GAB Decision 317
June 28, 1982 Southeast Mississippi Community Action Agency; Docket No.
81-41 Garrett, Donald; Settle, Norval Teitz, Alexander
Southeast Mississippi Community Action Agency (SMCAA) appealed a
decision by the Region IV Office of Human Development Services (Agency)
pertaining to SMCAA's Head Start program.The disallowance was based on
overexpenditures identified in an audit of the Year L program which
ended April 30, 1979 (Audit Control No. 04-06087).
During the pendency of the appeal, the Agency notified SMCAA that it
was withdrawing all parts of the disallowance except for that pertaining
to the issues of allowability of equipment costs which exceeded the
approved budget by $21,702 and a loan to the Community Food and
Nutrition Program. The $21,702 consisted of an alleged overexpenditure
of $19,298 in the Full Year/Part Day program and $2404 in the
Handicapped program. There were several components of these items, and
the Agency notified SMCAA and the Board in a May 6, 1982 letter that it
was withdrawing its disallowance as to one of the components: $15,245
pertaining to a vehicle purchases as part of the Full Year/Part Day
program. Remaining in dispute therefore is $6457 in equipment costs --
$4053 in the Full Year/Part Day program and $2404 in the Handicapped
program -- and a $356 loan. The $6457 represents line item
overexpenditures; total budgets were not overexpended.
(1) Based on the record in this appeal which includes two telephone
conferences, we overturn the remaining portions of the disallowance
pertaining to the equipment expenditures, to the extent that SMCAA can
provide certain information to the Agency, as described on page 3. To
the extent that SMCAA used USDA funds to cover any equipment
expenditures, the amount equal to the USDA reimbursement must be repaid
to the Agency, as described on page 4. We uphold the disallowance
pertaining to the loan.
(1) THE EQUIPMENT EXPENDITURES
(1) The Agency's basis for the disallowance was 45 CFR Part 74,
Appendix F, G.7 (1978), which states:
(2) Capital expenditures. The costs of equipment, buildings, and
repairs which materially increase the value or useful life of buildings
or equipment, are unallowable except as provided for in the grant/
contract.
The Agency argued that equipment costs in excess of the budget would
require prior approval, and that the Grantee failed to obtain such
approval.
Budget Revision
SMCAA claimed in its last submission that it had a revised budget
which increased the Handicapped program's "equipment" category from
$300
to $2300 and added $3000 for classroom equipment. As documentation, it
provided a copy of a supplementary grant award for the period September
1, 1978 through August 31, 1979, signed by the Agency on September 1,
1978. This document awards an additional $30,000 in federal funds for
the Handicapped program. SMCAA stated that it received the award and
then submitted a revised budget within 45 days. It provided a copy of
this budget revision which requested a total of $30,000 of which $2000
was for equipment ($300 or more) and $3000 was for "classroom equipment
and supplies."
A close examination of the Notices of Grant Awarded and the audit
report shows the following: (1) the supplementary award did add the
$30,000 but did not increase the "equipment" category at all and only
increased the "supplies" category by $360; (2) The audit report, upon
which the disallowance was based, also took into account the
supplementary award (see "Statement of Changes in Fund Balance for the
Year Ended April 30, 1979"); (3) The "other" category noted on
the
supplementary award was increased by $53,394. The audit report shows
that taking into account the Agency's modifications of the disallowance,
there were surpluses in both the Handicapped and Full Year/Part Day
programs in that line item. This will be discussed below.
The Agency asserted that it had no evidence that it ever approved the
post-supplementary award "budget revision" or even received it. The
Grantee admitted that it has no evidence that the line item changes as
noted in the revision were approved (Telephone conference, May 5, 1982).
Based on all of the above, we cannot find that the Agency had approved a
supplemental $2000 for equipment and $3000 for classroom equipment and
supplies.
Requirement for Approval
SMCAA argued that the approval requirement relied upon by the Agency
applies only to equipment with an acquisition cost of $300 or more per
unit. This argument is based on the definition of "equipment in 45 CFR
74.132 (1978). SMCAA argued that no approval was required because unit
cost did not exceed $300. The Office of Human Development (OHD) Grants
Administration Manual /1/ at 1-1-8 supports SMCAA's arguments in that it
requires prior approval for budget revisions involving the acquisition
of equipment, which is defined as nonexpendable personal property having
a unit cost of $300 or more. Except for the list in 1-1-8, revisions
between budget categories within the total direct costs budget are
allowable without approval. The regulatory provisions at 45 CFR 74.105
also do not require prior approval for budget revisions of this type.
