DAB Decision 88
March 3, 1980 Human Services, Inc.; Docket No. 78-3; Decision No. 88
Dukes, David V.; Malone, Thomas Mason, Malcolm S.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel. Similar official summaries of earlier cases
appear in 45 CFR Part 16, Appendix.)
Grantee appealed a disallowance by Region V with respect to grantee's
Head Start project. Grantee did not challenge the determination that
specific costs were unallowable but, questioning the Region's
computational method, asserted that the federal share should have been
computed as a percentage of total "actual" costs, whether or not
allowable. An Order to Show Cause issued by the Board tentatively
rejected grantee's arguments as inconsistent with basic rules of grant
law, which require that program funds, including amounts derived from
nonfederal sources, may only be spent for the approved program and that
expenditures, to he counted, must meet applicable requirements. In
response, grantee elected not to pursue this issue.
Grantee also claimed that certain in-kind expenditures were allowable,
submitting documentation in support of those expenditures. The Panel,
considering the agency's analysis of the documents to be inadequate,
stated that, while clearly insufficient in certain regards, the
documents did evidence some community support for grantee's project.
Rased on its own analysis, the Panel concluded that some of the
documents did not meet grant conditions; some evidenced services
provided, although those services were overvalued; and some represented
allowable costs of benefit to the project.
Accordingly, the Panel upheld the disallowance except with respect to
$1,395.14 in in-kind expenditures which were allowed.
DECISION
Human Services, Inc., is a Community Action Agency, formerly known as
Community Action Program of Bartholomew, Brown, and Jackson Counties,
Inc., conducting among other programs a Head Start project originally
funded by OEO and later by HEW. An HEW audit for the period February 1,
1974, to January 31, 1975 (Head Start Grant No. 4176, Program Year I,
Action Nos. H/1, H/O), found that the grantee did not have satisfactory
internal controls, had failed to document expenses appropriately, and
had extensively commingled funds of various programs without regard to
sources or purpose. (Audit Report Audit Control No. 05-61454.) Based on
their examination of the grantee's records, reconstructed as completely
as was possible, the auditors found a number of expenses that were, in
their view, definitely not properly charged. After eliminating
questioned items amounting to $10,288 with respect to Head Start, the
auditors recommended that a maximum of $100,521, plus some share which
they did not determine of $18,135 which had not been allocated among
grantee's various programs, be allowed to the Head Start program. The
determination of the validity of the costs as a whole and the
distribution of the unallocated portion was left to the respective
federal agencies based on programmatic benefits received. (Audit Report,
pp.3, 22-28.)
HEW Region V disallowed $10,286, the costs questioned in the audit
report, and allowed $100,521 in Head Start expenses as recorded after
adjustments plus $7,525 in previously unallocated costs found to be
justified and reasonable. The Region directed the grantee to immediately
restore and have available for reprogramming $10,684, identified as "the
difference between the Total of the grant for that year, $97,121, less
the Federal share of expenditures, $86,437." The Region computed the
federal share as 60, of $106,046 ($100,521 + $7,525).
Grantee appealed this decision to the Board, asserting that the
computational method used by the Region was incorrect, that local cash
contributions of $20,104 should have been applied to the $10,268 in
disallowed costs, and that the federal share should have been computed
as a percentage of total costs, whether allowable or not, because they
were, in fact, "actual costs" of the program. In addition, the grantee
claimed to have documentation of $8 ,652 in in-kind expenditures which
should have been included in allowable costs, and which the grantee
claimed had been disregarded by the auditors simply because they were
not posted to a ledger
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The Region's response to the appeal was based solely on an Audit Agency
memorandum and failed to address certain specific questions asked by the
Executive Secretary of the Board. The auditors did, in their memorandum
to the Region, state that the reason that the in-kind expenditures were
not accepted was not that they had not been posted to a ledger but that
the grantee did not adequately accumulate, summarize, or record the
contributions.
Non-Federal Share
The Panel Chairman then issued an Order to Show Cause, intended to
clarify and narrow the questions in dispute, directed primarily to the
grantee. In that Order, the Panel Chairman tentatively took the position
that grantee's arguments with respect to computation of the federal
share were inconsistent with basic rules of federal grant law. The
Panel Chairman pointed out that program funds, which include amounts
derived from federal or non-federal sources, may only be spent for the
approved program. (General Conditions Governing Grants Under Title II
(except Section 222(a)(4)) and III-B of the Economic Opportunity Act,
submitted by grantee as an attachment to the Grant No. 4176, I/H/O
Statement of Grant Award.) Further, expenditures, to be counted, must
lie within the limitations on expenditure of program funds, including
restrictions as to when costs may be incurred, how they must be
supported, and to what purposes they must be related.
