Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: The Haitian Task Force, Inc.
DATE: September 29, 1994
Docket No. A-94-118
Audit Control No. A-04-93-00051
Decision No. 1497
DECISION
The Haitian Task Force, Inc. (Task Force), a private, non-profit
community development corporation, appealed a determination by the
Office of Community Services (OCS) 1/ disallowing $200,207 in federal
funds claimed by the Task Force under section 681(a)(2) of the Community
Services Block Grant Act of 1981 (Block Grant Act), 42 U.S.C.
9910(a)(2). The disallowance covers the period October 1, 1990 through
February 28, 1992, during which, OCS asserted, the Task Force expended
federal funds for various costs which were not proper charges to its
grant.
The record in this case consists of the parties' briefs and OSC's
evidentiary submissions. 2/ As explained more fully below, the Task
Force's general and unsubstantiated arguments do not persuade us that
the questioned costs were proper charges to this grant. Consequently,
we sustain the full disallowance of $200,207.
Background
In relevant part, section 681(a)(2) of the Block Grant Act authorizes
the Secretary of the Department of Health and Human Services to make
grants available to private non-profit organizations to provide for
ongoing activities of regional significance related to the lessening of
the underlying causes of poverty. Part of the funding provided under
the Block Grant Act is directed toward special emphasis programs which
sponsor enterprises providing employment and business development
opportunities for low-income residents. Program announcements are
published in the Federal Register notifying potential applicants of
funding availability, program requirements and application procedures.
On March 20, 1990 OCS issued a Program Announcement (Announcement)
requesting applications under its Discretionary Grants Program. See 55
Fed. Reg. 10297 (OCS Exhibit (Ex.) 1). Part G of the Announcement set
out post-award information and reporting requirements and notified
applicants that the grants would be subject to the regulations at 45
C.F.R. Part 74. Id. at 10308. Attachment I of the Announcement set out
the regulations applying to all applicants/grantees and reiterated the
applicability of Part 74. Id. at 10325.
In May 1990, the Task Force applied for $472,500 in Community Services
Discretionary Grant funds in order to expand a commercial shopping
center which it owned, the Caribbean Marketplace (Marketplace). In its
grant application, the Task Force anticipated that this project would
create 106 new jobs and 46 new ownership opportunities. The Task Force
proposed to purchase land across from the Marketplace to expand the
Marketplace and its parking area, as well as to develop an outdoor
market which would be open on weekends to accommodate "small and new
entrepreneurs." The Task Force sought $405,000 for property acquisition
and building demolition and $67,500 for associated acquisition costs.
The Task Force identified additional costs which would be incurred in
the course of the project's development (such as paving and technical
assistance) but indicated that other funding sources would cover these
expenses. See OCS Ex. 2.
The Family Support Administration 3/ awarded the Task Force a $472,500
grant for the project period October 1, 1990 through February 29, 1992.
4/ The Notice of Grant Award emphasized the applicability of the
regulations at 45 C.F.R. Part 74. The accompanying transmittal letter
also indicated that, if the Task Force deviated from the approved work
plan, it should consult the administrative regulations addressing the
prior approval process. The approved budget in the Notice of Grant
Award indicated that the grant was earmarked for "Land Acquisition."
See OCS Ex. 3. The costs related to land acquisition were the only
direct costs approved for grant funding. No indirect costs were
approved. Id.
Following the February 29, 1992 expiration of the grant, the Task Force
requested a no-cost extension of the grant period. OCS denied that
request on September 9, 1992. See OCS Exs. 5-8. Further, on November 9,
1992, OCS asked this Department's Office of the Inspector General (I.G.)
to perform a compliance audit. OCS Brief (Br.) at 4. The disallowance
was based on the audit findings set out below.
The auditors found that the Task Force had spent $272,293 of the grant
award on direct costs associated with land acquisition as prescribed by
the grant. However, the auditors also found that the remainder of the
grant award, $200,207, had been expended on a variety of costs unrelated
to land acquisition.
The questioned costs consisted of --
o $118,556 for improvements and repairs to the Marketplace;
o $50,850 for technical assistance consisting of salary and benefits
for a Business Liaison Specialist;
o $17,000 transferred to the Task Force's operating account and not
supported by documentation;
o $4,567 for loan payments to the Local Initiatives Support
Corporation;
o $4,150 for architectural services;
o $3,675 for payments on bank loans and bank service charges;
o $1,400 for travel expenses for the Task Force's Executive Director.
Audit Report No. A-04-93-00051 at 7 (OCS Ex. 10).
The auditors also identified several other instances of noncompliance
with the grant's terms and conditions -- failure to provide the number
of jobs envisioned in the grant application, failure to properly
purchase property or to properly record the deeds to property purchased
with grant funds; and failure to submit financial reports in a timely
fashion. Id. at 4-7.
Argument and Analysis
The cost principles applicable to non-profit grantees, such as the Task
Force, are found in Office of Management and Budget (OMB) Circular
A-122, which is made applicable to this grant by 45 C.F.R. 74.174(a).
