DAB Decision 23
June 29, 1976 San Antonio Independent School District, Docket No. 28;
Grant No. ESA-OE-6-73-0976; Audit Control No. 06-40101; Decision No.
23 Dukes, David V.; Malone, Thomas Yourman, Edwin H.
DECISION
The San Antonio Independent School District appeals three audit
disallowances under an Emergency School Aid Act (ESAA) basic grant and
one disallowance for equipment acquired under a prior Emergency School
Assistance Program (ESAP) grant. The audit reviewed activities of the
ESAA basic grant from July 1, 1973, through October 31, 1973. The grant
itself was for the full fiscal year ending June 30, 1974.
Our Statement Narrowing Issues was issued on April 14, 1976. It
informed the parties that the record at that time failed to show a
dispute of material facts and further advised of our intent to proceed
on the basis of written briefs which we invited the parties to submit.
Both parties have submitted materials and this matter is now ready for
decision.
1. Use of ESAA Grant to Supplant Local Funds.
During the fiscal year ending June 30, 1973, the grantee maintained a
staff of some 50 employees to handle fiscal matters relating to school
district activities. Due to enrollment declines and a reduction in an
ESAP grant, the grantee claims it budgeted for only 45 such staff for
the following fiscal year. After the $800,000 ESAA grant, with which we
are concerned here, was approved, the five otherwise surplus employees
were retained to service it. In the prior year the salaries and related
costs of three of these five had been paid entirely from local funds and
local funds paid 75% of the costs of the other two, the remaining costs
for these two having been paid from the ESAP grant for that prior year.
The grantee charged the full salaries of all five employees to the ESAA
grant during the period under audit.
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The auditor disallowed all the costs for the five employees, except for
the proportion equivalent to that which ESAP funds had defrayed for two
of the employees in the prior fiscal year. The bases of the auditor's
disallowance were grantee's failure to comply with his assurance that
the grant would be used only for additional costs of the program, the
rule against use of the grant to supplant local funds and the rule which
denies use of grant funds for the costs of an activity supported with
funds from other sources during the fiscal year preceding that for which
assistance is sought, unless funds from the other source were reduced
other than by action of the grantee.
Apparently the auditor reasoned that the portion of the costs for these
employees which was paid from the ESAP grant the previous year was no
longer available so it could be picked up by the ESAA grant. That
portion of the costs amounting to 25% of the costs for two employees,
was allowed and is not involved in this appeal.
The disallowance was $9,416. through October 31, 1973, the closing date
of the audit. The auditor estimated that $26,806. should be disallowed
for the full grant period in the absence of "corrective action" being
taken by the grantee.
The grantee's "corrective action" was to make a retroactive adjustment
in its records in December 1973, so that amounts initially charged to
local funds the prior year were shown as charged to grants under Title I
of the Elementary and Secondary Education Act. The grantee then
maintained with apparent seriousness that as a result of this change its
costs were not paid from local funds prior to July 1, 1973.
Even if the change were recognized, it would not resolve the problem
because the Title I funds were also from a source other than ESAA. Our
Statement Narrowing Issues invited a response on that point but the
grantee failed to mention it. Of greater significance, however, the
grantee's position ignores the clear purpose of the rules applied by the
auditor. Those rules seek to carry out a Congressional directive that
the ESAA grant be used only for activities which the grantee otherwise
could not provide. To the extent that expenditures in the prior fiscal
year were significant in this respect, that significance could not be
diminished in the slightest by a bookkeeping transfer six months after
the close of the fiscal year. We, therefore, give no recognition to the
retroactive bookkeeping transaction.
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The grantee's other argument on this item has more merit. It is that the
five employees did not provide services in the prior period for any ESAA
activity, there having been no ESAA grant in the prior year, and,
therefore, the costs were for activities above those previously provided
by the grantee.
The provisions intended to prevent use of an ESAA grant to fund
activities which could be supported from other sources use as an
important test whether in fact the activities previously had been
supported from other sources. In that event the burden would be on the
grantee to show continued unavailability of the other support. In this
respect the ESAA regulations are considerably more strict than those
applicable to ESAP, which were the subject of this Board's Decision No.
