Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Seminole Nation of Oklahoma
DATE: January 28, 1993
Docket No. A-92-190
Audit Control No. A-06-92-17040
Decision No. 1385
DECISION
The Seminole Nation of Oklahoma (the Grantee) appealed a determination
by
the Administration for Children and Families (ACF) disallowing
$26,204
charged to the Grantee's Head Start grant for program year (PY)
1988.
1/ ACF based the disallowance on an audit which found that the
Grantee
had used $6,728 in federal funds to cover its share of program
expenditures,
had inadequately documented $4,634 in in-kind
contributions, and had overpaid
$14,842 in salaries.
The Grantee did not dispute ACF's determinations that it failed to
satisfy
its non-federal share requirement, including failing to
adequately document
in-kind contributions, and charged overpaid salaries
to the grant.
Instead, the Grantee requested waiver of the non-federal
share requirement
applicable to the grant, and asserted that the waiver
would eliminate the
disallowance of the in-kind contributions. The
Grantee also argued that
some of the overpaid salaries had been recouped
by having employees forfeit
annual leave and work without pay.
For the reasons stated below, we conclude that ACF reasonably denied
a
waiver of the non-federal share requirement, and that the
forfeited
leave and unpaid work were not allocable to PY 1988 and therefore
could
not be used to offset the disallowance of overpaid salaries charged
to
the Head Start program in PY 1988. We also conclude that the
forfeiture
of leave was not adequately documented. Accordingly, we
uphold the
entire disallowance.
Analysis
I. Federal funds used to cover the Grantee's
share of program
expenditures
ACF disallowed $6,728 in federal funds that ACF found the Grantee had
used
to cover its share of program expenditures. 2/ Head Start
regulations
limit federal financial assistance to 80 percent of total
program costs
unless a larger amount is specifically approved. 45
C.F.R. . 1301.20
(1987). The PY 1988 notice of grant award indicates
that the federal 80
percent share was $158,971 and that the Grantee was
required to provide
non-federal share of $39,318, or 20 percent of
program costs (excluding an
amount identified in the notice as being
awarded for a program account which
had no matching requirement).
Grantee Reply Brief (Br.), Att. X-E.
The 80 percent limitation on federal funding of program costs may
be
waived as follows:
The responsible HHS official, on the basis of a
written application
and any supporting evidence he
or she may require, will approve
financial
assistance in excess of 80 percent if he or she
concludes
that the Head Start agency has made a
reasonable effort to meet its
required non-Federal
share but is unable to do so; and the Head
Start
agency is located in a county: (a) That has a personal per
capita
income of less than $3,000 per year; or (b) That has
been
involved in a major disaster.
45 C.F.R. . 1301.21.
During the course of the appeal, the Grantee requested that ACF waive
the
non-federal share requirement. In its request the Grantee stated
that
high unemployment coupled with transportation costs had led to a
decrease in
volunteer services which it intended to use as its
non-federal share of
funding. The Grantee noted that it had received
waivers of the
non-federal share requirement in other years and likely
would have received a
waiver for PY 1988 if it had been requested. 3/
The failure to request a
waiver for PY 1988, the Grantee reported, was
due to an oversight by the
Grantee's previous administration. ACF
denied the request for a waiver
on the grounds that the Grantee failed
to meet applicable regulatory
requirements.
We decline to disturb ACF's determination. The authority to waive
the
non-federal share requirement is vested by section 1301.21 in
the
responsible HHS official and is beyond the Board's jurisdiction.
Sumter
County Opportunity, Inc., DAB No. 1200 (1990); Inter-Tribal Council
of
California, Inc., DAB No. 265 (1982). Even if the Board
had
jurisdiction to review ACF's determination not to waive the
non-federal
share requirement, we would still be compelled to sustain ACF's
denial,
as the Grantee has failed to fulfill the requirements of 45 C.F.R.
.
1301.21. As ACF observed, the unemployment records submitted by
the
Grantee are insufficient to demonstrate that it is located in a
county
with a per capita income of less than $3,000 per year, as required
by
the regulation (unless there is a major disaster). Even if the
waivers
in other years were granted based on unemployment statistics, as
the
Grantee asserted, ACF reasonably denied a waiver here since the
Grantee
failed to satisfy the plain language of the waiver regulation.
II. Undocumented in-kind contributions
The Grantee's appeal of the denial of federal matching funds for $4,635
in
in-kind contributions was based on its request for a waiver of
the
non-federal share requirement. Presumably, the Grantee intended to
use
the in-kind contributions as part of its non-federal share, and
waiver
of the non-federal share requirement would eliminate the need
to
document the in-kind contributions. As noted above, however,
the
Grantee has provided no basis to support waiver of the non-federal
share
requirement.
