Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Tuntutuliak Traditional Council
DATE: September 24, 1992
Docket No. A-92-86
Decision No. 1356
DECISION
Tuntutuliak Traditional Council (TTC) appealed a disallowance by
the
Administration for Children and Families (ACF) in the amount of
$19,710.
The disallowance related to a grant awarded to TTC by the
Administration
for Native Americans and was based on a lack of program and
financial
reports for all funds advanced after February 1, 1987. The
disallowance
followed extensive attempts by ACF over a period of four years
to obtain
overdue reports from TTC documenting TTC's expenditure of grant
funds.
ACF found that the overdue reports violated the financial
management
standards of 45 C.F.R. Parts 74 and 92. 1/
After the appeal was filed, ACF reduced the disallowance to $11,377
based
on documentation furnished by TTC. On July 27, 1992, TTC's
Village
Administrator wrote to the Board, stating:
I do not dispute the revised disallowance amount of
$11,377.00.
I do solemnly request that ACF grant forgiveness to [sic]
the
full amount of $11,377.00 due to [the finding by the
certified
public accountant who prepared the documentation which
resulted
in the disallowance being reduced that] Tuntutuliak
Traditional
Council employees did not possess the knowledge and
training
necessary to properly discharge the Council's
responsibilities
with regard to payroll and payroll tax
liabilities.
TTC Br. at 1. The letter then stated that the remaining
undocumented
grant monies were levied by the Internal Revenue Service (IRS).
2/
In its response to TTC's submission, ACF noted that there were no
disputed
issues in this matter and requested that the Board affirm the
revised
disallowance.
ANALYSIS
The Department of Health and Human Services standards for
financial
management systems require that recipients of departmental
grants
maintain records which adequately identify the source and application
of
funds for grant-supported activities. These records must
contain
information pertaining to the grant awards, authorizations,
obligations,
unobligated balances, assets, outlays, and income. 45
C.F.R. ..
74.61(b) and 92.20(b)(2). Accounting records must be
supported by
source documentation such as cancelled checks, paid bills,
payrolls, and
grant award documents. 45 C.F.R. .. 74.61(g) and
92.20(b)(6). Grantees
are required to submit financial status reports,
which contain figures
calculated from this documentation, periodically to
ACF. 45 C.F.R. ..
74.73 and 92.41.
In prior decisions, the Board has held, based on these
financial
management standards, that costs charged to federal funds must
be
adequately documented in order to be allowable. Lau-Fay-Ton
Community
Action Agency, DAB No. 1126 (1990). The Board has further
held that the
grantee bears the burden of providing this documentation
(Lac Courte
Oreilles Tribe, DAB No. 1132 (1990); Nisqually Indian Tribe, DAB
No.
1210 (1991)), and in particular that the grantee has a clear duty
to
maintain and disclose detailed documentation related to
project
performance, expenditures, and amounts and sources of matching
funds
(Ironbound Educational and Cultural Center, DAB No. 1302 (1992)).
Unquestionably, TTC did not meet its burden of documenting that it met
its
non-federal share requirement or that it expended all of the federal
funds it
received on legitimate grant activities. TTC was able to
document that
it expended $25,135 in federal grant funds on allowable
costs and had
allowable matching expenditures of $3,131, for total
documented project costs
of $28,266. TTC did not provide documentation
for the difference
between the federal funding of $33,990 advanced to
TTC and the $25,135 of
federal funds which were accounted for.
Furthermore, TTC did not deny ACF's
assertion that TTC was required to
provide as its non-federal share 20% of
project costs. Thus, the
federal share of the documented project costs
could not exceed $22,613
($28,266 x 80%). TTC's failure to document the
allowability of
expenditures above $25,135 combined with its failure to
document the
required matching funds resulted in the final disallowance of
$11,377
($33,990 - $22,613). 3/
We wish to make clear that this disallowance is not being imposed as
a
penalty on TTC for failing to submit the required reports at the
time
they were due pursuant to the regulations. If TTC had provided
the
necessary documentation during the appeal which substantiated
the
remaining expenditures, as ACF gave TTC an opportunity to do, ACF
would
have withdrawn the disallowance. However, TTC's financial
reports
prepared during the appeal did not substantiate that all of the
advanced
grant funds were expended on allowable costs, consistent with the
grant
terms; as a result, ACF did not withdraw the disallowance but
reduced
it.
In this case, the basis for requiring TTC to repay federal funds
advanced
in excess of allowable costs is particularly clear. TTC did
not argue
that the undocumented grant funds were spent on legitimate
grant activities
and that the documentation is somehow missing or is
inadequate. TTC
conceded that the funds were not spent on authorized
grant activities but
rather were seized by the IRS in satisfaction of
tax liabilities. TTC
did not argue, much less prove, that these tax
liabilities were incurred in
support of legitimate grant activities.
Consequently, TTC did not provide a legal basis for the Board to
overturn
the disallowance. While we are sympathetic to the
difficulties
encountered by an inexperienced grantee in understanding
the
requirements of the grant and applicable regulations, it is
nevertheless
clear that all grantees have the responsibility to observe
the
requirements carefully when they undertake stewardship of public
funds.
In any event, we do not have the authority to simply forgive
a
disallowance which is properly based on applicable regulations and
cost
principles. Louisiana Dept. of Health and Human Resources, DAB No.
979
(1988); Sumter County Opportunity, Inc., York, Alabama, DAB No.
112
(1980).
CONCLUSION
For the foregoing reasons, we sustain the revised disallowance.
__________________________
M.
Terry Johnson
__________________________
Norval
D. (John)
Settle
__________________________
Judith
A.
Ballard
Presiding
Board
Member
1. The December 26, 1991 disallowance letter referred to the
overdue
reports as violating both Parts 74 and 92. We note that Part 92
applies
to certain grants to state, local and Indian tribal governments and
that
Part 74 applies to HHS grantees generally. However, Part 74
excludes
from most of its requirements, including the financial documentation
and
reporting requirements at issue here, grants which are covered by
Part
92. See 45 C.F.R. . 74.4. While there is insufficient
information in
the record to determine whether TTC is an Indian tribal
government
within the meaning of Part 92, we note that the financial
documentation
and reporting provisions of the applicable sections in the two
parts are
substan-tially similar, so it is not material which of the two
parts is
applicable. Compare 45 C.F.R. .. 74.61(b) and 92.20(b)(2); 45
C.F.R. ..
74.61(g) and 92.20(b)(6); and 45 C.F.R. .. 74.73 and 92.41.
2. We presume that TTC meant the undocumented funds were levied
to
satisfy the payroll tax liabilities referred to in the above quote.
3. The methodology for these calculations is explained in the
Grants
Administration Manual of the Department of Health and Human
Services,
Chapter 1-401 (September 30, 1981 and November 30, 1981). See
also
Inter-Tribal Council of California, DAB No. 265 at
2-4