GAB Decision 110
July 15, 1980 Neighborhood Services Department, Detroit Michigan;
Docket No. 79-7 Coster, Clarence; Przybylinski, Donald Dell'Acqua,
Frank
The Neighborhood Services Department (NSD) appealed, by letter dated
March 14, 1979, from the December 13, 1978 determination of the Office
of Human Development Services (OHDS) disallowing $11,881 charged to
NSD's program year J (September 1, 1974 to August 31, 1975) Head Start
grant.
NSD operated a part-day, full year Head Start program for the last
two months of the program year "J", which ended August 31, 1975. Prior
to July 1, 1975, this program had been administered by the Detroit Human
Resources Development Department. The program was funded by Head Start
Grant No. 0113-J/H, and, during program year J, it received $2,238,416
in federal funds.
The Auditor General for the City of Detroit submitted an audit of NSD
and its delegate agencies for program year J on March 31, 1978, as
required by 42 USC Sec. 2835 (1978). On May 30, 1978, the Regional
Audit Director of the HEW Audit Agency completed reviewing this audit.
The Director's report, audit control number 05-84519, questioned $58,198
of the costs incurred by NSD and its delegate agencies, the Detroit
Public Schools and the Catholic Social Services of Wayne County. After
NSD had responded to this report, OHDS determined that $11,613 of the
costs should be disallowed.
The total costs disallowed by OHDS can be broken down into categories
as follows:
$ 31 . . .Ineligible program cost: Travel. 237 . . .Excess
of allowable rates: Private car rental and meeting costs.
11,613 . . .Undocumented costs.
NSD agreed that the first two items, totalling $268, represented
costs that could not be charged to the grant. In addition, NSD agreed
with $2,996 of the disallowance in the third category because it could
not document the expenditures. Therefore, NSD accepted a total of
$3,264 of the disallowance. $8,617 remains in dispute, which can be
broken down in into three categories as follows:
$1,913 . . .space 3,200 . . .parent stipends 3,504 . .
.travel, supplies, equipment.
Space
The audit showed an expenditure of $3,879 for space costs and
rentals. Of this, the auditors questioned $1,913 relating to space used
by the NSD central staff in administering the Head Start program. This
space was located within the main administrative offices of the Mayor's
Committee for Human Resource Development. No formula demonstrating what
portion of this space was actually devoted to Head Start program
objectives has been presented by NSD.
NSD admits that no acceptable space allocation formula was developed
but argues that the costs incurred were reasonable based on personnel
costs of over $76,000. To substantiate its argument, NSD offers, by
comparison, the budget of a delegate agency with a similar size budget,
which shows a roughly equivalent expenditure for the same cost item.
As OHDS indicates, reasonableness is not the sole measure of whether
a cost is allowable. The question of whether an expenditure is
reasonable is a distinct issue from whether it may be properly
attributed to the objectives of a program grant. This Board has
previously stated that the most elementary principle of grant
administration is the requirement that a grantee have documentation to
show that claimed expenditures were, in fact, incurred to further the
purposes of the project. University of Minnesota, DGAB Docket No.
77-4, Decision No. 44, August 14, 1978.In addition, Part 74 of Title 45
of the Code of Federal Regulations, which applies to all grants made by
OHDS to state and local governments, provides that an allowable cost
must not only be necessary and reasonable for administration of the
grant program, but must also be allocable to the objectives of that
specific program. 45 C.F.R. Part 74, Subpart Q, Appendix C, Part I,(
C)(1)(a) (1974). A cost, though reasonable, is allocable to a program
only to the extent that the benefits achieved by incurring that cost
accrue to that particular program. Id. at (C)(2). Since NSD is an
agency within the Detroit government, 45 CFR Part 74, Subpart Q,
Appendix C appears to apply.
The space costs questioned and disallowed were for the use of space
within the administrative offices of the Mayor's Committee for Human
Resource Development. Petitioner concedes that no space allocation
formula was ever developed to specify the portion of this space in fact
used to administer the Head Start program. Without such a formula, it
cannot be determined to what extent the use of this space benefited the
Head Start program. Since the cost can not be shown to be allocable,
the expenditure violates the requirements of 45 CFR Part 74, Subpart Q,
Appendix C, Part I, (C)(1)(a).