(3) An examination of the auditors' "Statement of Revenues and
Expenses" in light of the Agency's modifications of the disallowance
reveals that there were underexpenditures in some budget categories
which SMCAA might properly use to cover at least part of the excess
equipment expenditures. For example, in the "other" category in the
Full Year/Part Day program, there appears to be $48,685 in surplus; in
the same category in the Handicapped program, there appears to be
$27,980 in surplus. /2/ To the extent tha SMCAA can show to the Agency's
satisfaction that in each program there is an amount of equipment with a
unit cost of less than $300 per unit equal to the amount of
overexpenditures in each "equipment" category, the disallowance is
overturned.
Other Arguments
During the course of the appeal, SMCAA also provided explanations of
what it considered mitigating circumstances. As explained below, these
provide an alternative basis for a disallowance and lead to a
determination that SMCAA must return perhaps as much as $4,030 to the
Agency, despite our conclusion above.
1. $2086 USDA Reimbursement
SMCAA stated that it had used $2086 in Headstart funds to purchase
kitchen equipment, and that it had been reimbursed by the USDA for these
purchases. SMCAA has provided a deposit slip and a statement of account
from a bank showing that $5027.76 was deposited into SMCAA's Head Start
account on January 17, 1980. The deposit slip identified $5000.10 of
the figure as "State of MS - nutrition, 682-806 equipment." In effect,
SMCAA admitted that the items for which $2086 was expended are not now
allocable and allowable costs to the Head Start program because USDA
funds have been used to cover them.
(4) The OHD Grants Administration Manual 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 (Chapter 3, Financial
and Administrative Requirements, C., p. 1-3-2). The reimbursement is an
applicable credit (see 45 CFR Part 74, Appendix F, B.5). SMCAA has
shown that a sum of money was deposited into its Head Start account, but
that is not sufficient.
Since these were being covered by the USDA reimbursement, SMCAA would
have had to show that the reimbursement was used by SMCAA to reduce or
eliminate the previous federal Head Start payments. At this point,
after the end of the grant year in question, the only remedy to prevent
double claiming is for SMCAA to return the $2086 to the Agency. In
addition, to the extent that these purchases which SMCAA stated were
being covered by USDA funds might be placed in the category of equipment
with a unit cost of $300 or less as explained above, such placement
would be improper since these equipment costs are now unallowable Head
Start costs.
2. $4371 in Equipment Purchases
a. Improperly categorized costs
SMCAA asserted that $4371 was incorrectly categorized as "equipment"
purchases. A list submitted by SMCAA on January 20, 1982, which
identified by item $1944 of the $4371, is captioned "equipment"
purchased in year L and lists chairs, coat racks, filmstrips, and a
kiln, all with a unit costs of less than $300. The Agency stated that
if SMCAA submitted a statement from its CPA describing what costs had
originally been placed in the "equipment" category and what properly
should have been in that category, the Agency might reconsider this
portion of the disallowance. In its last submission, SMCAA stated that
it could not submit a CPA statement.SMCAA, therefore, has not provided
sufficient evidence that costs (some specifically identified, others
not) had been placed in the incorrect category in the audit report.
b. USDA reimbursement
SMCAA requested that it be allowed to use the $5000.10 that it
identified as a USDA reimbursement to offset the overexpenditure of the
$1944 identified in its January 20, 1982 submission.
(5) Leaving aside the issue of whether a USDA reimbursement could
properly be used for such purchases as coat racks and a kiln, if SMCAA's
request was an admission that these costs are not now allocable and
allowable costs of the Head Start program, then as explained in 1.
above, SMCAA must return $1944 to the Agency. Finally, to the extent
that these purchases might be placed in the category of equipment with a
unit cost of $300 or less as explained above, such placement would be
improper since, if SMCAA wishes to have their cost covered by USDA
funds, the equipments costs would be unallowable Head Start costs.
THE LOAN
SMCAA loaned Head Start funds to the Community Food and Nutrition
Program. The Agency's basis for the disallowance of the loan was never
articulated during the appeal, but SMCAA seemed to agree that a loan to
another program was an unallowable charge to its Head Start program. It
stated earlier in the appeal that it expected to be reimbursed. In its
last submission, SMCAA admitted that it could provide no documentation
of reimbursement. SMCAA has not provided any evidence that the cost was
allowable; therefore, the disallowance is upheld.
Conclusion
The disallowance pertaining to equipment overexpenditures is
overturned only to the extent that SMCAA can make certain showings, as
explained fully above. To the extent that USDA funds were used to cover
equipment expenditures, a sum equal to the USDA reimbursement must be
returned to the Agency. The disallowance pertaining to the $356 loan is
upheld. /1/ The Manual is dated January 1977 and was published at 42 FR
21046, April 22, 1977. /2/ The assumption behind the calculation
of these figures is that the costs found allowable by the Agency during
the appeal would be covered Other Arguments by transferring the excess
from the "other" category to the categories in which the now allowable
costs were claimed.
OCTOBER 22, 1983