Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Nisqually Indian Tribe
Docket No. 90-152
Audit Control No.
A-10-89-06591
Decision No. 1210
DATE: November 26, 1990
DECISION
The Nisqually Indian Tribe (Tribe) appealed a determination by
the
Department of Health and Human Services' Office of Grant and
Contract
Financial Management (Agency) disallowing $6,173.32 charged to
federal
funds by the Tribe during its fiscal year ending September 30, 1986
(FY
86). The disallowance was based on an audit of the Tribe's FY
86
financial records by a private accounting firm.
The Department of Interior (Interior) was the cognizant federal agency
for
the Tribe. 1/ In that capacity, Interior distributed copies of the
FY
86 audit report to the various federal agencies whose programs were
affected
by the audit. This disallowance concerns only those grants
administered
by the Department of Health and Human Services (DHHS). For
DHHS, the
Tribe's "Comprehensive Annual Financial Report" covered
financial assistance
under programs for community health services,
social and economic
development, and Head Start.
The disallowed funding falls into two categories. The Agency
disallowed
$2,101.32 in insurance costs which, it alleged, the Tribe
improperly
charged directly to various programs. Agency Brief (Br.), p.
2.
Additionally, the Agency disallowed $4,072 in
undocumented
administrative personnel costs. Id., pp. 4-5.
The Board heard this appeal under its expedited procedures. See
45
C.F.R. 16.12. The record consists of the parties' briefs and
supporting
documentation as well as the tape of an October 2, 1990
telephone
conference (Conference). Based on the following analysis, we
sustain
the disallowance in full.
Analysis
In addition to challenging the Agency's findings with regard to
the
specific categories of costs disallowed, the Tribe offered
general
arguments for reversing the disallowance. The Tribe asserted
that the
disallowance was not timely. Additionally, the Tribe contended
that the
questioned costs had been resolved to Interior's satisfaction so
that
there was no basis for the Agency's decision to disallow this
funding.
Below, we first consider the Tribe's general arguments and explain
why
those arguments do not provide a basis for reversing the
disallowance.
We then address the specific costs disallowed.
I. The disallowance was timely.
The Tribe argued that the Indian Self-Determination and
Education
Assistance Act (Self-Determination Act) required the Agency to take
a
disallowance within 365 days of receipt of any required annual
single
agency audit report. 2/ 25 U.S.C. 450j-1(f). The Tribe
maintained that
although the Agency received the audit report at the end of
May 1989, it
did not notify the Tribe of the disallowance until June 20,
1990. Thus,
the Tribe argued, since more than 365 days had elapsed
before the
Agency's notification, the disallowance was untimely. 3/
Tribe Br., pp.
4-6.
During the Conference the Agency asserted that the 365-day deadline
was
not applicable here since the grant programs in question were
not
governed by the Self-Determination Act. We agree.
As noted in the legislative history accompanying its 1988 amendments,
the
Self-Determination Act authorizes Indian Tribes to contract with
the
Secretaries of Interior or DHHS to administer previously
authorized
programs, otherwise administered directly by those
Departments. On its
face, the Self-Determination Act does not apply to
the grant programs
involved in this disallowance. The
Self-Determination Act as amended is
"intended to increase tribal
participation in the management of Federal
Indian programs and to help insure
long-term stability for tribally-run
programs." See S. Rep. No. 274,
100th Cong., 2nd Sess. 1 (1987),
reprinted in 1988 U.S. CODE CONG. &
ADMIN. NEWS 2620.
The statute, at 25 U.S.C. 450(f)(a)(1), identifies the types
of
self-determination contracts addressed by the Act. 4/ As is
evident
from the legislative history of the 1988 amendments, the Act
was
intended to address programs with a direct bearing on Indian tribes
due
to their unique status as self-governing entities. The Senate
Report
notes that the Self-Determination Act --
has been the major reason for assumption by Indian tribes
of
responsibility for Federal Indian programs. The Act directs .
.
