GAB Decision 766
July 11, 1986
Developmental Disabilities Advocacy Network, Inc.;
Docket No. 85-208
Ballard, Judity, A.; Teitz, Alexander G. Garrett, Donald F.
The Developmental Disabilities Advocacy Network, Inc. (DDAN)
appealed a decision by the Administration on Developmental Disabilities,
Office of Human Development Services (Agency), disallowing $24,425 in
federal funds for a protection and advocacy program conducted by
Grantee. The funds in question were part of a fiscal year (FY) 1984
formula grant awarded under 42 U.S.C. 6041-6043, which authorized
allotments of federal funding for the protection and advocacy of
individual rights of persons with developmental disabilities. The
Grantee is a non-profit Pennsylvania corporation designated by the
Governor as the entity accountable for the proper use of funds for a
protection and advocacy system. The Agency determined that Grantee had
failed to comply with Agency regulations that required grant funds to be
obligated within the federal fiscal year for which the funds were
awarded. We agree that the grant funds had not been obligated within
the appropriate year and uphold the disallowance in full.
Background
An Agency management review covering FY 1984 disclosed that
DDAN's
financial statements accounted for $24,425 of FY 1984 grant funds
as
unexpended prior to the close of the year (September 30, 1984).
In
January 1985, DDAN entered into an agreement with
Developmental
Disabilities Law Project and Education Law Center that made use
of
$19,500 of the unexpended funds during FY 1985. Although
final
agreements were not reached until January 1985, a person who was
then
executive director of DDAN had written to DDAN's Board of
Directors
during FY 1984 indicating that there might be an unknown amount
of
federal money unobligated as of the end of the FY 1984 and that
Grantee
should consider increasing the contracts to the Law Project and
Law
Center in a manner that could be easily identifiable and "put to
good
use." Grantee Appeal Brief, p. 1. Grantee conceded that
this
communication from the previous executive director would not
be
considered an "obligation" within the meaning of the
federal(2)
regulation, but argued that the funds may have been obligated in
FY 1984
under special provisions of the regulations applicable to
litigation
costs. Grantee also argued that the funds should not be
disallowed
since the funds were ultimately expended for the purposes intended
and
since a disallowance would cause a decrease in services for the
current
fiscal year. /1/
Legal Authority for the Disallowance
During FY 1984 the Agency issued new regulations concerning
obligation
requirements. Under those regulations funds allotted for the
program
during a fiscal year were available for obligation by states only
within
the same fiscal year. 45 CFR 1386.2(a) (effective April 26,
1984). The
Agency argued, and the Grantee did not dispute, that the
regulation
effected no departure from existing requirements in the program
statute
and the regulations concerning the basic requirement to obligate
funds
within the same fiscal year for which they were awarded. /2/
(3)
Here DDAN conceded that it did not make a binding, legally
enforceable
written commitment for any part of the funds at issue before the
close
of FY 1984. At most, DDAN's previous executive director notified
the
Board of the possible existence of unobligated funds as of the close
of
the fiscal year. This action falls short of even an authorization
to
contract, which the Board has previously concluded was(4) itself
an
insufficient basis to obligate funds. /3/ Instead, Grantee's
primary
argument on appeal was that it met the intent of a provision of
the
amended regulations that provides special rules for the obligation
of
litigation costs.
The amended regulation provides:
(c)(1) Protection and Advocacy offices may elect to treat entry
of an
appearance in judicial and administrative proceedings on behalf of
a
person with developmental disabilities as a basis for obligating
funds
for the litigation costs. The amount of the funds obligated must
not
exceed a reasonable estimate of costs, and the way the estimate
was
calculated must be documented.
In support of its position that it met the provisions of this
regulation,
Grantee provided the Agency with a fiscal summary of
expenses incurred in FY
1985 from litigation either that had been
initiated or that had been in
progress during FY 1984. Grantee's
submission to Agency of March 25,
1986. Grantee identified specific
litigation cases in progress during
FY 1984 and included a breakdown of
costs purportedly related to the
cases. The Grantee added that the
documentation included costs for
hiring additional legal staff during FY
1985.
We find that Grantee's documentation does not meet the
special
requirements for obligation of litigation costs set out by
the
regulations. The provision in the regulations relied on by
Grantee
requires it to elect to treat the entry(5) of an appearance
in
litigation as a basis for obligating funds. The Grantee must also
make
a reasonable estimate of the costs of the litigation and document
the
way in which the estimate was calculated. In accordance with
the
requirement in section 1386.2(a), like any other act of obligation,
all
this must occur during the fiscal year in which the funds to be used
for
litigation were awarded to Grantee. The Grantee's
documentation
submitted to the Agency on March 25, 1986 did not establish
such an
obligation of funds made during fiscal year 1984. The
Grantee's
documentation refers to actual litigation costs incurred in fiscal
year
1985. These costs, if otherwise appropriate, would be chargeable
to
that year's grant. The documentation (which was generated after
not
during FY 1984) fails to demonstrate that Grantee made an election
to
obligate a reasonable estimate of continuing litigation cost during
FY
1984 nor does it demonstrate a method of calculating an estimate.
While
the Agency's policy of allowing an estimate to serve as an
obligation
during a current year provides grantees an additional degree
of
flexibility for obligations relating to litigation, grantees are
not
permitted by virtue of this provision to make retroactive elections in
a
later fiscal year based on actual costs incurred in the later year.
If
Grantee's position were adopted, litigation costs could
be
interchangeably charged at will to a current or prior fiscal year.
