GAB Decision 571
Docket No. 84-17
September 12, 1984
Texas Department on Aging;
Garrett, Donald; Teitz, Alexander Ford, Cecilia
Background
The Texas Department on Aging (TDA, Texas) appealed a decision by the
Office of Human Development Services (Agency) to disallow two cost items
claimed by TDA under grants awarded pursuant to Title III of the Older
Americans Act of 1965 as amended, 42 U.S.C. 3001 et seq. The program is
administered by the Administration on Aging, part of the Office of Human
Development Services, and provides for formula grants to state agencies
on aging under approved state plans for the development of systems of
delivery to older persons of social services, including senior centers,
and nutrition services. 45 CFR Part 1321. /1/
The Texas State Auditor conducted an audit of TDA records for the
years ending August o1 of 1980 and 1981. Using this audit, the Agency
disallowed (1) $183,486 based on TDA's failure to issue a formal Notice
of Grant Award (NGA) to one subgrantee authorizing supplemental funds
for federal fiscal year (FY) 1980 (Finding Code 0202) and (2) $377,244
based on the use of FY 1980 federal funds for FY 1979 expenditures
(Finding Code 0302).
This decision is based on the parties' submissions, the transcript of
an informal conference, and the tape recording of a conference call held
September 6, 1984. For the reasons discussed below, we reverse $183,486
under Finding Code 0202, and reverse $315,377.67 and sustain $61,866.33
under Finding Code 0302.
(2) Finding Code 0202
The audit conducted by the State Auditor found that one subgrantee,
Community Council of Greater Dallas (Dallas), had expenditures during FY
1980 in excess of its grant; TDA had not issued a formal supplemental
NGA authorizing $183,486 expended by Dallas. The Agency based the
disallowance on 45 CFR 1321.197 which provides that the state agency
must obligate any funds received under the Older Americans Act during
the fiscal year in which they are allotted. The Agency asserted that
because no NGA was issued to Dallas during FY 1980, there was no
obligation.
TDA asserted, and the Agency did not contest, that TDA intended to
issue the NGA for this particular subgrantee, but did not issue it by
the last day of the fiscal year because of internal administrative
errors. TDA prepared a draft NGA and forwarding letter for Dallas which
it concluded had been lost in typing. TDA had entered the award on its
accounting records. Agency Appeal File, Tab L. TDA did not dispute that
it was required to obligate the funds by September 30, 1980. TDA
argued, however, that certain steps were taken creating an obligation
during FY 1980, even if no NGA was formally issued to Dallas. Texas
argued that the following actions taken together were sufficient to
obligate the funds:
1) A May 16, 1980 Board meeting of the Governor's Committee on Aging
/2/ in which the Board voted unanimously to approve the plan for
allocating the supplemental funds for award to each subgrantee. Texas
Brief, Attachment G.
2) A letter dated May 20, 1980 from the Texas Department on Aging to
the subgrantees informing them of additional FY 1980 funds effective
June 1, 1980. An attachment indicated that $182,629 was to be available
to Dallas. /3/ Texas Brief, Attachment (3) H. Dallas submitted a budget
amendment, as the letter requested, showing the proposed use of these
funds. See Tr. p. 132.
3) A letter to all subgrantees dated August 12, 1980 which informed
the subgrantees of the need to submit a request to reobligate unspent
funds (1) obligated in subcontracts committed beyond September 30, 1980,
(2) unspent as of September 30, 1980, or (3) unobligated as of September
30, 1980. Texas Brief, Attachment I.
4) A letter dated August 21, 1980 in which Dallas submitted a
projected end of the year fiscal report. Texas Brief, Attachment J.
The report included the funds in question as obligated in subcontracts
committed beyond September 30, 1980. Tr. pp. 136-139.
5) A letter to Dallas dated September 30, 1980 in which TDA approved
the authority of Dallas to carry forward and expend the amounts as
projected on Dallas' fiscal report. Texas Brief, Attachment K. (Both
parties have agreed that this approval, although stated conditionally,
was, in fact, the final approval (Tr. p. 143).) /4/
The issue presented is whether TDA obligated the supplemental funds
for FY 1980.