. [the Secretaries of Interior and DHHS] to enter into
a
contract with Indian organizations at the request of
Indian
tribes. Self-determination contracts . . . are
not
discretionary.
Id., p. 2622.
This appeal does not involve costs charged to
self-determination
contracts. There is nothing in this record to
indicate that the Tribe
even had self-determination contracts.
Moreover, the Tribe presented no
basis for applying statutory provisions
governing self-determination
contracts to the DHHS grants at issue here.
Accordingly, we find that the Self-Determination Act and
the
administrative requirements it established for
self-determination
contracts do not apply to preclude this
disallowance. We note that
throughout various aspects of its argument,
both on the general and
specific issues, the Tribe has relied on various
provisions of the
Self-Determination Act. Since the Act is generally
inapplicable, we
need not discuss it further in our consideration of the
Tribe's other
arguments. 5/
II. The Agency had an appropriate basis for taking the disallowance.
The Tribe asserted that since BIA determined that the Tribe had
adequately
addressed all issues and findings in the FY 86 audit, the
Agency was
precluded from taking this disallowance. Tribe Br., p. 3.
In support of
its position, the Tribe relied on an August 25, 1989 BIA
memorandum stating
that the Tribe had satisfactorily responded to all
issues and accepting the
$461.78 in questioned costs, since the cost of
collection exceeded the
benefit. See Tribe Ex. 6.
The Agency noted that this memorandum was an internal BIA
memorandum
concluding that the issues raised in the audit relative to
Interior
grants had been resolved. Thus, the Agency asserted, this
document was
not binding for grants awarded by DHHS. We agree.
An examination of the BIA memorandum shows that it was referring only
to
costs charged to Interior grant programs. Interior's cover letter
(May
26, 1989) distributing the audit report contains an attachment
which
identifies the questioned costs in the various grant programs
affected
by the audit. That attachment clearly identifies $6,287.71
as
questioned costs relative to DHHS grants, including the costs at
issue
here. See Attachment to Agency Ex. B, p. 3. Additionally,
that
attachment identifies $461.78 in questioned costs relative to
Interior
grants (along with numerous cross-cutting internal control
and
compliance questions). 6/ Id., pp. 1-3. Clearly, the August
BIA
memorandum resolves only those matters within Interior's authority.
Any
other conclusion is illogical since the record shows that the costs
at
issue here were referred to DHHS for action. See Tribe Ex. 2;
Agency
Ex. B.
III. The Tribe improperly allocated insurance costs.
The Agency disallowed $2,101.32 in insurance costs which the Tribe
charged
as direct costs to DHHS programs in FY 86. The basis for
this
disallowance was the Tribe's negotiated indirect cost rate agreement
for
FY 86 which provided that insurance costs were allocable to the grant
as
indirect costs "and should not be allowed as direct charges."
See
Agency Ex. D. During the Conference, the Tribe conceded that
these
costs should have been charged as indirect costs. However, the
Tribe
indicated that it had anticipated an indirect cost shortfall for
the
1985 - 1986 program year which would have caused it to absorb
these
costs out of pocket. The Tribe asserted that it anticipated
this
shortfall based on what it characterized as the historical
underpayment
of indirect costs by federal agencies. Consequently, the
Tribe
determined that its only hope of recovering these costs was to
charge
them to the grant as direct costs. Notwithstanding its
negotiated
agreement, the Tribe then charged 50 percent of its insurance
costs
directly.
The Tribe also indicated that it had interpreted the audit report
as
having netted out the $2,101.32 in questioned costs against
certain
under-reported indirect costs. Further, the Tribe noted that it
had
relied on FY 86 indirect cost figures in the audit report as the
basis
for negotiating its fiscal 1988 indirect cost rate. The Tribe
asserted
that, as a consequence, the FY 88 rate would not enable the Tribe
to
recover the amount of the insurance costs so those costs would
be
permanently lost. Given these circumstances, the Tribe insisted
that
due process considerations mandated allowing these disallowed costs
as
direct charges to the DHHS grants.
