SUBJECT: Rincon San Luiseno Band of Mission Indians

DECISION

The Rincon San Luiseno Band of Mission Indians (Rincon) appealed a determination by the Administration for Children and Families (ACF) disallowing $106,524 charged by Rincon to its Head Start grant. The disallowance was based on audits of Rincon's Head Start program for the 1993-94 and 1995-96 fiscal years. In its review of the audit reports, ACF determined that Rincon failed to meet the non-federal matching requirements for those years in the combined amount of $101,214 and also that Rincon claimed $5,310 in Head Start expenditures for which Rincon had no supporting documentation.

For the reasons discussed below, we find that Rincon failed to adequately document any non-federal contributions to its Head Start program. We further find that ACF appropriately exercised its discretion in denying to Rincon a waiver of its non-federal match. Accordingly, we sustain the disallowance in the amount of $106,124.⁽¹⁾

Applicable Authority

The Head Start program is designed to deliver comprehensive health, educational, nutritional, social and other services to economically disadvantaged children and their families. See 42 U.S.C. � 9831 and 45 C.F.R. � 1304.1-3. ACF provides funds to grantees to serve as Head Start agencies within designated communities and periodically reviews their performance in meeting program and fiscal requirements. See generally 42 U.S.C. � 9836.

The Head Start Improvement Act of 1992, Public Law No. 102-40, provides in section 2(c) that "[f]inancial assistance extended under this subchapter for a Head Start program shall not exceed 80 percent of the approved costs of the assisted program or activities," and gives the Secretary the authority to reduce the required non-federal share below 20% if he determines that certain circumstances are present. 42 U.S.C. � 9835(b). The applicable regulations at 45 C.F.R. � 1301.20(a) provide that "Federal financial assistance granted under the act for a Head Start program shall not exceed 80 percent of the total costs of the program" except in certain circumstances. (The regulations have not been amended to reflect the Secretary's expanded authority under the Head Start Improvement Act of 1992 to reduce the required non-federal share.)

The Terms and Conditions of Rincon's grant awards provided that the awards were subject to the regulations set forth at 45 C.F.R. Part 92, "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments." ACF Ex. 6, at 9. Under these regulations, a grantee may use as its matching share the fair rental value of land, provided that approval is obtained from the awarding agency. 45 C.F.R. � 92.24(e) and (e)(2)(i). Although the regulation specifically applies to situations where the land has been donated by a third party, the same fair rental value rule would presumably apply where the grantee already owns the land. (A similar rule on cost sharing applicable to non-profit Head Start grantees is not limited to third party donations. See 45 C.F.R. � 74.23(g) and Telamon Corporation, DAB No. 1603 (1996).)

Office of Management and Budget (OMB) Circular A-87 sets forth cost principles for state, local, and tribal governments. Regulations at 45 C.F.R. � 92.22(b) provide that the allowability of costs incurred by tribal governments shall be determined in accordance with the provisions of OMB Circular A-87. Under OMB Circular A-87, a cost, in order to be allowable, must be necessary and reasonable for proper and efficient performance and administration of the federal award, be allocable to the particular award, be determined in accordance with generally accepted accounting principles, and be adequately documented. Att. A, � C.1.

The Board has consistently held that it is a fundamental principle of grants management that a grantee is required to document its costs, and that the burden of demonstrating the allowability and allocability of costs for which funding was received under a grant rests with the grantee. See, e.g., Lac Courte Oreilles Tribe, DAB No. 1132, at 5, n.4 (1990); see also 45 C.F.R. �� 74.50-74.53 (1994).

Discussion

Rincon received a financial assistance award to initiate a Head Start program for the grant year September 30, 1993 through September 29, 1994. Rincon Exhibit (Ex.) B. The audit report for Rincon's fiscal year ending September 30, 1994 (CIN A-09-99-56270) stated that documentation could not be located to support the non-federal share of Rincon's Head Start grant, which the audit found to be $57,636. ACF Ex. 1, at 31. The auditors also questioned specific expenditures in the amount of $5,310 charged to the Head Start program for which supporting documentation could not be located. Id. The audit report for Rincon's fiscal year ending September 30, 1996 (CIN A-09-99-56272) stated that documentation could not be located to support the non-federal share of Rincon's Head Start grant, which the auditors found to be $71,017. ACF Ex. 2, at 30.

In its review of these audits, ACF reduced the questioned amounts for failure to document the required 20% non-federal match to $44,550 for FY 1993-94 and $56,664 for FY 1995-96 to reflect 20% of the amount of Head Start funds actually expended by Rincon during the fiscal years in question. April 3, 2001 Notice of Disallowance at third and fourth unnumbered pages.

