Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Ironbound Educational and Cultural Center, Inc.
DATE: February 18, 1992
Docket No. 91-51
Decision No. 1302
DECISION
Ironbound Educational and Cultural Center, Inc. (Ironbound) appealed
a
decision of the Office of Community Services (OCS) which
disallowed
Ironbound's expenditure of $282,000 and denied a further extension
of
the grant period related to an award of funds under a program of
special
discretionary grants authorized by the Community Services Block
Grant
Program (42 U.S.C. .9901 et seq.). OCS found that Ironbound,
despite
prodding and a lengthy extension of time, had failed to
perform
substantially and, in particular, had failed to obtain the
matching
funds required as a condition of the award.
Based on our review of the record and the analysis below, we uphold
the
OCS decision.
Background
A provision of the Community Services Block Grant Program
authorizes
discretionary grants for certain special programs of nonprofit
community
development organizations to increase employment and
business
development opportunities for low-income residents. 42
U.S.C.
.9910(a)(2)(A). OCS implemented this provision by annually
publishing
in the Federal Register an announcement of availability of,
and
conditions for, these funds. The grant involved here was
awarded
pursuant to such an announcement published at 52 Fed. Reg.
4090
(February 9, 1987). Exhibit B to OCS's Brief. Among other
things, the
announcement stated:
For most projects, the OCS will grant funds for one
year.
However, depending on the circumstances of any
individual
project and the justification presented by the applicant in
its
proposal, a grant may be made for a longer period of time,
i.e.,
up to two years. Regardless of the time provided in a
grant, it
must be clearly demonstrated that the project work plan
will
achieve measurable results and can be successfully
completed
within the funding period provided in the particular
grant. Id.
The announcement also specified that for the kind of grant
Ironbound
eventually sought 1/, the applicant was required to document a
"firm
commitment" of a matching share of "either one private sector dollar
or
two public sector dollars to each dollar of OCS discretionary
funds."
Id., p. 4095. The announcement also included considerable
detail on the
matching requirement, including the statement that:
Matching funds must be definite, or contingent only on
receipt
of the OCS grant. Speculative match, or match based
on
independent contingencies (such as receipt of another grant
or
lines of credit at the current market rate . . .) will not
be
counted towards the matching requirement. Id.
The announcement also specified that grants were subject to the
provisions
of 45 C.F.R. Part 74 (this Department's general grant
regulations) and the
applicable Office of Management and Budget
Circulars (including A-122, "Cost
principles for nonprofit
organizations"). Id., p. 4112.
Ironbound's Approved Project
In April, 1987, Ironbound applied for $382,300 in federal funds (with
a
non-federal match of $749,400 from various sources briefly listed in
the
application) to support part of an "Ironbound Gateway
Development
Project;" the OCS-supported part basically was to expand an
historic
church rectory with four floors of space for commercial use.
Some of
the nonfederal funds apparently were earmarked for other parts of
the
development project, such as renovation of another historic building
and
a park, but there is no question that the OCS-supported project was
a
clearly-identifiable portion of the overall development project.
The
application contained a detailed milestone schedule and
a
quarter-by-quarter plan for completing work in one year; it noted
that
completion of some work might run over the year, but that "the
funds
will be fully obligated within the one year time period allotted for
the
project, even though the work may take a little longer to
complete."
Exhibit C to OCS's Brief, p. 27. Although the application
discussed the
potential availability of matching funds from a wide range of
sources,
the record does not show any unambiguous and unconditional
commitment of
any substantial or specific amount of funds directly for the
project and
for the time period in question.
In September, 1987, after negotiations, OCS awarded (and
Ironbound
accepted) $282,000, with the proviso that "the Grantee is required
to
match the Federal approved budget with $282,000 in private or
$564,000
in public funds." Exhibit D to OCS's Brief, first (unnumbered)
page.
