GAB Decision 093
April 29, 1980 Macon County Community Action Committee, Inc.; Docket No.
78-7 Dukes, David; Malone, Thomas Dell'Acqua, Frank
I. Procedural Background.
Macon County Community Action Committee, Inc. (Grantee), appealed by
letter dated November 23, 1977, from the October 31, 1977 determination
by the Acting Regional Director, Office of Human Development Services
(OHDS), Region IV, disallowing $49,310 expended in excess of the
authorized budget for its program year H Head Start grant (for the year
ending September 30, 1974). On December 14, 1977 the Board wrote
Grantee to inform Grantee that its appeal was improperly submitted as no
copy of the adverse determination was included as required by 45 CFR
16.6(a)(2). On February 21, 1978 the Board received a telegram from
Grantee inquiring as to the status of its appeal submission.On March 2,
1978 the Board again wrote Grantee, enclosing a copy of the 12-14-77
letter but allowing Grantee an additional 15 days to resubmit its
application. By a letter postmarked March 14, 1978 Grantee submitted a
properly filed application with the explanation that Grantee had no
record of ever having received the Board's initial letter of December
14, 1977.
On August 23, 1979, an Order to Develop the Record setting forth the
facts and issues as they appeared from the record and directing Grantee
and the Agency to answer certain questions was issued by the Board
Chairman. The Order was based on the application for review and
attachments from Grantee and the Agency's April 24, 1978 response to the
application. In submissions dated September 19, 1979 and October 1,
1979, Grantee and the Agency respectively responded to the questions
posed in the Order.
II. Statement of the Case.
The audit report on which the disallowance is based (Audit Control
No. 04-56628) shows that Grantee had incurred for program year H of its
Head Start grant costs totalling $635,368, while having revenues of
$586,058, resulting in a deficit of $49,310. Grantee was initially told
that this overexpenditure would have to be repaid with cash from
non-Federal sources, but the Agency in its response to the Order stated
that an amount of $49,310 would be deducted from Grantee's budget for a
future program year.
(2) Grantee does not dispute the fact that it did exceed its budget
for its program year H grant, 10/1/73 to 9/30/74. In explanation
Grantee states that it decided to begin its program year I two months
earlier (beginning August 1, 1974) than usual so that the Head Start
Program would coincide with the local school system's operational year.
Grantee believed this program change would benefit the Head Start
Program because the major portion of its program was operated in
buildings provided without charge by the school system, and also because
regular school buses could be used to transport the program children.
Grantee asserts that it operated its program on essentially a nine
month basis. Thus in a typical program year which ran from October 1 to
September 30, most, if not all, of the expenses were incurred within the
first nine months. In program year H (10/1/73 - 9/30/74) Grantee
operated its typical program. At the end of June its nine month Head
Start Program was completed. But in August and September of 1974, two
months that fiscally belonged to program year H, Grantee started up its
Head Start Program again for another nine month period and thus incurred
two additional months of expenses, programmatically belonging to program
year I, that were charged to program year H, resulting in excess costs
of $49,310.
Grantee has argued throughout its presentations to the Board that it
had received oral approval from the Agency's Program Field
Representative to change its program year and considered this sufficient
authorization to proceed without making any formal written request to
the Agency's Regional Office. In response the Agency has steadfastly
maintained that the Program Field Representative did not give his
approval to the program year change, supplying in its response to the
Order a statement from the Field Representative to that effect, and
that, even if such approval had been given, it was not adequate to
permit the change as the Field Representative did not have the authority
to commit Office of Child Development (OCD) funds or to approve program
changes which require such funds. The Agency asserts that Grantee was
aware that it needed written permission of the Administration for
Children, Youth and Families Program Director and OHDS Grants Officer on
a notice of grant award prior to increasing Federal expenditures.
Since Grantee did not obtain such written permission, the Agency has
stated, Grantee has violated 45 CFR 1301.2-5, 45 CFR 74.101, and the
OHDS "Terms and Conditions" which were accepted with the grant award,
and the disallowance of the overexpenditure should therefore be
sustained.
In the Order Grantee was specifically asked what relief it was
seeking from the Board. The record was unclear on this point because at
one point in its correspondence with the OCD Director Grantee requested
that it be allowed to reduce the level of its expenditures for a future
program year (3) by $49,310. In its response to the Order, however,
Grantee replied that it wished the Board to totally forgive the
overexpenditure, an action which, as will be discussed below, is beyond
the Board's authority.
