DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Georgia Department of Human Resources
Docket No. 86-179
Decision No. 870
DATE: May 21, 1987
DECISION
The Georgia Department of Human Resources (State) appealed a decision
by
the Commissioner of the Administration on Aging (Agency)
disallowing
$1,132,818 in federal financial participation (FFP) claimed by
the State
under Title III of the Older Americans Act, during the period July
1,
1982 through June 30, 1985. Of the total disallowance, $728,361 was
for
costs of "nutrition administration" charged as Title III-C costs by
the
Atlanta Regional Commission (ARC), an area agency on aging, and
$404,457
was related to in-kind contributions that had been used as
the
non-federal matching share of ARC administrative costs.
The State argued that the costs were properly charged under
applicable
cost principles and the Agency should be estopped from taking
this
disallowance due to alleged instances of affirmative and
acquiescent
conduct by Agency officials.
Upon review of the parties' submissions, we conclude that the
disallowance
should be upheld in full. The costs charged to Title III-C
as
"nutrition administration" should have been charged to area
plan
administration because the functions were allocable to that
cost
objective. The alleged in-kind contributions of space by
nutrition
providers were not properly allocable to area plan administration
and
therefore could not be used to match administrative costs. In
addition,
the State has not shown that estoppel should be applied.
Background
Under the Older Americans Act of 1965, Public Law 89-73, Title III,
as
amended, 42 U.S.C. 3001 et seq. (the Act), the State
administers
programs authorized and funded by the Act through 18 planning
and
service areas. The regulations governing administration of
these
programs are found at 45 CFR 1321 (1981- 1984). The State
is
responsible for review and approval of plans submitted by the
area
agencies to ensure that they satisfy federal requirements. 42
U.S.C.
3027(a)(2); 45 CFR 1321.45(a)(4). This responsibility includes
ensuring
that the costs and activities for which it is obligating both
federal
and state grant funds are allowable under the Title III program and
the
cost principles promulgated in grants administration regulations, 45
CFR
Part 74.
During the relevant period, the Act provided that no more than 8.5
percent
of a state's allotment could be used to pay for the cost of area
plan
administration, and federal funds could not be used to pay for more
than 75
percent of the total of such costs. 42 U.S.C. 3024(d)(1)(A), as
amended by
Pub. L. 97-115. If the required 25 percent non-federal
matching share
was made up of in- kind, rather than cash, contributions,
those contribution
had to be "allowable." 45 CFR 74.53(e), 1321.201;
OMB Circular A-87,
C.1 and C.2.
ARC was the area agency responsible for the seven-county
Atlanta
metropolitan area. During the disallowance period, its area
plans,
which were reviewed and approved by the State, called for the
provision
of congregate and home-delivered meal services to the elderly
through
contracts with other organizations. 1/ It is undisputed that
ARC did
not provide nutrition services directly to beneficiaries.
2/
Early in 1985, during an administrative review of all area agencies
in
Region IV, the Agency identified apparent problems with expenditures
of
Title III funds in the State. Upon closer examination, the
Agency
determined that during State fiscal years (FY) 1983 through 1985
(July
1, 1982 through June 30, 1985) the State had permitted ARC to use
Title
III-C funds, in amounts over and above the 8.5 percent allotment
for
area administration, to pay for "nutrition administration," even
though
ARC was not a direct provider of nutrition services. This
resulted in a
disallowance of $728,361 in FFP. In addition, the
Agency found that
during FY 1983 and FY 1984, ARC accepted in-kind
contributions in the
form of donated space from two independent service
providers and used
those contributions to meet its 25 percent match
requirement for area
plan administration. The Agency maintained that
these contributions
could not count toward satisfying the match requirement
because the
space was apparently used by the nutrition providers themselves,
not by
ARC. Thus, these in-kind donations were not allowable as
costs
allocable to area plan administration. The resulting shortfall
in
non-federal match was reflected in a disallowance of $404,457 in FFP.
In its submissions, the State argued that there was nothing in the
statute
or applicable regulations that prohibited ARC from charging
Title III-C
nutrition funds for its nutrition administration activities.