The record shows that supplemental funds were available for
obligation by Texas because of a change in the subgrantee budget year to
the federal fiscal year. The allocation plan for calculating the
supplemental awards and the resulting award amounts for each subgrantee
were presented to the Governor's Committee on May 16, 1980 and explined
to the subgrantees in the May 20, 1980 letter.
(4) TDA contended that its actions and Dallas' action in submitting
the projected end of the year fiscal report that included the funds in
question show that TDA entered into a legal obligation prior to October
1, 1980. Texas argued that it first "obligated" the funds at the May
16, 1980 Board Meeting of the Governor's Committee and that it is not
necessary that an NGA be issued, because a legal "obligation" can
be
incurred without the signing of a document. Texas asserted that this
Board acknowledged that view in Iowa Department of Health, Decision No.
403, March 30, 1983. /5/ TDA contended that while the Board held that
no obligation was incurred when the only evidence of an obligation was a
vote by a governing commission to authorize the contracting of funds,
with a follow-up newspaper article reporting the event, the Board also
stated that the actual signing of a document may not be the only method
of obligating funds. In this case, TDA argued, more occurred, and an
obligation was created. Texas further argued that the September 30,
1980 letter satisfied any requirements for a formal authorization and
that by virtue of that letter TDA had a legal obligation to pay the
supplemental funds to Dallas.
The Agency argued that without the NGA, no payment was required and
no obligation weas created, citing a definition of "obligations" found
at 45 CFR 74.71. This regulation states that "'(obligations') are the
amounts of orders placed, contracts and subgrants awarded, services
received, and similar transactions during a given period, which will
require payment during the same or a future period." The Agency also
cited Iowa, urging that a factor in the Board's ruling that no
obligation was created when the Commission voted to authorize
contracting for services was the possibility that the Commission could
change its vote up until the time that the contracts involved were
signed by all the parties. The Agency viewed the actions of TDA and the
subgrantee as being analagous to the Commission's vote in Iowa. The
Agency maintained that the letters in the file were not sufficient to
constitute an obligation because they were merely notification or
approval of the extra funds, as the vote in Iowa was merely approval to
contract for services.
Obligation has been characterized as "a definite commitment which
creates a legal liability of the Government for the payment of
appropriated funds for goods and services ordered or received." Iowa,
supra, citing Decision of the U.S. Comptroller General, B-116795, June
18, 1954. The (5) Comptroller General "has generally avoided a
universally applicable legal definition of the term obligation, and has
instead analyzed the nature of the particular transaction at issue to
determine whether an obligation has been incurred." Decision of the U.
S. Comptroller General, B-192282, April 18, 1979. Section 74.71 of 45
CFR, the regulation cited by the Agency, pertains to financial reporting
requirements for grantees. As such, this regulation does not implement
the program requirement in 45 CFR 1321.197 that funds be obligated by
the end of the fiscal year. In addition, this regulation does not
actually state what factors will determine whether an obligation exists.
Nevertheless, by providing that "obligations" are "subgrants
. . . and
similar transactions . . . which will require payment", this regulation
gives a general description that is consistent with the above
Comptroller General references since it implicitly recognizses that a
grantee must have a definite commitment requiring payment in order to
report an obligation. We are concerned here with whether a state
grantee obligated funds it intended to award to a subgrantee; the
question that arises is whether there was a definite commitment
requiring payment.
The Board's analysis in Iowa left open the possibility of an
obligation being created here other than by the issuance of an NGA.
There is no question that it was TDA's practice to issue NGAs and that
through administrative error one was not issued to Dallas for the
supplemental funds. The mere intention to award grant funds is, of
course, insufficient to create an obligation. In general, TDA's failure
to follow its process and formally issue an NGA would support a finding
that TDA was not required to pay these funds to Dallas, i.e., that the
funds were not obligated. Nevertheless, the Agency did not require TDA
to use a particular process or instrument to award or obligate funds.
Conssequently, we must examine the particular facts here in order to
determine whether TDA was required to pay so that an obligation was
created. We cannot, as the Agency argued, flatly conclude that there is
no obligation if there is no NGA.
