DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Project Bravo, Inc.
Docket No. 87-148
Audit Control No. A-06-87-07081
Decision No. 925
DATE: December 11, 1987
DECISION
Project Bravo, Inc. (Grantee) appealed a decision by the Office of
Human
Development Services (OHDS/Agency) disallowing $18,402 in federal
funds
claimed by the Grantee in connection with its Head Start Program.
The
disallowance was based on an audit for the program year ending
August
31, 1986, the last year in which the Grantee's Head Start program
was
federally funded. The auditors found that the Grantee, in violation
of
applicable cost principles, had used federal funds to pay $1,108
in
penalties owed to the Texas Employment Commission for late payment
of
taxes. 1/ Additionally, the audit revealed that the Grantee had
an
unobligated fund balance of $13,516. Since the Grantee's
federal
funding was being terminated, this amount constituted a debt to
be
refunded to the Government. The auditors also alleged that the
Grantee
did not adequately document $3,778 in cash disbursements.
However,
during the course of this appeal the Agency reviewed and
accepted
documentation submitted by the Grantee regarding the cash
disbursements,
thereby resolving that issue. Accordingly, the amount of
federal funds
now in dispute is $14,624. The Grantee did not challenge
the facts as
presented by the Agency. Rather, the Grantee asked that it
be allowed
to repay the entire disallowance with in-kind services.
The Grantee effectively presented two related issues for us to
consider.
The expressed issue essentially was whether the alleged in-kind
services
can be used to repay an acknowledged debt. The other issue,
never
articulated as such by the Grantee, but implied in the argument that
it
received free services of employees, was whether the Grantee might
now
claim additional funding (as a kind of offset against the debt)
for
costs represented by those employees' previously unfunded efforts.
This appeal was heard under the Board's expedited procedures. See
45
C.F.R. 16.12. The record consists of briefs and evidence submitted
by
the parties as well as the taped proceedings of a conference
call
conducted on November 23, 1987. Based on the record and the
following
analysis, we find that the disallowance may not be repaid with
in-kind
services.
Analysis
I. In-Kind Contributions Generally
In-kind contributions are part of the overall funding mechanism for
Head
Start program costs. Subject to exceptions not relevant here,
a
federally sponsored Head Start program receives 80 percent of
its
allowable costs from the Federal Government, while the grantee
is
responsible for matching that amount with a 20 percent non-federal
share
of costs. See 45 C.F.R. 1301.20. Generally, the non-federal share
can
consist of cash or in-kind contributions -- , the grantee's
non-cash
contributions to the costs of the program, and certain
contributions
(property or services) from non-federal third parties. 45
C.F.R. 74.51.
Thus, in-kind services provide one method by which a grantee may
satisfy
the non-federal matching requirement of a Head Start grant.
In-kind
services in excess of a grantee's matching requirement do not reduce
or
increase the amount of federal funds to which a grantee is
entitled.
Rather, excess in-kind services would increase the resources
available
to the Head Start program.
II. In-Kind Services as a Repayment Mechanism
The Grantee asked that it be allowed to repay the unobligated balance,
as
well as the tax-related part of this disallowance, with
in-kind
contributions. The Grantee maintained that, due to the
financial
practices of previous administrations, it did not have
unrestricted
funds with which it could repay this debt at the close of the
1986
program year. The Grantee indicated that although it was now
attempting
to raise funding through private donations, it was not
optimistic
concerning its chances of repaying the debt in this manner.
The Grantee
noted that during its most recent year of operation as a federal
Grantee
its program was run by several employees who acted in more than
one
capacity and did not charge the program for their services. The
Grantee
estimated a savings of $61,419 from these actions and asked that
the
Board "waive" the disallowance by offsetting this amount against
the
$14,624 it undisputedly owes the federal government. The Agency
argued
that applicable law and the circumstances of this case do not permit
the
Grantee to repay any aspect of this disallowance with in-kind
services.
We agree.
The Office of Human Development, Grants Administration Manual
(GAM),
Chapter I (F) specifies three methods for disposing of unobligated
fund
balances. The Agency may treat an unobligated balance as --
1.
an offset from a continuation award for the current
or
succeeding budget period;
2. a
carryover for the current budget period if
prior
approval is requested and granted;
3. a
refund to the federal government if the
unobligated
balance is cash which has already been transferred
to
the grantee.
See OHDS Brief, pp. 1-2; and OHDS Ex. A.
