BOISE - An official with the U.S. Department of Health and Human Services says an Idaho agency spent $2.5 million in leftover welfare funding correctly, contrary to the findings of a state audit.

Idaho's Legislative Services Office released an audit last week that examined how state agencies spent federal money. In the report, the auditors concluded that the Idaho Department of Health and Welfare wrongly used the money left over from the 2008 budget for Temporary Assistance for Needy Families to cover salaries instead of using it to help pay for food, housing and other assistance.

But department officials contested the auditors' finding, saying that federal rules changed at the start of fiscal year 2009 to allow states to spend leftover funds on all services that help keep needy families together - including the costs of providing those services, like salaries. The department used the money to cover part of the salaries of social workers who focused on keeping the state's poorest children out of foster care by placing them with extended family members when their parents could not care for them.

After the audit was released, state welfare officials sought guidance from the federal agency to see if they'd done the right thing.

Yes, said Karen Code in an email sent to the state Friday.

Code, a financial operations specialist for the U.S. Department of Health and Human Services' federal grant region that includes Idaho, said the rule change lifted the spending restrictions on carry-over money, including carry-over funds from 2008.

"We also want to make it very clear that no public assistance benefits were withheld and no money was diverted from benefits for the poor," Tom Shanahan, a spokesman for the Idaho Department of Health and Welfare, said Friday. "We fully covered all eligible people and used the money remaining to provide social work services to struggling families, which is a high priority for the TANF program."

In Idaho, Temporary Assistance to Needy Families money is typically used to provide a $309 monthly cash payment to families with incomes below 32 percent of the federal poverty level. That means that they must have a monthly income of less than $309, Shanahan said, and any monthly income they receive is subtracted from the $309 payment.

Idaho currently averages about 2,900 people on the program a month. The $309-per-month payment is set by state law and can't be changed by department officials.

April Renfro, the manager of the Legislative Audits Division, said Wednesday that her office believes the leftover money could only be spent on direct benefits under the rules in place when the money was received by the state.

The division audits the spending based on federal requirements supplied by the federal Office of Management and Budget, she said.

Renfro couldn't be immediately reached late Friday afternoon.

Shanahan said the rule change on carry-over money was one of hundreds included in the American Recovery and Reinvestment Act. He said it could be easy to miss in the thousands of pages of federal documents detailing the act.