DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Somerset Community Action DATE: April 21, 1989 Program
Docket No. 88-157 Audit Control No. 02-55046 Decision
No. 1041
DECISION
The Somerset Community Action Program (SCAP) appealed a determination by
the Office of Human Development Services (OHDS) disallowing $5,369 which
OHDS found had been charged to SCAP's Head Start grant for the year
ending August 31, 1984 (Program Year (PY) 17). The amount disallowed
represented food costs in excess of the amount reimbursed by the U.S.
Department of Agriculture (USDA) under the Child Care Food Program
administered by the New Jersey Department of Education. The Child Care
Food Program provides funding for the cost of meals at a predetermined
rate per meal. Although Head Start funds can be budgeted for food costs
not covered by the Child Care Food Program, the costs in question here
were not included in the Head Start budget, and SCAP did not show these
costs as a charge to the Head Start grant. However, SCAP's auditors
reduced the fund balance shown in the PY 17 Head Start audit report by
this amount. OHDS concluded that this reduced Head Start funds
available for reprogramming, and that, in effect, SCAP used Head Start
funds to cover the excess food costs.
As discussed below, we find that the fund balance shown for the PY 17
Head Start program consisted of unexpended funds from prior years which
were reprogrammed to subsequent years. Since SCAP was required to make
the unexpended Head Start funds available to cover costs in the
subsequent years, there is no basis for finding that, in fact, SCAP used
the funds to cover the amount of the USDA "deficit" shown on the PY
17
audit report. We further find that, even if there was a real reduction
of the PY 17 fund balance by the amount of the excess food costs, this
was offset by unexpended USDA funds which were improperly used to
increase the PY 16 fund balance. Accordingly, we reverse the
disallowance in full.
On the face of the PY 17 audit report, it appears that there was a fund
balance which could have been reduced by the amount of the excess food
costs in question here. The audit report shows an excess of total
expenditures over revenues of $5,328, which represented the amount by
which USDA expenditures exceeded USDA revenues -- $5,765 -- minus $437
in unexpended Head Start funds. The report then shows a fund balance of
$17,278, which consists of $3,966 from PY 15 and $14,536 from PY 16
minus "prior auditor adjustments" of $1,224. The $5,328 is subtracted
from the $17,278 to arrive at the "Total Fund Balance as [of] August 31,
1984" of $11,950. Audit Control Number 02-55046, pp. 13, 15.
However, during the course of this appeal, SCAP furnished documentation
which shows that the amounts from PY 15 and PY 16 which make up the PY
17 year-end fund balance shown on the audit report were reprogrammed to
subsequent program years. Specifically, the grant award document for PY
18 shows that $8,441 from PY 16 and $3,966 from PY 15 was reprogrammed
to PY 18. The grant award document for PY 19 shows that $6,095 from PY
16 was reprogrammed to PY 19. Letter from Strickland to Gold dated
2/23/89, Attachment B. The total amount thus reprogrammed equals the
fund balance shown on the PY 17 audit report before it was reduced by
the $5,328 USDA "deficit." Since the USDA "deficit" was
not in fact
used to reduce the amount available for reprogramming, there is no basis
for OHDS's conclusion that SCAP in effect used Head Start funds to cover
the excess food costs.
Even if the USDA "deficit" was used to reduce a fund balance which
really existed, we find that there were unexpended USDA funds from PY 16
which could have been set off against the PY 17 "deficit." The
financial statements for SCAP's PY 16 Head Start program show that total
revenues exceeded expenses by $14,536, including a $5,595 excess of USDA
funds. Letter from Strickland to Gold dated 2/23/89, Attachment A. The
$14,536 was included in the Head Start fund balance for PY 16, which was
subsequently reprogrammed to later years. Id., Attachment B. Since the
$5,595 represented USDA funds, not Head Start funds, this resulted in
the PY 16 Head Start fund balance being overstated. This error in how
the $5,595 was treated can be substantially corrected, however, by
setting off this amount against the USDA "deficit" shown in the PY
17
audit report. Such an offset is consistent with SCAP's contention that
it was fully reimbursed by USDA for its food costs.
Moreover, we are persuaded that this is an equitable result in view of
the fact that OHDS approved the PY 17 excess food costs as "allowable,
reasonable and necessary to meet the project objectives." Letter from
Torrado to Moore dated 7/30/85, p. 2. OHDS later explained that these
costs were approved as a charge to the Head Start grant for PY 17 only
to the extent that funds remained available under that grant, and
disallowed all but $396, which it stated was the amount of funds awarded
for PY 17 which were unexpended. Letter from Cordasco to Moore dated
1/26/88, p. 3; letter from Cordasco to Moore dated 4/18/88, p. 2.
Since OHDS approved the costs in principle, however, it can hardly
object to use of an accounting mechanism which assures that these costs
are not improperly disallowed.
Conclusion
For the foregoing reasons, we reverse the disallowance in full.
________________________ Donald F. Garrett
________________________ Alexander G. Teitz
________________________ Judith A. Ballard Presiding Board