GAB Decision 294
April 30, 1982 National Urban League, Inc.; Docket No. 81-160 Garrett,
Donald; Settle, Norval Ford, Cecilia
The National Urban League, Inc. (NUL or Grantee) appealed $5,781 of a
$6,781 disallowance by the Office of Human Development Services (Agency
or OHDS). The Agency determined that NUL could not charge certain
subcontract costs to an OHDS grant. The issue in this case is whether
the payment by the Grantee to its subcontractor should be based on a
percentage of the subcontractor's total budget, or a percentage only of
the portion of the budget characterized as "restricted".
There are no material issues of fact in dispute. We, therefore, have
determined to proceed to decision based on the written record. For
reasons discussed below, we reverse the disallowance.
Background
The Grantee received funds from OHDS under IV-B of the Social
Security Act, Child Welfare Services. The Grantee used a portion of the
funds for the NUL Interagency Adoption Project (the Project), which is
the subject of this appeal, for the grant period June 30, 1977 through
November 30, 1978.
The Grantee entered into an agreement with the Afro-American Family
and Community Services, Inc. (AFCS) to assist NUL in implementing the
goals and objectives of the Project. The Grantee agreed to pay AFCS a
sum not to exceed $16,500, a portion of which was to be paid upon the
signing of the agreement, a portion to be paid on a quarterly basis upon
request and presentation of invoices, receipts, bills and other proper
documentation, and a final payment to be paid upon the completion of the
terms of the agreement. The agreement specified that payment was to be
made " . . . for costs incurred in the accomplishment of the work to be
performed under this agreement, as itemized in the approved budget . . .
." (Agency appeal file, attachment 2, p. 3)
The Agency based its disallowance on Condition 2 of an audit report
issued on January 10, 1980. Condition 2 of the audit report stated that
$5,781 of contractual expenses were questioned because the Grantee paid
more of the "budget percentage" than allowable, as calculated by the
auditors. The auditors reasoned that, since the $16,500 limit on the
Grantee' s contribution to AFCS had been based on budgeted expenses
totalling $64,848, Grantee's actual contribution should be the same
percentage of AFCS's documented expenses as $16,500 was of $64,848. The
auditors thus determined that the allowable (2) contribution was 25.4%
(16,500 divided by 64,848) of $34,468, AFCS's documented expenses for
the Project. /1/ (Audit Report, Schedule B-6, p. 14)
The Grantee did not object to the auditors' use of a budget
percentage to determine its allowable costs under the agreement. It
stated, however, that AFCS's total documented expenses of $34,468
represented "restricted" expenses only. According to the Grantee,
the
funds provided to AFCS were classified as either restricted or
unrestricted and only costs covered with restricted funds had to be
documented.
The Grantee further explained that the computation done by the
auditors to determine the budget percentage allocated to NUL included
both restricted and unrestricted revenue, but that NUL's liability was
tied to the restricted expenses category only. The Grantee reasoned
that, since AFCS's total restricted budget was $31,500, NUL should pay
52.4% (16,500 divided by 31,500) of AFCS's total restricted expenses, up
to the maximum contract limit of $16,500.
The Agency, in its response to the Grantee's appeal, did not cite any
relevant statutes or regulations for its position, but stated that --
Respondent and Appellant agree that Appellant's liability under the
agreement is tied to project expenses. What remains in dispute is the
particular expense classification this liability is tied to and the
method by which Appellant's proportional share of these expenses is
calculated. (Agency brief, p. 2)
The Agency argued that "(the) Appellant's contribution was restricted
only insofar as it could only be expended on project related matters."
(Agency Brief, p. 5) The Agency argued that the reference to a
restricted versus unrestricted classification was meaningless.
The Agency stated that languate in the agreement supports its view
that Grantee's payment to AFCS was to defray a proportional share of the
$64,868 in total budgeted expenses. The Agency pointed out that NUL was
required to pay AFCS "for costs . . . as itemized in the approved
budget," which provided for "Grand Total Expenses." Therefore,
the
Agency argued, the NUL contribution to AFCS was unrestricted because
Grantee's money could be applied to cover any expenses incurred by AFCS
in accordance with the Project budget.
Discussion
There is nothing in the agreement between the Grantee and the
subcontractor that requires that NUL's payment be viewed as a
proportionate share of the (3) total budget. On the other hand, the
AFCS budget sheet provides support for the Grantee's position that there
were separate categories for restricted and unrestricted funds. The
AFCS budget for fiscal year 1978 lists a "total revenue and restricted
support" category, including payments by the Grantee, which are
described as a "program service fee." Additionally, the budget
specifically lists other sources of funds which combined with the
restricted support to total the entire budgeted revenue. (Agency appeal
file, attachment 2, budget)
Although we agree with the Agency that NUL's contribution was not
tied to specific cost items from the budget, and in that sense was
unrestricted, this does not address Grantee's argument. Grantee's point
is that only some of the funds, contributed by Grantee and other
sources, were restricted in the sense that AFCS had to document the
costs to which they were applied. Thus, if we were to view Grantee's
payment as being limited to a proportionate share of allowable costs, we
would adopt the Grantee's interpretation as to how to determine the
proper proportion. The interpretation is a reasonable one, which has
more weight since the Grantee was a party to the agreement.
We also note that the agreement could be viewed as a cost
reimbursement contract. It specifically provides for a period of
performance, July 1, 1977 through June 30, 1978, and lists tasks to be
performed by AFCS for NUL, such as recruitment of adoptive families,
acceptance of families for home studies, assignment of adoption
specialists, completion of a minimum of ten to fifteen adoptions and
other activities related to the Project. The agreement provides for
payment "for costs incurred" to perform these tasks. (Agency appeal
file, attachment 2, pp. 1-3).
Further, the agreement provides for an initial lump sum payment to be
made to AFCS, additional payments on a quarterly basis and a final
payment upon the completion of the terms of the agreement. (Agency
appeal file, attachment 2, p. 3). Payment is contingent on presentation
by AFCS of proper documentation.
Neither the auditors nor the Agency questioned the terms of the
agreement, or whether the tasks were performed. Nor did the auditors or
the Agency determine that the Project did not receive a benefit from the
performance of those tasks to the extent of the NUL payments to AFCS.
The AFCS had documented costs of $34,468 which the Agency accepted as
allowable. /2/
Thus, we can reasonably conclude, based on the evidence in the
record, that an agreement existed between the Grantee and the
subcontractor to provide a certain amount of services for the Project,
which the subcontractor did provide. (4) Conclusion
For the reasons stated above, we find that the payments made by the
Grantee to its subcontractor were within the terms of the written
agreement. Therefore, the disallowance of $5,781 by OHDS is reversed.
/1/ AFCS claimed and was paid $14,536 under the NUL subcontract.
The disallowed amount is the difference between NUL's actual payment and
25.4% of the total documented expenses of $34,468.($ 5,781 is $14,536
less 25.4% of $34,468) /2/ Although the audit report indicated
that some of the costs claimed by AFCS from NUL did not reflect the
expenditures recorded in the books and records by cost category, both
the auditors and the Agency included the full $34,468 as Project costs
for purposes of determining NUL's proper share.
OCTOBER 22, 1983