DAB Decision 52
December 4, 1978 American Indian Center of Dallas, Inc.; Docket Number
76-19; Decision No. 52 Miles, Theodore A.; DeGeorge, Francis D.
Malone, Thomas
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 Office of Education disallowed $3500 which it contended represented
excessive fringe benefit costs incurred by grantee without prior
approval as required by regulations. Fringe benefits were budgeted at
15% of base salary costs and the disallowed amount was that portion of
total fringe benefits expense which exceeded 15% of base salaries.
In an Order to Show Cause, the Panel requested both parties to present
arguments concerning whether the excess fringe benefit costs were a
"minor deviation" from the project and therefore did not require prior
approval according to costing regulations for non-profit organizations
and also whether the actual expenditures were unreasonable. Based upon
both parties' responses, the Board determined that the budget deviation
was minor and therefore did not require prior approval. Due to the
failure of grantee to provide specific justification as to the
"reasonableness" of the specific costs, the Board provided OE an
opportunity to question the reasonableness of the actual expenditure and
instructed grantee to document those costs if so requested by OE.
DECISION
History of Case
This case involves an appeal by the American Indian Center of Dallas,
Inc. (grantee) from the disallowance by the Office of Education (OE) of
$3500 paid by the grantee to salaried employees in the lieu of fringe
benefits. The project budget, as approved, provided that fringe benefits
would not exceed IS per cent of base salaries. The $3500 figure
represents the amount by which the payments in lieu of fringes exceeded
15 percent of the base salaries of the employees involved. OE has
withdrawn its initial objection to the cash form of the compensation,
but maintains that the item should be disallowed since the grantee did
not obtain prior approval of the deviation from the approved budget.
The overall figures for the project in question were: $113,348 actual
and $114,000 budgeted. The regulations provide that minor deviations
from the approved budget do not require prior approval unless they
constitute a material change in the administration of a project. 45 CFR
100a.29(b)(2). What constitutes a minor deviation in the case of a
private non-profit grantee is not spelled out, although it is in the
case of a state or local government grantee. 45 CFR 100a.
29(a)(3)(iii). If this grantee were a state or local government, the
deviation would be minor by the plain operation of that regulation.
The Board, in an Order to Show Cause dated January 28, 1978, posed the
following questions to grantee and OE:
1. Why the expenditure of $3,504 should not be considered minor
within the meaning of 45 CFR 100a .29(b) (which would remove it
from the prior approval requirement), and 2. Why the expenditure
should not be regarded as unreasonable.
OE's response, on the first question, apparently concedes that the
expenditure is minor, but argues that it is a "material change in the
administrative portion of the approved project," since it almost doubles
the fringe benefit amount. If the Board agreed with this position, the
amount would be disallowed since grantee did not obtain prior approval.
The term, "material change in the
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content or administration of the approved project" which appears in 45
CFR 100a.29(b)(2), is not defined in the regulation. In our view,
however, it must mean more than simply increasing the costs. Rather, it
would mean a change which could affect the outcome of the project, such
as a change in the organization and staffing, the extent of use of
consultants, or the like. All we are talking about here is whether the
secretaries are paid more or less in lieu of fringes. Apart from
questions of morale which might arise, the change, concededly "minor,"
would be highly unlikely to have any effect on the outcome of the
project. Accordingly, we hold that the expenditure of the additional
$3,500 is "minor," within the meaning of 45 CFR 100a.29(b), and is
not a
"material change in the administration of the project" within the
meaning of 45 CFR 100a.29(b)(2).
OE's response asserts further that grantee has not substantiated the
increased expenditures as required by 45 CFR 100a .477. The response,
which raises this issue for the first time, does not set forth any
specific deficiencies in grantee s recordkeeping in this regard. There
is no reason to believe that the fact of the expenditure, the purpose,
the amounts, and payees were not properly recorded. If OE is saying
that grantee's files do not contain documentation giving the reasons for
the increase, it is not shown here what the records had or did not have.
But, assuming the records contained no material on this aspect of the
expenditure (its reasons or reasonableness, as opposed to the who, what,
when and where), grantee should not be precluded from presenting such
information in defense of the expenditure in this proceeding, even if
the information was not maintained in grantee's records.
With regard to the reasonableness of the expenditure, which is required
by the regulations, even if there is prior approval or none is required,
grantee's explanation is that costs were in line with what an individual
would pay for those items, and that, because of the small size of
grantee's operation at the time in question, it was not practicable for
grantee to procure them at a lower cost. Grantee did not provide any
support for the specific amount expended, aside from an undocumented
reference to an Internal Revenue Service action approving fringe
benefits amounting to 25% of base salary.
In our view, the significance of the 15% ratio in the approved budget is
in terms of the burden of proof: if grantee had been able to keep the
cost of fringes within that measure, OE would be required to produce
some evidence of unreasonableness to disallow any portion of the
expenditure. On the other hand, where, as here, grantee has exceeded
the 15% figure, the burden should be on grantee to demonstrate the
reasonableness of the expenditure.
Since, in its initial review of the project, OE did not raise the
question of the reasonableness of the specific amount expended on this
item (presumably because it saw no reason to do so, given its objection
to the cash form of compensation and the grantee's failure to obtain
prior approval of the excess over 15%), we believe it would be premature
for the Board to rely on that
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question (the reasonableness of the specific amount). Accordingly, we
limit the holding in this decision to the construction of section 100a
.29, and return the case to OE with the following instructions:
1) Within 30 days of the date of this opinion, OE shall advise
grantee if it questions the reasonableness of the expenditure in
excess of 15%. 2) If OE does not so question the reasonableness
of the excess, it will be deemed allowed. 3) If OE questions
the reasonableness of the excess, grantee shall have 30 days
from the date of receipt of notice that the reasonableness of the
excess is questioned, to demonstrate to OE that the excess was
reasonable. 4) Grantee may offer in support of its claim of
reasonableness evidence of comparable costs, including, but not
limited to: a) Contemporaneous costs to individuals of comparable
benefits in the Dallas area, b) Per capita costs of comparable
benefits under public or private group plans, c) Costs incurred
by grantee when it converted to in-kind benefits in the next
fiscal year. 5) Any such supporting materials shall be considered
by OE without regard to whether grantee had maintained them in
project files.
Conclusion
We hold that grantee's expenditures of $3500 in excess of 15% of base
salary is "minor" and not a "material change in the administration
of
the project" within the meaning of 45 CFR 100a.29, so that prior
approval of OE was not required. With respect to the question of the
reasonableness of such expenditure, we return the case to OE with
instructions to proceed in accordance with Part II of this opinion. D11
May 7, 1992