GAB Decision 640
April 17, 1985
Sacremento Area Economic Opportunity Council, Inc.;
Ballard, Judith A.; Ford, Cecilia S. Settle, Norval D.
Docket No. 84-66
Sacramento Area Economic Opportunity Council, Inc. (Grantee) appealed
the decision of the Regional Administrator of the Office of Human
Development Services (Agency) that Grantee must remit to the Agency the
$513,273 unobligated balance of federal Head Start funds held by
Grantee. The decision was based on conclusions contained in a report of
Grantee's Head Start-related cash transactions prepared by Grantee's
court appointed receiver. For the reasons discussed below, we uphold the
Agency decision that Grantee must return the balance of federal funds
not obligated for Head Start purposes in the amount of $358,627 (the sum
reflecting adjustments the parties agreed upon). Our decision is based
on the written record in this appeal including a summary of a telephone
conference. Grantee's Head Start operation was terminated in February
1982. In July 1982, Grantee's former delegate agencies, San Juan
Unified School District, Delta Head Start Center, Del Paso Heights
School District, Sacramento City Unified School District, and Elk Grove
Unified School District, sued Grantee in state court and obtained the
appointment of a receiver when it became clear that Grantee could not
pay its former delegate agencies the $357,000 it owed them. (Agency's
Response, Attachment D, p. 2) Grantee's receiver reported that his
appointment called for him to ". . . collect all Head Start grant funds
. . . including any real or personal property purchased with therein . .
." The report stated that in order to accomplish this, the receiver had
to reconstruct Grantee's books from the records available, which had
been partially destroyed in a fire in late 1981 and subsequently
scattered. The report stated that the reconstruction was started with
the latest audit figures available prepared for the period January 1,
1980 through December 31, 1980. (Agency's response, Attachment A, p. 2)
The receiver stated that to the starting figures he added monies
received from Head Start and subtracted Head Start expenses for the
period January 1, 1981 through the close of the Head Start bank account
in the middle of 1982. He stated that he did not audit these
transactions but simply reconstructed the records into a useable form.
Id. The receiver's report indicated that Grantee had a balance of
unobligated federal Head Start funds of $361,715. The Agency used the
$361,715 figure from the receiver's report in calculating the amount to
recover from Grantee. The Agency adjusted that figure for funds
advanced to Grantee to pay its delegate agencies, debt forgiven by
Grantee's former delegate agencies, and a refund from Grantee to the
Agency. The Regional Administrator's letter, therefore, directed
Grantee to remit a balance of unobligated funds of $513,273. During a
telephone conference held after the completion of briefing, the parties
agreed to exchange information for the purpose of narrowing and
resolving issues. After approximately three months of discussions
between the parties and the exchange of information, the parties
submitted their conclusions to the receiver. The receiver issued a
revised report which indicated a balance of unobligated federal funds
held by Grantee of $358,627. The Agency subsequently adopted the
receiver's figure and reduced its claim to $358,627. *
Grantee stated that it had no further argument regarding the analysis
of, or the characterizations contained in, the receiver's revised
report. Grants administration requirements at 45 CFR Part 74 are
generally applicable to Head Start grants. (45 CFR 1310.10) Section
74.111 provides that, when undergoing grant closeout:
(2) The grantee shall immediately refund or otherwise dispose of, in
accordance with instructions from HHS, any unobligated balance of cash
advanced to the grantee. The receiver's revised report reflected the
figures from Grantee's last available audit, Grantee's reconstructed
books, and the results of the parties' discussions and exchange of
information. Grantee found the receiver's revised figure ". . . to be
accurate from the material presently available." (Grantee's letter of
January 25, 1985) Since Grantee has had approximately nine months from
the start of this appeal to locate any material not already presented,
and can not identify were other material might be found, we conclude
that the best evidence indicates that $358,627 is the balance of federal
funds drawn down by Grantee but not obligated for Head Start purposes.
Grantee contended that the ultimate responsibility for the funds lies
with the individuals and programs that drew the funds. (Grantee's
letter of January 25, 1985) While Grantee may be correct that ultimate
responsibility for the funds lies with the individual or program that
draws the funds, Grantee is still responsible to the federal government
for the funds. The legal relationship created by a grant award is
between the Agency and Grantee. Grantee, therefore, and not an
individual, subgrantee, program, or delegate agency must return the
unobligated funds to the Agency. (See, Community Relations - Social
Development Commission in Milwaukee County, Decision No. 134, November
28, 1980) Grantee may have rights to then pursue third-party liability.
Conclusion For the reasons discussed above, we uphold the Agency's
decision that Grantee held a balance of federal funds not obligated for
Head Start purposes in the amount of $358,627 and must remit that amount
to the Agency. * The parties' submissions in response to the Board's
Proposed Decision in this appeal indicated agreement on four adjustments
to the $513,273 original figure to arrive at the final figure of
$358,627. We note that the specific adjustments proposed by both
parties do not appear to total $358,627, but we have not pursued this
since both parties also agreed on the "bottom line" figure of $358,627.
JULY 18, 1985