The Tribe's arguments are not persuasive for several reasons.
OMB
Circular A-87 sets out the cost principles applicable to state,
local,
and federally-recognized Indian tribal governments. See 46 Fed.
Reg.
9548 (January 15, 1981). The Circular's Attachment A, C.1., sets
out
basic considerations affecting cost allowability. In relevant part
it
provides that costs must be accorded consistent treatment and --
a cost may not be assigned to a Federal award as a direct
cost
if any other cost incurred for the same purpose in
like
circumstances has been allocated to a Federal award as
an
indirect cost.
OMB Circular A-87, Attachment A, C.1.e.
In its discussion of cost composition the Circular notes that while --
[t]here is no universal rule for classifyingcertain costs
as
either direct or indirect . . . It is essential, . . . that
each
item of cost be treated consistently either as a direct or
an
indirect cost.
OMB Circular A-87, Attachment A, D.2.
Here, the Tribe's negotiated agreement provided for insurance costs to
be
included in the indirect cost pool. The Tribe had a negotiated
indirect
cost rate which reflected insurance costs as indirect costs.
Agency Ex.
D. Thus, the cost principles clearly prohibit recovery of a
portion of
the insurance costs as direct charges to DHHS grants.
In the Conference, the Tribe, while conceding that these costs should
have
been claimed as indirect costs, also offered a variety of equitable
arguments
as justification for the allowability of these charges as
direct costs to
DHHS grants. Even if we could provide equitable relief,
we would still
find the Tribe's arguments unpersuasive. 7/
The Tribe's contention regarding a historical under-recovery of
indirect
costs from federal agencies, even if true, is not a factor which
DHHS
can take into account when resolving the narrow issue presented by
these
questioned costs. An item of cost cannot be charged
simultaneously to a
federal grant as both a direct and an indirect
cost. The Tribe's FY 86
negotiated agreement specifically provided that
insurance costs could be
recovered only as indirect costs. See Agency
Ex. D. In any event, an
actual under-recovery of indirect costs one
fiscal year would presumably
be taken into account when setting a future
year's indirect cost rate.
The Tribe also argued for an offset against amounts due from other
federal
agencies' programs. As the Agency noted, each federal agency
is
responsible for reconciling allowable and unallowable costs under
the
programs it administers. The Tribe presented no authority for
the
proposition that any offset was appropriate for these DHHS programs.
We next address the Tribe's assertion that its reliance on the figures
in
the audit report caused this disallowance. The Agency
correctly
characterized the Tribe's argument as one of estoppel. That
is, the
Tribe is asserting that since it relied to its detriment on the
figures
in the FY 86 Audit Report as the basis for calculating its FY
88
indirect cost rate and will be unable to capture the directly
charged
costs through its FY 88 rate, the Agency should be precluded,
or
estopped, from disallowing these charges as direct costs.
We point out initially that the record contains no
independent
verification for the Tribe's assertion that it was somehow
disadvantaged
in the negotiation of its FY 88 indirect cost rate.
There can be no estoppel absent the traditional requirements of
a
misrepresentation of fact, reasonable reliance, and detriment to
the
opposing party. Heckler v. Community Health Services of
Crawford
County, Inc., 467 U.S. 51, 59 (1984); Tennessee Dept. of Human
Services,
DAB No. 1054 (1989). Moreover, estoppel against the federal
government,
if available at all, is presumably not available absent
affirmative
misconduct by the federal government. Schweiker v. Hansen,
450 U.S. 785
(1981). 8/ The Tribe has not satisfied the elements
necessary to a
showing of estoppel against a private party, let alone the
federal
government.
