DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Lac Courte Oreilles Tribe
DATE: February 8,1990
Docket No. 89-202 Audit Control No. A-05-88-05672
Decision No. 1132
DECISION
The Lac Courte Oreilles Indian Tribe (Grantee/Tribe) appealed a
determination by the Office of Human Development Services (OHDS/Agency)
disallowing $19,354 of the Tribe's Head Start program grant for the
period ending September 30, 1986. The disallowance was based on an
audit finding that 20% of the Grantee's enrollees were from over-income
families. The Agency, accordingly, found that the Grantee had not
complied with 45 C.F.R. 1305.4 (1985), which requires that at least 90%
of each Head Start program's enrollees be from low-income families.
OHDS calculated the disallowance by multiplying the total amount of the
funds awarded to the Tribe's Head Start program (excluding certain
training funds) by 10%, the percentage of funds OHDS determined had been
spent on over-income children in excess of the 10% permitted under the
federal regulation. As explained below, we sustain the disallowance of
$19,354.
Applicable Authority
The primary goal of the Head Start program is to foster social
competence in children of low-income families. The program seeks to
provide low-income children with a comprehensive interdisciplinary
development program which involves their families and their communities,
by focusing on intellectual, emotional, physical, and nutritional needs.
45 C.F.R. 1304.1-3.
Section 9840(a)(1) of 42 U.S.C. provides that the Secretary of the
Department of Health and Human Services (the Secretary) shall by
regulation prescribe eligibility criteria for the Head Start program,
and that such criteria may provide that programs may include the
participation of families which do not meet the low-income criteria "to
a reasonable extent." The Secretary, acting within the discretion
granted in section 9840(a)(1), has defined "a reasonable extent" as
10%
in 45 C.F.R. 1305.4. The 90% low-income requirement of section 1305.4
applies to the enrollees of each and every Head Start program which does
not qualify for exemption under 42 U.S.C. 9840(a)(2). That exemption is
not an issue here.
Head Start grantees are generally required by 45 C.F.R. 1305.6(a) to
determine the financial eligibility of prospective enrollees before
allowing their participation. Income verifications, based on
examination of Individual Income Tax Forms 1040, W-2 forms, pay stubs,
pay envelopes, written employer statements, or documentation of public
assistance, are required for determinations of eligibility.
The Basis for the Disallowance
Based on an audit, performed by an independent certified public
accounting firm, which reviewed all of the Grantee's programs for the
period October 1, 1985 through September 30, 1986, the Agency concluded
that the Grantee had served 19 ineligible children under its Head Start
program and that this violated 45 C.F.R. 1305.4 since it was in excess
of the 10% ineligibles permitted.
Prior to the audit and the subsequent disallowance, the Agency had
notified the Grantee in a monitoring report, dated June 30, 1986, that
the Tribe was providing Head Start services to more than 10% of
over-income children. The monitoring report stated, in relevant part:
A review of the records indicated that there were 19 over-income
children enrolled. The Tribe uses the questionable practice of
determining income eligibility by using the Child Care Food Program
(CCFP) guidelines to determine income eligibility instead of Head
Start's Income guidelines. Income Verification is not done on a
consistent basis nor is it done in accordance with Head Start
requirement. The recruitment and selection is called into question
by the number of agency staff members (most over-income) children
enrolled in the program.
Grantee's appeal file, Section II, Ex. 2, p. 4.
According to OHDS, $19,354 in costs had been charged to Head Start which
were allocable to excess over-income children enrolled in the Head Start
program.
The Grantee's Arguments
The Grantee asserted that the audit report recommended the current
disallowance because the auditors did not understand that the Tribe's
Head Start program was run simultaneously with another program. The
Grantee explained that, in 1985, the Tribe had received two federal
grants to fund its Early Childhood Education (ECE) programs. The
Grantee asserted that, in addition to the Head Start grant from OHDS, it
also received a grant from the Department of Education under Title IV of
the Indian Education Act, for special programs and projects, to fund 18
children in a bicultural ECE Pre- school program. The Grantee
maintained that these two grants helped to fund 101 children, 16
children under the Title IV Pre-school program 1/ and 85 under the Head
Start program, over the course of the 1985-86 school year. The Grantee
submitted an affidavit from its Interim Director, with an attachment
identifying 16 children who were over Head Start income guidelines as
those served by the Title IV Pre-school program. See Grantee's appeal
file, Section II, Ex. 3.