Assuming that the grantee's method of computation should be rejected,
that the in-kind contributions were not acceptable, and that the
disallowances by the auditors were appropriate, the Panel Chairman
tentatively concluded that grantee's local cash contribution of
approximately $20,104 would be sufficient to support a maximum of
$80,417 (rounded) in federal share, the relevant statute providing for a
20/80% split. 42 U.S.C. 2812(c)(1970). The Panel Chairman directed the
grantee to show cause why the appeal should not be dismissed on the
ground that the in-kind expenditures were not properly documented, local
share was inadequate to support the size of the program authorized and
the size of the program conducted, and funds drawn down from the federal
grant had been utilized for purposes not authorized by the grant.
Grantee was given the opportunity to persuade us that this analysis of
the federal/non-federal share issue was incorrect, to identify specific
items which may have been improperly disallowed, and to furnish suitable
documentary evidence of grantee's claimed in-kind expenditures.
In response to that Order, grantee expressly elected to argue its case
further only on the issue of in-kind contributions. Accordingly, the
issue of computation of the non-federal share is decided against the
grantee on basis of the analysis stated above.
In-Kind Expenditures
Grantee did submit in response to the Order documentation which it
claims substantiates $7,636.50 in in-kind contributions to Head Start
during the
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grant period. Grantee indicated that it had reduced the $8,852
originally claimed because certain individual documents upon which that
figure wad based would not meet the Board's "technical requirements."
The documents submitted are described by the grantee as being in
original, not reconstructed, form.
At that point, rather than analyzing each of the documents submitted, we
decided to provide the Region with an opportunity to make an initial
determination of the allowability of the in-kind expenditures claimed
and, if appropriate, to reach a resolution of this issue with the
grantee. We informed the Region that, if it could not negotiate a
resolution with the grantee, it should notify us of its determination,
setting forth sufficient detail to enable the grantee to respond.
The Board Chairman subsequently granted an extension of time to the
Region to allow it to consult with the Audit Agency, but reminded the
Region that the responsibility to decide in the first instance was with
it, not with the Audit Agency. The Region's response was to submit a
late and improperly filed memorandum, stating generally the principles
upon which allowability of costs are determined and concluding that none
of the grantee's documentation was acceptable. Attached to the Region's
response was an Audit Agency analysis of the documentation somewhat more
detailed than the Region's memorandum but lacking any specific citation
to grant requirements and based, in part, on "the possibility that
documentation was created after the completion of the audit."
As indicated in the Order to Show Cause, in-kind contributions, while
accePtable and within certain limits as valid as cash contributions, are
in practice often loosely documented, padded and exaggerated.
Nevertheless, if real In-kind contributions have been made and can be
documented, they are ordinarily accepted. We were not prepared,
therefore, to adopt the Audit Agency analysis wholesale, when it
appeared to us that grantee's documents, while clearly insufficient in
certain regards, evidenced some community support for grantee's project
unless one assumed, contrary to grantee's assertion, that they were
totally fabricated. Based on our own analysis of the documents, we
concluded that some clearly did not meet required conditions, some
appeared to be trustworthy evidence of services provided although these
services may have been overvalued, and some appeared to represent
allowable costs of benefit to the program. These conclusions were
modified somewhat, in grantee's favor, as a result of documentation and
comments submitted by grantee in response to an opportunity provided to
the parties, to comment on a draft decision. Our final conclusions are
set forth below.
Specific Items Disallowed
We find that the following items totaling $5,855.46 do not represent
allowable costs and, therefore, disallowance by the Region is upheld for
the reasons stated below:
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1) Documents identified by grantee as items 33-40 are "out-of-town
expense" or "consultant services" forms purportedly representing
consultant services donated by a T.D. Wallsteadt and valued at $100 per
day. "Technical assistance to H.S. Director" is listed on the forms
under "purpose," but no indication is given as to what the professional
qualifications of T. D. Wallsteadt were other than an identification as
"consultant." T. D. Wallsteadt signed these forms on a line proved
for
signature of an employee. Four out of the eight forms contained no
supervisor's signature.
