GAB Decision 102
June 2, 1980 Mary Holmes College, Inc. Community Education Extension
(CEE); Docket No. 77-5 Dell'Acqua, Frank; Woodruff, Robert Wilner,
Irving
Community Education Extension (CEE), Mary Holmes College, Inc.
("Grantee") of Westpoint, Mississippi, was organized to operate a
Head
Start-Community Development program in accordance with the Economic
Opportunity Act of 1964. It has been a recipient of grant assistance
from the Office of Economic Opportunity and, since 1969, from the Office
of Child Development (OCD), HEW. Grantee is currently benefiting from a
continuing grant administered by OCD, renewable annually on November 1.
On April 23, 1977, the Assistance Regional Director (ARD), Office of
Human Development, Region IV, forwarded to Grantee a Determination
disallowing, for the program year ended October 31, 1975, an obligation
of Federal funds in excess of grant award in the sum of $38,383,* and
directing that it be made up from non-Federal sources. It also
determined a shotage in preceding years in the matching, non-Federal,
contribution in the amount of $112,348**, and ordered that the same be
added to Grantee's obligation for the current year. Grantee appeals.
I
Excess Cost Over Grant Award.
Grantee does not deny the factual correctness of the Determination
concerning this item. What it argues is that the excess cost should be
allowed as "a one-time-only expenditure," since the amount involved
is
said to be negligible in comparison with the annual budget of the
program which is well in excess of $7,000,000. It contends that the
overexpenditure was occasioned by increased costs of operation due to
inflation and to more exacting performance standards. Grantee complains
about what it regards as inherent inequity in the OCD accounting
procedures which require a year-to-year cut off of the fund balance
while permitting carry-over of non-federal shortages from one year to
the next. It further argues by way of avoidance the failure of OCD to
provide annual funding increments to approximate the cost-of-living
index.
Clearly, allowance by us of the excess cost unauthorized in the
budget would constitute an award of a supplemental grant - and that for
a program year long past - a power which we do not possess. Yakima
Public Schools, DGAB Docket No. 79-3, Decision No. 81, February 6, 1980;
Pinellas Opportunity Council, Inc., Docket No. 79-58, Decision No. 80,
February 6, 1980. Nor can economic hardship to a grantee, per se,
operate to enlarge the jurisdiction of this Board. It is obvious that
the extent of Federal grant funding is governed by demographic,
political and economic factors, and that authority to make
determinations in these areas is the peculiar prerogative of the
operating agencies concerned. This is also true in respect to
accounting procedures adopted pursuant to statutory or valid regulatory
authorization.
Lastly, appellant urges in the alternative that, if not allowable as
"a one-time-only expenditure", the excess cost under review be offset
against the amount of $106,828 carried on the balance sheet of the
private audit for the program year which ended October 31, 1974, as a
"reserve for unapplied U.S.D.A. milk and luncheon funds."
It appears that this fund was remitted to the grantee by the U.S.D.
A. as reimbursement for costs incurred by the grantee for its
nutritional activities with OCD funds. It is the OCD position that in
view of this circumstance the sum held by the grantee as a "reserve"
is
not available to it to cover costs unauthorized by the grant but should
be used to reduce the grant obligation of OCD.
The ARD cites certain Statements of Policy and Instructions
concerning the treatment of U.S.D.A. grant assistance in support of the
OCD position. The difficulty is that most of the documents relied upon
have issuance dates which are subsequent to the transaction under
consideration, and OHD/CD Instruction No. 11, April 9, 1974, while not
open to this objection, is of somewhat questionable authority because it
does not appear that it had been published in the Federal Register.
Pinellas Opportunity Council, Inc., supra.
As a practical matter, however, there is no doubt that OCD has
applied its view of what may be considered a form of administrative
subrogation, in substituting itself for the U.S.D.A. by virtue of having
advanced the costs for the nutrition program which the U.S.D.A. had set
out to fund by "reimbursing" the grantee.