The State also
contended that the Agency was erroneous in its contention
that the in-kind
contributions were not allowable. The State asserted
that since there
is no specific prohibition against using area plan
administration funds to
pay for third party contractor administrative
costs, the use of third party
administrative costs (donated space) as an
in-kind match was allowable.
In addition, the State maintained that the
contributions were allocable to
the overall Title III cost objective.
Finally, the State contended that the
Agency should be estopped from
taking this disallowance because it had
allegedly approved use of Title
III-C funds for nutrition administration, had
misled the State into
thinking that a prospective policy change would resolve
this issue to
the Agency's satisfaction, and had never challenged these
practices
during past reviews.
As noted above, we have concluded that the disallowance should be
upheld
in its entirety. We discuss each of the State's contentions in
turn
below.
Analysis
"Nutrition administration" costs are allocable to area
plan
administration, subject to the 8.5% cap
The State contended that although the Agency maintained that there is
no
legal basis in the Act or regulations for an area agency which is not
a
direct service provider using Title III-C funds for
administrative
services, the Agency did not identify a specific section of
either the
statute or regulations which prohibited such a practice. Although
the
State never argued that ARC was a direct service provider, it
contended
that the distinction drawn by the Agency between ARC and another
area
agency, which the Agency accepted as a direct service provider,
was
technical and meaningless. In order to buttress its contention that
the
administrative costs charged to the nutrition funds
were
nutrition-related, the State provided with its appeal file a listing
of
ARC staff functions that were charged to the funds during the
relevant
period. See Attachments to Ex. S7.
The Agency argued that ARC was not a service provider, so that the
types
of costs it had charged to the grant as "nutrition administration"
could
be allowable only as costs of area administration under 42
U.S.C.
3023(c)(1) and 4024(d)(1), or as program development and
coordination
costs under 45 CFR 1321.25(h). However, since ARC had
already obligated
up to its 8.5 percent statutory limit for administrative
costs, and
since it conceded that many of the claimed costs would not fit
the
definition of program and coordination costs (appeal brief at
7),
neither of those rationales was available for these costs, according
to
the Agency.
We first note that the State misconstrued the basis for
the
disallowance. The Agency did not take the position that Title
III-C
funds may never be used for administrative costs associated
with
nutrition services for the aging. The Agency's point was that
the
functions the State called "nutrition administration" had to be
charged
as part of the cost of area plan administration, subject to the
8.5
percent cap. The State's method of charging in effect classified
these
functions as "nutrition services."
To resolve the issue of how the State should have charged for
the
functions that it labelled as "nutrition administration," we
must
examine the record to determine what those functions were. The
Agency
characterized ARC's functions as monitoring, evaluation,
technical
assistance, development and coordination with the area agency's
various
contractors and service providers. Apart from an unsupported
allegation
in its appeal brief concerning ARC's role as bid collector for
area
nutrition services providers, the State's explanation of what
ARC
activities constituted "nutrition administration" was in the
State's
Exhibit S7. This exhibit contained a "Listing of ARC Staff
Functions
Included in Nutrition Program Administration Costs Charged to Title
III,
C.1 and C.2 Through June 30, 1985," dated March 5, 1986 (to which
we
refer as the "1986 document"), and four "1984 Work Program
Subelement
Summary Descriptions" (summary descriptions) which detailed ARC
work
activities for the congregate and home-delivered meal services
programs.
Despite the title "1984 Work Program," which appeared at the top of
each
of the four summary descriptions, the two documents concerning
the
congregate meals program were labelled as prepared on September
30,
1982, and the set for the home-delivered program was apparently
prepared
September 30, 1983. 3/
Although the March 6, 1986 letter to which these documents are
attached
implies that the summary descriptions are back-up documents for the
1986
document, the differences between the contemporaneously
prepared
documents and the 1986 document, which was prepared as a part of
the
State's response to the Agency's audit, is striking. The
summary
descriptions contain the signature of the division chief as preparer
and
the department director as approving official; the March 1986
listing
does not list any author. The congregate meals summary
descriptions
list the activities to be performed by ARC and by the
providers. The
March 1986 document lists only staff functions for ARC,
and it reports a
much broader range of duties for the area agency, including
some that
are designated as provider activities by the 1982 congregate
meals
documents, such as menu planning and training of volunteer workers.