Both the budget period and the project period for the grant
were
September 30, 1987 to September 29, 1988. Id. The agreement
specified
that "failure to comply with any term or condition shall, in
accordance
with Title 45 CFR Part 74, subpart M, be considered grounds
for
suspension and/or termination of this grant." Id., second
(unnumbered)
page. The agreement called for a revised budget and scope
of work as
agreed during negotiations.
Ironbound submitted the revised budget and scope of work about two
weeks
after the award. Exhibit E to OCS's Brief. This showed OCS
funds being
budgeted for $250,000 in excavation, materials and construction
costs,
and $32,000 in administrative costs. It does not show how
matching
funds were to be used.
How the dispute developed
On September 23, 1988, just before the end of the approved
one-year
project period, Ironbound asked for an extension of one year,
citing
architectural, excavation and other delays. Exhibits F and I to
OCS's
Brief. By letter of December 13, 1988, OCS approved a no-cost
extension
for one year. Exhibit F to OCS's Brief. The approval
letter specified
Ironbound's obligation to submit final reports and an audit
shortly
after the end of the no-cost extension. The grant award
document
attached to the approval letter also repeated the matching
obligation.
In December, 1989, Ironbound disclosed that construction still was
not
complete, and projected completion in December, 1991 -- two years
hence
and four years after award of the original one-year grant. OCS
saw no
evidence that any matching funds had been obtained, and began
demanding
more information. Exhibits G and H to OCS's Brief. An
OCS site visit
in June, 1990, disclosed that only a small portion of work had
been
completed, that work was stopped, that little if any of the
promised
matching funds had been obtained, and that no audit of expenditures
had
been performed. Exhibit I to OCS's Brief. Later that month,
Ironbound
sent OCS a letter indicating that it now needed $500,000 more
to
complete the project, that it had received only $50,000 in
matching
funds but anticipated more from fund-raising activities, and that
it
needed a no-cost extension of two more years (until June, 1992)
to
complete the project. Exhibit J to OCS's Brief. In response,
OCS
demanded more details immediately on proposed work
scheduling,
expenditures, and matching sources, and it threatened a
disallowance.
Exhibit K to OCS's Brief.
In August, 1990, OCS wrote denying Ironbound's request for a
further
no-cost extension, calling Ironbound's request "inconceivable"
and
noting that Ironbound's projection that it could raise $500,000
was
"very speculative and not supported by your experience in
such
activity." Exhibit L to OCS's Brief. Nevertheless, OCS still
did not
take a disallowance immediately; OCS instead offered Ironbound
an
opportunity to promptly obtain a firm commitment of project
financing
from a bank or elsewhere. Id. Meanwhile, OCS had not
yet received an
audit of amounts expended, and apparently has not to this
day.
In October, 1990, Ironbound advised OCS that it could not get a bank
loan
without commitments from tenants to occupy 75% of the office space
which
would be built, and that it had engaged a realty firm to help.
However,
Ironbound said that it had met the matching requirements,
attaching an
otherwise unexplained and very summary list of supposed
donors and amounts
(which largely were the same potential sources
listed, equally cursorily, in
Ironbound's original application). OCS
said it never received this
letter until it was faxed to OCS in March,
1991. Exhibits M and N to
OCS's Brief.
By letter dated February 27, 1991, OCS demanded return of the grant
funds,
essentially for failure to provide the required match or to
perform as
required. In response, in March, 1991, Ironbound sent a copy
of its
October, 1990 letter described in the paragraph above to OCS; OCS
chose to
treat this as a notice of appeal and eventually sent it to this
Board.
Meanwhile, OCS contacted Ironbound to discuss the matter and
concluded that
no more work had been done and that the status of matters
was the same as in
the previous fall. Exhibit N to OCS's Brief. 2/
Ironbound's position
On appeal, Ironbound has acknowledged that it did not complete
the
project, arguing that it has not been able to obtain needed
additional
funding due to the downturn in the economy. Ironbound
argued, however,
that it had obtained the matching funds and had spent them
on the
approved project. Ironbound requested the opportunity to
complete the
project.