Based on Dallas' projected end of the year fiscal report, which
showed how the supplemental funds were to be spent, TDA approved use of
the funds as carryover in the letter dated September 30, 1980. TDA
issued this approval in the context of an ongoing grant relationship,
having informed Dallas earlier that these funds would be granted.
Significant events preceding the approval were: the Board meeting where
the method for allocating the funds was set; the letter to the
subgrantees informing them of additional FY 1980 funds; and Dallas'
submission of the requested budget and fiscal reports which included the
questioned funds. The preceding events eliminate any possible ambiguity
as to TDA's intent with regard to these funds at the time it approved
carryover. The September 30, 1980 letter was (6) signed by a TDA
official who had the authority to award grant funds. In addition, there
is nothing in the record indicating that TDA would have made additional
delliberations if it had issued an NGA to Dallas, than it did in first
informing Dallas of the availability of supplemental funds in May of
1980 and then subsequently approving the use of the funds as carryover.
/6/ Furthermore, it was TDA's legal counsel's opinion that TDA was
legally bound to pay the supplemental funds to Dallas. September 6,
1984 Conference Call.
Under the particular circumstances here, we conclude that once the
supplemental funds were approved as carryover, TDA had actually
committed the funds for expenditure by Dallas. We consider this
commitment to be a separate administrative act, unrelated to the earlier
failure to issue an NGA. /7/ By issuing specific written approval to
carryover the supplemental funds, TDA ratified its earlier intention to
award a subgrant. TDA's action was tantamount to the award (7) of a
subgrant; thus, payment was required and an obligation made.
Accordingly we reverse the disallowance. /8/
Finding Code 0302
Based upon its review of the State Auditor's findings and Texas'
response, the Agency determined that $377,244 in questioned costs were
unallowable because 26 TDA subgrantees had received FY 1080 federal
funds for expenditures made during FY 1979.
The issue presented is whether expenditures claimed for FY 1979, for
months in the FY 1979-80 subgrantee budget periods, exceeded the monies
that were available and were thus paid from FY 1980 funds. The State
presented documentation with its appeal file, which was discussed at the
informal conference, to show that some funds disbursed to subgrantees
for FY 1979 were actually cash advances and not expenditures. Texas
asserted that the auditors simply examined its subgrantee ledger sheets
and noticed that some entries for disbursements of FY 1980 funds were
for vouchers for months in FY 1979 (generally for September and/or
August of 1979). /9/ Texas asserted that, with only an examination of
the ledger sheets, it would indeed appear that FY 1980 funds were used
to pay expenditures claimed for FY 1979, but that an examination of the
documentation presented concerning the advance system would reveal that
except for $61,866.33, FY 1980 funds were not disbursed for FY 1979 (8)
expenditures. To calculate this amount, the State deducted the payments
it identified as advances from the amounts claimed by the subgrantees
for months in the grant budget periods falling in FY 1979. Texas Brief,
Attachment C.Texas also argued that since the $61,866.33 was expended
for grant purposes, equity demanded that the disallowance for this
amount be reversed.
The record includes Texas' ledger sheets, Notifications of Grant
Award for the budget periods spanning FY 1979-80, purchase vouchers, and
"Request for Payment of Federal Funds Awarded" forms (Form T-201)
/10/
for each of the 26 subgrantees whose payments are involved in the
disallowance. At the informal conference, Texas explained how the
advance system worked and how the documentary evidence showed that for
most subgrantees no FY 1980 funds were used for FY 1979 expenditures.
The record shows that TDA had implemented an advance system of
funding by late FY 1979. Subgrantees were instructed to request an
initial advance payment by submitting a purchase voucher and a form
T-201 which listed estimated expenses. Funds were to be disbursed to
the subgrantees in response to the initial advance request. The
subgrantee was then to submit the same type of forms showing actual
expenditures for the month in which they received the initial advance
and for succeeding months. Subgrantees were to be paid for each month's
actual expenditures and would thereby "recover" the initial advance.