2. Parent Stipends
$3,200 of the undocumented costs were for parent stipends, ostensibly
paid to parents of children enrolled in the program for attendance at
policy council meetings. The stipends were paid with checks issued
subject to the internal controls of Detroit's accounting system, which
includes an independent voucher audit section. No documentation, such
as sign-in sheets or minutes of the policy meetings, identification of
persons attending, or vouchers for expenses reimbursed, has been
provided by the NSD.
Section 244 of the Economic Opportunity Act of 1964, 42 USC 2836(1),
establishes the authority to fund parent stipends in the forms of
allowances and reimbursements.
Regulations promulgated under the authority of this section, and
which apply to this grantee, state that "the accounting records of
allowance payments and expense reimbursements are required to be
available for public inspection . . ." 45 CFR 1068.5-4(d). NSD's lack
of documentation violates this regulation.
NSD, however, argues that OHDS is required to assume from the fact
that the checks were issued that documentation at one time existed to
justify this cost.Pointing to safeguards in the accounting system of the
city of Detroit, which issued the checks, NSD relies on the following
syllogism: Before the checks were issued by the checkwriting section,
the Head Start section was required to provide supporting documentation.
The checks were issued. Therefore, the supporting documentation must
have existed at that time.
The effect of NSD's argument would be to shift the burden of proving
that costs should be allowed from the Grantee to the Agency to determine
that a cost is unallowable.Section 243 of the Economic Opportunity Act
of 1964 authorizes the Agency to impose fiscal responsibility and
accounting requirements on the recipients of Head Start grants in order
to insure that recipients have an accounting system with internal
controls adequate to safeguard the grantee's assets. 42 U.S.C. Sec.
2385 (1974). To meet this goal, the applicable regulations require the
grantee to make and retain records of expenditures, and to support these
records with source documentation. 45 C.F.R. Part 74.61 (b), (f), (g)
(1974). These provisions clearly place the burden of establishing
allowability of costs on the grantee. In addition, documentation in
this area is crucial in order for the Agency to determine whether
eligible people received the stipends and whether disbursement was done
correctly under the regulations (See 45 CFR 1068.5-3).
3. Supplies, Equipment, Travel
OHDS stated in its response to the appeal that documents discovered
by NSD since the time of the original audit are sufficient to support
$1231 of the costs disallowed in this category. This total includes a
purchase of "liner buff", costing $1,027, and a purchase of two tables
for $204. Each of these purchases is supported by vouchers showing the
item purchased and acknowledging receipt. Copies of checks demonstrate
that payment in the proper amount and to the proper party was made.
Therefore, $1231 of the disallowance in this category will be
overturned. The rest of the questioned items are as follows:
Supplies:
A purchase order for books from Elk Grove Press in Endicino,
California. The amount of purchase is $389; beneath this figure is the
handwritten comment, "8/2/73, Cancel, $389.00." The order states
"Delivery date by 8/2/72", but it was not marked approved for payment
until June 16, 1975. The order gives no indication of receipt, and no
evidence of payment is attached.
A check in the amount of $389, payable to Children's Press in Chicago
Illinois. There is no purchase order or voucher for materials from this
vendor.
A voucher for purchase of a camera lens, signed to indicate receipt.
The amount of the purchase on the original is $249.50. On the copy,
this figure has been scored through in ball point pen, and the figure
$180 substituted. No check showing the actual amount of payment is
included.
Equipment:
A voucher, signed to indicate receipt, for a purchase totaling $501
from International Radio. The voucher is for "equipment as per the
attached sheet." No such sheet is included; niether is there any
evidence of payment.
A voucher, stamped and initialed "received", for four chairs, costing
$299.44. No evidence of payment is included.