There has been no misrepresentation by the Agency. The
auditors
specifically noted that the audit was not intended to pass on
the
ultimate allowability of questioned costs, recognizing instead
that
those issues would be resolved by the federal government. See
Agency
Ex. B, p. 12. The auditors did find that allocation of
insurance
expenses to DHHS programs was proper given the Tribe's indirect
cost
rate agreement. Id., pp. 33-34. However, the auditors then
netted out
the questioned amounts for all federal programs. As the
Agency noted,
this netting process may have given the Tribe a clearer picture
of its
financial standing with regard to all audited programs, but
otherwise
had no binding effect. Agency Br., p. 4. Clearly, the
auditors' action
was not a misrepresentation by the Agency. Moreover,
there is no
evidence of any subsequent Agency action which could be construed
as
affirmative misconduct for purposes of equitable estoppel. An
audit
makes no authoritative determination on the allowability of
costs.
Knowing that the auditors had questioned the Tribe's allocation of
these
costs, as well as being aware of the fact that they had claimed them
as
direct costs in violation of the indirect cost rate agreement, the
Tribe
could not reasonably rely on the figures in an unresolved audit
report
as the basis for negotiating a future indirect cost rate.
For the reasons discussed above, we sustain the Agency's disallowance
of
$2,101.72 in insurance costs which the Tribe claimed as direct costs.
IV. The Tribe's claim for direct costs of administrative
personnel
charged to Head Start was not adequately documented.
The audit report questioned $4,072 in administrative personnel
costs
charged to various DHHS programs. The auditors found that this
amount
could not be substantiated in the audited financial statements.
Here,
the Tribe asserted that it could document additional
administrative
personnel costs for its Head Start grant in excess of the
disallowed
$4,072.
The Tribe indicated that it incurred these Head Start costs in the
first
quarter (October - December 1985) of FY 86, the program's
initial
quarter of operation. The Tribe asserted that, but for its
failure to
make the appropriate adjusting journal entry in its accounting
records,
these costs would not have been questioned. Tribe Br., p.
11. During
the Conference, the Tribe contended that the administrative
personnel
had, in fact, spent more time on the Head Start program than that
for
which the Tribe was seeking federal funding. The Agency asserted
that
the Tribe did not document that the personnel time in question
was
actually spent on the Head Start program.
In order to be allowable, a cost charged to federal funds must
be
adequately documented. See OMB Circular A-87, Attachment A,
C.1.i. A
grantee bears the burden of documenting the allowability of
all charges
to federal funds. See 45 C.F.R. 74.61. See also
Pennsylvania Dept. of
Public Welfare, DAB No. 1089 (1989); New York State
Dept. of Social
Services, DAB No. 1036 (1989). Based on our analysis of
the evidence,
we find that the Agency reasonably concluded that the
Tribe's
documentation for additional Head Start administrative costs
was
inadequate.
The Tribe's documentation for these costs is set out in its Exhibits 8
and
9. 9/ The Tribe's Exhibit 8 contains administrative
personnel
timesheets and action forms. These documents establish the
dates on
which the various employees actually came to work, hours worked,
leave
taken, etc. Exhibit 9 is the Tribe's "cost allocation plan
and
calculations used to adjust head start administrative charges."
This
exhibit consists of a June 4, 1986 memorandum from the
Tribal
Coordinator to the Tribe's Accounting Department requesting a
"statement
of the hours worked by the . . . administrative staff" on the Head
Start
program for the final quarter of 1985. The memorandum lists
five
administrative positions with each assigned a percentage
presumably
equal to the amount of time which each person allegedly spent on
Head
Start. The Accounting Department's response is a breakdown of
those
individuals' salary and fringe benefit packages for the last quarter
of
1985 multiplied by the percentage of time allegedly attributable to
each
individual's contribution to Head Start.