17 of May 28, 1976, concerning St. Landry Parish School Board, Docket
No. 75-4. In ESAA, in addition to a requirement that the grant
supplement and not supplant non-federal funds (45 CFR 185.13(g)) and
that the grantee maintain its own efforts (185.13(i)), each grantee must
assure the unavailability of non-Federal funds (185.13(c)) and further
assure that the grant funds will be used solely to pay additional costs
in carrying out the activities of the project and that the requested
grant represents such additional cost (185.13(a)).
A test even more specific for this case is regulation section 185.13(a)
(2) which provides that the cost of an activity supported by an
applicant with funds from other sources during the prior fiscal year may
not be considered as an additional cost to the applicant unless the
funds from the other sources have been reduced other than by action of
the applicant.
There is no claim that the local funds used for the cost of the
employees in question have been reduced by other than grantee's action.
The question is more basic: Was the fiscal service in the prior year an
activity of the ESAA grant? Reading the entire regulation in context it
could be argued that whatever function the grantee performed the prior
year which could be used in the succeeding year to support the project,
cannot be charged to the grant unless the prior year support has been
reduced by other than the grantee's action. Such an argument is more
compelling, however, if the activity is one which has substantive
program content. For example, if the grantee maintained a special
counseling activity during the prior year for students affected by
desegregation, the cost of that activity could not be met from the ESAA
granting the succeeding year when it became incorporated into the
project The fiscal activity involved here, however, is an administrative
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or auxiliary service. When the personnel involved were keeping fiscal
records the prior year, their activities had no necessary connection
with any service which would be rendered to students under the ESAA
grant the following year. We thus distinguish between continuing an
activity which can stand on its own as a project activity and one which
is not inherently an ESAA activity (e.g., keeping fiscal records) but
can be supported only because the activity is auxiliary to other ESAA
services (e.g., keeping records related to ESAA expenditures). As
indicated, in the St. Landry Parish decision, supra, the requirement
that the grant be used to supplement and not supplant other funds is not
applicable to a disallowance such as this because one cannot say here
that the grantee would have spent any of this money for anything that
would qualify as an ESAA activity in the absence of the ESAA grant. Had
there been no such grant there would have been no need of fiscal records
which an ESAA grant may appropriately support.
The provision of 45 CFR 185.13(c) which requires the grantee to assure
that it is "not reasonably able" to provide the ESAA assistance from
non-federal sources is more properly applied in determining eligibility
for the grant. It cannot be applied to the audit exception since we do
not know what the grantee's fiscal ability was? in the year covered
by?the grant. /1/ Accordingly, the expenditures discussed under this
heading should be allowed.
2. Allocation of Special Programs Section Costs.
The Special Programs Section of the grantee furnished certain
administrative services for all of the grantee's 17 federally assisted
programs which in fiscal year 1974 were budgeted at more than six
million dollars. ESAA grants constituted about 13% of these funds but
89% of the total Special
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Programs salaries were charged directly to the ESAA grants. Also all
telephone expenses were charged directly to ESAA grants, including a
number of long distance calls to the Texas Education Agency which has no
jurisdiction over such grants.
The Assistant Director for the Special Programs Section told the
auditors that the staff devoted about 30% of its time to basic ESAA
grants, 10% to bilingual ESAA grants and 5% to metropolitan ESAA grants.
The remaining 55% of time was spent on other types of grants. Since the
audit covered only ESAA basic grants, the findings allowed 30% of the
section's expenditures. This constituted an allowance of $15,150 which
is a reduction of $29,650 of the amount of the ESAA basic grant budgeted
for such purpose.
The grantee points out that it has numerous employees other than those
in the Special Programs Section engaged in grant administration and that
rather than fund portions of salaries of many who spent part of their
time administering the ESAA basic grant, it selected the salaries of the
four Section employees as providing an amount which represented the cost
to the grantee of the various administrative services provided for that
grant. This simplified record keeping and time reporting. The grantee
asserts this method "has been accepted by other auditors of various
federal programs." It cites no policy in support of such a method
although our Statement Narrowing Issues requested that it do so.
The Regional Commissioner points out that number five of the terms and
conditions applicable to ESAA grants as published in 38 CFR 3468 of
February 6, 1973, requires the grantee to keep records relating to the
expenditures of the grant funds "including all accounting records and
related original and supporting documents that substantiate direct and
indirect costs charged to the grant." /2/
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The auditor and the Regional Commissioner have applied this provision
favorably to the grantee by accepting its estimate that 30% of time was
spent in connection with the basic ESAA grant under audit and the
disallowance was for costs charged in excess of that percentage. The
terms and conditions referred to above might have supported a
disallowance of the entire amount for failure to have supporting
information as to the amount applicable to the basic ESAA grant.
