GAB Decision 662
June 20, 1985
Hawaii Department of Social Services and Housing;
Ballard, Judith A.; Settle, Norval D. (John) Teitz, Alexander G.
Docket No. 84-244; Audit No. (OCSE) HI-81-OA4
Hawaii Department of Social Services and Housing (appellant, State)
appealed the disallowance by the Director of the Office of Child Support
Enforcement (respondent, OCSE) of $72,976 federal financial
participation. /1/ Based upon the submissions of the parties, we uphold
the disallowance of $72,525 for office space under the cost principles
for state and local governments, as well as the disallowance of $451 for
expenses billed through the Mayor's office.
Background This appeal first came before this Board as Docket No.
82-191. During the course of the appeal, which involved primarily the
allowable costs of office space from October 1, 1978 through September
30, 1981, the State apparently realized that it had not claimed for
office space from November 1975 through September 1978. The State was
faced with the limitation on filing of claims in 45 CFR Part 95 (based
on the statutory requirements of Pub. L. 96-272). By agreement of the
parties the disallowance was withdrawn by the Agency and the appeal in
Docket No. 82-191 was dismissed without prejudice to permit the State to
seek a waiver of the limitations, as provided for in Part 95. The
Agency eventually denied the request for a waiver, and by agreement of
the parties the appeal was reinstated as Docket No. 84-244. I. THE
DISALLOWANCE FOR OFFICE SPACE. The State claimed FFP for the cost of
office space occupied by the Honolulu Corporation Counsel from October
1, 1978 through September 30, 1981 at the fair market value of
comparable rental space in the downtown Honolulu area. The space
occupied was in fact in a government owned building.(2) The disallowance
was based on the cost principles in Office of Management and Budget
(OMB) Circular A-87. /2/ Part C of Attachment B, A-87, "Costs Allowable
with Approval of Grantor Agency," makes it clear that compensation for
publicly owned buildings can be only through depreciation or use
allowance. Section C.2.a. provides that the rental cost of space in a
privately owned building is allowable; but section C.2.d., entitled
"Depreciation and use allowances on publicly owned buildings," provides
that "(T)hese costs are allowable as provided in section B.11."
Attachment B, B.11., provides that "(G)rantees may be compensated for
the use of buildings . . . through use allowances or depreciation." /3/
Since the State of Hawaii did not claim that it ever used depreciation
on the buildings it owned, it was limited to a use allowance. This may
be computed "at an annual rate not to exceed 2 percent of acquisition
cost." B.11.d.
The State did not specifically contest the legal principles or the
amount of the disallowance involved here. It contended simply that
"there was no overstatement of office space charges." /4/ Appellant's
brief (Attachment VI), p. 1. Appellant further submitted "that
sufficient justification existed for its use of fair market value in the
determination of appropriate charges for the rental of office space."
Id. Appellant then gave several (3) reasons for its position, but all
have no authority cited, and are in fact all in the nature of equitable
arguments.
The State's reasons are summarized as follows: 1. No prior audit
conducted by OCSE had called attention to the rental charges. 2.
Appellant relied in good faith on the silence of these prior audits on
rentals as giving tacit approval to rental charges of fair market value.
3. There was no intent by appellant to profit from rental charges at
fair market value. 4. If appellant had known about the rental issue
earlier, it might have moved some offices to privately owned buildings
where the use of fair market value rental charges would be justified. 5.
It would place an onerous burden upon appellant to have to repay the
disallowed amounts, and it would severely curtail the appellant's Family
Support Division program. Even if we were to accept these statements as
true, they cannot support a decision for the State. In Ohio
Developmental Disabilities Planning Council, Decision No. 330, June 30,
1982, we referred to the Planning Council's argument that "if it knew
then what it knows now, things would have been done in a different
manner," and that at all times "its actions were taken in good faith."
(pp. 7-8) We stated that the Planning Council had, in effect, argued
that the equities of the situation merited reversal of the disallowance.
We pointed out, as we have often, that this Board is bound by applicable
laws and regulations. (45 CFR 16.14) We went on to say, in language
appropriate here: The Board has consistently upheld Agency
determinations based upon clear regulations. The Council has not argued
that it was subject to ambiguous regulations, nor has it produced
evidence that it complied with the regulations to which it was subject.
The Board cannot reverse this disallowance solely on equitable
arguments, even if it were persuaded by them. Id., p. 8.(4) Similarly,
we must uphold the disallowance of the rental item under the specific
requirements of the cost principles. These principles are clear, and
were applicable during the period involved here. The State also argued
that it never claimed any FFP for office space costs from November 1975
through September 1978. Therefore, if the disallowance were upheld, the
State said the amount should be adjusted downward to reflect a claim for
reasonable office space charges from November 1975 though September
1978. The State in effect asks us to offset a claim for office space
charges for the earlier period against the disallowance before us on
appeal. The obvious answer is that this claim for earlier office space
charges is not before us. This case is an appeal from a disallowance
for a later period. The only way this claim for the cost of office
space for an earlier period would come before us would be if the State
filed a claim (as an increasing adjustment) on an expenditure report,
with supporting documentation, and the Agency disallowed the claim. An
appeal of that claim would then come before us. The State in effect is
attempting to have us rule on such a claim by disguising it as an
offset. We do not have jurisdiction over such a claim, which must first
be considered by OCSE. The State also contended that in any case the
Agency was wrong in denying its request for a waiver from the timely
filing requirements for the prior office space claims. The State argued
that the time limits imposed on claims are clearly unreasonable. Such
an argument is untenable before us, since the time limitations on filing
claims for FFP were set by Congress. (Pub. L. 96-272) The State went on
to say that it did not believe "an adequate hearing was had on the
allowability of claims" for office space charges for the earlier period.
