GAB Decision 152
February 27, 1981 Organized Community Action Program, Inc., Troy,
Alabama Docket No. 80-156 Ford, Cecilia; Garrett, Donald Teitz,
Alexander
This case involves an appeal by the Organized Community Action
Program, Inc. (Grantee) from a determination by the Office of Human
Development Services (Agency), disallowing renovation costs in the
amount of $14,557, claimed against a Head Start grant. The Agency
stated that the disallowance, based on an audit report for the program
year June 1, 1978 through May 31, 1979, was made because no prior
approval for the expenditure of renovation costs was requested from or
given by the Agency, as required by 45 CFR Part 74, and the OHDS Grants
Administration Manual (dated June 1, 1977, published at 42 FR 21046,
April 22, 1977). We find that the disallowance must be upheld for the
reasons stated below.
This decision is based on the Grantee's application for review, the
Agency's response to the appeal, and an Agency submission responding to
a request for specific information made in the Board's Order to Show
Cause, issued January 12, 1981. The Grantee elected not to respond to
the Order to Show Cause.
Background
The disallowed costs were expended in the program year "L" (June
1,
1978 through May 31, 1979). In the previous program year, "K", June
1,
1977 through May 31, 1978, the Grantee requested and received permission
to spend $12,000 to renovate an old school for use as a Head Start
facility. It further requested, by letter dated February 6, 1978,
additional funds in the amount of $15,700 because the first $12,000
awarded was inadequate. This additional $15,700 was awarded in April
1978 (see Notice of Grant Award dated April 14, 1978). The record shows
that Grantee actually spent $28,783.13 during program year "K" for
renovations and that the Agency allowed the overexpenditure of $1083.13.
During the program year "L", an additional $14,557 was expended for
the
same renovation project. There were no renovation funds in the grant
award budget for program year "L" and the Grantee did not request
or
receive approval for the expenditure.
Pertinent Regulations and Policy
There is no dispute that the requirements of 45 CFR Part 74, Appendix
F, and of the OHDS Grants Administration Manual are applicable to this
grant. 45 CFR Part 74, Appendix F, Section G.35 provides that costs
incurred for the rearrangement and alteration of facilities are
allowable when written approval has been given in advance by the
awarding agency. The OHDS Grants Administration Manual, Chapter 1, H.
2, allows reimbursement of expenditures in continuation years, "provided
that the items concerned are incorporated in the approved budget of the
continuation grant, and, when required, prior approval was obtained."
Where a budget revision is necessary because the expenditures were not
incorporated in the approved budget, Section L.2, Prior Approval
Requirements, applies. This Section provides that, for all
discretionary project grants, grantees must request prior written
approval for budget revisions to cover the cost of alterations and
renovations of facilities to accommodate grant-supported activities (L.
2.e(2)).
Discussion
The Grantee does not deny that it did not request or receive approval
to spend the $14,557 on renovations. The Grantee bases its appeal on
the grounds that expenditures were "necessary, conservative and . . .
required by state and local codes and regulations," (Application for
Review p.1, September 10, 1980), and that the renovations were "prudent,
inexpensively done, and useful to the betterment of the . . . program."
(Application for Review, p. 2.) Furthermore, the Grantee asserts that
the costs increased as a result of unforeseen renovation requirements
and cost inflation during delays in completion of the renovations. The
Grantee alleges that a request for prior approval was not made because
the Head Start Director was hospitalized for six months and the Acting
Director believed that a request had already been made and approved.
The requirements for prior approval are clear and the Grantee
obviously was aware of their existence. Failure to meet the applicable
requirements would provide a basis for sustaining the disallowance, but
the Grantee's arguments, first made to the Board, concerning the
reasonableness of the costs raised the issue whether the Agency should
have retroactively waived the requirement. The record shows that even
if the Grantee had made a timely request for prior approval, the Agency
may not have granted the request since the Grantee failed to produce any
evidence that the costs were reasonable. While the Agency has
discretion to waive the prior approval requirement (see 45 CFR 74.176(
c)), it does not have discretion to waive the applicable cost
principles, including those mandating reasonableness and application of
generally accepted accounting principles and practices. Although the
Grantee has been given an opportunity to do so, the Grantee has provided
no evidence to the Agency or the Board concerning Grantee's allegations
that the renovation costs were necessary, prudent and reasonable.
Indeed, the Grantee spent a total of $43,340.13 after originally
estimating the cost to be $12,000. In view of the foregoing, we cannot
say that the Agency acted unreasonably in refusing to waive prior
approval. The Grantee's failure to demonstrate the reasonableness of
the renovation costs makes it unneccessary to consider whether the
Agency should waive the prior approval requirement because of the
Grantee's administrative oversight in not requesting prior approval.
At an earlier state in this case, the record was not clear on two
points which might have provided a basis for reduction of the amount of
the disallowance: (1) the possibility that Grantee may have had excess
non-Federal cash which could be applied to some of the disallowed
renovation costs; and (2) the possibility that $2400 budgeted for
equipment could have been applied to some of the disallowed costs. The
Agency has now clarified these points (Decembeer 19, 1980 Agency
Response to specific questions posed by the Board, p. 2 of letter from
Designated Attorneys; February 9, 1981 Agency response to Order to Show
Cause of January 12, 1981), and Grantee has not disputed them. There
was no excess non-Federal cash and the $2400 had already been applied to
other equipment costs.
Conclusion
We find that the Grantee failed to comply with the prior approval
requirements of 45 CFR Part 74 and the OHDS Grants Administration
Manual. Furthermore, there does not appear to be any reason for the
Agency to waive the prior approval requirement in view of the fact that
the Grantee has not met its burden regarding the reasonableness of the
costs.
OCTOBER 04, 1983