Analysis
HHS regulations provide that --
When a grantee has materially failed to comply with
the terms of a
grant, the granting agency may
suspend the grant . . . terminate
the grant for
cause . . . or take such other remedies as may be
legally available and appropriate in the circumstances. 45
C.F.R.
.74.113.
OCS included in its program announcement a "special note" indicating
that
omission or distortion of information on, inter alia, matching, was
grounds
for recovery of grant award funds. 52 Fed. Reg. 4097.
It is well established that grant funds may be used only for
allowable
costs of the activities for which the grant was awarded. 45
C.F.R.
.74.170. Thus, a disallowance is an available and appropriate
remedy
for failure to meet material grant conditions and document claims
for
federal funds.
Under the Department's Grants Administration Manual, OCS has discretion
to
award a no-cost extension of a project. Specifically, section
1-85-80
of the Departmental Grants Administration Manual states:
If support for a project is ending, the grants officer
may
noncompetitively extend the project period for a limited
time,
usually a few months, to provide for an orderly phase-out
of
Federal support. The grants officer may also extend any
budget
period for a few months for administrative reasons . . . .
While this Board will review OCS's exercise of discretion to withhold
an
extension, we have determined that the decision to deny an
extension
should be upheld unless it was arbitrary. Oakwood Child
Development
Center, Inc., DAB No. 1092 (1989).
Below, we examine three elements of Ironbound's nonperformance which
the
record shows justify OCS's actions in this case.
1. Ironbound's failure to complete the project
It is undisputed that the project is substantially uncompleted; in
fact,
Ironbound does not even attempt to rebut OCS's finding that only
a
portion, apparently small, of the work has been done. The
project
originally was to be completed by September, 1988. OCS granted
a
one-year extension. OCS refused any further extension.
In the circumstances of this case, we find no basis for concluding
that
OCS was unreasonable in denying a further extension. As detailed
above,
the record clearly shows a pattern of extensive delays with
only
superficial explanations. Ironbound stated that all Federal funds
have
been spent, and the record shows that there has been no accounting
for
these expenditures. The possibility for obtaining the
substantial
further funds which Ironbound says are needed appears speculative
at
best.
2. Ironbound's failure to provide sufficient evidence of matching
funds
OCS also determined that Ironbound failed to obtain required
matching
funds and commit those funds to the project. Ironbound
disputes this
determination. Our examination of the record discloses
that, at best,
Ironbound produced some evidence of receipt of some funds;
however,
there is nothing persuasive to show how, or even whether, these
funds
were expended on the approved project. What Ironbound provided
was no
more than (a) summary lists of supposed funding sources, and (b)
copies
of some checks received from some of those sources. For the
reasons
below, we find that OCS reasonably rejected these materials as
adequate
evidence that Ironbound met its matching requirement.
At the outset, we note certain inconsistencies between
Ironbound's
position here and earlier positions. The February, 1990,
OCS monitoring
report indicated that Ironbound's Executive Director reported
that
matching requirements had not been met, and that Ironbound's
accountant
did not know how much had been produced. Exhibit H to OCS's
Brief. A
followup letter Ironbound sent to OCS, dated June 29, 1990,
stated:
We received to-date $50,000 matching funds towards
the
construction of the extension of the former rectory building
and
anticipate to match with funds received for I.E.C.C.
memberships
as a result of extensive promotion activity . . . .
If
required, we will seek gap funding construction funding
from
Broad National Bank . . . . Exhibit J to OCS's Brief.
Although OCS pointed this out in its brief, Ironbound did not address
this
in its responsive briefs. Furthermore, even the $50,000 claim
is
questionable, as there is no connection shown between this very
precise
figure and any specific documentation in the record.
In support of its position that it had met its matching
obligation,
Ironbound submitted a list of supposed funding sources and copies
of
various documents (checks, deposit receipts) related to the list.
