GAB Decision 227
November 6, 1981 Southern Alameda County Head Start Program, Inc.;
Docket No. 81-12 Ford, Cecilia; Teitz, Alexander Garrett, Donald
The Southern Alameda County Head Start Program, Inc. (Grantee)
appealed from a disallowance of $7724 by the Office of Human Development
Services (Agency). The Agency disallowed a claim by the Grantee for
food-related costs because the Grantee was reimbursed by the Department
of Agriculture (USDA) in the amount of $7724 for the costs also charged
to Head Start funds. We conclude that the disallowance should be upheld
because the Grantee did not follow Agency cost principles requiring that
Head Start grants be reimbursed for food expenditures to the extent that
a grantee receives USDA payments for such costs.
This decision is based on the Grantee's application for review, the
Agency's response, the Board's Order to Show Cause discussing the
issues, and the Grantee's letter responding to the Order to Show Cause.
The Board's Order contained a discussion of the applicable cost
principles and a tentative conclusion that these principles do not allow
Head Start funds to be used for food-related costs when a grantee
receives USDA funds for that purpose. The Grantee submitted a letter
stating that the Agency's response to its application for review
clarified the rationale for the disallowance and that "(further)
discussion or review is not required by this Head Start Program." In
view of this statement and the analysis set forth in the Order to Show
Cause, we sustain the disallowance and incorporate that Order into this
decision.
(2) August 7, 1981
ORDER TO SHOW CAUSE
The Southern Alameda County Head Start Program, Inc. (Grantee), in a
letter dated January 26, 1981, applied for review of a determination by
the Office of Human Development Services (Agency) disallowing $7724 in
food-related costs because the Grantee was reimbursed in that amount by
the Department of Agriculture (USDA).
The purpose of this Order is to identify the issues in this appeal
and to provide a basis for additional briefing by the Grantee before the
Board proceeds to decision. The Order is based on the Grantee's
Application for Review and the Agency's response.
Background
The disallowance appealed from was made after an audit of a Head
Start grant for the program year ending February 28, 1979 (Program Year
"M"). The Notice of Disallowance indicated (page 2) that the Grantee's
final financial report for that year did not disclose USDA food
reimbursements; the auditors recommended that the Grantee make a
supplemental statement indicating receipt of any such reimbursements and
whether they were applied to grant expenditures. The Grantee's response
showed that USDA food program funds in the amount of $7724 were earned
and received during program year "M" and that they were not applied
to
the Head Start food expenditures.
The Grantee's Application for Review (page 1) states that in the
previous program year ("L", ending February 28, 1978), $20,231 of
Head
State costs were disallowed because they were in excess of the grant
award. There is no indication whether these were food-related costs.
These costs were paid by the Grantee's general fund, which then
reflected a deficit. During program year "M" the Grantee placed the
USDA funds received ($7724) into the general fund to partially offset
the deficit.
Discussion
The Grantee argues that the USDA funds (Child Care Nutrition Program)
may be used to offset the deficit under USDA's allowable cost principles
and accrual accounting practices. The Grantee stated, "It appears
unfair to expect a program to absorb its year end losses, but to give up
funds which were not applied to current year budgeted expenditures."
(Application for Review)
(3) The Agency argues that Head Start grant funds used to pay food
costs must be reimbursed to the extent a Grantee receives payments from
USDA for such costs. The Office of Human Development Grants
Administration Manual (dated January, 1977 and published at 42 FR 21046,
April 22, 1977) (here-inafter referred to as OHD/GAM) provides that when
a grantee is reimbursed by a non-OHD Federal agency for carrying on
activities supported by an OHD grant, the reimbursement is to be used to
reduce or eliminate the previous expenditure of OHD funds. The
resultant balance in a Head Start grant "may be retained by the grantee,
but shall not be expended without the prior approval of the responsible
granting office." (Chapter 3, Financial and Administrative Requirements,
C., page 1-3-2.) Had the Grantee followed the reimbursement procedure,
however, it would not have been able to obtain approval for paying the
excess costs of the previous program year from the Head Start funds
which would be available had the Grantee followed the reimbursement
procedure. PHD/GAM, Chapter 1, H. 2 precludes payment of expenditures
incurred prior to the beginning date of a continuation award, unless
those items for which expenditures were made are incorporated in the
approved budget of the continuation grant.
OHD/GAM sets forth policies applying specifically to Head Start
grants. That section contains a requirement that Head Start grantees
who are reimbursed by other Federal agencies for grant-supported
activities (e.g., USDA payments for nutrition activities) should report
such reimbursements and should also include in their report whether such
funds replace Head Start grant funds originally budgeted for the same
purpose, resulting in an unobligated grant balance (Chapter 4, Reporting
Requirements, A. 2).
It would appear that the Grantee has not followed the principle set
forth in the OHD/GAM that it must reimburse the Head Start grant to the
extent it receives USDA payments for food expenditures. The possibility
that USDA cost principles might allow USDA funds to be used as Grantee
has done seems irrelevant. The issue appears to be the allowability of
using Head Start funds for food costs when the Grantee has received USDA
funds for that purpose. Agency policy appears to preclude such use of
its funds and, therefore, the disallowance of $7724 would appear to be
reasonable.
Order
It does not appear likely that an evidentiary hearing will be
required or that an informal conference will be useful in this appeal.
Accordingly, it is directed that, within 30 days of the receipt of
this Order, the Grantee show cause in writing why the Board should not
proceed to decision, identifying the respects, if any, in which the
foregoing summary is incomplete or inaccurate and the issues of material
fact, if any, which are in dispute.
All further submissions or correspondence should refer to the Board's
docket number shown above and should be filed in accordance with 45 CFR
16.53 in an original and two copies (note that this is a modification
(4) of the Board's current rules). The original should be accompanied
by a certificate showing service on the other party.
OCTOBER 22, 1983