GAB Decision 242
December 31, 1981 Economic Opportunity Agency of Pulaski County, Inc.;
Docket No. 80-155 Ford, Cecilia; Settle, Norval Garrett, Donald
Introduction
The Economic Opportunity Agency of Pulaski County, Inc. (Grantee)
appealed a determination of the Office of Human Development Services
(Agency) to disallow funds from the Grantee's Head Start grant. The
Agency disallowed a total of $30,119 but later withdrew the disallowance
as to one issue involving 5,065. The only issue now before the Board
concerns the use of $25,054 from an unemployment escrow fund to pay
program expenses which exceeded the amount of federal funds awarded to
the Grantee during the thirteen month period which ended August 31,
1979.
This decision is based on the Grantee's initial letter and
supplementary briefing with documentation; the Agency's response to the
appeal; a telephone conference on July 13, 1981 among the parties and a
Board staff attorney; a submission by the Grantee pertaining to the
telephone conference; a second telephone conference among the parties,
a Board staff attorney, and the Presiding Board Member; and
supplemental briefing by both parties.
Initially, the Grantee requested a hearing; it later modified its
request to one for a conference. The Grantee subsequently agreed to
participate in a telephone conference which was preceded by a Notice
from the Board setting out its analysis of the case. The Grantee did
not request a further conference. We determined that a hearing was not
necessary because there had been no demonstration of material facts in
dispute the resolution of which would be significantly aided by a
hearing. We also determined that both sides had ample opportunity to
present their arguments both in written submissions and orally. We
have, therefore, proceeded to decision, and we uphold the disallowance
for the reasons state below.
(2) Statement of the Case
According to the audit report (ACN 06-06125) for the Grantee's
full-year Head Start program, the approved HHS share of expenditures for
the thirteen months in question was $1,005,546. The audit report shows
that actual expenditures in the same amount were charged to HHS. The
auditors explained the calculation of actual expenditures in a letter
that was a result of the first telephone conference. The approved
budget expenditures for fringe benefits totalled $96,690. The $25,054
in question was credited to the "actual expenditures" for fringe
benefits. As a result, the "actual expenditures" column shows a total
expenditure of $70,066. Had this credit not been made, fringe benefit
expenditures would have been $95,120, which still would have been within
the line item budget. Total expenditures would not have been within the
approved budget limits however, because there were line item
overexpenditures in several other categories that totalled $25,054 more
that the lone item underexpenditures. If the $25,054 credit had not
been made, total expenditures would have been $1,030,602 rather than
$1,005,546.
The issue in this appeal is the propriety of the $25,054 credit of
Head Start funds to cover the $25,054 overexpenditure.
The Grantee justified the $25,054 credit in the following manner.
The Grantee has set up its own private trust fund to pay unemployment
benefits.Each program run by the Grantee had its separate income and
expense accounts in the fund. (Applcation for Review, p. 2.) According
to the Grantee, because of a problem in its accounting department, it
did not notice that funds in the Head Start escrow account had
accumulated to an excessive level over several years. Once the excess
was noticed, the Grantee "put back (the funds) into our program as a
credit to costs as allowable under Title 45, Part 74, Appendix F, B.5.
. . ." (Ibid.)
Discussion
Although it appeared that the Grantee was arguing that the $25,054
was derived from federal Head Start funds, the Board queried whether a
portion of the funds might have represented the Grantee's own
contribution to the Head Start program through its "non-Federal share."
In its response of November 10, 1981 the Grantee indicated that the Head
Start account had either been exhausted or very nearly exhausted and
that the excess funds in its escrow account must have come from one or
more of 23 other projects the Grantee administered. The Grantee stated:
From March, 1973, through August, 1979, EOA through its Headstart
project deposited into the unemployment escrow account $35,130.74. The
grantee's claim records for 1978 show that the total claims (3) paid
from the unemployment escrow account for the benefit of the grantee's
former Headstart employees were $5,179.019 Using that figure for each
year from 1973-1978, the total amount paid in unemployment claims from
the unemployment escrow account for the benefit of the grantee's former
employees would be $31,074.00. Further, the actual claims paid in 1979
were $3,333.00, for a combined total for the period 1973-1979 of
$34,407.00.
The grantee's records reflect the amount of money each project
contributed to the escrow account for its employees, but did not break
down the amount of claims paid out for each project. This is because
the grantee's employees occasionally transfer from project to project
within the grantee's components, which would make it difficult to
determine exactly how much each project should be charged for each
actual unemployment compensation paid by the trust.