Even if it were to be argued that the earlier documents consist of
the
agency's plans while the later document reports the agency's
actual
practices, the following factors convince us that the earlier
documents
provide the best evidence of the functions actually provided by
ARC
during the relevant period:
o The 1982 and
1983 documents were apparently prepared at the
same time that the activities
were taking place as part of the agency's
planning process. The 1986
document was written as a defense to a
possible disallowance.
o Although the
1986 document describes some activities, such
as menu planning and evaluating
food vendors, that seem
characteristically those of a direct service
provider, the State never
disputed the Agency's assertion that ARC was
prohibited by State law
from providing direct nutrition services.
o It was the
summary descriptions to which the Agency
referred in the disallowance letter,
and the State did not dispute,
during Board proceedings, that Agency
description of ARC's staff
functions.
Based upon the above considerations, we conclude that the September
30,
1982 and September 30, 1983 summary descriptions provide the
best
evidence of the activities of ARC that were charged to the grant
as
nutrition administration. This evidence shows that these
functions
consisted of monitoring the activities of nutrition providers
for
compliance with the statutory and regulatory requirements,
evaluating
the home-delivered meals program, and providing technical
assistance for
both programs as needed.
The State contended that the Agency cannot disallow these costs
because
there is no specific regulation that classifies these functions as
area
agency administrative costs. The regulations are by no means as
obscure
as the State argued, however. Although "area administrative costs"
are
not specifically defined in the Act or the regulations for
aging
programs, the disputed functions are clearly area agency
administrative
costs because they are the duties required of all area
agencies by the
statute and the regulations. See 42 U.S.C. 3026(a); 45
CFR 1321.77(c),
1321.93(d). Moreover, this grant is also governed
by the
government-wide cost principles of 45 CFR Part 74, which
incorporates
Office of Management and Budget (OMB) Circular A-87 cost
principles. 45
CFR 74.171(a). Those principles require that costs
be allocated to the
cost objective which they benefit. OMB Circular A-87,
Att. A, section
C.2.a. The State's description of these functions as
benefitting the
entire Title III program is meaningless; the issue is whether
these
activities benefit the cost objective of providing congregate
and
home-delivered meals to the elderly under the area plan so that they
are
outside the scope of the 8.5 percent cap on administrative costs.
ARC's
functions of monitoring, evaluation, technical assistance,
development
and coordination with the area agency's various contractors and
service
providers serve the objective of overall administration rather than
that
of providing direct nutrition services.
Moreover, funding these types of activities out of funds allocated
for
providing nutrition services to the elderly frustrates the
clear
legislative intent to limit expenditures of allotted funds
for
administrative costs. See 47 Fed. Reg. 41756 (1982).
Based on the foregoing, we reject the State's arguments and uphold
this
part of the disallowance.
The Donated Space Was Not Allocable to Area Administrative Functions
and
Thus Was Not Allowable as In-Kind Match
With respect to the disputed in-kind match, the State made an
argument
similar to that rejected in the previous section, namely that since
the
Agency could not point to a specific provision prohibiting this
claim,
it must be allowable. In addition, the State reiterated its
argument
that these costs were all related to the overall Title III
objective.
4/
It is difficult to glean from the record precisely what were the
in-kind
donations from service providers that the State claimed as
non-federal
in-kind match in order to satisfy the match requirement
for
administrative costs. The Agency described it as "[d]onated space
used
solely by independent contractors for the direct provision of
services
to beneficiaries" (Response at 7). The State implied that it might
have
been space used by the providers for administrative functions which
the
State could have delegated to the provider. See State's Ex. S7 at p.
2.
When asked a direct question by the Board as to where the space
was
located, who used it, and what functions were performed there,
however,
the State never answered. 5/
We infer from the State's failure to respond that the
Agency's
characterization of the donated space is correct. Thus, under
the cost
principles cited above which require that a cost must be allocated
to
the cost objective which it benefits, it is clear that space being
used
by service providers for the direct provision of nutrition
services
cannot properly be allocated to area administration.
Accordingly, this
donated space cannot be allowable as in-kind match for
area
administration.