The Special Condition on Volunteer Services attached to the I/H/O grant
award document ("Special Condition") states that required records
must
show the professional qualifications of the volunteer, the specific
duties performed, the volunteer's signature, and a signature of a
supervisory employee. The Special Condition also states that "Services
will not be treated as partially volunteered. No services for which a
person is compensated, even though the compensation may be low, shall be
treated as volunteered." It is possible that T.D. Wallsteadt was an
employee of Human Services, Inc., or was the consultant referred to in
the audit report where the auditors questioned consultant services costs
for a variety of reasons. (Audit Report, pp.17-18.)
The $1600 claimed for the services of T.D. Wallsteadt is disallowed
based on the Special Condition cited above.
2) Items 58, 59, and 62 appear to represent cash rather than in-kind
contributions. The $85 claimed for these items should not be allowed as
in-kind expenditures, and even if these cash contributions were not
previously claimed as such, grantee has produced no documentation
showing they were applied to allowable costs.
3) Items 48-57, 60-61, and 63-92 represent a variety of donations, all
reported by Thelma Routier, in April 1974, and all related either to a
bazaar or fashion show. There is nothing to indicate that these items in
any way benefited the Head Start project, although it is possible that
the proceeds of the events went to the project, but if that is so, the
proceeds should have been claimed as cash contributions. Item 96
represents, in part, a claim for $400 of Thelma Routier's time working
on a style show in March or for "raffling tickets for card table."
This
time is valued at $2 per hour for a total of $400. Paragraph G. 33. of
Part II of Appendix F to 45 CFR Part 74 states that "costs related to
fund-raising appeals are unallowable. . ."
The $1,111.94 in costs represented by the donated items and the $400 for
Thelma Routier's time are accordingly disallowed on the
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ground that the costs were not of direct benefit to grantee's Head Start
project or were related to fund-raising appeals. Furthermore, Thelma
Routier's time should have been valued at the $1.60 per hour specified
as the value of unskilled services in the Special Condition referenced
above, rather than the $2 per hour claimed.
4) Item 25 represents $4.52 claims for services of county hospital
attendants. No specific hours are listed, the form is unsigned, and it
is not clear how these services were of benefit to the grantee's project
nor how they were valued. This claim is disallowed on the ground that
this documentation is inadequate to meet the requirements of the Special
Condition outlined above.
5) Item 97 identifies Ellen Trowbridge as a teacher's aide, claiming
$878 of services at $1.90 per hour. Although the form lists the time
period June-November 1974, it fails to list any specific dates or times
and does not give Ellen Trowbridge's professional qualifications. This
amount is disallowed on the ground that the services claimed do not meet
the Special Condition requirements.
6) Item 98 claims $1624 at $2.90 per hour for the time period October
1973 to May 1974 for the services of Shirley Henry, identified as a
teacher's aid but also called Head Start Director. Shirley Henry signed
other forms as a supervisor of volunteers and there is no signature of a
supervisor for her services. No specific dates or times are given.
This claim is disallowed on the grounds that it does not meet the
Special Condition requirements described above, particularly as it
appears that Shirley Henry was possibly compensated as an employee for
at least part of her services, and the Special Condition states that
services will not be treated as partially volunteered.
7) Item 93 is a claim for 100 hours of volunteer services performed by
Randy Rentschlir from October 1973 to May 1974, valued at $150. There
are no specific dates or times given and the volunteer's signature does
not appear on the form. This amount is disallowed on the ground that the
Special Condition was not met.
8) Item 44 is a claim for $2 of volunteer time spent "cooking
dinner-BBJ-CAP." This may have been an entertainment cost within the
meaning of Paragraph G.12. of Part II of Appendix F to 45 CFR Part 74
and was not clearly of benefit to Head Start. This amount is disallowed
on the basis of Paragraph G.12. and, alternatively, because the services
were not of benefit to grantee's Head Start project.
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Specific Items Allowed in Part
Certain costs identified below are allowable, but at total value of
$1395.14 rather than the $1718.04 claimed.
9) Documents identified by grantee as items numbered 3, 16-24, 26-32,
and 41-42 apparently represent costs of a Halloween Party and a
Christmas Party for Head Start students. The cost principles of Subpart
Q, Appendix F, of 45 CFR Part 74 provide at Paragraph G.12. that "costs
of amusement, diversion, social activities, ceremonials, and incidental
costs relating thereto . . . are unallowable." We conclude, however,
that this provision was not meant to apply in the context of a Head
Start Program to activities for students intended to bring about a
greater degree of social competence in children of low income families.