While these individuals may, in fact, have spent the percentage of time
on
Head Start which the Tribe has asserted, the evidence does not
support the
Tribe's position. The evidence does no more than break down
the amount
of salary the Tribe would be able to charge to Head Start if
the Tribe was
able to substantiate the percentages claimed. That
substantiation is
the missing element in the Tribe's case. OMB Circular
A-87, Attachment
B, 10.h.(1) requires that salaries charged to federal
grants must be
supported by personnel activity reports. Attachment B,
10.h.(2)
explains, in detail, the elements which go into personnel
activity
reports. Here, the Tribe has not provided personnel
activity
reports. Absent adequate documentation the Agency cannot
ensure that
federal funds are being expended for legitimate program
purposes. The
Tribe's documentation is not adequate in light of the
Circular's
specific requirements. See Acadia-Vermillion Community
Action Program,
Inc., DAB No. 1201 (1990). For the reasons discussed
above, we sustain
the Agency's disallowance of $4,072 for administrative
personnel costs
as being unsubstantiated by the audited financial
statements.
Conclusion
Based on the preceding analysis we sustain the entire disallowance
of
$6,173.32.
Norval D. (John) Settle
Alexander G. Teitz
Cecilia Sparks Ford Presiding Board Member
1. As a cognizant agency under Office of Management and
Budget (OMB)
Circulars A-87 and A-128, Interior was responsible for
negotiating and
setting the Tribe's indirect cost rate and for implementing
certain
audit requirements.
2. The Indian Self-Determination and Education Assistance
Act
Amendments of 1988 added section 106, "[c]ontract funding and
indirect
costs." Pub. L. 93-638 (1975), as amended by Pub. L. 100-472
(1988),
Title II, section 205. As is clear from the context of this act
and its
amendments, this section established further administrative
requirements
directly applicable only to self-determination contracts.
Section
106(f) (25 U.S.C. 450j-1(f)) provides both that a notice of
disallowance
must issue within 365 days of receipt of any required single
agency
audit report and that any such notice set forth hearing and
appeal
rights before a board of contract appeals.
3. The Tribe calculated this timeline based on the receipt
of the
audit report by Interior's Bureau of Indian Affairs (BIA), Portland
Area
Office on May 30, 1989. See Tribe Exhibit (Ex.) 4. The Tribe
assumed
that the Agency received the audit report at approximately the same
time
it was transmitted to the BIA. During the Conference the Agency
could
not pinpoint the exact date of receipt, but thought that the
Tribe's
approximation was generally correct.
4. The only specific reference to a DHHS program in this
section
addresses the maintenance and operation of Indian hospitals and
health
facilities as provided for at 42 U.S.C. 2001 - 2004b. See 25
U.S.C.
450f(a)(1)(C).
5. The Self-Determination Act, at 42 U.S.C. 450j-1(d) and
(e),
establishes a policy of full recovery of indirect costs
for
self-determination contracts. Those provisions also
specifically
preclude federal action to recover any theoretical or actual
over- or
under-recoveries of indirect costs related to the lack of full
indirect
cost recovery under some federal programs. While these
provisions would
expressly preclude such recoveries against
self-determination contract
funds and might, in addition, have some bearing
on the proper indirect
cost rate to be set by Interior, they have no
applicability here. The
Tribe in its notice of appeal and arguments
relied on these provisions
in appealing the disallowance of the direct charge
of indirect insurance
costs. The Tribe has used language out of context
to support its
arguments here. As we noted above, we are not giving
further
consideration to the Tribe's arguments based on the
Self-Determination
Act in the text of our decision.
6. As cognizant agency, Interior was responsible for
cross-cutting
issues (compliance and financial management systems findings)
as well as
the questioned costs for its own programs.
7. The Board is bound by all applicable laws and
regulations. See 45
C.F.R 16.14.
8. In the recent case of Office of Personnel Management v.
Richmond,
110 S. Ct. 2465 (1990), the Court deplored the fact that its dicta
on
affirmative misconduct had "spawned numerous claims for
equitable
estoppel in the lower courts." The Court then indicated that
it "would
leave for another day whether an estoppel claim could ever
succeed
against the Government." Id., pp. 2470-2471.
9. At the end of the Conference the Presiding Board Member
gave the
Tribe an opportunity to submit more detailed documentation for
the
Agency's review. By letter dated October 22, 1990, the Tribe
notified
the Agency and the Board that it would not be submitting any
further