See
Attachments to Ironbound's May 23, 1991 Letter to the Board. On
the
face of it, we note that the list raises a question whether it meets
the
OCS requirement of a match of $282,000 from private sources or
$564,000
from public sources, because by its own terms (and if proven) it
shows
only $338,040 available from public sources and $118,500 from
private
sources, for a total of $456,540; while this cumulatively exceeds
the
private-source criterion, it is not clear whether the mix meets the
OCS
rule.
But we need not resolve that matter because the list cannot be taken
at
face value. The documentation raises as many questions as
Ironbound
would have it answer. For example, the list shows that the
major public
source was $225,000 from the New Jersey State Council on the
Arts. The
record includes copies of four checks from New Jersey to
Ironbound
totaling $225,000. However, only two of the checks, totaling
$125,000,
show any explicit relation to the Council on the Arts (and one of
these
was dated January 27, 1987, eight months before the OCS project
was
approved 3/); the other two checks, each for $50,000, are
quite
different in appearance and the later of the two (dated February
1,
1989, well into the second year of the project) has on it the
statement
"state museum 1989 award -- 2d and final pay" [sic]. 4/ These
checks
thus raise as many questions as they purport to answer, not the least
of
which is that these documents by themselves show no relationship to
the
OCS-approved project.
Similar problems haunt the other copies of checks. There are four
items
included from the city of Newark, but two are actually copies of
the
same check, and one is illegible; again, in any event, the
documents
show no relationship to the OCS-approved project. Another
example is a
check from New Jersey Bell for $4,000; an accompanying document
may be
only a deposit slip for the same check. There is a U.S. Treasury
check
for $50,000 with no identifying explanation (not even in the
covering
list of sources), although the check does bear the letters
"HUD."
Again, the document is merely enigmatic. Literally none of
these
documents evidence the nature, if any, of the relation to the
approved
project, and Ironbound, despite repeated opportunities to make such
a
showing to OCS and this Board, has done no more than repeat
the
conclusory statement that match was provided. One of the
items
Ironbound described as part of its matching share did not appear
until
mentioned in Ironbound's cover summary of sources submitted in
October,
1990 -- the claim of $60,000 as the value of a volunteer manager's
work.
While such in-kind contributions may be allowable as part of
the
matching share under the OCS guidelines, in-kind contributions
require
extra justification that does not appear in the record. 45
C.F.R. Part
74, Subpart G; see also OMB Circular A-122, Att. B, Para.
10.a(5)
(referencing the detailed requirements of OMB Circular A-110, Att.
E,
Para. 3.b.).
Ironbound had a clear duty under its grant agreement and the
project
announcement to produce not just a summary list of sources, but hard
and
definitive documentation detailing the commitment, early on, of
precise
amounts. Ironbound failed to do so from the beginning, and has
failed
to do so since. As recently as January 17, 1992, in a letter to
this
Board, Ironbound described its latest attempts to produce more funds
--
but again, without the requisite commitment. 5/
Ironbound had a clear duty to maintain, and disclose to OCS,
detailed
documentation related to project performance, expenditures,
and
amounts/sources of matching funds. See, e.g., 45 C.F.R. Part
74,
Subparts D, G, H; OMB Circular A-122, Att. A, Para. A.2.g.
Ironbound
also bore the responsibility of informing OCS as soon as possible
of
details of any development which would "materially impair the ability
to
attain the objective of the award." 45 C.F.R. .74.84. In the
OCS
announcement, OCS included a "special note" at the end of the
provision
on application requirements (which reiterated matching
requirements)
stating that "should OCS discover that the applicant has
omitted or
distorted any information . . . it may be grounds for . . . the
recovery
of any grant award already made." 52 Fed. Reg. 4097.
For the foregoing reasons, we find that OCS was reasonable in
determining
that Ironbound failed to meet a material condition of the
grant by failing to
adequately document required matching funds obtained
and used for the
project.
3. Accounting for expenditures
Although the primary focus of the parties' arguments in this case has
been
on the issues of matching and extension of the project period,
perhaps a more
disturbing element concerns the absence of documentation
in the record to
support Ironbound's expenditure of the $282,000 in
federal funds.
Federal regulations clearly require detailed accounts of outlays.
