GAB Decision 031
January 7, 1977 East Central University; Docket No. 31 Kelly, Bernard;
Malone, Thomas Mason, Malcolm
The grantee, East Central University (formerly East Central State
College), held an Office of Economic Opportunity award for an Upward
Bound project running from March 30, 1969 through June 30, 1970. This
was the fourth program period of the project. Effective July 1, 1969,
the administration of Upward Bound was transferred by statute from OEO
to the Office of Education in the Department of Health, Education, and
Welfare. Grants already made continued in effect and continued to be
governed by OEO grant terms and conditions and OEO grant issuances.
Since this case is concerned with the period during which the OEO rules
were applicable to these Upward Bound grants, we shall use OEO
terminology in discussing them rather then current HEW terminology which
is not altogether the same.
In June, 1970, HEW made an Upward Bound grant for the 1970-71 fiscal
year but retroactive to June 1, 1970 to permit expenses in preparation
for that program, thus overlapping by one month the OEO grant. During
that one-month overlap grantee incurred expenses of $4,650.25 in
preparation for the new HEW grant, in part during the early part of the
month when the HEW grant was reasonably expected and in part during the
latter part of the month after the HEW grant had been made but when
funding was not yet available. Because of the unavailability of HEW
funds, grantee utilized available OEO funds. In incurring these
expenditures grantee acted prudently, in the best interests of the
program, and in good faith. The expenses were authorized expenditures
under the OEO grant.
Grantee's external auditor flagged these expenses as applicable to
the 1970-1971 program year and suggested that guidance be obtained on
how to handle them. The grantee responded that these expenses had been
incurred using funds left in one year's program to begin the next year's
program consistently with the OEO rules and practice. It was informed,
however, that HEW had not adopted the carry-over principle for Upward
Bound and grantee agreed for the future not to engage in carry-over.
The Director, Higher Education, Region VI, then recommended allowance of
the questioned expenses (August 28, 1972).
Two years later, the Regional Commissioner advised that that
recommendation had been rejected on the ground that an impermissible
carry-over was involved (October 29, 1974). That decision was appealed
to this Board. We sustain the appeal.
The parties were furnished an outline of the facts as they were
gathered from the Board's file and reference to legal considerations
which appeared to govern the OEO grant and were invited to correct that
summary of facts, to comment on the legal principles involved and to
brief any issue in the case. Both parties have responded. In one
respect the Board's summary of facts was in error and has been corrected
by the additional information furnished by the parties. That relates to
the effective date of the first HEW Upward Bound grant to this grantee
which the Board's summary took to be July 1, 1970. Instead, the HEW
award was made June 12, effective June 15 but allowing expenses
retroactive from June 1, 1970. Funding, however, was not available
under the HEW award prior to July 1, 1970.
The Upward Bound Program
Begun on a national basis in June 1966, Upward Bound programs were
supported by OEO.Upward Bound is a precollege preparatory program
designed to generate the skills and motivation necessary for success in
education beyond high school among young people from low-income
backgrounds and inadequate secondary school preparation. The typical
Upward Bound program was offered by an educational institution combining
secondary school and college teachers as faculty, making use of the
physical facilities of a college campus for the students, and utilizing
the experience and energies of college and university students as
tutors. (OEO, Upward Bound Guidelines 1968-1969 p.1; HEW, Application
Information and Program Manual, Talent Search, Upward Bound, Special
Services, November 1971, p.32).
The OEO Program Year Concept
In 1966, OEO developed and established a grant concept based upon
HEW's multi-year project approval concept but having certain significant
differences. This concept applied to all grants awarded under all
Sections of Title II-A (and Section 311) of the Economic Opportunity Act
of 1964, as amended, and specifically to grants under Section 205 under
which the Upward Bound program was established.
Under the program year concept, a grant is defined as the Federal
funds provided to the grantee for a single statutory objective
represented by separate authorizing provisions of the statute. The
central novelty of the program year concept was that such funds were
awarded for an indefinite period of time and with the expectation that
funds not expended in the year of award would normally be carried over
into the following year. For administrative control purposes, annual
reports and approvals of expenditures were called for, but the funds
were not awarded for a limited time period. This distinctive grant
concept was part of the OEO financial policies and procedures which
received GAO approval after review. B-166004, October 31, 1969.
One consequence of this concept is that there was a built-in
expectation of renewal of approval and carry-over to the activities of
the next year. Another, and for the purposes of this case more
important, consequence was that, during the term of the initial
approval, expenditures anticipating renewal (in the absence of clear
notice to the contrary) are approved expenditures. This is quite
different from carry-over.
In the case of Upward Bound, preparatory expenses were so clearly
called for that OEO often made overlapping 15 month awards to provide
for a summer and academic year project together with the preceding
period of recruitment and preparation. Any funds left over towards the
end of an academic year project could properly be applied, before the
program year was up, to preparation for the next summer's activities
without carry-over or, with approval which would normally be
forthcoming, could be applied by way of carry-over to the next summer's
activities even after the program year had ended.
As a result of these arrangements, there were often multiple sources
from which funds could be derived for a particular cost item. OEO
required that funds be withdrawn on a "first in, first out" basis
(e.g.
Community Action Memo No. 20, January 28, 1966, p.6).