The grantee lists expenses totaling $45,131.20 which it attributes to
the ESAA basic grant and which is more than the $44,800 claimed for that
purpose. Moreover, it asserts that an estimated $465,324 of expenses
are incurred in administering the Federal grants, excluding direct
secretarial and clerical employees, and that the share attributable to
the grant under audit is 12.7% for a total cost of $59,200.
In effect the grantee says that while its records overstated the share
of the Special Programs Section costs which could be attributed to ESAA
activities, consideration should be given to other services performed
for the ESAA project which were never recorded as a charge to that
grant. To do so would be completely out of harmony with the condition
cited above requiring that records and supporting documents be kept for
charges to the Federal grant. The condition is intended to carry out
the expectation of Congress for documentation of expenditures as
expressed in Section 434(a) of the General Education Provisions Act, 20
U.S.C. 1232c (a) (I). We, therefore, sustain the disallowance of excess
charges of the Special Programs Section and the denial of consideration
of the cost of other units which were not charged to the ESAA project
even though they might have provided support for it. /3/
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3. Costs of preparation of "Follow-on" Proposals.
This item involves the claim that employees whose salaries were totally
charged to the grant spent a part of their time in preparing "follow-on"
proposals for later grants, an activity which may not be charged to the
current grant. The auditor reported that the Special Programs Section
Assistant Director estimated the time involved was between 75 and 125
personnel days so the US/OE Regional Commissioner requested an
adjustment of $12,500, representing 125 personnel days at an estimated
$100 per day. The grantee challenged this computation saying that "this
proposal" was prepared by Dr. Paul Kantz, Associate Superintendent,
whose salary came from local funds, based partially on information
developed from the prior ESAA and ESAP grants.
The grantee also challenged the auditor's assertion that the grantee's
official had estimated 75 to 125 personnel days for preparation of the
follow-on. It submitted a letter from the official who stated that the
inquiry came by telephone. He understood it was a survey of the time
spent by large school districts for this purpose and he gave a spur of
the moment guess, including time spent by various personnel from whom
data are obtained, regardless of the source of funds which pay their
salaries. He did not intend to imply that all of this was Special
Programs section tine.
After receipt of our Statement Narrowing Issues the grantee asserted
that at the time of the audit the only follow-on proposal possibly
involved was for the year 1973-1974 which was submitted in the Spring of
1973 and, therefore, the ESAA grant which did not commence until July 1,
1973 could not have been used. The grantee stated also that all
proposals involved were prepared by an Assistant Superintendent and his
secretary, whose costs were paid with local funds.
Although the Regional Commissioner was given an opportunity to respond
to these assertions, he has not done so. We must treat the
Superintendent's statement as the equivalent of one under oath since it
is made under a similar penalty for falsification involving, as it does,
a claim for Federal funds. 18 U.S.C. 1001. On this basis, and in the
absence of contrary
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information from the Regional Commissioner, the record fails to support
a use of personnel whose costs were charged to the grant for preparation
of a follow-on proposal. The questioned expenditure under this heading
should therefore be allowed.
4. Equipment Acquired Under an Emergency School Aid Program Grant
(ESAP) But Not Used for Program Purposes.
Unlike the preceding adjustments, this involves expenditures of funds
from an ESAP grant. The grantee acquired various items of photographic
and sound equipment which the grantee asserts were intended for the
community information program under ESAP grant No. OEG-6-71-0340. This
grant ran from the period October 19, 1970, through September 4, 1971,
with an automatic extension of three months if the activities could be
concluded during that period. The equipment was purchased because the
grantee thought the program would be continued at substantially the same
level for succeeding periods but in fact the succeeding grant was
reduced by 90%. Thereupon the grantee stored the equipment and later
transferred it to other uses. Apparently, at least part of the later
use was for vocational instruction under another Federally assisted
program. It is not clear to what extent any of the equipment was ever
used in the ESAP program. It is clear that at least the $6,346.81 editor
listed below was never so used.
The grantee disagrees with the auditor's listing and submits invoices
which reflect the following:
Price After Any Invoice
Date Description Discounts Shown 3/30/71
Auricon camera, etc. $1,915.65 3/23/71 Light meter,
tripod 396.30 5/6/71 Ang. zoom & misc. equip.