See,
e.g., 45 C.F.R. Part 74, Subpart I. The OCS program
announcement
specified that "quarterly progress and financial reports, as
well as an
audit, will be required for any project that receives OCS
funds." 52
Fed. Reg. 4091. OCS's December, 1988, letter
authorizing an extension
of one year for the project specified:
The approval of this extension obligates you to prepare
and
submit final summary financial and program progress reports
for
the entire grant period as well as these same reports for
each
calendar quarter of the grant extension period. The
final
financial reports . . . and the final progress report will
be
due 60 days after the termination date of the grant.
A final audit report covering the total grant period will be
due
no later than 90 days after the new termination date of
your
grant . . . we specifically request and will expect you
to
identify an auditor in sufficient time prior to the
new
termination date to ensure that the audit is initiated
and
completed at the earliest possible date, notwithstanding
the
fact that the final date for submission of the grant audit is
90
days after the grant has ended. Exhibit F to OCS's Brief,
2nd
document.
In December, 1989, OCS wrote Ironbound to reject as "not acceptable" as
a
final report a three-sentence summary of work progress Ironbound
had
submitted as a final quarterly report. This letter demanded a
detailed
final report within 30 days and reiterated the requirement for a
final
audit report. Exhibit G to OCS's Brief. OCS demanded
further
information in February, March, and June, 1990. Exhibits H and
I to
OCS's Brief.
In response, in June, 1990, Ironbound submitted a one-page list
of
"adjusted expenses" accompanied by a request for a six-month
extension
of the audit due date because, Ironbound said, it was "changing
auditors
due to the fact that they have increased their fee." Exhibit J
to OCS's
Brief. The list of "adjusted expenses" is very summary; for
example,
one item is "Excavation, Footings and Foundation" for $49,300.
Hardly
sufficient to explain and document outlays, the list also
displays
further confusing elements. While the bottom-line expenditure
shown is
the original grant amount of $282,000, among the expense items is a
new
item of $75,289 for architect, engineering and survey fees -- an
item
accounting for over 20% of the grant yet not included as an expense
in
the original budget of $282,000. Among other changes, excavation
costs
are shown as having jumped from $20,000 budgeted to $49,300
expended.
No back-up documentation or explanations of any kind are included
to
show the actual incurrence, payees, or reasonableness of these or
any
other costs. In July, 1990, OCS demanded details on expenditures,
to be
submitted within fifteen days. Exhibit K to OCS's Brief.
There is
nothing in the record, submitted by either party, showing any
attempt by
Ironbound to submit an audit or any further explanation of
expenses.
Ironbound stated in its Response Brief (3rd (unnumbered) page) that
"all
of the funds received by the [Ironbound] have been used on the
project
and there simply are no funds available to repay the
Grant."
Apparently, some preliminary work was done (cement for a basement
floor
and possibly a first floor, cinderblocks enclosing the basement and
part
of the first floor). Exhibit I to OCS's Brief. 6/ There are
no
invoices or cancelled checks in the record, however, to explain how
this
minimal work added up to $282,000.
Thus, the record shows a clear and remarkable failure on Ironbound's
part
to submit anything remotely sufficient as a justification of
expenditures,
despite a clear obligation to do so and repeated
opportunities.
Conclusion
Based on the foregoing, we uphold OCS's determinations denying a
no-cost
extension and requiring the return of the amount of the grant.
_____________________________
Cecilia
Sparks Ford
_____________________________
Donald
F. Garrett
_____________________________
Norval
D. (John) Settle
Presiding Board Member
1. Ironbound applied for a "Priority Area 1.1" grant for an
"Urban
Economic Development Program." See cover letter to
Ironbound's
application, Exhibit C to OCS's Brief. The matching
requirements
differed depending on the priority area classification; the
description
in this decision relates to area 1.1.
2. Although Ironbound's letter in response to OCS's demand did
not
reach this Board until well after the 30-day deadline for appeals,
it
was received and acknowledged by a responsible official within OCS
by
the deadline. In keeping with past Board practice, we treated
this
otherwise timely notice of appeal, misdirected to the issuing
agency
within HHS, as timely submitted to this Board.
