Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Louisiana Housing Assistance Corp., Inc.
DATE: March 6, 1992
Docket No. 91-69
Audit Control No. A-06-90-00022
Decision No. 1310
DECISION
The Louisiana Housing Assistance Corp., Inc. (LHAC, Grantee) appealed
a
determination by the Administration for Children and Families (ACF)
to
disallow $45,371 charged to a discretionary grant from the ACF Office
of
Community Services (OCS) Rural Housing and Community
Development
Program. 1/ The grant was awarded for the period September
30, 1988 to
September 29, 1989, and was subsequently extended through
December 31,
1989. During the course of the appeal, the Agency reduced
the
disallowance to $21,905 on the basis of documentation provided by
the
Grantee. That amount is comprised of salary charges unsupported
by
documentation ($11,957), payments for consultant services by a
Grantee
official ($2,000), and funds remaining unobligated at the end of
the
program year ($7,948).
For the reasons stated below, we uphold the disallowance in full.
Background
In accordance with a notice published by OCS, LHAC received a grant
funded
under Priority Area 2.1, Rural Housing Repairs and
Rehabilitation. As
explained in the notice, funds were awarded under
this priority area to --
(a) provide technical assistance to help
low-income families and individuals to more effectively
utilize
existing local, State .and Federal housing
assistance programs; and
(b) develop innovative ways
to meet the housing needs of low-income
people, e.g.
the rehabilitation or repair of existing substandard
housing units for occupancy by low-income residents . . . .
53 Fed. Reg. 4556, 4557 (February 16, 1988). The scope of
LHAC's
approved project included both the rehabilitation and weatherization
of
30 homes using funds from this grant in combination with funds
from
other sources, and training and technical assistance for
community
action agency personnel and low-income homeowners. The record
indicates
that there were no subsequent awards to LHAC under this
program
authority.
Applicable law
The administration of grants is governed by regulations at 45 C.F.R.
Part
74. The cost principles of Office of Management and Budget
Circular
A-122 (OMB A-122) are made applicable to nonprofit grantees by
45 C.F.R.
.74.174(a). In order to be allowable under a grant award,
costs charged
to federal funds must be adequately documented. OMB
A-122, Attachment
A, .A.2.g; LAU-FAY-TON Community Action Agency, DAB
No. 1126 (1990).
The allowability of specific cost items is addressed
by OMB Circular A-122,
Attachment B. Grantees are required to maintain
records which "identify
adequately the source and application of funds
for grant . . . supported
activities" and to support accounting records
by source documentation such as
canceled checks, paid bills, and
contract documents. 45 C.F.R.
.74.61(b) and (g). The Board has
repeatedly held that a grantee bears
the burden of documenting the
existence and allowability of its costs.
Nisqually Indian Tribe, DAB
No. 1210 (1990); Lac Courte Oreilles Tribe, DAB
No. 1132 (1990); West
Central Wisconsin Community Action Agency, Inc., DAB
No. 861 (1987).
Analysis
A. Salary charges unsupported by documentation
ACF disallowed $11,957 in salary costs and related fringe benefits
charged
to the grant for LHAC's executive secretary. The disallowance
was based
on the auditors' determination that LHAC had charged 48% of
the total salary
for this position, approximately the amount.budgeted,
while its time sheets
documented only one hour per day (12.5% of total
time). 2/
The cost principles provide --
(1) Charges to awards for salaries and wages . . . will
be
based on documented payrolls . . . . The distribution
of
salaries and wages to awards must be supported by
personnel
activity reports . . . .
(2) Reports reflecting the distribution of
activity of each
employee must be maintained for all
staff members (professionals
and nonprofessionals)
whose compensation is charged in whole or in
part,
directly to awards . . . . Reports maintained by
nonprofit
organizations to satisfy these
requirements must meet the following
standards:
(a) The reports must reflect an after-the-fact
determination
of the actual activity of each employee.
Budget estimates
(i.e., estimates determined before the services
are performed)
do not qualify as support for charges to
awards.
(b) Each report must account for the total activity for
which
employees are compensated and which is required in
fulfillment
of their obligations to the organization.
(c) The reports must be signed by
the individual employee, or by
a
responsible supervisory official having first hand knowledge
of
the activities performed by the
employee, that the distribution
of
activity represents a reasonable estimate of the actual
work
performed by the employee during
the periods covered by the
reports.