A
May 2, 1979 memorandum to all the subgrantees stated that the procedure
was designed to keep the subgrantee's cash on hand at a level sufficient
to cover a month's expenses. /11/
Below, we apply TDA's explanation of its advance funding procedure to
the documents in the record for one subgrantee. The NGA for the Deep
East Texas Area Agency on Aging shows that $10,139 in FY 1979 and
$30,417 in FY 1980 federal funds were awarded to Deep East Texas for the
period September 1, (9) 1979 to December 31, 1979. /12/ Since the
federal fiscal years runs from October to October, September 1979 is the
only month of the budget period falling within federal FY 1979.
Therefore, $10,139 was awarded to Deep East Texas for September, 1979.
The 1979 ledger sheet for Deep East Texas shows a disbursement of
$10,139 paid for September, 1979. The 1980 ledger sheets shows a
disbursement of $8,347.40 for September, 1979. Upon first examination,
it would appear that $8,347.40 in FY 80 funds were used for September,
1979 expenditures.
However, examination of the ledger sheets together with the purchase
vouchers and T-201's submitted by the subgrantee shows the following.
Purchase Voucher No. 354 for $10,139 was paid out of FY 1979 monies.
This purchase voucher was dated "9/5/79." The T-201, also dated "9/5/
79," shows "Expenditures This Month" to be $10,139, the amount
of
available FY 1979 funds, and the "Budget Balance" remaining at End
of
Month" to be $30,417, the amount of FY 1980 funds awarded. In the
heading of this T-201, the word "Reimbursement" in the line
"Reimbursement for Month of , 19 " has been crossed out and the word
"Advance" handwritten below it. ("September" and "79"
were typed in the
appropriate blanks.) Although the Board's copy is faint, the word
"Advance" is also handwritten across the "Cumulative Expenditures"
portion of the form.
Purchase Voucher No. 775 for $8,347.40 was dated December 11, 1979
and was paid out of FY 1980 federal funds. The T-201 dated December 11,
1979 shows "Expenditures This Month" and "Cumulative Expenditures"
of
$8,347.40. The heading indicates that the form was for September 1979
(with no alterations). September is the only month shown on the ledger
sheets for which two payment vouchers and two T-201's were submitted.
One disbursement only was made for each of the other three months funded
by this grant.
Given the advance funding procedure implemented in late FY 1979, we
conclude that the first September voucher and T-201 were in fact a
request for an advance not representing actual expenditures for
September 1979. We further conclude that the State Auditor's finding
that $8,347.40 in FY 1980 funds were used for FY 1979 expenditures,
which was appearently based just on the ledger sheets, has been
successfully rebutted for this subgrantee.
(10) We have closely examined the documents for all 26 subgrantees.
While Deep East Texas is certainly the clearest and simplest example,
the records and disbursement patterns for the 26 subgrantees bear out
the TDA's assertion that it had paid advances to these subgrantees which
must be deducted from the disbursements made for months in FY 1979. We
conclude then that Texas has shown that reliance on the ledger sheets
alone produces an incorrect determination. /13/
To support the disallowance, the Agency relied on the basic
obligation of a grantee to document the allowability of costs (Urban
Indian Health Board, Inc., Decision No. 315, June 28, 1982) and on the
general proposition that costs incurred outside a grant year are not
allowable costs (Community Action Agency of Memphis and Shelby County,
Decision No. 103, June 9, 1980 and Colorado Department of Social
Services, Decision No. 435, May 31, 1983). In our view, however, these
principles do not control the disposition of this case.
Texas has consistently argued that the State Auditor questioned the
amount disallowed here simply by itemizing the payments set forth in the
TDA ledger sheets. Texas' July 26, 1983 response to the federal audit
agency report and Texas Brief, p. 1. The State Auditor's report and
management letter contain no indication that the State Auditor
considered the effect of the advance system on Texas' disbursement
pattern. In addition, the Agency auditors' review was limited only to
the State Auditor's report and management letter. The Agency auditors
neither reviewed any of the State Auditor's workpapers nor evaluated the
adequacy of the audit work performed. Report of Agency Auditors, Audit
Control No. 06-34531, June 28, 1983.