The Grantee argued that the auditor erroneously counted the Title IV
Pre-school children with the Head Start children when determining the
number of over-income children enrolled in the Head Start program. The
Grantee submitted a statement by the auditor indicating that he would
not have recommended a disallowance if he had been aware of an education
grant "that was used to supplement the Head Start funds and was
specifically aimed at over- income students." Grantee's appeal file,
Section I.
The Grantee argued that this case is distinguishable from prior Board
decisions upholding disallowances based on the 90% low-income
requirement. 2/ The Grantee asserted that the issue before the Board in
this case is one of first impression, stating the issue here as whether
one federal grant program to educate under-income children could "cancel
out" or "charge against" another federal grant program to provide
a
culturally-based education to pre-school children. Grantee's brief, p.
3. The Grantee maintained that since Title IV was a separate program
and did not have an income requirement, the fact that the Grantee had
enrolled 16 over-income children should not be a basis for a
disallowance in the Head Start program. Additionally, the Grantee
pointed out that even if it enrolled 19 over-income children, as the
auditor found, and served three of these children in the Head Start
program, the Tribe would still not be over the 10% level for over-income
children permitted by 45 C.F.R. 1304.5. 3/
Analysis
At first sight, the Grantee's argument would seem to have merit.
Nothing in the Head Start regulations would appear to preclude a grantee
from operating another early childhood education program (serving
over-income children) simultaneously with a Head Start program, so long
as the costs of that program are not charged to Head Start funds. This
question was not addressed in the previous Board decisions relied on by
the Agency. See note 2 above. In those decisions the grantees argued
that excess non-federal resources in the form of in-kind costs could be
used to cover the costs of excess over- income children. The Board
upheld the disallowances there because there was no evidence that both
the in-kind costs and the costs charged to Head Start funds had not
benefited the Head Start and the excess over-income children equally.
A careful review of the record, however, reveals that the Grantee's
evidence simply does not support the Grantee's assertion that it
operated two separate programs. To the contrary, the evidence indicates
that the Title IV grant was intended to supplement the Head Start funds
and that costs charged to both grants benefited all children enrolled in
the ECE program, including the excess over- income children.
In this case, the Grantee admitted that it has no contemporaneous
records to separately document the costs of the Head Start program and
the Title IV Pre-school program. Board's Telephone Conference Call,
December 8, 1989. 4/ Moreover, the affidavit of Catherine Barber, the
Interim Director of the Grantee's Head Start program, submitted by the
Grantee in this appeal, does not support its claim. While the
affidavit, in essence, restated the Grantee's argument that some
children were funded through the Head Start grant and others were funded
through the Title IV Pre-school program, it does not provide the
record-keeping information necessary to support the Tribe's claim. An
attachment to the affidavit identifies 16 children as over-income
children and as charged to Title IV. The Grantee acknowledged, however,
that Ms. Barber simply reviewed the Grantee's records to identify the
over-income children and herself designated them as Title IV children
based solely on their income level. Telephone Conference, December 8,
1989. 5/ The contemporaneous records did not themselves associate these
children with Title IV.
Moreover, the documentation submitted by the Grantee regarding the Title
IV grant does not support the Grantee's allegation that the Title IV
program was specifically directed to over-income children. Rather, the
documentation indicates that the Title IV funds were to supplement the
Head Start program by improving teacher/child ratios. The grant
application describes the activities to be funded as "Head Start
Instructional (Lead Teaching)" and "Head Start instructional (Teacher
Aide/Liaison)." Grantee's appeal file, Section II, Ex. 4. The program
narrative refers to enrolling 18 children in addition to the existing 82
Head Start slots and using the education funds to provide a lead teacher
for those 18 children (to be served in a split session program) and to
provide aides for all classes, since "there exists an inadequate
teacher/child ratio." Id. The Grantee admitted that it had no records
to show that only over-income children were served by the additional
lead teacher; the Grantee also indicated that the focus of the Title IV
program was on providing instruction in the Ojibwa language, and that
the children who received this language instruction were not necessarily
those over the income guidelines. Telephone Conference, December 8,
1989. Moreover, since the Title IV grant funded primarily a teacher
and aides, it is reasonable to assume that Head Start funds were used to
cover other costs for all of the children such as for space, utilities,
food, health programs, etc.