Accordingly, it promptly reprogrammed the unexpended U.S.D.A. fund in
the Statement of Grant Award for the "J" year commencing November
1,
1974, with the effect of reducing the amount of the Federal grant.
Grantee appealed that action sometime prior to July 1, 1975 "on the
National level" and, for all that appears, the National office of OCD
has not reached a decision on that appeal to this date. Grantee asserts
that it had received "verbal responses" that the fund would be restored
during the 1975 grant year and that, relying upon those assurances, it
did not reduce its level of operations.
We can not give effect to alleged unauthenticated and unidentified
verbal assurance of favorable adjustments on an administrative level,
especially in view of the express disavowal by OCD of any knowledge of
such assurances. See, Southern University, Baton Rouge, La., DGAB
Docket No. 29, Decision No. 24, June 29, 1976, at p. 3. On the other
hand, we do not feel called upon to decide the basic question of
entitlement to the U.S.D.A. fund in the absence of a sufficiently
developed record of pertinent facts, and for the more cogent reason that
the record on appeal does not disclose the existence of a formal
Determination concerning this issue. We note that under date of July
29, 1977, the ARD informed this Board of the pendency of Grantee's
appeal before the Director of OCD, and of its view that if "OCD
Headquarters finds in favor of the grantee, the overexpenditure that was
questioned would be reduced by the amount the region would be required
to restore funds."
Regrettably, the Director of OCD has not communicated a decision in
the matter nearly five years after its filing. But, since Grantee
admits the overexpenditure and since the matter of the U.S.D.A. funds is
not a fact directly in issue in the instant proceeding, but is invoked
only collaterally as a basis for set-off, we have no alternative but to
affirm the disallowance of the costs in excess of the grant award.
II
The Non-Federal Share Shortage
Grantee admits the fact of the shortage, but objects to the Order
requiring it to add the stipulated amount to the non-Federal share
contribution for the ensuing year, for alleged untimely official notice
of the remedial action to be taken. It asserts that the notice
directing it to make up the shortage came in July 1975 "with just two
months of operation remaining", thus not affording it adequate time for
corrective action. It also complains that increases on July 9, 1975 in
the amount of Federal grants entailed an increase in the required
non-Federal matching contribution, thus imposing upon it a burden
greater than it could bear.
Much of what we said earlier relative to the effect of economic
hardship is applicable here. As for the argument based upon allegedly
inadequate notice, Grantee's position is not supported by the record.
The deficiency in the amount of $112,013 in the non-Federal share
represents an administrative adjustment of a previously identified
shortage in the amount of $176,947 as set forth in Grantee's private
auditor's report for the year ended October 31, 1974, copy of which was
mailed to grantee on January 25, 1975. Also, on May 22, 1975, the
Regional Audit Director, HEW Audit Agency, Region IV, called the
attention of Grantee to Federal expenditures questioned by Grantee's
Auditor in his report for program year 1974, requesting comments.
Grantee's obligation to meet a share of the costs of the Head Start
budget from non-Federal sources does not, of course, derive from
official notice of its default but from the terms and conditions of the
grant pursuant to statutory mandate. P.L. 93-644, Sec. 513(b), 42 USC
2928b. In the instant case, the amount due from Grantee was fully
stated in the Notice of Award for the 1974 grant year. Grantee thus had
full knowledge of the nature and scope of its obligation for about a
year. Even as far as notice of default is concerned, we are satisfied
from the evidence that Grantee had notice for more than six months prior
to the expiration of the grant year in which to make such adjustments in
its operations as it deemed necessary.
In view of the foregoing we dismiss the Appeal and sustain the
Determination of April 23, 1977, subject to the modification of relevant
amounts in accordance with the opinion. * Reduced by agreement of the
parties to $34,645 ** Reduced by agreement of the parties to $112,013
OCTOBER 04, 1983