There is no question that the Agency may disallow claimed costs in
reliance on a state audit report, without independently performing an
audit to establish the basis for the disallowance. Nevertheless, the
State has the opportunity during the appeals process to show, under the
particular (11) circumstances of a case, that such reliance is not
justified and that the State records or audit findings cannot reasonably
support a disallowance. Illinois Department of Public Aid, Decision No.
404, March 31, 1983; California Department of Health Services, Decision
No. 244, December 31, 1981; and South Carolina Department of Social
Services, Decision No. 149, February 3, 1981.
We do not view this case as one involving the obligation to document
claimed costs.The question here is whether the record rebuts the
conclusion reached by examination of the disbursements recorded on the
subgrantee ledger sheets. Based on our examination of the record, we
have concluded that Texas had implemented an advance funding system
which must be considered in determining whether FY 1980 federal funds
were used for expenditures claimed for FY 1979. Attachment C to Texas'
Brief sets out in summary fashionion the calculation which deducts the
advance payment amounts from the amounts disbursed for months during FY
1979. TDA's own calculation shows that the subgrantees were paid from
FY 1980 funds for $61,866.33 claimed in excess of the FY 1979 grant
awards. To this extent we sustain the disallowance; we are aware of no
basis, even in equity, for permitting Texas to disburse FY 1980 monies
for these subgrantee expenditures. With regard to the remaining
$315,377.67 disallowed, we conclude that the Agency cannot reasonably
rely on the State Auditor's report as showing either that certain
subgrantees were paid from FY 1980 monies for FY 1979 expenditures or as
stating the amount of such payments. Attachment C of Texas' brief shows
those subgrantees for which TDA's records show no claims for the FY 1979
budget period in excess of the FY 1979 grant awards.
We conclude here simply that Texas has, with regard to $315,77.67 of
the amount disallowed, rebutted the State Auditor's findings on which
the Agency relied. Our determination does not limit the Agency's
examination of other problems, if any, with the allowability of the
expenditures claimed or the accuracy of the subgrantee claims. /14/
(12) Conclusion
For the reasons stated above, we sustain the disallowance in part and
reverse it in part. /1/ The Comprehensive Older Americans Act
Amendments of 1978, enacted October 18, 1978, consolidated under
Title III activities which had formerly been authorized under three
separate titles: social services, nutrition services, and multipurpose
senior centers. Pub. L. No. 95-478, 92 Stat. 1513 (1978). Part 1321
of 45 CFR, implementing Title III, was effective March 31, 1980. 45
Fed. Reg. 21147 (1980). /2/ The Governor's Committee on Aging's name
was changed to the Texas Department on Aging, and the title,
Coordinator of Aging, was changed to Executive Director on September 1,
1981. Tex. Human Resources Code Ann. 101.001, 101.004 (Vernon 1984
Supp.) /3/ The parties agreed that the fact that this amount is
different from the amount disallowed pursuant to Finding Code 0202 is
irrelevant. The parties agreed that the question before the Board is
whether TDA's actions effectively obligated the supplemental funds and
that the discrepancy in amount is not at issue. Transcript of Informal
Conference (Tr.), pp. 134-136. /4/ TDA approved the expenditure
of FY 1980 funds in FY 1981 contingent on the subgrantees meeting four
fiscal conditions. The letter stated that once the conditions were met,
TDA would issue NGAs reflecting the carryover of funds. No NGAS were
issued for the carryover approvals, however. The parties agreed that
there had been no need for TDA to, in essence, reobligate carryover
funds; TDA could simply have approved carryover based on the subgrantee
fiscal reports. Tr. pp. 140-45. Nevertheless, by issuing the September
30, 1980 conditional approvals to the subgrantees that had carryover
funds, we find that TDA intended to actually reobligate these monies.
/15/ This decision was appealed and is presently pending before the U.S.
District Court for the Southern District of Iowa. Civil Action No.