The Circular sets out various criteria governing the allowability of
costs charged to grant funding. Among other requirements, a cost must
be allocable to the grant to which it is charged. OMB Circular A-122,
Attachment A, Par. A.2.a. A cost is allocable to a particular cost
objective to the extent of the benefit received. Id. at Par. A.4.a. A
cost must conform to any limitations or exclusions set out in Circular
A-122 or in the award as to the type or amount of a cost item. Id. at
Par. A.2.b. Further, a cost must be adequately documented. Id. at Par.
A.2.g.
The Task Force has not shown that the questioned costs met any of these
requirements. Both the grant application and the Notice of Grant Award
explicitly stated that the funds were to be spent only on land
acquisition and related costs. The very nature of the questioned costs
casts doubt on their conformity to the grant's specific limitation on
expenditures (i.e., land acquisition) and therefore requires a detailed
explanation as to how they are allowable. As noted earlier, however,
the Task Force has failed to provide any documentation or evidence which
might demonstrate that these costs were allowable grant expenditures.
The Task Force did not deny that it had spent the questioned funding as
the auditors indicated. Instead, the Task Force argued generally that:
1) rather than hiding information, it had kept OCS aware of its plans
and use of the grant funds; 2) the Notice of Grant Award did not clearly
set out the grant's guidelines; and 3) federal funds were properly spent
in a good faith effort to meet grant objectives. Task Force Br. at 2-3.
We will address each of these arguments in turn.
First, the Task Force argued that OCS's poor grant administration led to
this disallowance. The Task Force asserted that "OCS knew, or should
have known, of the alleged noncompliance prior to the time the alleged
noncompliance occurred." Task Force Br. at 1. The Task Force generally
alleged that OCS officials were aware, in advance, of how the Task Force
planned to spend the grant funds and that the Task Force was given
"verbal assurance" that its use of the money was acceptable to OCS.
Thus, the Task Force contended, OCS was at fault because it failed to
indicate that there would be a problem with the Task Force's use of the
grant funds for those costs. Id. 5/
The Task Force did not identify any specific individual(s) in OCS who
knew or should have known of its noncompliance "prior" to the time
it
occurred, how this person or persons became aware of the noncompliance
or even the particular act(s) of noncompliance in question. 6/ Even if
it had established that someone at OCS might have had notice that the
Task Force was using grant funds for purposes other than land
acquisition, that would not excuse the Task Force from complying with
the express terms of its grant. As we discuss below, that grant
included instructions about seeking prior approval for changes from the
approved work plan which the Task Force, in fact, followed in one
instance.
Second, the Task Force asserted that OCS did not provide guidance
sufficient to enable the Task Force to properly run the grant. Task
Force Br. at 2. The Notice of Grant Award was accompanied by a one-page
letter which referred to a document titled "Standard Terms and
Conditions" as being included in the grant award package. See OCS Ex.
3. However, the Task Force alleged that this document was not provided.
Task Force Br. at 2. In effect, the Task Force argued that OCS could
not base a disallowance on grant terms of which the Task Force had no
knowledge. However, even if the Task Force proved that the grant terms
and conditions were not provided with the award letter, the Task Force's
argument is unavailing because it was on notice of the applicable
requirements through other means.
The cost principles in OMB Circular A-122 were incorporated by
reference, and thus applicable to this grant, by regulations published
in 45 C.F.R. 74.174(a). Consequently, the cost principles are binding
even in the absence of other notice. Moreover, the Federal Register
Announcement specifically notified potential grantees of the regulations
applicable to grants awarded under the Announcement. See OCS Ex. 1.
The Standard Terms and Conditions, which the Task Force alleged it did
not receive, were largely repetitive of the terms and conditions and
regulations outlined in the Announcement. See OCS Exs. 3 and 1.
Further, the Notice of Grant Award clearly identified four general
categories of terms and conditions applicable to the grant. The most
significant grant requirement for our purposes -- that the funds be used
only for land acquisition and related costs -- was plain on the face of
the Notice of Grant Award. See OCS Ex. 3.
In any event, the letter notifying the Task Force of the grant award
stated that grant terms and conditions were enclosed. Additionally,
that letter provided the names and telephone numbers of two individuals
in the Family Support Administration whom the Task Force could call
regarding any programmatic or administrative/fiscal questions. Id.
Given that the Task Force is now alleging that it only received two
pieces of paper, the transmittal letter and Notice of Grant Award, and
that the transmittal letter plainly referred to additional
documentation, the Task Force's argument is disingenuous. At a minimum,
as a recipient of a rather sizeable federal grant, it was incumbent upon
the Task Force to contact OCS to obtain any documentation that it may
have suspected was missing from the award package.
Moreover, in view of the fact that it put forth no supporting evidence,
the Task Force's pre- and post-award actions severely undercut its
assertion that it was somehow OCS's fault that these funds were
misspent. In the grant application the Task Force extensively touted
its administrative credentials, expertise and overall ability to make
the proposed project a reality. See generally OCS Ex. 2. Further, the
Audit Report revealed that the Task Force had "asked for and received a
grant modification" to purchase a certain parcel of land as a substitute
for two others it had initially proposed to purchase. OCS Ex. 10 at 5.