Travel Expenses:
A list of persons ostensibly reimbursed for mileage expenses during
program year "J". The list supplies the name of the driver, the number
of miles reimbursed, the formula for reimbursement, and the total amount
paid to each driver. It is offered as documentation for $903.71 in
costs. The list was prepared by an accountant for NSD in response to a
request from OHDS on June 12, 1979. None of the original documentation
from which the summary was compiled has been made available, nor is
there any evidence of actual payment to these drivers.
As was noted above on page 2, documentation that a cost is allocable
to the grant project is a basic requirement of grant administration. To
be an allowable cost, an expenditure must be necessary and reasonable
for efficient administration of the program to which it is charged. 45
C.F.R. Part 74, Appendix C(I)(c)(1) (1974). It must conform to the
limitations set forth in pertinent statutes and regulations, and the
benefits realized must accrue to the program. Id. at (C)(2)(a).The
burden of showing that an expenditure meets these conditions and is
allowable rests on the grantee, who is required to maintain a financial
management system with procedures adequate to determine the allowability
and allocability of costs. 45 C.F.R. Part 74.61(f) (1974). This system
must provide for retention of records identifying the application of
grant funds, supported by source documentation. 45 C.F.R. Part
74.61(b), (g) (1974).
As OHDS has stated in its response to the appeal, documentation
should be available to show, at the very least, 1) the item or items
purchased and their cost, 2) that the item was used for the benefit of
the grant program, 3) that the item was in fact received, and, 4) that
the cost of the item was actually paid by the grantee. Such
documentation is essential for the Agency to determine the amount
properly chargeable to the grant.
NSD has submitted vouchers for three purchases without including
canceled checks or other evidence of payment by the delegate agency.
These orders are for four chairs, a camera lens, and books from Elk
Grove Press. For the last two of these three items, ambiguities in the
orders themselves make the lack of payment documentation especially
fatal. For the camera lens, while the price on the voucher is $249.50,
a different figure, $180, has been inserted in ink. There is no
evidence to show which amount, if either, was actually paid. As for the
books ordered from Elk Grove Press, the "amount" column of the voucher
contains the handwritten notation, "8/2/73 Cancel". Again, there is
no
evidence of payment, and, moreover, no evidence of receipt of the goods.
While the order is marked "approved for payment, 6/16/ 1975", the
target
date for delivery is August 31, 1972, two years before the program year
for which the costs are claimed.
NSD has also submitted a check for $389 payable to Children's Press.
There is no documentation to show that anything was ever ordered from
this vendor. Documentation of payment alone, without a description of
the items purchased, cannot establish an allowable cost, since it cannot
then be determined that the items purchases were necessary or reasonably
related to program objectives.
This flaw is also evident in the material offered to support a
purchase from International Radio. NSD seeks to document this cost with
a voucher for a purchase in the amount of $501. The voucher does not
describe the items purchased, referring instead to descriptions on an
attached sheet. This sheet has not been produced.
Finally, the mileage sheet offered in support of the delegate
agency's travel expenses is incomplete. Prepared four years after the
close of program year "J", it gives no indication of the nature of
the
travel being reimbursed or of the drivers' role in relation to the Head
Start program. Without this information, it cannot be determined how
this travel benefited the program.As was noted in Head Start of New
Hanover Conty, Inc., DGAB Docket No. 78-94, Decision No. 65, September
25, 1979, while after-the-fact documentation will not necessarily be
rejected by the Board, such documentation is clearly less acceptable
than contemporaneous records and must face a burden of persuasion which
it must meet by specificity and precision. As an after-the-fact
reconstruction, this summary cannot be considered adequate documentation
without some information about the materials and methods used in
compiling it.
Therefore, the documentation submitted by NSD to support the
remaining $2,273.12 in question in this category is insufficient or
inadequate in establishing the purpose of the expenditure or the amount
actually paid or that the expenditures are grant-related and allowable.
This part of the disallowance must be upheld.
Conclusion
For the reasons stated above, out of the $8,617 appealed by NSD, the
grantee's appeal of $1,231 is sustained and $7,386 is denied.
OCTOBER 04, 1983