may have been based on the fact that
Illinois' proposed CAP did not specifically provide for
allocating any indirect costs to training costs which
were chargeable at the enhanced rate of 75% FFP. Under
45 C.F.R. 95.507(b)(4), a CAP must identify the
procedures used to identify costs charged at different,
i.e., enhanced, rates of FFP.
39.
The Board determined in that case that DCA had not
advised Illinois that it could not make a claim based on
the methodology in the proposed CAP in question there.
However, the Board did not resolve the issue of whether
the disallowance was premature, instead remanding the
case to ACF to determine whether the claim was in fact
based on the methodology in the proposed CAP as required
by section 95.517.