The Agency in its response to the Grantee's November 10th statement
strenuously objected to "the Grantee's guesswork in concluding that an
average of $5,179.01 was paid for Head Start employees each year from
1973 through 1977." The Agency also noted the Grantee's failure to
document even the amount paid for the benefit of Head Start employees in
1978 and 1979. Based on the Grantee's earlier statements in this appeal
concerning separate income and expense accounts, the Agency felt that
the Head Start funds should be easily traceable and should clearly
reflect income and expenses. The Agency also wondered why specific
figures allegedly were available for 1978 and 1979 but not for earlier
years. The Agency concluded that since no records of claims against the
account were submitted, it was not possible to find that any claims had
been paid out of Head Start accounts for the years in question.
We agree with the Agency. The Grantee initially raised the issue of
excess Head Start funds in its escrow account by arguing that they could
be viewed as a credit under 45 CFR Part 74, Appendix F, B.5. By
definition this provision applies to the return of funds that had
originally been provided to a grantee from the granting agency.
Moreover, the Grantee stated unequivocally that $35,130.74 of Head Start
funds had been paid into the escrow account from 1973 through 1979, but
failed to document the amounts leaving the account for unemployment
claims for any of the years. There is no basis, legal or other, to
conclude that since a particular amount might have been paid out in
1978, the same amount was also paid out in the five preceding years. We
are also troubled by the contradictions in the Grantee's position as it
evolved -- for example, concerning the existence of separate escrow
accounts for each (4) of its projects. Finally, we note that while the
Grantee argued that only a small amount of the excess was Head Start
funds, it did not identify affirmatively which of the other projects was
the source of the funds and exactly how much of an excess existed in the
account as a whole. /1/ Accordingly, in the absence of any documentation
that funds left the Head Start escrow account, we conclude that the
excess funds in the account were Head Start funds.
Having reached this conclusion, we now consider the effect of the
applicable credit regulation which the Grantee argued permitted it to
use the excess escrow account funds to cover a 1979 overexpenditure of
$25,054.
45 CFR Part 74, Appendix F, B.5 states:
Applicable Credits. The term applicable credits refers to those
receipt or negative expenditure types of transactions which operate to
offset or reduce expense items that are allocable to grants or contracts
as direct or indirect costs. Typical examples of such transactions are:
purchase discounts, rebates or allowances; recoveries or indemnities on
losses; sales of scrap or incidental services; and adjustments of
overpayments or erroneous charges. The applicable portion of any
income, rebate, allowance, and other credit relating to any allowable
cost, received by or accruing to the grantee/ contractor shall be credit
to the Government either as a cost reduction or by cash refund, as
appropriate. (emphasis added)
Under this provision, the Grantee could have an applicable credit for
unused escrow amounts but the credit could only be applied against
actual unemployment expenditures for a given budget period and in no
instance could the credit be higher than the actual expenditures for
that period. Using that analysis, it appears that the Grantee may have
had unobligated balances for some or all of the budget years in question
resulting from "credits" even though the Grantee did not present
documentation which would enable the Agency to determine the extent of
the credits for particular years.
(5) The OHD Grants Administration Manual chapter 1-1-3 (published at
42 Fed. Reg. 21046 et seq.) states that a grantee may only use an
unobligated balance in a budget period subsequent to that for which the
funds were awarded if there has been prior written approval from the
authorized official of the granting office. There is no evidence in the
file that a request was made by the Grantee to the Agency to carry over
the funds. In the absence of a request and approval of a carryover to
offset overexpenditures, we must sustain the disallowance. /2/
In its application for review, the Grantee raised several "equitable"
arguments (pp. 2-3) to justify use of the escrow excess for the
overexpenditure. The Grantee may be correct that the line item
overexpenditures may otherwise have been allowable and that it was
running an admirable project, but it has been the Board's position that
if the Grantee's action was unauthorized, then the Board will not excuse
it. See, e.g., American Foundation for Negro Affairs, Decision No. 73,
December 28, 1979.
Conclusion
Based on the reasons stated above, we uphold the disallowance of
$25,054. /1/ Indeed, even if the Grantee could demonstrate that the
funds were derived from other projects, it still might have to overcome
substantial legal hurdles (not necessarily within our jurisdiction)
before it could use those funds for Head Start purposes because such use
would involve, for example, issues concerning allowability under the
source projects. /2/ If the Grantee can document to the Agency's
satisfaction that some part of the $35,130.74 contributed into the Head
Start account of the escrow fund was done so in the thirteen months
which ended August 31, 1979, then the Agency should consider whether a
credit can be applied to the 1979 contribution as a reduction of
expenditures and thereby reduce the net overexpenditure.
OCTOBER 22, 1983