(Appellant's brief, pp. 1-2) Nothing in 45 CFR Part 95 pertaining to a
waiver requires a "hearing" by the Agency. In fact, the regulation
states what a state's request for a waiver must include (section 95.28),
and goes on to say that the Secretary will make a decision "after
reviewing the State's request for waiver." (Section 95.34) The inference
seems clear that there will be no hearing, but only a written submission
by the State. The State then argued why it believes the Agency was
wrong in not granting a waiver. It is not clear that we have any
jurisdiction to pass on the correctness of the Agency's exercise of
discretion in denying a waiver. In any event, it appears from the
State's own contentions that the denial of a waiver was clearly
correct.(5) The State's ground for requesting a waiver had as its "good
cause" argument "inaction of the Federal government." /5/ The
basis for
the claim of inaction was the failure of government auditors in
reviewing the State's records to bring to the State's attention that it
had a claim for earlier office space charges. Specifically, the State
argued that the "federal auditors' silence" as to charges that could
have been made against the federal government "should be interpreted as
inaction on the part of the federal government." (Appellant's brief, p.
2)
We know of no principle that failure of auditors to call attention to
possible claims of a State is ground for relief from failure to file a
timely claim. Auditors should of course point out undercharges as well
as overcharges by a State, but mere failure to tell a State it may have
a claim is hardly ground for relief. The fact that the State had a
claim for charges for office space may not have been evident anywhere in
the records the auditors examined. In any event, it is the State that
must bear the burden of filing claims for all FFP to which it may be
entitled. /6/
Based on the foregoing, we must uphold the disallowance of office rental
costs. II. THE DISALLOWANCE FOR GENERAL COSTS OF GOVERNMENT. The
Agency disallowed $451 claimed for expenses of the Mayor's office. The
basis for disallowance was the provision of OMB Circular A-87,
Attachment B, section D.6., which says that expenses of the office of
the chief executive of a political subdivision are considered "a cost of
general State or local government and are unallowable."(6) The State
contended that, although the $451 was billed through the Office of the
Mayor of Hawaii County, the actual allocation of costs was to the Office
of the Managing Director. The terminology employed by the State is of
course not conclusive on whether a cost is or is not a general cost of
government. The allowability of the cost depends on the purpose of the
particular expenditure, which was not shown here. The State argued that
the Managing Director's duties include "the overseeing of the Hawaii
County Corporation Counsel's Family Support Division Operations."
(Appeal File, Attachment VII) The State also submitted a Transmittal
(OGCFM TN #79-7) from the Director of Cost Allocation which stated that
"the portion of salaries and expenses directly attributable to managing
and operating Federal programs within general State or local
organizational units is allowable." The Agency pointed out that the
State submitted no documentation to support the State's claim that this
$451 was in fact a cost "directly attributable" to the operation of
the
federal child support program. In the absence of any such documentation,
we must uphold the disallowance of this item; the Agency may decide to
give the State a reasonable opportunity to submit such documentation.
CONCLUSION Based on the analysis above, we sustain the disallowance.
/1/ The regional representative originally disallowed $77,678
for improper computation of allowable compensation for office space in
government owned facilities. The Director of OCSE reversed $5,153 of
this amount, leaving the disallowance for this item at $72,525. The
State appealed this amount, plus $451 disallowed for general costs of
government, making the total amount appealed $72,976. /2/ The
cost principles for state and local governments have over the years had
their designation changed as the functions covered by them were
transferred from one federal department or agency to another.
Originally OMB Circular A-87, they were designated in 1974 as Federal
Management Circular (FMC) 74-4. The principles were set out in 45 CFR
Part 74 as Appendix C until 1980, when FMC 74-4 was incorporated by
reference in 45 CFR 74.171. In January 1981 FMC 74-4 was redesignated
as OMB Circular A-87. The cost principles, at all times covered by this
appeal, were made applicable to grants to state and local governments by
45 CFR 74.171. /3/ Section C.2.a. also provides that "similar
(rental) costs for publicly owned buildings newly occupied on or after
October 1, 1980, are allowable" under certain conditions. On its face,
this provision was not applicable here, and Hawaii made no argument that
it was. /4/ In the prior case, Board Docket No. 82-191, the
Board questioned the computation of the disallowance. In this case the
Agency stated that the amount of the disallowance was correct, even
though some of the intermediate computation was not. The State did not
question the amount of the disallowance. /5/ The exceptions to
the time limits for filing do not apply to "(A)ny claim for which the
Secretary decides there was good cause for the State's not filing it
within the time limit." 45 CFR 95.19(d). Good cause is defined as
"lateness due to circumstances beyond the State's control." Section
95.22(a). Examples of circumstances beyond the State's control include:
"Documented action or inaction of the Federal government." Section
95.22(b) (2). /6/ The State never actually filed a claim for office
space costs for the earlier period. Part 95 contemplates filing a
claim, either before or after the request for a waiver. Section 95.28.
The Agency, in any event, treated the request for a waiver as if a claim
had been or would be filed.
AUGUST 08, 1985