A. The non-federal matching share

On appeal, Rincon acknowledged that the documentation for its 1993-94 and 1995-96 fiscal years is incomplete. Rincon Brief (Br.) at 3. Rincon nevertheless argued that the disallowance should be reduced to reflect the rental costs of land used by its Head Start program. Rincon's position on precisely how it met its non-federal share obligations has evolved in the course of its appeal. In its notice of appeal, Rincon argued that it was entitled to claim $36,000 per year for the rental value of its property and facilities. In its brief, however, Rincon argued that it included in each of its grant applications an in-kind budget item for land depreciation/use allowance, $10,000 for the 1993-94 fiscal year and $13,216 for the 1995-96 fiscal year. Subsequently in its reply brief, Rincon revised its claim of "Land Depreciation/Use Costs" to "Rental Costs," stating that the latter was the appropriate categorization for this cost pursuant to OMB Circular A-87, Att. B, �38. Reply Br. at 3.

Rincon argued that the rental value of the land used for the Head Start program should be considered as part of its non-federal matching requirement. Rincon stated that for the Head Start program it had set aside land to accommodate four modular buildings, children's bathrooms, a playground, storage facilities, and parking space. Rincon Ex. A at 2. In its reply brief, Rincon requested that the Board keep the record open to allow it the opportunity to seek an appraisal of the rental values in fiscal years 1993-94 and 1995-96 for the property it used for the Head Start program should the Board consider such an appraisal necessary to support Rincon's claim.

After Rincon had failed to document the rental value of the property in question during the regular briefing in this appeal, the Board, in an Order to Develop the Record, discussed the requirements applicable to the donated use of land in Head Start programs and afforded Rincon an additional opportunity to document the rental value of the land in question. Rincon had previously stated in its reply brief that it would contract for an appraisal of the rental values in question (which would require an additional eight weeks to complete) and that it would request the Board to allow it to submit the appraisal into the record. The Board suggested that Rincon consult with ACF as to which type of documentation would be the most probative of rental value for the period in question. Even though Rincon had indicated that it lacked contemporaneous appraisals of the fair rental values, Rincon was not precluded from supplying either appraisals based on documented rental values for comparable parcels of land for the time periods at issue or other similarly probative documentation. The Board gave Rincon 60 days from the receipt of its Order dated November 30, 2001 to submit this documentation and subsequently extended the deadline twice after Rincon indicated that it had undertaken to obtain an appraisal from Lee Hess, Ph.D., of Appraisal Analysts, Inc.

Finally, on March 27, 2002, Rincon submitted a one-page letter dated March 21, 2002 from Bruce Given, a local realtor, who provided his "opinion" as to the rental value of the land. Mr. Given stated that the current value of land in question was $169,119 and that the land would have commanded a value of $88,000 in 1994, with an annual rental value of $10,560, and $106,480 in 1996, with an annual rental value of $12,780. The realtor stated that these figures were "based on a fair return of the value, computed at 12 per cent per annum." Rincon accordingly requested that the disallowance be reduced to reflect the 1994 and 1996 rental values.

In a motion to dismiss, ACF argued that Rincon's submission failed to adequately document the fair rental value of the land. We agree. The letter submitted was not a professional appraisal, but rather an unsubstantiated and unsupported letter from a real estate agent providing only that individual's opinion about the rental value of the property. The individual does not indicate that he is an independent, certified appraiser. He failed to identify the sales or rental value of any comparable properties for the current date of March 21, 2002. He also failed to provide the sales or rental value of any comparable properties for the two years in question, 1994 and 1996, nor did he provide any substantiation for his determination of a historical value for 1994 and 1996 based on his current valuation. He also failed to provide any basis whatsoever to support his use of a 12 percent per annum "fair return on the value" for the two periods in question. Perhaps more importantly, this letter dated March 21, 2002 is in substantial conflict with an opinion from the same individual, dated August 26, 1998, that was previously submitted into the record of this appeal as part of ACF Exhibit 5. At that time, Mr. Given estimated the value of the property in question as $68,825 as of August 26, 1998, apparently relying on six sales comparables that were not made part of the record. In his letter of March 21, 2002, he estimated that the property had a value of $88,000 in 1994, a value of $106,480 in 1996, and a current value of $169,119. Thus, the same individual's unsubstantiated opinion dated March 21, 2002 presented property valuations for 1994 and 1996 that are substantially higher than his estimates of value as of August 26, 1998, which were apparently based on six sales comparables. While Rincon suggested in its March 27, 2002 submission that the 1998 letter provided an estimated value of a smaller section of the Rincon Head Start property, there is no clear indication in either letter or anywhere else in the record to support that allegation. The disparity in property size would have to be quite large indeed to support virtually a doubling in valuation of the land. The 1998 letter describes the property in general terms as encompassing two acres and the 2002 letter includes a more specific description that identifies a specific amount of square footage that is not significantly larger than two acres. Thus, we find that the March 21, 2002 letter from the realtor provides no reliable information in determining the fair rental value of the land.