Grantee was also asked whether it received its normal level of
funding for its program year I grant. This was considered relevant
because the $49,310 in overexpenditures disallowed for program year H
represented two months of expenses that normally would have been charged
against the operation of its nine month program during program year I.
Grantee replied that it had received its normal level of funding for
program year I beginning October 1, 1974 and ending September 30, 1975;
Grantee also supplied its schedule of expenditures for that year which
showed that Grantee ended the year with a surplus of $22,286, of which
$12,906 represented the Federal share.
III. Discussion.
It is uncontested that the overexpenditure in question was program
related and that there was no misappropriation of funds by Grantee. The
Agency has stated that the amount represented by the overexpenditure was
fair, reasonable, and approvable if only Grantee had submitted a written
request in advance to he OHDS Regional Office to change its program
year. Despite these considerations, and although the grounds offered by
the Agency in support of the disallowance are not persuasive, the Board
must rule against Grantee and sustain the disallowance.
The Agency's reliance on 45 CFR 1301.2-5 as one of the grounds for
disallowing the overexpenditure is misplaced. Despite the Agency's
continued assertions to the contrary, 45 CFR 1301.2-5 was merely a
proposed regulation (41 FR 18607, May 5, 1976) that was never
promulgated as a final rule. Consequently Grantee was in no way bound
by the provisions of this proposed regulation.
Similarly, the Agency's citation of 45 CFR 74.101 as having been
violated by Grantee is inappropriate. During the period in question,
1973-74, that regulation was only applicable to grants to State or local
governments, not to grants to nonprofit organizations such as Grantee,
unless made specifically applicable by a duly published HEW policy
statement. See 45 CFR 74.4 (1973). No such policy statement has been
furnished by the Agency.
To the extent that the appeal rests on Grantee's request that the
Board totally forgive the overexpenditure in the program year H grant,
we conclude that the appeal should be denied. The forgiveness of the
overexpenditure would be tantamount to the awarding to Grantee of a
supplemental grant. The Board is not vested with the authority to make
an (4) award of grant funds. Pinellas Opportunity Council, Inc., DGAB
Docket No. 79-58, Decision No. 80, February 6, 1980, at p. 3; Yakima
Public Schools, DGAB Docket No. 79-3, Decision No. 81, February 6, 1980,
at p. 2. Grantee's case is further weakened by the fact that it
received its full funding in subsequent program year I, even though two
months of expenses that should have properly occurred in that program
year were charged by Grantee to program year H. To grant the relief
Grantee is seeking by forgiving the overexpenditure would appear to
result in a windfall for Grantee.
As indicated above, Grantee apparently had $12,906 in unexpended
Federal funds remaining at the close of program year I. There is some
room for argument that these funds could be properly used to offset part
of the overexpenditures shown as a charge to the program year H grant
since the costs incurred in August and September of 1974 were
programmatically related to the program year I Head Start program. The
record does not show, however, the fate of the unexpended Federal funds,
whether the unexpended funds were retained by Grantee or returned to the
Agency. Therefore, and because neither party has raised the issue, we
do not rule on the possible applicability of a setoff to the facts of
this appeal.
As for the issue of whether approval for a change in its program year
had been granted, we find Grantee's arguments unconvincing. Asked in
the Order why it had not sought prior written approval from the Agency's
Regional Office for the change as it had done in the past on other
matters, Grantee responded that it was faced with a "life and death"
situation and that the Regional Office had been unpredictable in its
responses to prior written requests. We consider this unpersuasive in
light of the major alteration Grantee was proposing. Grantee's proposal
was not a mere budget revision; it was, in effect, a change in the
terms of the grant. For such a change Grantee should have obtained an
amended notice of grant award from the Agency's Regional Office.
Grantee's reliance on the Community Representative's oral approval,
assuming for the sake of argument that it had been given, was
nonetheless ill-advised. Reliance on oral representation is a
risk-laden policy for grantees as misunderstandings as to what actually
was stated or agreed to may readily occur, leaving the grantees with no
solid evidence to support their claims. A requirement for prior written
approval should be viewed as protection for a grantee as well as for the
grantor agency. (Cf. Southern University, DGAB Docket No. 29,
Decision No. 24, June 29, 1976, at p. 3). Grantee's failure to obtain
prior written approval in this case has created an overexpenditure for
which Grantee and not the Agency was responsible.
(5) IV. Conclusion.
For the reasons stated above we deny the appeal.
SEPTEMBER 22, 1983