OHDS indicated that since the Grantee's federal funding was
terminated
after the 1986 program year, the Agency was precluded from
doing
anything other than requesting a refund of the Grantee's
unobligated
balance. Further, grant closeout regulations specifically
provide that
--
The
grantee shall immediately refund or otherwise
dispose
of, in accordance with instructions from HHS,
any
unobligated balance of cash advanced to the grantee.
45 C.F.R 74.111(b)(2)
There is no support in the applicable program guidelines or
regulations
for the Grantee's request to repay the unobligated fund balance
through
the value represented by in-kind services. Under the GAM, since
the
Grantee is no longer a recipient of federal funding (so that
carry-over
and offset are not possible), its only alternative is to refund
the
unobligated fund balance in cash.
The Grantee could avoid this disallowance only by documenting
allowable,
allocable costs in the amount disallowed that had not been
claimed
previously for federal funding. The items at issue here--an
unobligated
fund balance and a tax-related penalty--are not allowable Head
Start
costs. The expenditure for the tax-related penalty is specified
to be
unallowable by the cost principles in OMB Circular A-122, Attachment
B,
Paragraph 14. The unobligated fund balance is not a cost at all,
but
represents an amount of authorized federal funding which the Grantee
had
already received and which remained unobligated at the end of the
grant.
The Grantee clearly envisions substituting in-kind services for
allowable,
allocable costs. However, this is inconsistent with the
concept of
in-kind contributions--which are used to make up the
Grantee's non-federal
share but which, by their nature, are not properly
regarded as obligations
chargable to federal funds. Moreover, in-kind
contributions used to make up
the non-federal share must be such that if
the grantee had expended federal
funds to obtain these services, the
expenditures would have been
proper. Here, there in nothing in the
record to show that these
services have the value asserted by the
Grantee or that they even would be
acceptable under the regulations as
in-kind contributions for the grant year
in question. See 45 C.F.R.
74.50-57.
Finally, it is well-established that a disallowance based on
the
unallowable expenditure of federal funds must result in the reduction
of
the amount of federal funds used by a grantee. Where an
unallowable
expenditure was financed with federal funds, as was the case here
with
the tax-related penalty, a grantee must reimburse the Agency with
cash
from non-federal sources. See Ventura County Commission on
Human
Concerns and Community Development, DGAB No. 359 (1982), p. 2.
III. The In-Kind Services as Representing Previously Unclaimed Costs.
As is clear from the analysis above, both the applicable rules and
the
fundamental nature of in-kind contributions would not permit
the
Grantee's alleged in-kind contributions to repay the debt involved
here.
Thus, the most reasonable translation of the Grantee's position is
that
the Grantee is actually claiming costs (i.e., the costs of
the
previously unreimbursed employees' extra efforts) which it did
not
previously claim, and asking that this claim be offset against
the
Grantee's debt. For the reasons below, we cannot find for the
Grantee
on this basis.
Although the Grantee claimed to have saved more than $61,000 through
the
extra efforts of certain employees functioning in several
administrative
capacities, the Grantee's claim is undocumented. In
essence the Grantee
claims that putative savings from the way it operated its
program ought
to be treated as allowable costs. In order to be
allowable, a cost must
be adequately documented. See OMB Circular
A-122, Attachment A,
Paragraph A, 2e. The Grantee provided no
supporting documentation or
budget materials for these alleged costs.
Moreover, the record provides
no support for a finding that there is an
outstanding debt to the
employees or any other expenditure that ought to be
charged to grant
funds arising out of the services in question. Thus,
these alleged
costs would not be eligible for federal reimbursement.
Conclusion
For the reasons discussed above we uphold the disallowance and find
that
the disallowance of $14,624 may not be repaid with
in-kind
contributions. 2/
________________________________
Cecilia
Sparks Ford
________________________________
Alexander
G. Teitz
________________________________ Norval
D.
(John) Settle Presiding Board Member
1. See Office of Management and Budget Circular
A-122, "Cost
Principles for Nonprofit Organizations" 45 Fed. Reg. 46022, July
8,
1980, Attachment B, Paragraph 14, which is made applicable to the
Head
Start program by 45 C.F.R. 74.174(a).
2. We note that the Agency may be able to allow the
Grantee to repay
this debt over time, or to establish some other repayment
plan, under
authority of the Federal Claims Collection Act. See 31
U.S.C. 951 et
seq.