Such
a result was not authorized by the regulation and was clearly not one
of
the regulation's intended purposes. /4/
(6)
In addition to its argument concerning the special provisions
for
litigation costs, DDAN also asked the Board to reverse the
disallowance
because of several equitable factors. DDAN alleged that
the unobligated
funds had been expended in FY 1985 to further the purposes of
the
program, that the disallowance would cause a decrease in services
for
the current fiscal year, that the failure to obligate the funds
occurred
when a different executive director was in charge, and that DDAN
had
instituted a completely new method of financial accountability during
FY
1986 that should enable it to avoid a recurrence of the
problem.
Unfortunately, none of these factors enable us to overlook
the
requirement of the statute and the regulations by which we are
bound.
45 CFR 16.14. The Grantee here is entitled only to funds
obligated
within the fiscal year for which the grant was awarded. Since
the funds
here were not obligated during the fiscal year, we must therefore
uphold
the disallowance.
Conclusion
We uphold the disallowance of $24,425. /1/ In responding to
the
Agency's financial review that
preceded this disallowance,
Grantee had maintained that its Board of
Directors had approved two
$10,000 contract increases to the Law Project and
Law Center in July
1984 and that subsequent FY 1985 budgets and proposals
contemplated the
expenditure of those funds within FY 1984 even though no
contracts had
been executed in FY 1984. Grantee argued that a "chain of
intent" to
obligate the funds had occurred and that the actual signing of
the
contracts was a ministerial duty that could not be avoided.
See
Agency's Brief, p. 2. Subsequently, however, in its Appeal Brief
and
during a telephone conference held in this appeal, Grantee withdrew
its
allegations of contract approvals by its Directors and indicated
that
the allegations had been based on a misunderstanding of the facts by
a
previous Grantee official. Since the initial allegations of fact
and
the corresponding arguments have been withdrawn, we need not
address
them further. /2/ In
proposing to revise the regulation, the
Agency stated with respect to
proposed section 1386.2: In this section
we propose to continue to
require States to obligate funds within the
fiscal year they are received. 48
Fed. Reg. 7700, 7702 (February 23,
1983). When section 1386.2(a) was
adopted in final, the Agency made the
following statement in response to
comments received on the proposed
rule: The Department cannot legally
allow for obligation or
reobligation of funds after the fiscal year in which
those funds are
appropriated and cannot change section 1386.2(a) which
provides for
obligation of all funds within the same fiscal year they
are
appropriated. 49 Fed. Reg. 11772, 11773 (March 27, 1984). In
response
to Board questions during this appeal, the Agency clarified
what
obligation rules were in effect at the beginning of the grant year
in
question. 42 U.S.C. 6064 (1983) provided that of the program
funds
allotted to a state, the state shall be paid the federal share
of
expenditures, other than for construction "incurred during such
year"
under its approved state plan. This provision had long been
interpreted
by the Agency to include payments for actual expenditures
and
obligations in the fiscal year of the allotment. OHDS
Program
Instruction RSA-PI-79-1, dated November 29, 1978, an exhibit to
Agency's
submission of February 24, 1986. Implementing regulations
provided that
sums designated by the state for construction could remain
available in
the next fiscal year if unobligated in the fiscal year of the
award but
authorized no such extension for other types of funding. 45
CFR
1386.12(c) (1983). Since the basic obligation requirement remained
the
same throughout the period in question (FY 1984), we do not need
to
address whether the Agency is precluded from applying the
amended
regulation because it was not in effect at the beginning of the
grant
year. The Agency relied on the amended regulations for the
disallowance
and the Grantee's primary argument on appeal is based on the
special
provision in the amended regulations for litigation costs that
provides
grantees greater flexibility than the previous
regulations. /3/
In Iowa
State Department of Health, Decision No. 403, March 30, 1983,
the Board
upheld a disallowance for failure to obligate where the
Grantee's commission
had voted to allocate funds to various service
centers but had failed to
execute written contracts with the service
centers within the appropriate
fiscal year. Recognizing that the actual
signing of a document may not
be the only method of obligating funds,
the Board concluded, nevertheless,
that the vote of the commission was
not, in substance, anything more than an
authorization or direction to
contract, which had yet to be implemented by a
legally binding contract.
(This case was appealed to federal court but the
court never reached the
merits, leaving the Board's decision undisturbed,
upon the parties'
stipulation of dismissal. State of Iowa v. Heckler,
C.A. No. 83-210-C
(S.D. Iowa, June 26,
1985).) /4/ The preamble to
proposed
section 1386.2(c) contained a discussion of the purpose of
the
provision. The preamble stated: (This section) permits
Protection and
Advocacy offices to obligate funds for litigation and
administrative
proceedings based on an estimate in the year in which the
litigation or
proceeding began. Prior policies severely curtailed capacity
of
Protection and Advocacy systems to use funds available in one
fiscal
year for litigative activities carried over into the next fiscal
year
unless there were obligating documents such as contracts for
witnesses,
etc. In order to provide relief in view of Protection and
Advocacy
budget limitations, we have decided (subject to the provisions
of
appropriations acts) to permit obligated funds to be carried over to
a
subsequent year on the basis of an estimate, but only if the
Protection
and Advocacy system establishes good cause. Good cause is to
be
demonstrated by showing that consideration has been given to the
amount
a particular case might cost. 48 Fed. Reg. 7700, (February 23,
1983).
See also the preamble to the final rule for additional discussion.
MARCH 28, 1987