83-210-C (S.D. Iowa, filed April 29, 1983). /6/ Here, unlike Iowa,
there is no practical possibility, once the Governor's Committee
had voted to make the awards and had informed the subgrantees of this,
that TDA would or could have changed its decision to award the
supplemental funds to Dallas. Here, TDA had selected a method whereby
the supplemental funds would be allocated among its subgrantees and
simply failed to issue an NGA to one of them. In addition, TDA had
recorded the supplemental funds as obligations once the Governor's
committee had approved the awards. September 6, 1984 Conference Call.
/7/ The "draft" NGA contained a paragraph stating the terms and
conditions applicable to the award and place for the subgrantee to sign
indicating acceptance of the terms and conditions. Agency Appeal File,
Tab L. During the September 6, 1984 conference call, we asked whether
the subgrantee's signature and acceptance were required in order to
award the supplemental funds. TDA indicated that, while its subgrantees
did sign and return the NGA, this need not occur during the fiscal year
that the award was made and was not a step which needed to occur in
order to award the funds (in fact, TDA no longer requires this). TDA
stated that Dallas was otherwise bound by the terms and conditions which
would govern the supplemental award. In addition, TDA regarded only the
signature of TDA's grant making official on the NGA as significant. The
Agency did not argue otherwise. Consequently, we conclude that the
absence of such a subgrantee acknowledgment has no bearing on whether
TDA's actions were sufficient to award a grant and thus require payment
of these funds. /8/ Texas also argued, in the alternative, that we
reverse the disallowance based upon the equity principle that
"equity looks upon that as done which ought to have been done." Although
we are reversing the disallowance on other grounds, we would find no
basis in equity to reverse a disallowance based upon the failure to
obligate funds within the fiscal year when there is a legal requirement
that the funds be obligated. /9/ TDA recorded payments to its
subgrantees on ledger sheets. The record shows that there was a
separate ledger sheet for each grant, for each fiscal year. The ledger
sheets show the amount of the grant award and list the monthly vouchers
by number showing each payment.The ledger sheets demonstrate an erratic
payment pattern with disbursements sometimes several months after
receipt of a voucher and sometimes with disbursements for later months
entered before those for earlier months. Texas Brief, Attachments A and
D. The order and/or the timeliness of the disbursements in response to
the monthly vouchers and requests for payments is not a factor here.
/10/ Form T-201 is a budget form. "Expenditures This Month,"
"Cumulative Expenditures," and "Budget Balance Remaining End
of Month"
information is provided for various line item budget categories, such as
"Personnel", "Raw Food", and "Travel". /11/ Attachment
B to
Texas' Brief contains the materials explaining the advance payment
procedure. A flow chart specifically states that payment based on the
voucher for one month's expenditures was to provide the funds for the
next month. /12/ In late FY 1979, TDA issued grant awards of FY
1979 and FY 1980 funds for budget periods of varying lengths to its
subgrantees. TDA later reissued the awards of FY 1980 funds during FY
1980; their purported, and admittedly improper award, during FY 1979
was not a factor here. /13/ The 1979 ledger sheet in the record
for South Texas-Laredo does not show the same amounts for FY 1979
disbursements as listed on Attachment C (Summary of Excess FY 1979
Expenditures) to Texas' Brief. (The ledger sheet appears to be for
another grant.) However, Attachment D, (Summary of FY 1979 Payments),
lists disbursements for FY 1979 which would support Texas' assertion
that no FY 1980 monies were used for FY 1979 expenditures for this
subgrantee. Based on the pattern established with the other subgrantees
and on Attachment D, we conclude that the record is sufficient to
support Texas' assertion for South Texas-Laredo. /14/ As the Agency
auditors noted, "(the) State Auditor identified a number of serious
accounting and grant administration problems" that resulted in
questioned costs as well as material weaknesses in TDA's accountng
procedures and internal controls. Presumably the Agency, based on its
auditors' report which made findings other than those at issue here, has
reviewed the many fiscal and administrative problems reflected in this
record. Nevertheless, simply because TDA was so flawed, this does not
give particular findings of questioned costs intrinsic validity. Each
question cost, if disallowed, must stand on a reasonable basis.
JANUARY 08, 1985