The Transfer of Upward Bound From OEO to HEW
Section 105(c)(1) of the Higher Education Amendments of 1968, P.L.
90-575, terminated the authority of the Director of the Office of
Economic Opportunity with respect to Upward Bound programs and
transferred the functions of the Director to the Commissioner of
Education effective July 1, 1969. Consistent with the Congressional
intent that this transfer be made smoothly, the Commissioner
administered Upward Bound awards made by OEO prior to the July 1, 1969
transfer under the OEO rules (45 CFR Part 155, preamble, 35 Federal
Register 7256-7, May 8, 1960).
After July 1, 1969, the Office of Education was authorized to make
its own Upward Bound grants. HEW regulations governing its own awards
were not published until May 1970 and HEW apparently made its first such
grants in June 1970, as is the case here. These grants, like OEO's
grants, recognized the need for prepatory expenditures and thus
overlapped awards than outstanding. However, where OEO provided a
three-month overlap, making its award for the summer and academic year
in the previous March, HEW provided only a one-month overlap, making its
award effective June 1.
The HEW Upward Bound program was not a new program but a continuation
in new hands of the OEO program, as is unmistakeable when the successive
editions of the OEO guidelines published before the transfer are
compared with the successive editions of the HEW guidelines published
after the transfer. See for example those cited supra p.2.
Although conscientious efforts were made to achieve a smooth
transition, this may not have been wholly successful. Grantee's
submission contains the assertion, which appears consistent with the
history of the transfer:
"There was complete chaos in obtaining any information and assistance
or direction with OEO disbanding and HEW/OE just beginning to tool up to
take over. Staff of OEO was quitting to find new jobs and new personnel
in OE were unfamiliar with the operations of the program."
The Grantee is Punished for Behaving Responsibly and Legally
In June 1970, prior to the expiration of its year-D OEO grant (award
effective March 30, 1969 for the summer of 1969 and the academic year
1969-1970), grantee incurred expenses in preparation for the expected
summer project of 1970 and academic year activities 1970-1971 (year-E).
Award was made by HEW for these activities June 12, but funding was not
yet available.
Grantee had conducted its Upward Bound program for four successive
years with evident success. The expenses facing it for the new year's
activity were such as were plainly called for by responsible management:
Renewal of an accident insurance policy normally renewed on June 12 of
each year (as to this item, the Regional Office was agreed that it would
approve a prorating which would in effect allow the expense);
equipment, school supplies, and testing materials required for the
beginning of the summer program; medical expenses for a student
arriving for the summer program; stipends for students arriving on the
campus for the summer; and cultural activities expenses such as get
acquainted parties for the first week of the program. All of these
related to the oncoming project but were valid expenses under the OEO
grant and under the OEO grant rules. The OEO year-D grant was the
appropriate first source for such expenses. As a practical matter, the
OEO grant was the only source for payment of such expenses, since, when
they were incurred, HEW funding was not yet available even though,
during the course of June, an award was made.
One item of expense challenged involved travel expenses initially
described as partially related to obtaining release of the year-E
funding but later described by grantee in a correcting submission as
wholly related to year-D program concerns. The Regional Commissioner
was invited to respond to the most recent statement by the grantee. His
response does not challenge the correctness of grantee's factual
contention but refers to his previous determination made on the basis of
grantee's original statement of facts. As we have seen the Regional
Office's original determination is not acceptable and its present
position that "this office still maintains that the travel in question
is an unallowable grant expense and should be disallowed" is wholly
unsupported except perhaps by an implication that the travel
justification is too vague in its terms. If that is the meaning of the
Regional Office's position, it has had several opportunities to request
and obtain more precision including in connection with our latest
invitation to comment.
We note, however, that under applicable OEO rules (CAP Memo 53-A,
February 5, 1968; cf. OEO Instruction 6910-1, August 12, 1969, Sec.
4), the trip required advance approval. Grantee has not asserted that
it requested or obtained such approval, and since, if it had it, this
would have been a strong argument in its favor, we may assume that it
did not have it. In view of the clear probabilities involved, it would
be a disproportionate expenditure of time and effort on the part of the
parties as well as of the Board to engage in a further round of briefing
on this narrow issue. Accordingly, we decide against the grantee on the
travel issue. If, contrary to our assumption, grantee does have written
permission for the trip, it may furnish a copy within 20 day and request
reconsideration.
If any of these expenses had been incurred in July, 1970, we would
have a question of carry-over. Even that should be approved under OEO
principles applicable to the OEO grant. But the question of carry-over
does not even arise here, for the expenses were incurred during the OEO
program year ending June 30, 1970; they were (apart from the travel
expenses) appropriate expenses under the grant even though they were
incurred in anticipation of the next program year, and they were
properly charged to the OEO grant which remained subject to OEO
principles.
CONCLUSION
The determination appealed from treats the expenses involved as
impermissible carry-over. The grantee was governed for the program year
in question by OEO grant rules which contrary to the decision appealed
from, did indeed permit carry-over. In fact, as noted above, the
expenses were incurred for purposes consonant with the OEO grant and
within the term of the OEO grant; thus no carry-over was in fact
involved.
The disallowance is reversed and the appeal is sustained except with
respect to the item of $434.40 of travel costs.
OCTOBER 04, 1983