The Agency Is Not Estopped from Taking this Disallowance
In its submissions, the State argued that the Agency should be
estopped
from taking this disallowance, and it claimed that it had proved
the
traditional elements of estoppel:
(1) the party to be estopped must know the facts;
(2) he
must intend that his conduct shall be acted on or
must so act that the party
asserting the estoppel has the right to
believe that it is so intended;
(3) the latter must be ignorant of the true facts; and
(4) he
must reasonably rely on the former's conduct to his
injury.
United States v. Georgia Pacific, 421 F.2d 92, 96 (9th Cir. 1970).
The State asserted that the Agency should be estopped because of
both
affirmative and acquiescent conduct. As affirmative conduct
giving
rise to estoppel in this case, the State asserted that it had raised
the
question of whether charging administrative costs to Title III-C
funds
was permissible during a training session and a meeting of State
Aging
Directors conducted by Agency personnel and had been told in
each
instance that it was. In addition, the State maintained that the
Agency
had misled it during this audit by agreeing at a meeting that
a
prospective policy change in the manner it was charging
administrative
costs would satisfactorily bring the State into compliance, so
that the
State failed to make adjustments during FY 1985 that, it implied,
could
have reduced the amount of the disallowance. Finally, the
State
contended that the Agency should be held to have acquiesced in the
ARC's
challenged practices because the Agency never challenged them
during
past reviews by the Inspector General and the regional office of
the
Agency. The State cited the following cases in support of
its
contention that estoppel should lie against the federal government
in
this case: Cooke v. United States, 91 U.S. 389, 398 (1875); Ritter
v.
United States, 28 F.2d 265, 267 (3d Cir. 1928); United States v.
Eaton
Shale Co., 433 F.Supp. 1256, 1272 (D.Colo. 1977); Molton, Allen
and
Williams, Inc. v. Harris, 613 F.2d 1176 (D.C.Cir. 1980); Cinciarelli
v.
Reagan, 729 F.2d 801 (D.C.Cir. 1984).
As an initial matter, the State seriously misstated the current law
of
estoppel with respect to the federal government. The Supreme Court
laid
down the principle that the federal government can not be estopped
by
unauthorized statements or representations of its agents in Federal
Crop
Insurance v. Merrill, 332 U.S. 380 (1947). The Court has since
declined
to adopt a flat rule that estoppel may not in any circumstances
run
against the government. See Heckler v. Community Health Services
467
U.S. 51, 60, 61 (1984). The Court has said, however, that in
addition
to the traditional requirements for estoppel against a private
party,
there must at least be something more to estop the government. "It
is
well settled that the Government may not be estopped on the same
terms
as any other litigant." Community Health Services, supra, at
60.
The cases have indicated that the extra requirement needed to estop
the
government is "affirmative misconduct" on the part of a
government
agent. The Court has never come out directly and said that
affirmative
misconduct will estop the federal government; it has said that
estoppel
will not be applied in the absence of affirmative misconduct.
INS v.
Miranda, 459 U.S. 14, 17 (1982); Schweiker v. Hansen, 405 U.S. 785,
788
(1981); INS v. Hibi, 414 U.S. 5, 8 (1973). While
"affirmative
misconduct" has not been explicitly defined by the Court, it is
clearly
something more than the failure to provide accurate
information. In the
present proceeding, the State has not only failed
to meet this standard,
but it also has not established the facts necessary to
estop an ordinary
party. 6/
With respect to the advice which the State alleged that it received
about
charging Title III funds for administrative costs, the State did
not provide
critical information that would make this allegation
credible. The
State did not, for example, state when either the
training session or the
State Aging Directors meeting where this advice
was given took place, what
Agency officials participated, which Agency
official gave the alleged advice,
and in what context the alleged advice
was given. The context is
particularly important because the simple
statement that nutrition funds may
be charged for area administrative
costs is correct -- Title III-C funds are
among the program funds that
may be tapped for the 8.5 percent cap for area
administration. 42 U.S.C.
3024(d). This disallowance is based, however,
on the State's charging
Title III funds for area administration for amounts
beyond the 8.5
percent already allocated for area administration costs.
The allegation that this specific erroneous advice was given is
also
seriously undercut by the statements of other Region IV State
Aging
Directors, reported in Exhibit S2, which almost unanimously hold
that
their understanding is that such a use of Title III funds would
be
contrary to the Act. (This also undermines the State's allegation
that
reliance on such advice, even if given, would be reasonable.)
