DAB Decision 51
November 22, 1978 Harrison County Community Action Agency, Inc.
Gulfport, Mississippi; Docket No. 77-10; Decision No. 51 Bernstein,
Bernice L.; Malone, Thomas E. Mason, Malcolm S.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel. Similar official summaries of earlier cases
appear in 45 CFR Part 16, Appendix).
The Assistant Regional Director, Office of Human Development (this
office later became the Office of Human Development Services) disallowed
$29,624 in costs incurred by grantee under a Head Start grant. $20,052
was disallowed as being in excess of authorized costs in a particular
program account and $9,572 was disallowed as a shortage in the required
non-Federal share of costs under the grant. Analysis of the audit
workpapers used by OHD as the basis for its disallowance revealed that
in fact grantee had not incurred any excess expenditures in the program
account in question. When this was pointed out in an Order To Show
Cause , the Agency withdrew its disallowance on this issue.
With respect to the issue of the non-Federal share shortage, OHD agreed
that grantee could use appraisal values of real estate to determine the
in-kind value of space as provided by 45 CFR 74.53(b) (3) rather than a
formula method of calculating which resulted in the shortage. Grantee
provided appraisals by a licensed appraiser that satisfied the
non-Federal share requirement. The Agency then required that grantee s
CPA certify the validity of the appraisals. In its Order To Show Cause,
the Board pointed out that not only was there no regulation that
required CPA certification of professional appraisals but that such
certification would serve no useful purpose due to the basic difference
in function between CPAs and appraisers. OHD subsequently withdrew its
disallowance on that issue as well.
Since no dispute remained on either issue, the Board al?lowed the appeal
in full.
DECISION
Harrison County Community Action Agency, Inc., appealed the March 8,
1977 disallowance by the Assistant Regional Director, Office of Human
Development (OHD; this office later became Office of Human Development
Services). The disallowance of $29,624 in costs under Head Start Grant
H3034 for the program year ended July 31, 1975 was based upon the
results of Audit Number 04-66563. $20,052 was disallowed as being in
excess of authorized costs in the Full-Day Program account and $9,572
was disallowed as a shortage in the required non-Federal share of costs
under the grant.
In an April 8, 1977 letter addressed to the Executive Secretary of the
Board, Grantee requested that the Board consider additional
documentation provided in response to the Agency's disallowance action.
No copy of the disallowance letter was included with Grantee's
submission. In a letter dated April 14, 1977, the Executive Secretary
responded that Grantee must comply with the requirements of 45 CFR 16 in
filing its appeal. Grantee was provided with an extension of time Until
April 22 to file properly and did so within the extended time limit
allowed.
Thereafter, the Board received a response from OHDS and issued an Order
to Show Cause to focus the issues in the case, to invite discussion of
particular concerns of the Panel and to give notice that the Board would
decide the case on the written submissions.
Issue of Non-Federal Share Shortage
In its revised appeal letter dated April 20, 1977, Grantee argued that
the non-Federal share shortage resulted from its use of a formula method
of determining the in-kind value of space rather than appraised value.
Grantee has presented a licensed appraiser's opinion of the fair rental
value of the Head Start buildings in question which discloses that use
of appraisal values would more than satisfy the non-Federal share
requirement. In its response to Grantee s appeal on October 19, 1977,
OHD agreed that appraisal value may be used to determine the fair rental
value of in-kind contributions of space as provided.by 45 CFR
74.53(b)(3). OHD further stated, however, that if Grantee can submit a
statement from its CPA attesting to the validity of the appraisals and
the value thus assigned, the Region will accept such documentation as
being in fulfillment of the non-Federal share requirement.