3,630.44 4/1/71 Splicer and mike 584.57
4/30/71 Mike and equip. 420.17 10/28/71
Stenbeck Editor 6,346.01 $13,293.94
The audit report indicated that an adjustment should be made for the
value of the property as diverted from program activities and the
grantee thereupon undertook to fix a value by obtaining three bids on
the equipment, all dated April 23, 1974. Two were for zero and one for
a total of $950. The
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grantee offered to make an adjustment of $950 or to return the equipment
for disposition by the Government /4/
The US/OE Regional Commissioner took the position that the adjustment
should be in the amount of the full acquisition cost because "data
indicates the equipment was in use little or not at all in support of
the activity for which it was intended."
The editing equipment listed above constituted almost one-half the cost
of all the equipment. The grantee took steps to obtain editing
equipment as early as November 1970, but it was told delivery would be
delayed. After cancellation of one order, delivery was obtained on
another machine on October 28, 1971. Since the normal expiration date
of the project was September 4, and the delivery was in the three month
period which represented the automatic extension for concluding project
activities, this item clearly was not needed for the project and in fact
was never used for project purposes. We asked the grantee to comment
upon the need for the equipment at the time when it was first
irrevocably committed to consummate the purchase. Since it has not
provided such information, we proceed on the basis that the grantee had
ample opportunity to cancel the order for the editor after it learned
that the contemplated project would not be continued beyond September 4,
1971, except for the three month period of concluding activities. /5/
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The grantee has stated that "some use of the equipment (other than the
editor) was made prior to the cancellation of the project," but fails to
specify the extent of that use. It would appear that the camera and
other production equipment would be of extremely limited use without
availability of editing capability. When the grantee knew that delivery
of an editor would be delayed for an uncertain period, it should have
questioned the desirability of immediately going through with the
purchase of the camera, sound, and related equipment.
Under the circumstances the purchase of the editor clearly was not in
support of the terminating ESAP project. To a lesser degree, the other
equipment also was not in support of the project because of its limited
value without editing equipment.
The terms and conditions applicable to the grant, published at 35 FR
13447 on August 22, 1970, made HEW Grants Administration Manual Chapters
1-410 and 5-60 applicable to this grant. Paragraphs 10 and 40 of Chapter
1-410 required expenditures for equipment to be limited to that
necessary for successful execution of the grant activities and stated
such expenditures must give effect to the function of the equipment in
facilitating the successful execution of the project. Chapter 5-60
incorporated the provisions of OMB Circular A-87 which provided that all
expenditures must be necessary and reasonable for the proper
administration of the project. Since the grantee has failed to come
forward with an explanation of why it was desirable to purchase any of
the equipment in the absence of having editing equipment or why it took
delivery of the editor during the concluding phase of the grant, we hold
that the expenditures for all of the equipment should be disallowed.
/1/ The grantee states that the Office of Education had refused to
allow amounts for fiscal administration in the budget for later fiscal
years. The time of grant approval would seem to be appropriate for such
action through a determination that the grantee was not in need of the
grant funds to defray the cost of the fiscal activity connected with
administration of the ESAA project.
/2/ The Regional Commissioner submitted this provision in response to
footnote 2 of our Statement Narrowing Issues, which noted that we had
not been referred to any applicable regulation on required records. The
grantee had an opportunity to comment on the response of the Regional
Commissioner but did not do so.
/3/ In addition to the grantee's failure to maintain records to
support the other costs as attributable to the ESAA grant, the fact that
the grantee was defraying them from other sources during the year for
which the grant was made would indicate that they should not be charged
to the ESAA project under 45 CFR 185.13(a), (c), and (g) referred to
previously in this decision.
/4/ The bids are not relevant in view of our disposition here. We
express astonishment, however, that the grantee does not seek to assign
a reason for its inability to obtain better bids. The grantee's
representation that equipment (much of which was in such short supply
that delivery required the better part of a year) for which it decided
to expend more than $13,000 of the federal grant, had a value of only
$950 in less than two years, during most of which time it was in
storage, is simply incredible.
/5/ This gives the grantee the benefit of an assumption that it was
warranted initially in planning the purchase of equipment which could be
used only in event of a grant continuation, when there was no tangible
basis-for assuming that the grant would be continued.
May 7, 1992