Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: School Board of Seminole County
DATE: April 3, 1991
Docket No. 91-4
Audit No. A-04-90-05110
Decision No.1238
DECISION
The School Board of Seminole County (Grantee) appealed a disallowance
by
the Office of Human Development Services (OHDS) of $10,175 charged
to
Head Start Grant No. 04CH-0262/03. OHDS disallowed a percentage of
the
salary paid by the Grantee to its Head Start director for the year
July
1, 1987 through June 30, 1988, on the basis that it was not
allowable
under the cost principles applicable to nonprofit
organizations.
For the reasons discussed below, we determine that the amount in
question
was not properly charged to the Grantee's Head Start grant
funds and we
uphold the disallowance.
Background
The record reflects that the Grantee, during the time relevant to
this
determination, employed a director to administer both its Head Start
and
Educationally Deprived Children's (Education) programs. 1/ OHDS
Exhibit
(Ex.) 2. For the year ending June 30, 1988, the Grantee
allocated 55%
of this director's salary to the Grantee's Education program
and 45% of
his salary to its Head Start program. OHDS Ex. 2.
For the year ending June 30, 1988, an audit was conducted by the
Florida
State Office of the Auditor General (Auditor). During this
audit, a
review of the director's work logs for October 1987 and February
1988
showed that the director's time distribution on behalf of the
two
programs was significantly different from the Grantee's allocation.
The October work log indicated that the director had spent only 28% of
his
time on activities for the Head Start program, while spending 72% of
his time
on activities related to the Education program. The February
work log
indicated a 24% Head Start and 76% Education time distribution.
OHDS Ex.
2. Based upon the information derived from these work logs,
the Auditor
recommended that the percentages used to allocate the
director's salary
between the two programs be adjusted. The record also
reflects that the
Auditor had made a similar recommendation with respect
to the allocation of
the director's salary in 1987. See OHDS Ex. 2;
Notice of Appeal dated
January 9, 1991.
Although the audit for the year ending June 30, 1988 was completed
March
6, 1989, OHDS did not receive a copy of this audit until April 1990.
2/
Subsequently, OHDS disallowed the percentage of the director's
salary
that OHDS determined had been erroneously allocated to the
Grantee's
Head Start program. 3/ See OHDS Grants Management Officer's
Letter
dated December 11, 1990; OHDS Ex. 4, p. 4.
.Discussion
The Grantee argued that: (1) a disallowance was unwarranted since
the
Auditor had not recommended an adjustment of charges between the
Head
Start and Education programs; (2) the Grantee was not required to
keep
monthly work logs until 1989 under the rules governing its
Education
program; and (3) if the Grantee had been given notice of
OHDS's
disallowance prior to August 31, 1990 (the closeout date of
its
Education program), the Grantee could have sought additional funds
from
that program to cover this disallowance. Thus, it was the
Grantee's
position that it would be unfair to require the Grantee to
pay this
disallowance now from "local School Board funds." See Notice
of Appeal
dated January 9, 1991; Board's Telephone Conference of March 7,
1991.
The Grantee did not dispute that its expenditures are governed by the
cost
principles set forth in Office of Management and Budget (OMB)
Circular A-122,
made applicable by 45 C.F.R. 74.174(a) (1987). See
Board's Telephone
Conference of March 7, 1991. In order to be allowable
as charges to a
grantee's Head Start program, costs must be allocable to
that program and
reasonable and necessary to grant purposes. See OMB
Circular A-122,
Attachment A, A.2.a and g; A.4.a. Since the audit
report indicated that
the Grantee's Head Start funds were used to pay
for a portion of the
director's time that did not benefit the Head Start
program, the Auditor's
recommendation was tantamount to finding that
some of the costs allocated to
the Grantee's Head Start program were not
allocable to Head Start, were
unnecessary and unreasonable, and
therefore, were unallowable costs.
Contrary to the Grantee's assertion, the Auditor's recommendation
to
adjust the allocation percentages between the Head Start and
Education
programs certainly implied that a corresponding adjustment should
have
been made to the charges to the two programs, since the purpose of
time
allocation is to calculate appropriate salary and related costs
charges
to the grants.