OMB A-122, Attachment B, .6.l.
LHAC did not dispute that its personnel activity reports showed only
one
hour per day for the executive secretary. LHAC stated that this
"was an
arbitrary figure arrived at .in order to simplify time
keeping." LHAC
Reply at 2. While LHAC admitted that its practice
may have been "in
error," it asserted that the executive secretary spent many
hours each
week on this grant. In support of the amount charged, LHAC
submitted a
letter from the employee (which contains a signature by someone
other
than the person identified in the signature block as the
executive
secretary) (LHAC Brief Ex. C), a letter from an independent
certified
public accountant, and the executive secretary's job description
(LHAC
Reply Ex. 3).
The letter from the executive secretary stated that she knew that the
time
sheets reflected only one hour per day of her time for this grant.
She
further stated that on many days she in fact spent four or five
hours on this
project as well as spending some Sunday afternoons. The
letter from the
independent accountant stated that he had personally
observed her activities
on this grant and that "[a]lthough she
documented one hour per day, she
failed to document time spent after
hours and on weekends for which I
personally assisted her in many
instances." LHAC Reply Ex. 3 (first
document). He further states that
LHAC knew of the documentation
requirements and had followed them
subsequently. The job description
lists various general office and
administrative tasks which by description
bear no relationship to any
particular project, such as "write letters" or
"pay monthly bills."
LHAC Reply Ex. 3 (second document).
ACF asserted that LHAC had not presented documentation adequate to
support
the amount charged to the grant.
We find that the documentation submitted is inadequate to support
the
salary and fringe benefit amounts charged in excess of the
amount
actually supported by LHAC's personnel activity reports.
The
documentation fails to provide concrete support for the actual number
of
excess hours purportedly spent on this project. Moreover, the
letters
stated that the executive secretary spent after hours and weekend
hours
on this project thereby raising questions not answered in this
record
about how the grantee accounted and compensated for overtime
hours. The
record provides no basis for a conclusion that, in light of
the hours
spent on this project as compared to other activities and the
executive
secretary's total salary, a higher amount ought to be borne by
this
project.
The cost principles contain an explicit requirement that salaries
charged
to federal awards be supported by personnel activity reports
meeting certain
standards. Among those standards is the requirement
that
reports.reflecting the distribution of activity for a staff member
must be
signed by the employee or a responsible supervisory official
with first-hand
knowledge of the employee's activities that the report
reflect a reasonable
estimate of the actual work performed. OMB A-122,
Att. B,
.6.l.2.c. LHAC cannot disregard these standards for its
convenience and
then expect to charge higher amounts (48% vs. 12.5%) to
its grant.
Accordingly, we uphold the disallowance of excess salary and
fringe benefit
charges for the executive secretary.
B. Payments for consultant services by a Grantee official
ACF disallowed $2,000 which the auditors determined LHAC had
improperly
paid to its Executive Director for "consultant services related
to
research." ACF Ex. 1, at 7.
OMB A-122 provides that costs of professional and consultant services
are
allowable when rendered by persons who are not officers or employees
of the
grantee organization. OMB Circular A-122, Attachment B, .34.a.
However,
the Departmental Grants Administration Manual (DGAM) permits
the use of
grantee employees as paid consultants under certain
circumstances.
While the auditors relied only on OMB A-122, the parties
addressed whether
this expenditure was allowable under the grants
administration policy.
That policy states --
In all other cases, consulting fees paid in addition
to salary by
grantees . . . to people who are also
their employees may be
charged to . . . grants . . .
only in unusual cases, and only if
all of the
following three conditions exist:
(1) The policies of the grantee . . .
permit
such consulting fee payments to its
own
employees regardless of whether Federal
grant
funds are involved; [and]
(2) The work involved is clearly outside
the
scope of the person's salaried employment; and
(3) It would be inappropriate or not
feasible
to compensate for the additional work by
paying
additional salary to the employee.
DGAM section 1-45-50. .ACF asserted that LHAC had not provided
evidence
that it met these requirements and that the consultant services
actually
fell within the Executive Director's regular duties.