'(Page 02 - 51 - 11/22/78)'
It was not clear to the Panel why OHD insisted upon a supporting
statement from Grantee's CPA. 45 CFR 74.53(b)(3) provides that the
granting agency may require that the value of real property be
established by an independent appraiser and certified by a responsible
official of the grantee as a pre-condition to allowability for cost
sharing purposes. However, as noted above, Grantee has already provided
the statement of a licensed appraiser (appeal letter, attachment H). In
view of the basic difference in function between CPAs and real estate
appraisers, it did not seem as if any valid purpose would be served in
requesting a CPA to certify the validity of a professional appraisal.
Accordingly, in an Order to Show Cause dated June 30, 1978, the Panel
directed OHD to give the basis upon which it required certification by
Grantee' s accountants of the appraisal values supplied by the
professional appraiser and to indicate what purpose would be served by
such certification.
OHD's response on this issue, dated August 14, 1978, was not responsive
to the Panel's question and in fact did not appear consistent with the
position stated in OHD's October 19, 1977 submission above described.
The OHD response to the Order to Show Cause stated:
"Based on the evidence submitted by the grantee's accounting firm,
vindicating the previous undocumented non-Federal share, the
Regional Office has accepted such documents defining $44,488 of
the $54,060 originally disallowed. However, there remains a
shortage of $9,572. If the grantee has in fact secured a licensed
appraisal's opinion of the fair rental value of the Head Start
cite in question, which would more than satisfy the Non-Federal
Share requirements, OHFS would accept such documents."
Grantee did in fact provide a licensed appraiser's opinion of the fair
rental value of the Head Start buildings which satisfies the non-Federal
share requirement. OHD acknowledged this in its October 19, 1977
submission. OHD although invited to do so, failed to provide
justification for its going beyond the requirements of the regulation,
and demanding that Grantee's CPA certify the validity of the appraisals.
In an addendum dated 9-8-78 to its response to the Chairman's June 30,
1978 Show Cause Order, OHD informed the Board that it was removing its
disallowance on this item.
Issue of Expenditures in Excess of Authorized Costs
The remaining issues deal with the $20,072 expenditure in the Full-Day
program account. The Region apparently based its disallowance on a
report of an audit conducted by the Public Accounting firm of Moore and
Powell which questioned $20,072 as being in excess of authorized costs
within that program account. However, the auditor's figures were based
upon an assumption that a budget revision dated July 31, 1975
reprogramming funds from the Full-Day program account into the Part-Day
Program account had been or would be approved, as required by Section V
of DHEW Publication Instructions for Completing an Application for Head
Start Grants (5-8-77 letter from Moore and Powell to Grantee). That
budget revision never received
'(Page 03 - 51 - 11/22/78)'
approval by the Regional Office. Therefore, based upon the last approved
budget submitted by Grantee, funds in the Full-Day program account were
sufficient to cover the expenditures in that account and in fact
resulted in an unobligated program account balance of over $3000. OHD's
response to Grantee's appeal seemed to reveal a basic misunderstanding
of the situation by the Agency. The memorandum stated, in part:
"It would appear that an appeal based on the fact that a 608-T
requesting permission to amend the budget, would not be sufficient
basis to reverse the decision disallowing this overexpenditure of
$20,072 ... Put another way, approval by the Regional Office could
not affect actual costs, since all costs relating to the grant
would have already been incurred or obligated prior to July 31,
1975... Lack of approval notwithstanding, the grantee exceeded his
budget... The evidence suggests that the Grantee had already taken
actions which resulted in costs over the budget..." (October 19,
1977 memorandum from the Acting Regional Administrator for Human
Development Services to the Executive Secretary of the Board,
emphasis added).
In its Order To Show Cause the Panel directed OHD to brief the issue of
whether or not the Full-Day program account was in fact overexpended in
light of the fact that the July 31, 1975 budget revision was never
approved. In its August 14, 1978 submission, OHD conceded that it has
now determined that the Full-Day program account was not overexpended.
Thus, no dispute remains on this issue.
Conclusion
Since no dispute remains on either issue in this appeal, the appeal is
granted in full. D11 May 7, 1992