Moreover, the Grantee's assertion that the director was not required
by
the rules governing the Grantee's Education program to keep daily
work
logs is irrelevant. The cost principles applicable to Head
Start
specifically required the Grantee to keep time distribution records
for
employees whose time was spent on more than one program. See
OMB
Circular A-122, Attachment B, B.6.l. The Grantee, therefore, had
the
burden to document all of its Head Start program costs regardless of
any
other requirements.
The Grantee also failed to offer any evidence to support a
different
allocation between the two programs. In the absence of complete
time
distribution records, OHDS was, therefore, reasonable in relying on
the
existing records to establish the director's time distribution
between
the two programs. 4/
The Grantee also argued that it was prejudiced by OHDS' delay in
resolving
the audit report recommendations. The Grantee's position was
that if it
had received notice of the disallowance earlier, it could
have charged the
amount of the disallowance to its Education program.
We find this contention to be meritless for several reasons. First,
the
Grantee's failure to allocate the costs according to how the
director
actually spent his time caused the problem in the first
instance.
Moreover, the record contains a letter dated July 26, 1990,
which
advised the Grantee of the misallocation of the director's salary
and
stated the amount of funds improperly charged to the Grantee's
Head
Start program. 5/ It is therefore apparent that the Grantee had
notice
of the misallocation before the August 31, 1990 close-out date for
the
Grantee's Education program. The 1987 audit report had also
contained a
similar recommendation with respect to the percentages used to
allocate
the director's salary, and should have made the Grantee aware of
the
misallocation between the two programs.
Finally, the Grantee did not dispute that it received a copy of the
audit
report shortly after the completion date of March 6, 1989. See
Board's
Telephone Conference of March 7, 1991. Nor did the Grantee
dispute that
it failed to provide OHDS with a copy of the audit report
within 30 days
after completion of the audit, as required by the
regulations. 45
C.F.R. Part 74, App. J, 13(f) (1987). Instead, the
Grantee asserted
that it was not aware of the requirement to provide
OHDS with a copy of the
audit report.
Grantees of discretionary grants are obligated to meet certain
standards
for their grant management systems, including maintaining
internal
controls. See 45 C.F.R. 74.61. Here, the Grantee's
failure to maintain
these standards and the Grantee's own delay kept the OHDS
audit
resolution process from being completed within adequate time for
the
Grantee to seek these costs from its Education program.
Moreover, the Grantee's inability to charge the $10,175 to its
Education
program does not justify overturning this disallowance, since it
does
not in any way render this cost an allowable, and therefore
authorized
charge, to the Head Start grant. See OMB Circular A-122,
Attachment A,
paragraph A; Nicholas County Community Action Association, DAB
No. 1209
(1990). .Conclusion
Accordingly, we uphold the disallowance in the amount of $10,175.
___________________________
Donald
F. Garrett
___________________________
Norval
D. (John) Settle
___________________________
Judith
A. Ballard Presiding
Board Member
1. The Educationally Deprived Children's
Program is administered by
the United States Department of Education and is
also referred to in the
record as Chapter I and Chapter 1 Basic.
2. An OHDS employee received a copy of the audit
during an on-site
visit on April 26 and April 27, 1990. The official
copy was not
received by OHDS until May 15, 1990. See OHDS Ex. 3; OHDS
Br., p. 3.
3. OHDS calculated the disallowance by averaging the
October work log
percentage of 28% and the February work log percentage of
24%. OHDS
then multiplied the director's annual salary by 26% to
determine the
amount that should have been allocated to the Grantee's Head
Start
program. This amount was subtracted from the amount that the
Grantee
had actually allocated to Head Start, resulting in the
disallowance
amount of $10,175. See OHDS Ex. 4.
4. Since the Grantee had documentation to support the
director's
salary costs for only October 1987 and February 1988, OHDS might
have
disallowed all of the other months' charges to the Head Start grant.
5. This letter was from an accounting firm under contract
with the
Office of the Inspector General for the Department of Health and
Human
Services. During the March 7, 1991 telephone conference, the
Grantee
admitted that it had received this letter, but stated that the
letter
did not request any payment. As stated above, the
auditor's
recommendation implied that a corresponding adjustment should be
made to
the charges of the two programs, and the July 26th letter put
the
Grantee on notice of unallowable charges of $10,175 to its Head
Start