GAB Decision 37
May 10, 1977 Educational Service District No. 104, Ephrata, Washington;
Docket No. 76-11 Clarke, Staurt; Malone, Thomas Wilner, Irving
Educational Service District No. 104, Grantee, appeals from a
determination of the Director, Grant and Procurement Management
Division, Office of Education ("Director"), disallowing an expenditure
and demanding a refund.
In 1971, Grantee was awarded an initial grant for the period of 3/
26/1971 to 6/25/71 for the development of a Bilingual Education Program
under Title VII of the Elementary and Secondary Education Act of 1965
(20 USC 880b). This phase I grant was followed by an award of an
operating grant for the period of 7/7/1971 to 6/30/1972. The item
disallowed represents an expenditure in the amount of $2,500 charged to
the grant for the 1971-2 funding period as a salary allocation to the
school superintendent of the grantee district in anticipation that the
size and complexity of the Bilingual Program would cause a substantial
amount of extra work for the superintendent. It is alleged that such
work was in fact performed.
As ground for disallowing the expenditure, the Director cites
grantee's failure to mention remuneration for the superintendent in the
original project proposals or budgets in connection with the phase I or
phase II grant applications; that the grant award was not amended to
show such remuneration; that the documentation submitted by the grantee
does not adequately justify a charge of $2,500 and that, in any event,
the superintendent would be expected, by virtue of her position, to
spend a certain amount of time in connection with the bilingual
education project as with any other project of educational concern to
the school district.
(2) In support of the appeal grantee points out that in addition to
the Office of Education grant, its Bilingual Project was also, during
1971-2, the beneficiary of a Head Start grant, for a total in excess of
$217,000, constituting 34% of the entire operating budget of the school
district for that year and that the sum of $2,500 cost for salary
allocation is only somewhat in excess of 1% of the total of the combined
grants. Such a rate, it is contended, would have been considered
"extremely reasonable" had indirect costs been allowed.
Grantee did not have an established indirect cost rate or base during
the pertinent period.
We see no merit in grantee's argument. Its position does not consist
with the concept or function of budget in the grants field, generally,
and as specifically exemplified in section li of the Grant Terms and
Conditions attached to the grant herein in terms of ". . . amount of
funds approved by the Office of Education for designated services . . ."
(emphasis added). The Notification of Grant Award for phase I, the
initial project development grant, put grantee on notice that fund
support for phase II of the Bilingual Education Program (the funding for
1971-2) would be awarded only after submission and approval of an
acceptable proposal for operation and budget.
In view of grantee's assertion that it had anticipated the need of
extra work by its superintendent by reason of the addition of the
Bilingual Program to its other activities, it is remarkable that the
breakdown of the functional classifications in grantee's proposed phase
II grant does not in any way refer to the superintendent. Grantee's
argument for the allowability of the $2,500 for allocation of salary on
the basis of a percentage formula might be appropriate to a
consideration of indirect cost, a non-existing context in view of the
admitted fact that no indirect rate or base had been established for the
1971-2 period. Nor are we provided with any evidentiary basis for
determining whether a salary allocation in an amount exceeding 1% of the
total project funding is "extremely" reasonable, or even reasonable.
Especially is this true in the face of a total absence of data in the
appeal file concerning the superintendent's overall remuneration for
official services, and the proportion of time, out of the total, devoted
to the grant project during the relevant period.
(3) A further infirmity in grantee's position is demonstrated by its
Response to the Audit Findings. That document contains an outline of
meetings and conferences in which the Superintendent participated and a
listing of telephone calls, some of which are unidentified, made by her
in furtherance of the Bilingual Education Program. But an examination
of that document reveals that a substantial part of the enumerated
services related to the Head Start, rather than to the Office of
Education Grant. 45 CFR, Part 100, App. B, provides that salaries of
employees chargeable to more than one grant program should be supported
by appropriate time distribution records.
In addition to the evidentiary and procedural reasons which militate
against grantee's position, it appears to us that the expenditure
considered herein does not qualify as an inherently allowable cost item.
Section 4.b of the Grant Terms and Conditions prescribes that
allowability of costs incurred under this grant shall be determined by
principles set forth in referenced documents including Chapter 5-60 of
the Department of Health, Education and Welfare Grants Administration
Manual (also identified as Circular A-87, promulgated May 8, 1968.)
Attachment A, B.9 to this Circular, defines a local unit (of Government)
as meaning "Any political subdivision of Government, below State level".
Attachment B, D.6 thereto provides: "The salaries of . . . the chief
executive of a political subdivision are considered a cost of general
State or local government and are unallowable."
A superintendent of schools in a district like Grantee herein is, of
course, its chief executive officer, and the generality of the
regulatory definition affords no occasion for doubting the status of the
appellant as a local unit of Government. This would seem to be
especially true with regard to an Educational Service District which
normally possesses considerable attributes of political autonomy.
The Office of Education Regulation 45 CFR 100c brings Title VII of
the Elementary and Secondary Education Act of 1965 (20 USC 880d) under
which the grant herein was made, within the purview of #100c.2(3) which
provides: "Expenditures for the Board of Education or other governing
body of the school district for the compensation of the chief
administrative officer of the school district are not to be included as
administrative charges for the purpose of this paragraph and are not to
be charged to the Federal program involved on an indirect or direct cost
basis."
(4) While it is true that the last cited Regulation was not
promulgated before November 6, 1973, a date subsequent to the occurrence
of the transaction considered herein and, therefore, not binding of its
own force, it possesses a relevance in the premises by virtue of its
consistency in contents as well as language, with the relevant
provisions of Circular A-87 referred to among the terms and conditions
of this grant.
Provisions fully in accord with the foregoing are found in
Regulations 45 CFR 74.3, which defines a school district as a local unit
of Government and in Appendix C, Part I B.9, and Part II, 6 thereto.
Allowing for the fact that these Regulations have not been formally
adopted by the Office of Education, it is obvious that they are in pari
materia with the analogous OE Regulations in Part 100c, and that they
clearly reinforce the policy relating to the treatment of salaries of
chief executive officers of school districts as allowable costs.
For the reasons stated, we affirm the determination of disallowance
and refund of the sum of $2,500.
MARCH 19, 1985