Finally,
the alleged advice was oral, which makes reliance upon it even
more
suspect. Community Health Services, 467 U.S. at 66. It is
therefore
evident that this allegation cannot support a finding of
estoppel
against the government.
The State also maintained that estoppel should be applied against
the
Agency because the State was led to believe during a May 15,
1985
meeting with the Agency that the Agency would not seek a disallowance
on
the nutrition administration costs issue if the State made a
prospective
change in its policy. The State provided in support of this
claim a
letter dated May 23, 1985 from the State Director on Aging to
the
Agency's Regional Director which stated that it summarized
the
agreements made at the May 15 meeting. State Ex. S27. The
State
implied that if it had realized that a disallowance for that fiscal
year
was contemplated, it could have directed the area agencies to
reprogram
some funds so as to reduce the amount of the disallowance. Appeal
Brief
at 24.
The letter proffered by the State as evidence of its agreement with
the
Agency does not explicitly state that prospective policy changes
will
resolve the dispute. Instead, the letter merely sets forth
prospective
policy changes the State promised to make with respect to the
"nutrition
administration" issue and seeks approval from the Agency for
advice that
the State proposed to provide to area agencies.
Subsequent
correspondence from the Agency, Exhibits S16 and S25, expressed
Agency
satisfaction that the challenged practice was being corrected, but
did
not explicitly withdraw the Agency's claim for previously
misspent
funds. Given the significant sum of money both parties
believed was
involved with this issue at the time -- $405,847 for FY 1985
alone,
according to Exhibit S16 -- it is significant that neither party put
the
alleged agreement to forgive this large unallowable charge in
writing.
Moreover, the State's claim that it might somehow have avoided some of
the
disallowance had it known that prospective policy changes were not
enough is
unconvincing. The State does not explain what it would or
could have
done differently if it had understood on May 15, 1985 that a
disallowance was
contemplated. While it implied that it might have
somehow reprogrammed some
current and prior year funds, it does not
explain why that option was
foreclosed by the time that the disallowance
letter was issued.
Moreover, we cannot understand how else the State
could have charged the
funds and still retained FFP, since it had
apparently expended up to the 8.5
percent limit in administrative costs
already, and it admitted in its brief
that the majority of these costs
could not be charged to program development
under section 1321.25(h).
Appeal Brief at 7.
The final circumstance cited by the State as giving rise to an estoppel
is
the failure of the Agency to identify, during prior reviews and
audits, the
fiscal practices now challenged in this disallowance
proceeding.
Specifically, the State noted that during the disallowance
period, the
Agency's regional staff conducted quarterly on-site reviews
of the State's
operations, which included visits to area agencies
including ARC. In
addition, the Office of Inspector General (OIG) of
the Department of Health
and Human Services conducted an audit of the
State's financial practices for
FY 1979/80 and FY 1980/81 and concluded
in particular that ARC "had sound
financial management . . . and no
questioned costs." Appeal brief at
23; State Ex. S35.
First of all, the OIG audit is irrelevant here because it covered a
time
period prior to the particular change in the regulations governing
area
administrative costs (the 1981 requirement that area agencies spend
8.5
percent before charging administrative costs to program
development)
which the State admitted gave rise to a change in the method by
which it
charged the costs at issue here. Appeal brief at 4, 7-8.
Moreover, the
Agency cannot be estopped from disallowing costs that were
discovered in
a comprehensive audit because it had not questioned these
practices
during its periodic program reviews. Pennsylvania Department
of Public
Welfare, Decision No. 848, March 13, 1987. As we stated
in
Pennsylvania:
Program reviews
involve examination of
program
administration, the emphasis of which is on examination
of
case records
and quality control systems monitoring
recipient
eligibility. (45 CFR 201.10) Audits are reviews of
state
agency
operations conducted to ensure that funds are
being
"properly
expended," (45 CFR 201.12(a)(2)) and to
determine
"the
allowability of costs." (45 CFR 201.12(b))
Oklahoma
Department of Human Services, Decision No. 809, November
18,
1986.
The Agency's reviews did not preclude the agency
from
doing an
audit and imposing a disallowance.