Thus, contrary to its argument here, the Task Force apparently had a
notion that it needed to seek OCS approval to modify the terms of the
grant even if it never received or sought a copy of the terms and
conditions.
Finally, the Task Force maintained that the grant funds were used for
their intended purpose and in a good faith effort to achieve grant
objectives. The Task Force noted that the expansion of the Marketplace
building was completed and the facility opened in mid-December 1991. At
that point, it asserted, the Marketplace employed 27 people, featured a
show room, an entertainment center and temporary weekend stalls.
However, the Task Force chronicled various additional impediments which
have afflicted the grant project. The Task Force noted that "some"
jobs
were lost due to an embargo on goods from Haiti and cash flow problems.
Cost overruns by the construction company prevented timely completion of
the parking lot and additional festival stalls. Ultimately, the
standing festival stalls were destroyed by Hurricane Andrew. The Task
Force stated that the Marketplace was currently facing foreclosure
because the City of Miami refused to provide Community Development Block
Grant Funds to complete the grant objectives. Task Force Br. at 2-3.
Contrary to what the Task Force argued, the record does not support a
finding that any of the questioned funds were used for their intended
purposes. The Task Force's grant application sought a total of $472,500
in federal funding for land acquisition and associated costs. OCS Ex. 2
at 2 and 29. Further, the Task Force noted that it would match the
$472,500 in federal grant funds with an equal amount of non-federal
funds and specifically stated that the grant's administrative costs
would not be paid with federal funds. Id. at 35. However, the $200,207
disallowed was spent in a variety of ways other than for land
acquisition and associated costs. As itemized by the auditors, those
expenses included improvements and repairs to the Marketplace, salary
and benefits to a "Business Liaison Specialist (who was reported as
already being on staff in the grant application (OCS Ex. 2. at
15-16))," payments for architectural services, payments on two separate
loans, travel expenses for the Task Force's Executive Director, as well
as an unexplained expenditure transferred to the Task Force's operating
account without supporting documentation. OCS Ex. 10 at 7. The Task
Force's efforts to blame its failure to achieve the stated grant
objectives on outside factors (such as an embargo on goods from Haiti
and Hurricane Andrew) are irrelevant to the issue here, which is how the
Task Force expended grant funds earmarked solely for land acquisition
and related costs. OCS found that close to half of the grant award was
spent on items not associated with land acquisition.
The Task Force's response to both the audit findings and subsequent
disallowance has been evasive at best. Responding to the auditors'
itemization of the various components of $200,207 in questioned costs,
the Task Force merely indicated that it had obtained a $150,000 grant
from Dade County which would enable it to complete the project by
November 1993. OCS Ex. 10 at 7-8. The subsequent Dade County grant has
nothing to do with the fact that the Task Force spent slightly more than
$200,000 in federal money for unallowable costs. As noted elsewhere in
this decision, the Task Force's arguments have been general, at best,
when referring to the substantive issues and wholly unsupported by any
evidence.
Conclusion
Based on the analysis above, we sustain the full disallowance of
$200,207.
_________________________ Cecilia Sparks
Ford
_________________________ Donald F. Garrett
_________________________ M. Terry Johnson
Presiding Board Member
1. OCS is a division within this Department's Administration for
Children and Families (ACF).
2. The Task Force submitted an opening brief, but did not submit a
reply brief. See Notice of Record Closing (August 30, 1994).
Additionally, the Task Force submitted no evidence to support its
arguments.
3. The Family Support Administration was the predecessor of ACF.
4. The Task Force took issue with a statement on page 2 of the Audit
Report which indicated that the grant was awarded on October 1, 1990.
As the Task Force noted, the grant award letter was dated September 29,
1990, as was the Notice of Grant Award. See OCS Ex. 3. However, this
point is irrelevant to any issue on appeal.
5. The Task Force also cited a September 27, 1993 memorandum from the
Principal Deputy Inspector General to the Acting Assistant Secretary for
Children and Families critical of ACF's oversight of this grant as --
an example of a continuing weakness in ACF's discretionary grants
process. . . . In our opinion, ACF's program and financial
management staff did not effectively manage the grant, monitor
grantee actions, and provide adequate oversight.
Task Force Br. at 2.
The Task Force did not submit this document for the record. Even if the
quoted language did refer to the grant in question, however, it does not
advance the Task Force's case because, as we discuss in the text, it was
the Task Force, not OCS, who had the responsibility to see that the
grant money was spent only as authorized.
6. The I.G. auditors, who investigated this grant, noted that the
Task Force "often failed to submit Federal Cash Transaction Reports . .
. and Financial Status Reports . . . timely." The auditors surmised
that the failure to timely submit those reports "may have prevented OCS
from taking any actions to help . . . in meeting grant objectives." OCS
Ex. 10 at