Moreover, Rincon failed to demonstrate that it has ever received ACF approval for a charge of the fair rental value of its land, which is what the regulation requires as a prerequisite for allowing this charge. 45 C.F.R. � 92.24(e)(2)(1). ACF may require the fair rental value to be set by an independent appraiser and that the value be certified by the grantee. 45 C.F.R. � 92.24(g).

Accordingly, we sustain a disallowance of $101,214 for Rincon's failure to provide its required non-federal share of the expenditures of its Head Start program.⁽²⁾

B. The issue of waivers

Rincon also argued that it had submitted requests for a waiver of the 20% non-federal matching requirement for the years in dispute. In support of this contention, Rincon supplied a letter dated September 1, 1994, requesting that it be permitted to provide a match of eight percent rather than 20%. Rincon Ex. C. Rincon stated that the fact that it had received waivers that resulted in a significant reduction in the non-federal share for its 1994-95 and 1996-97 fiscal years showed that it had sought waivers for the years in dispute.

ACF disputed that it received any waiver requests from Rincon for those years or granted any waivers, and suggested that the September 1, 1994 letter requesting a waiver was made in conjunction with Rincon's funding application for the 1994-95 fiscal year. ACF also noted that the grant award for 1994-95 waived the non-federal share. Rincon Ex. D.

In its Order to Develop the Record, the Board directed the parties to re-examine their records to determine if Rincon had indeed submitted waiver requests for the grant years in question. ACF replied that a review of its records showed no such waiver requests by Rincon. Letter of December 10, 2001. Rincon admitted that it had no documentation that its requests for waivers of the non-federal match for the 1993-94 and 1995-96 fiscal years had been submitted, let alone approved. ACF Ex. 9.

In its Order to Develop the Record, the Board also suggested that Rincon consider requesting retroactive waivers from ACF, submitting supporting explanation and documentation with its request. Rincon subsequently made a request to ACF, but failed to include any supporting explanations or documentation. ACF Ex. 9. ACF denied Rincon's request for a waiver of the non-federal share for the 1993-94 and 1995-96 grant years, stating that it "rarely approves retroactive waivers and only when exceptional circumstances based on clear documentary support apply." ACF Ex. 10.

The Board is bound by applicable laws and regulations (45 C.F.R. � 16.14) and does not have the authority to grant a waiver of the non-federal share. Moreover, the Board may not direct a granting agency to approve such a waiver request, but may only consider whether the agency has abused its discretion in denying a waiver request. See, e.g., Telamon Corporation, DAB No. 1603 (1996); Seminole Nation of Oklahoma, DAB No. 1385 (1993). But here Rincon has failed to allege any circumstances that would justify a waiver under 42 U.S.C. � 9835(b) or submit any documentation at all in support of its waiver request. We therefore find that ACF appropriately exercised its discretion in determining that Rincon has failed to meet the criteria for a waiver of its non-federal match.

Conclusion

For the reasons discussed above, we sustain the disallowance in the amount of $106,124.

Cecilia Sparks Ford

M. Terry Johnson

Donald F. Garrett
Presiding Board Member

1. In the course of its appeal, Rincon admitted that it did not have sufficient documentation to support its claim for $5,310 in expenditures for the 1994 fiscal year and therefore withdrew its appeal for this item. Rincon Br. at 5. ACF, however, discovered an error in the calculation of these disallowed costs in the amount of $400 and accordingly reduced the disallowance for inadequately documented expenditures to $4,910. ACF Br. at 2. In light of Rincon's decision not to challenge this item, we sustain the disallowance for this item in the amount of $4,910. We accordingly reduce the total amount of the disallowance by $400.

2. Rincon also contended on appeal that for the 1995-96 fiscal year it contributed services in the amount of $2,415 to its Head Start program, comprising utilities, telephone, water, and trash services. Once again, however, Rincon failed to adequately document its claim and we are unable to modify the disallowance on that ground.