In other words, the Agency's approval of general program
administration
cannot be relied upon by the State as ratification of all its
fiscal
practices. Consequently, we also reject this basis for assertion
of
estoppel against the Agency.
Conclusion
Based on the foregoing, the disallowance is upheld in its entirety.
_______________________ Norval
D.
(John) Settle
_______________________
Alexander
G. Teitz
_______________________ Judith
A.
Ballard Presiding Board Member
1. In addition to congregate and home-delivered meals,
the
regulations include as nutrition services which may be included in
an
area plan "outreach and nutrition education," 45 CFR 1321.141(a).
The
State did not establish that the area plan included these activities
as
service components.
2. The Agency alleged that under Georgia law ARC was
forbidden to
provide services directly to beneficiaries. Disallowance Letter
at 5.
Moreover, the Act contains a strong preference against direct
provision
of services by either the State or area agencies on aging.
See 42
U.S.C. 3027(a)(10) ("Each such [state] plan shall:
. . . provide that no supportive services or
nutrition services,
will be directly provided by the
State agency or an area agency on
aging, except
where, in the judgment of the State agency,
provision
of such services . . . is necessary to
assure an adequate supply of
such services, or where
such services are directly related to such
State or
area agency on aging's administrative functions, or
where
such services of comparable quality can be
provided more
economically by such State or area
agency on aging."). See also 45
CFR
1321.103.
3. Although the documents for each program are
labelled as being
prepared on the same date and are identical in content, the
subelement
numbers and page numbers appearing at the bottom of the form
are
different. These discrepancies were not noted or otherwise
explained by
the State in the letter to which these documents were
attached.
4. The State also argued implicitly that if it could
use area
administration funds to pay a third party contractor's
administrative
costs, donated space that was used by the contractor for
administration
could be credited as an in-kind match for area
administration. This
argument is purely hypothetical, however, since
the State neither
alleged nor proved that the space was used for
administrative purposes.
Consequently, we do not discuss it further in this
decision.
5. These questions were posed to the State by telephone on
March 25,
1987, and confirmed in writing by letter on March 30, 1987.
The answers
were to be included in the State's reply brief, which was due on
or
around April 7, 1987. Not only did the State never respond, but
its
counsel failed to return telephone calls made to inquire about
whether
an answer was forthcoming. See Memoranda of Telephone
Conversations
dated April 15, 17, 21, and 29. On May 1, 1987, a woman
identifying
herself as a secretary for one of the State's counsel called to
say that
the information would be mailed soon. She was also asked to
have
counsel telephone the Board, but no one ever called. We find
this
behavior particularly egregious inasmuch as the Board previously
found
it necessary in this proceeding to issue an Order to Show Cause to
the
State for failure to file a timely submission and to return
telephone
calls inquiring about it. Although the Board could have
dismissed this
appeal summarily for failure to meet a requirement established
by the
Board (see 45 CFR 16.15(b) we determined that the record before us
was
complete enough to proceed to decision. See also 45 CFR
16.15(c). As
indicated in the text, however, we infer from the State's
failure to
respond to our questions that the information, if provided, would
prove
to be adverse to the State. Cf. Federal Rule of Civil Procedure
(FRCP)
16(f) (sanctions for failure to obey a scheduling or pretrial
order);
FRCP 36 (sanctions for failure to comply with discovery order).
In any
event, the State's failure to file a reply brief leaves unchallenged
the
Agency's assertion about the actual use of the space.
6. In the cases cited by the State, the Court found that as
an
essential element of estoppel against the government, the party
invoking
estoppel must establish that the government agent whose actions are
the
basis for the estoppel claim must have the authority to bind
the
government. For example, in Ritter v. United States, 28 F.2d
265 (3d
Cir. 1928), the court held that estoppel would not be applied
because
the government agent involved did not have authority to waive
the
regulatory requirement in question. The District of Columbia
Circuit
pointed out that where the government agent has the authority to
waive a
requirement, we are dealing with the principles of waiver and so
Merrill
does not apply. See Molton, 613 F.2d at 1178, 1179;
Cinciarelli, 729
F.2d at 78, 79. The 8.5 percent cap on administrative
costs is a
statutory requirement which Agency officials did not have
authority to