(Cf. Head start Program Goals, 40 FR 27563, June 30, 1975, 45 CFR
1304.1-3.) Group socialization experiences are a legitimate part of a
Head Start project, and community contributions to these experiences are
of benefit to the project and may be a valid in-kind expenditure. The
disallowance of $277.34 claimed for these costs is, therefore, reversed.
10) Items 11-15 represent a variety of donated items valued at $49,
including several paintings donated to "H.S. room" and materials and
services related to "aprons." It appears that these items benefited
the
Head Start project and are allowable costs.
11) Items 1,2, 4-10, 94 and 95 are volunteer sign-up sheets. In general,
these sheets appear to meet some of the Special Condition requirements
in that dates, times, and volunteer and supervisor signatures are given.
The services are valued, however, at $2.20 per hour rather than the
$1.60 for unskilled services specified in the Special Condition.
Furthermore, certain individual aspects of some of these claims appear
to be deficient. Item 2 contains no supervisor's signature? Item 6 does
not identify the job performed. In Item 7, the names of the volunteers
appear to have been written by the supervisor rather than the volunteers
themselves. Eliminating these items as not meeting the Special Condition
requirement and revaluing the services at $1.60 per hour would reduce
the total allowable claim for these volunteer services from $1232.70 to
$856.00.
12) Items 43, 45, and 46 appear to represent volunteer services of a
Billy (or Willie) Arnold, giving the number of hours worked on specific
dates in "making picnic tables," which appears to have been of benefit
to the Head Start program. No professional qualifications are stated for
Mr. Arnold on the forms, but grantee has submitted a statement, signed
by Mr. Arnold, that in 1974 his hourly wages as a skilled union
tradesman were $8 an hour. We
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have determined to accept this documentation and allow the full $176
claimed for the services.
13) Item 96 includes a claim for $46 for 23 hours of Thelma Routier's
time for evaluating Head Start centers. Nothing on the form indicates
her professional qualifications for such evaluation. This amount is
disallowed at the rate clad on the ground that the services claimed do
not meet the Special Condition requirement of a showing of professional
qualifications but allowed at the rate of $1.60 per hour, or $36.80.
Thus, $1,395.14 is allowed on the ground that grantee has produced
documentation of these costs which appears to meet the Special Condition
and evidence valid in-kind expenditures, and the disallowance with
respect to these items is upheld to the extent of $385.90, for a total
disallowance of $6,241.36 of the $7,636.50 in in-kind expenditures
claimed.
Grantee has objected to the amount of time it has spent clearing up a
financial problem created by people who are no longer working for
grantee and has objected to its integrity being questioned although its
documentation of in-kind expenditures in years other than the year in
question have been satisfactory to the auditors. The fact is, however,
that the documentation relating to the year in question did not satisfy
the auditors and is even less satisfactory to us, presented as it is in
an appeal where its reliability is less than if the auditors had
examined the documents themselves at the time of the audit.
Furthermore, grantee cannot absolve itself of responsibility for
accounting for federal funds in the year in question by blaming' former
employees. It is clear frog the record that there were grave
deficiencies in grantee's recordkeeping in that year. In light of the
claim by grantee that the in-kind documentation was offered to the
auditors and that their failure to examine the documents carefully at
the time was due to an interruption in the audit, and in light of the
Region's failure to present sufficiently clear reasons as a basis for
its refusal to accept any of grantee's documentation, however, by
forwarding a tentative decision in draft form, we offered the grantee
another opportunity to justify some of the costs it claimed. Grantee met
that burden, in part, but to the extent that grantee failed to meet that
burden because it could not or would not produce the necessary
documentation, grantee must bear the consequences.
Conclusion
For reasons summarized above and discussed more fully in the Order to
Show Cause issued in this case, we uphold the disallowance to the extent
that it is based on the agency's view that grantee's non-Federal share
cannot be applied here to cover disallowed costs. With respect to
grantee's claimed in-kind expenditures, we hold that grantee has shown
that it had $1,395.14 in allowable in-kind costs for a total non-Federal
contribution of $21,499.14. Grantee has requested in its letter of
October 18, 1979,
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that it be allowed to use excess non-Federal, non-cash, in-kind
contributions received in its current year to compensate for the
remaining Federal balance due for Program Year I. This is a matter of
the discretion of the agency although the Board encourages such
arrangements. D11 May 21, 1992