February 26, 1998

AGREEMENT

This agreement is reached between the Department of Labor and Industry (L&I) of the Commonwealth of Pennsylvania (PA), the U.S. Department of Labor (DOL) and the U.S. Department of Education (ED). When completed, this agreement will resolve appeals filed by L&I on August 30, 1996, September 5, 1997, and November 26, 1997, of program determination letters (PDLs) issued by ED on June 28, 1996, June 30, 1997, and September 30, 1997, respectively. (The PDLs were issued as a result of audit findings in Single Audit reports issued for fiscal year (FY) 1992 and FY 1993.) Finally, this agreement also covers audit findings related to the Hiram G. Andrews Center (HGAC) for FYs 1994-1996.

1. On or before June 30, 1998, L&I will submit for approval to the U.S. Department of Labor (DOL), L&I's currently designated cognizant Federal agency, a cost allocation plan (CAP) that will include both a billing rate (or billing rates) for those services provided to individuals referred to HGAC by L&I's Office of Vocational Rehabilitation (OVR) and a "carry-forward agreement." L&I may request an extension of this date from DOL for good cause. The CAP, billing rate(s), and "carry-forward agreement" will comply fully with Office of Management and Budget (OMB) Circular A-87 (A-87), including, specifically, but not limited to, Attachment A, Section B, paragraph 4; Attachment B, Section 15.a.; Attachment C, Section E, paragraphs 1, 3.a. and b.(1), and 4; and Sections G.3. and 4. of A-87; and Implementation Guide for A-87 (ASMB C-10), including, specifically, but not limited to, Sections 4.5.2 and 4.8. L&I will submit its CAP, billing rate(s), and "carry-forward agreement" on an annual basis, as required by A-87. ED will provide DOL and L&I with technical assistance related to financial and accounting information for the submission, review, and approval of L&I's CAP, billing rate(s), and "carry-forward agreement."

2. L&I will request that its CAP, billing rate(s), and "carry-forward agreement" be approved by DOL, to become effective as of July 1, 1998, and apply to FYs 1999 and 2000, except that the "carry-forward agreement" will apply to FYs 1992-1998, based on the methodology (as described in the attached Methodology Description) that was used to arrive at the figures included in the "Totals" column of the attached "cost summary schedule" for FYs 1992-1996. All parties agree that L&I's CAP, billing rate(s), and "carry-forward agreement" may be modified as permitted by A-87, subject to paragraphs 7 and 10 below.

3. For FYs 1992-1998, L&I will request that DOL approve: (1) the CAP, billing rate(s), and "carry-forward agreement" submitted by L&I; (2) the proposed methodology (as described in the attached Methodology Description) that was used to arrive at the figures included in the "Totals" column of the attached "cost summary schedule" for FYs 1992-1996 as representing an equitable distribution of costs charged to the Federal vocational rehabilitation programs administered by L&I/OVR, per A-87; and (3) the carrying forward of the disallowed costs of $2,163,762 for FYs 1992-1996 into the CAP approved for FYs 1999-2001. The total adjustment for the disallowed costs of $2,163,762 presented in the "cost summary schedule" attached to this agreement, must be made in FYs 1999 and 2000. Unallowable costs identified in FYs 1997 and 1998 will be adjusted in subsequent years. If approved, this action will represent DOL's retroactive approval of a CAP for FYs 1992-1998. For FYs 1997 and 1998, L&I agrees that "depreciation" and "use allowance costs" will be accounted for in a manner consistent with the attached "cost summary schedule."

4. L&I will request DOL to approve the "carry-forward agreement" to be in effect in FYs 1999, 2000, and 2001, as part of this new CAP, for the purpose of adjusting all cumulative unallowable or excess costs charged to the vocational rehabilitation (VR) grants awarded to OVR in FYs 1992-1998. Unallowable costs identified in FYs 1997 and 1998 will be adjusted in subsequent years.

5. L&I will request that the calculation of the excess costs referred to in paragraph 4 above be based on the "cost summary schedule" attached to this agreement and any further audit work or adjustments performed under the Single Audit Act or any other authority that requires or permits audits of HGAC for FY 1997 and 1998.

6. DOL will review and, through negotiations, determine whether or not to approve the CAP, billing rate(s), and "carry-forward agreement" submitted by L&I. As stated in paragraph I above, ED will provide DOL and L&I with technical assistance for the review and approval of L&I's CAP, billing rate(s), and "carry-forward agreement."

7. If L&I decides not to submit its CAP, billing rate(s), and "carry-forward agreement" in any particular fiscal year or if DOL does not approve L&I's CAP, billing rate(s), and "carry-forward agreement" in any particular fiscal year, L&I agrees to repay to ED within 60 days of either of these events all monies not yet repaid pursuant to paragraph 4 above.

8. Beginning with the Single Audit report and HGAC audit report for FY 1997, DOL (as the currently designated Federal cognizant agency for L&I) agrees to be responsible for resolving all future audit findings related to HGAC's implementation of the CAP, billing rate(s), and "carry-forward agreement" submitted by L&I. ED will continue to be the cognizant agency for resolution of HGAC findings that involve ED funds but that are not related to the implementation of the CAP, billing rate(s), and "carry-forward agreement" submitted by L&I.

9. L&I and ED agree that any adjustments based on expenditures made with funds from HGAC's contingency accounts made pursuant to the "carry-forward agreement" referred to in paragraphs 4, 6 and 7 above will not be included in the State's maintenance of effort or non-Federal matching requirement calculations. Further, L&I agrees that it will otherwise continue to meet the MOE and matching requirements.

10. In the event L&I decides not to submit a proposed CAP, billing rate(s), and "carry-forward agreement" to DOL, or DOL decides not to review or not to approve L&I's CAP, billing rate(s), and "carry-forward agreement," and ED's attached "cost summary schedule" and "Methodology Description,"' by, L&I and ED agree that this proposed agreement will be null and void and that the claims made in the PDLs issued by ED will be resolved pursuant to the procedures governing the appeals filed by L&I unless the parties can resolve these claims through good-faith negotiations.

11. Upon DOL's approval of L&I's CAP, billing rate(s), and "carry-forward agreement," and ED's attached "cost summary schedule" and "Methodology Description," ED will file a motion to reduce its claims made in the three PDLs identified above from $3,190,151 to $2,163,762, and L&I will file motions to dismiss the three appeals it has filed with the Office of Administrative Law Judges.

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