The Grantee's assertions are also called into question by the Agency's
findings (which were not disputed by the Grantee) that the Grantee was
applying the wrong income guidelines in enrolling children into its Head
Start program. This seriously undercuts the Grantee's position because
it suggests that the Grantee's description of the Title IV program as
being directed at over-income children is simply an after-the-fact
attempt to justify its failure to apply the proper income guidelines for
Head Start. Also, the Agency alleged that most of the ineligible
children were enrolled in September 1985, even though the Title IV
project did not start until October. The Grantee's own data supports
this conclusion. See Grantee's appeal file, Section II, Ex. 3, Att.
Finally, we note that the Grantee's reliance on the statement by its
auditor is misplaced. The auditor's reevaluation of his report is a
tentative one based on information he was given by the Grantee that the
Title IV grant was specifically aimed at over-income students. As
discussed above, the Grantee failed to support this assertion.
We find that the Grantee has failed to properly document, with
supporting records, its claim that it ran two parallel programs.
Therefore, the Grantee has not provided the Board with any basis on
which to reverse the disallowance. We specifically note, however, that
we do not find that the type of situation described by the Grantee is
not allowed by federal regulation. Instead, we find that the Grantee
simply failed to establish, with proper documentation, that such a
situation existed here.
We also note that, although the Grantee did not directly contest the
calculation of the disallowance amount, the Grantee did assert, based on
its Interim Director's review of the records, that it had served 101
children, including only 16 over-income children, during the
disallowance period. Moreover, the record indicates that some of the
children may have attended only half-day sessions. These factors might
support a reduction in the disallowance amount, but were not addressed
by OHDS. Thus, we conclude that OHDS should offer the Grantee an
opportunity to show that the disallowance should be reduced because less
than 20% of the total children enrolled were over-income. OHDS may set
a deadline within which the Grantee has to make such a showing or return
the full disallowance amount, but it would be helpful if OHDS would
discuss with the Grantee first what documentation OHDS would need to
show a reduction is warranted.
Conclusion
Based on the foregoing, we uphold the Agency's disallowance in full,
subject to reduction if the Grantee shows OHDS that one is warranted, as
discussed above.
_____________________________ Cecilia Sparks Ford
_____________________________ Norval D. (John)
Settle
_____________________________ Judith A. Ballard
Presiding Board Member
1. While the Grantee identified 16 children as having been actually
funded through the ECE Pre-school program for the period in question,
the Grantee's proposal allowed for up to 18 children in the Title-IV
Pre-school program. See Grantee's appeal file, Ex. 3, p. 1 and Ex. 4,
p. E12.
2. Specifically, the Grantee argued that this case was distinguishable
from the following decisions, which the Board transmitted to the parties
with its acknowledgment letter: Fort Belknap Community Council, DAB No.
1045 (1989); Gila River Indian Community, DAB No. 339 (1982); and Gila
River Indian Community, DAB No. 264 (1982).
3. The Grantee also argued that--
even assuming the Pre-school children should be counted as Head
Start children, under the Gila River analysis, if the children
"'benefited' equally in an accounting sense" [No. 264, p. 6], the
cost for each of the 101 children from the two grants would be
approximately $2,547 per child. Under the ECE Head Start program
grant, low-income children were funded at approximately $2,277 per
child. Title IV Pre- school children were funded at approximately
$3,537 per child. Thus, even calculating in an "accounting sense",
if the children benefitted equally from both grants, the Title IV
Pre-school children lost money to the Head Start program, not vice
versa.
Grantee's brief, p. 4, n. 1.
As we discuss below, the assertions concerning funding under Title IV
underlying this analysis are not supported by the record.
4. As this Board has repeatedly held, the burden to document the
existence and allowability of costs claimed in grant programs rests with
the grantee. Missouri Dept. of Social Services, DAB No. 395 (1983);
New Jersey Dept. of Human Services, DAB No. 416 (1983); West Central
Wisconsin Community Action Agency, DAB No. 861 (1987).
5. In addition, while not determinative in this case, the Grantee
admitted, in the Board's telephone conference call, that the affidavit
was non-contemporaneous. The Board has previously stated that while we
will review non-contemporaneous documentation, its sufficiency will be
carefully scrutinized. See Indiana Dept. of Public Welfare, DAB No. 772
(1986), p.