3. The OCS guidelines specified that "funds expended or obligated
prior
to the approved OCS starting date for a grant cannot be considered
as
matching funds." 52 Fed. Reg. 4095. Currently owned assets, of
course,
could be applied to the match. Id. However, if Ironbound
had had these
funds on hand for use at the date the OCS grant was awarded,
it
presumably could have merely shown its own bank account balance
or
something comparable, rather than a copy of the check received
many
months earlier. We need not speculate, however, as this
merely
illustrates the confusing and questionable nature of
Ironbound's
documentation.
4. The record indicates briefly that, in addition to the addition
to
the rectory for commercial space, Ironbound was, among other
things,
renovating the church building itself for a theater and museum.
See,
e.g., Exhibit C to OCS's Brief, p. 1; Exhibit I, p. 2. OCS alluded
to
this in its brief (p. 14), indicating that funds spent on the museum
and
theater were expenditures outside the scope of the approved
project.
Ironbound apparently does not dispute this; its reply was
essentially
that it had disclosed to OCS in its grant application that some
matching
funds would be used for church renovation. Ironbound Response
Brief,
2nd and 3rd (unnumbered) pages. It is true that the application
makes a
reference to use of matching funds for activities outside the
OCS
project, including the museum and park. Exhibit C to OCS's Brief,
p.
19. However, OCS's program announcement specified that matching
funds
"must be committed for specific project activities within the
OCS
approved project during the duration of the OCS grant." 52 Fed.
Reg.
4095. Ironbound's application clearly indicated that the OCS
project
was to be a specific phase of Ironbound's overall Gateway
Development
Project, involving extension of the rectory building for new
commercial
space. Exhibit C to OCS's Brief, p. 19. The
OCS-approved project only
related to excavation, foundation, materials and
construction for the
building extension and certain associated administrative
costs (Exhibit
E to OCS's Brief), although the record does not contain an
approved
budget for the expenditure of matching funds and the full scope of
the
OCS project in this respect remains unclear. There is no evidence
that
OCS ever affirmatively approved a use of matching funds for
non-project
activities (which would have violated its own guidelines); OCS
may
either have overlooked the statement referenced above or assumed that
it
referred to use of matching funds exceeding amounts needed for
the
approved project. OCS's guidelines encouraged this, stating
that
"applicants generating support greater than that required may
be
eligible for additional points . . . ." 52 Fed. Reg. 4095. In
any
event, even if one were to determine that matching costs
could
appropriately be used for portions of the Gateway project outside
the
scope of the OCS portion, there remains the problem for Ironbound
that,
as discussed elsewhere in this decision, there simply has
been
insufficient proof of the commitment and use of the funds.
5. Ironbound's letter attached two other letters as evidence of
"good
faith effort to complete the project." While we sympathize
with
Ironbound's obvious interest in completing its Gateway project, the
two
letters attached are illustrative of Ironbound's dilemma. The first
is
a letter from an attorney who states an "intention" to enter into
a
long-term lease, referring to ongoing negotiations. The second is
a
letter from a New Jersey office for development for small, women
and
minority businesses, merely stating that an unidentified request
from
Ironbound had been sent to another state agency. OCS's
guidelines
clearly specify that speculative or contingent match is
unacceptable.
52 Fed. Reg. 4095, 4103.
6. We express no opinion on whether there may be some portion of
costs
which OCS, if it had received otherwise adequate justification,
could
have found allowable under its program announcement. Apart from
the
fact that Ironbound clearly has not adequately documented its
matching,
and has provided virtually no justification of its expenditures,
there
is the fact that whatever partial work may have been done (in the
form
of some construction work), the uncompleted project cannot have
achieved
the purpose for which the federal funding was provided, which
basically
was to promote economic self-sufficiency through creation of
permanent
jobs. 52 Fed. Reg. 4090,