LHAC charged this $2,000 as a direct project cost in addition to
the
Executive Director's salary. LHAC asserted that the Executive
Director
took several courses in building construction and studied for
and
obtained a Louisiana general contractor's license in order to
prepare
for the training and technical assistance activities required by
this
project. LHAC asserted that, while it was aware that a consultant
was
to be someone other than a staff member, given the problem of locating
a
qualified individual, it decided that the Executive Director was
the
"most logically qualified and cost effective person." LHAC Reply
at
2-3. As support, LHAC submitted the minutes of the Board of
Director's
meeting, where this consulting arrangement was approved, and
the
Executive Director's contract (referencing paragraph 7 on p. 3).
LHAC
Reply Exs. 4 and 6. LHAC asserted that $2,000 was approved by OCS
for
training and technical assistance when LHAC submitted its revised
budget
and extension request. LHAC Reply Ex. 8.
We find that the evidence submitted by LHAC is inadequate to support
this
charge. The Board minutes briefly discuss the need for
"extensive
T&TA [training and technical assistance] . . . to be given to
FmHA
[Farmers Home Administration] County Supervisors and CAA
[community
action agency] Agency personnel . . . in the Weatherization
program" and
contain unanimous approval for this consulting arrangement, but
note
that it was subject to "Granting Agency approval." There is no
evidence
that LHAC sought granting agency approval. As ACF pointed out,
review
of the September 13, 1989 extension request, including the
supporting
budget documents, also reveals no reference to either a
$2,000
expenditure for training and technical assistance or the
Executive
Director's work as a consultant, although it is likely that the
work had
been completed by then. The referenced section of the
Executive
Director's contract provided for an annual cost of living
adjustment as
well as for the negotiation of a "salary supplement" should the
Director
obtain additional funds from other sources; it does not
specifically
refer to consulting fees to be paid by LHAC. The documents
relied on by
LHAC do not demonstrate that this was an "unusual case" and that
the
specific requirements in the grants administration policies were
met.
LHAC has failed to show that its .own policies would permit this even
if
federal funds were not involved or that this work was clearly
outside
the scope of the Executive Director's employment. Moreover,
there is no
basis to conclude that ACF approved this expenditure when it
granted the
extension request. The record does not show that LHAC acted
reasonably
when it engaged its own Director as a consultant.
Accordingly, we
uphold the disallowance of the $2,000 consulting services
payment.
C. Unobligated funds
ACF disallowed $7,948 which remained unobligated at the end of the
project
period. LHAC stated that this amount was being held in escrow
pending
this decision. LHAC sought to use these funds, among other
funds, in
connection with its plan to construct a home for an applicant
whose home was
too dilapidated to renovate. No funds were obligated for
this purpose
during the project period; there was some Grantee confusion
concerning
whether these funds could be used for new construction, as
well as
construction related delays since the original site was in a
flood
plain. The record shows that LHAC contacted ACF about this
planned
expenditure during the fall of 1989 but had received no approval
for this
expenditure prior to the end of the project period. LHAC's
approved
project did not include new construction and, indeed, the
program notice
stated that for this priority area --
Applicants calling for new construction or "gut"
rehabilitation
will only be considered if there is
insufficient existing housing
stock that can be
economically rehabilitated.
53 Fed. Reg. 4556, 4557 (February 16, 1988).
Not only is it questionable whether ACF could have approved this
new
construction (as worthwhile as the expenditure might have been), it
is
clear that no approval to expand the scope of the approved project
was
given.
ACF asserted that it had not authorized LHAC to retain unobligated
funds
after the end of the project period. ACF cited 45 C.F.R.
.74.111(b)(2),
which provides that --
the grantee shall immediately refund . . . any
unobligated balance
of cash advanced to the
grantee. .There is no possibility here
that these funds could be
carried over to subsequent budget periods
since the record shows that there
were no subsequent grants to LHAC
under this funding authority.
Accordingly, these unobligated funds must
be returned to ACF.
Conclusion
Based on the above analysis, we sustain the disallowance of $21,905.
_____________________________
Judith
A.
Ballard
_____________________________
Norval
D. (John)
Settle
_____________________________
Cecilia
Sparks
Ford
Presiding
Board Member
1. OCS was formerly under the Family Support Administration (FSA).
2. This disallowance was based on an audit of this grant by
the
Department of Health and Human Services, Office of Inspector
General,
Office of Audit Services for Region VI. The audit report was
dated
September 29, 1990. ACF Exhibit (Ex.)