National Urban League, Inc., DAB No. 289 (1982)

GAB Decision 289

April 30, 1982 National Urban League, Inc.; Docket No. 81-155 Garrett,
Donald; Settle, Norval Ford, Cecilia


The National Urban League, Inc. (NUL or Grantee) appealed $3,243 of a
total disallowance of $4,121 by the Office of Human Development Services
(Agency). The costs were charged to a grant awarded pursuant to the
Child Abuse Prevention and Treatment Act, 42 U.S.C. 5101 et seq., for
the period June 30, 1976 through June 29, 1977. The grant was known as
Project Thrive and its main goal was to provide technical assistance and
other resources to identify, treat, and prevent child abuse and neglect
and alleviate its consequences.

The Grantee contracted with the Indianapolis Urban League, Inc.
(subcontractor) to provide assistance to this project. The exact nature
of the assistance is unclear from the record; however, it is not an
issue in this case.

The Grantee appealed the disallowed costs in four categories:
supplies and equipment , fringe benefits, indirect costs, and
subcontract expenses. Following a telephone conference initiated by the
Board and subsequent discussions between the parties, the parties
resolved the fringe benefits issue and a portion of the supplies and
equipment issue. The remaining issues, representing a total amount of
$2,303.65, are discussed separately below.

There are no material issues of fact in dispute. We, therefore, have
determined to proceed to decision based on the written record. For the
reasons discussed below, we sustain the disallowance.

The Disallowed Costs

A. Supplies and Equipment -- $490.65 ($388 and $102.65)

The audit report on which the disallowance was based questioned the
supplies and equipment expenses because the documentation was either
missing, incomplete, or inadequate. (Audit Report, p. 26) The
documentation submitted by the Grantee to the auditors consisted of
subcontractor's requistitions and invoices. All of the documents were
dated after the expiration of the grant. A note attached to the
September 28, 1977 check requistion for $388 stated, however, "please
note that this amount should be deducted from budget year '76-'77."

(2) The Agency argued that the Grantee failed to provide
documentation that would sufficiently indicate that the specific cost
obligations were within the grant period. Further, the Agency argued
that the Grantee failed to meet the standards of OMB Circular A-110,
Attachment F(2)(g), which states that accounting records must be
supported by source documentation.

We find that the disalloance was properly taken since the Grantee has
not provided sufficient documentation to show that the costs were
allocable to the grant period at issue. Part 74 of 45 CFR, Subpart Q,
Appendix F, B.4. states, in part, that --

(a) cost is allocable if it is assignable or chargeable to a
particular cost objective . . . in accordance with the relative benefits
received . . . .

This Board has previously held that the burden is on the grantee to
demonstrate that costs charged to a grant benefitted the grant project
during the period in question. Florida Farmworkers Council, Inc.,
Decision No. 202, July 31, 1981. In the instant case, the dates on the
requisitions and invoices indicate that the supplies and equipment were
purchased and delivered after the grant expired. A handwritten notation
attributing some of the costs to the grant period is not sufficient
evidence that those costs were allocable to that period in the absence
of any explanation of why the requisitions and invoices showed later
dates. Accordingly, we sustain the disallowance for this item.

B. Subcontract Expenses -- $699

The Agency disallowed $699 of subcontract expenses based on the
auditors' finding that the total amount of expenses claimed by the
Grantee exceeded the costs recorded in the subcontractor's books and
records by this amount.(Audit Report, p. 24) The Grantee based its
appeal of this disallowance on the failure of the auditors to identify
the cost classifications which were overstated. The Grantee stated that
"(a) comprehensive audit procedure would have included a comparison of
all objective costs recorded on the ledger to all related costs claimed
on the subcontractor's financial report to determine which cost category
was overstated." (Grantee's Statement of Position, p. 3) The Agency
argued that the Grantee has attempted to shift the burden of proof that
the Grantee bears in providing proper documentation.

We agree with the Agency that the Grantee has the burden of
documentation of costs. This Board has previously stated that ". . .
the most elementary principle of grant administration is the requirement
that a grantee have documentation to show that claimed expenses were, in
fact, incurred to further the purposes of the project." (Neighborhood
(3) Services Department, Decision No. 110, July 15, 1980) In the instant
case, the Grantee was advised that the documentation made available to
the auditors supported only a certain amount of the costs claimed. It
is the Grantee's responsibility to examine its own records and to
produce documentation supporting any additional costs. Accordingly, we
sustain the disallowance for this item.

C. Indirect Costs -- $1,114 /1/


The program budget attached to the subcontract provided for an
indirect cost rate of 15% of direct costs to reimburse the
subcontractor. The Grantee, however, reimbursed the subcontractor using
a higher indirect cost rate that the Grantee had negotiated with the
Government applicable to Grantee's own costs. The auditors stated, and
the Agency agreed, that the provisions of the subcontract govern
indirect costs with respect to rate and base, and therefore, the amount
claimed exceeded the amount to which the subcontractor was entitled.
(Audit Report, p. 26)

The Grantee argued that "(standard) grant administration procedures
provide that a contractor's effective indirect cost rate and the
availability of funds govern the recovery of indirect cost." It did not
cite any specific provision of applicable regulations or guidelines,
however. (Grantee's Statement of Position, p. 3) The Grantee also
argued that the only section of the subcontract in which rates and bases
are used is in the budget, and that they are used for budgetary purposes
only.

The Agency argued that what governs the rate and base for purposes of
determining a subcontractor's indirect cost is the agreement between the
Grantee and the subcontractor, and not the agreement that exists between
the Grantee and the Government.

We find that there is nothing in the record to indicate that the
indirect cost rate specified in the attachment to the subcontract was
for budget purposes only, and, therefore, conclude that the
subcontractor was bound by this indirect cost rate.

The indirect cost rate that was negotiated between the Grantee and
the Government was not intended to determine the amount of overhead
costs for which a subcontractor may be reimbursed. The rate at which
those (4) costs may be reimbursed is instead determined by agreement of
the parties to the subcontract. This is made clear by Chapter
6-100-30E. of the HHS Grants Administration Manual, which states, in
part, that --

. . . grantees will be responsible for negotiating appropriate
indirect cost rates with subgrantees and cost-type contractors . . .
awarded funds under HEW grants . . . . Such negotiations will be based
on the HEW cost principles applicable to the subgrantee . . . . The
procedures followed by the grantee in conducting the negotiations will
be subject to review and audit by, or on behalf of, the Department. . .
.

Subject to review by the Government, the indirect cost rate between
the Grantee and the subcontractor could have been higher, lower or the
same as the rate negotiated between the Grantee and the Government;
however, the rates even if the same would still have been independent of
each other. Accordingly, we sustain the disallowance on the ground that
the indirect cost rate applicable to the subcontractor was that
specified in its contract with the Grantee.

Conclusion

For the foregoing reasons, the Board's disposition of the OHDS
disallowance is as follows:

A. Supplies and Equipment: $490.64 sustained.

B. Subcontract Expenses: $699 sustained.

C. Indirect costs: The final amount to be calculated by the Agency,
sustained. /1/ This amount represents the disallowance for indirect
costs originally taken by the Agency. The Agency correctly
stated, however, that the final amount to be disallowed as indirect
costs must await the resolution of the allowability of the other cost
items under appeal. (Agency brief, p. 8)

OCTOBER 22, 1983