Moreover, the Grantee did not dispute ACF's determination that it did
not
adequately document the in-kind contributions. Grant requirements
at 45
C.F.R. Part 74 provide that in-kind contributions used to satisfy
a
cost-sharing or matching requirement must be verifiable from the
recipient's
records, and that the records must show how the value placed
on third-party
in-kind contributions was arrived at. To the extent
feasible, volunteer
services shall be supported by the same methods that
the organization uses to
support the allocability of its regular
personnel costs. 45 C.F.R. .
74.53(d). 4/ On appeal, the Grantee did
not offer any documentation in
support of the $4,635 in in-kind
contributions or contend that it had
previously provided the requisite
documentation to ACF. Accordingly, we
sustain ACF's determination that
these in-kind contributions were not
properly documented and therefore
may not be used to meet the Grantee's
non-federal share requirement.
III. Overpaid salaries
The Grantee did not dispute ACF's finding that the Grantee had paid
its
employees $14,842 more in salaries than the employees should
have
received during PY 1988. Instead, the Grantee reported that
$2,521.71
had been repaid by seven employees who forfeited accrued annual
leave
and by one employee who worked without pay. The Grantee stated
that the
disallowance of overpaid salaries should be reduced by the amount of
the
repayment. However, as discussed below, we find that the
employees'
forfeiture of annual leave and salary payments in PY 1989 could
not be
used to offset the disallowance of federal funds used to pay
excess
salaries in PY 1988. We also find that the documentation the
Grantee
submitted to us is inadequate to show that the Grantee's employees
did
in fact forfeit annual leave.
A. The offset of disallowed salary payments
Where an unallowable expenditure is financed with federal funds,
the
grantee must reimburse the federal agency -- in this case ACF --
with
cash from non-federal sources, or by documenting that the grantee
has
incurred and paid with its own funds allowable, allocable costs
that
were not previously charged to federal funds, but could have
been.
Project Bravo, Inc., DAB No. 925 (1987); see also Gila River
Indian
Community, DAB No. 264 (1982).
Here, the forfeiture of annual leave and wages by the Grantee's
employees
did not reduce the amount of federal funds expended on excess
salaries, and
did not result in the identification of additional,
allowable costs allocable
to PY 1988 that could be substituted for
excess salaries charged to the
grant. The Grantee's documentation shows
that its employees forfeited
annual leave during April and May, 1989 and
performed unpaid services
beginning in September, 1989, well after the
end of PY 1988 on November 30,
1988.
Any services provided by an employee in 1989 benefited the program in
that
program year. Thus, the forfeiture by one of the Grantee's
employees of
salary payments that otherwise would have been paid in 1989
and are allocable
to 1989 cannot properly be used to offset the
overpayment charged to the
funds awarded for PY 1988. The Board has
held that grantees may not use
program funds from one year to offset the
overexpenditure of funds in the
previous year. El Grito Head Start
Agency, DAB No. 1309 (1992);
Community Action Agency of Memphis and
Shelby County, DAB No. 103 (1980).
The Grantee argued, however, that some of the leave forfeited by three
of
the employees was earned before November 30, 1988, and was thus
applicable to
PY 1988. 5/ The Grantee asserted that two of these
employees forfeited
46 hours while the third forfeited 42 hours. The
Grantee's
documentation shows that these employees had accrued those
hours of leave as
of the two-week pay period ending May 5, 1989. Since
each employee
would have accrued 44 hours during the 11 two-week pay
periods between
November 25, 1988 and May 5, 1989, several hours of the
forfeited leave would
have been accrued before November 30, 1988. 6/
Nevertheless, we conclude that the forfeited leave which was earned in
PY
1988 cannot be used to offset the disallowance since the Grantee did
not show
that it would have been an allowable cost in that year. The
Grantee did
not show that it considered annual leave as an expense at
the time that it
was earned, even if it was not used or paid for until a
subsequent
year. Annual leave may be recognized as a chargeable cost at
the time
it is earned only if a grantee uses an accrual basis of
accounting.
See, e.g., Missouri Dept. of Social Services, DAB No. 676,
n. at 1
(1985). The Grantee did not assert or show that it used
an
accrual basis of accounting during the relevant time period, nor has
it
advanced any other ground for finding that leave forfeited in 1989
was
an expense that could have been properly charged to PY 1988.
Accordingly, we conclude that the forfeited leave and unpaid
services
cannot be used to offset the amount of unallowable salary costs
charged
to the Head Start award for PY 1988.
B. The Grantee's documentation of the forfeited
leave and unpaid
services
We further conclude that the documentation the Grantee submitted to us
is
not sufficient to show that the forfeiture of leave and pay for these
three
employees actually occurred. The Grantee provided documentation
which
it said shows the amount and the value of leave these employees
forfeited
based on each employee's hourly rate of compensation. For
each employee
the documentation includes pay stubs for the pay period
ending May 5, 1989,
and two checks. One check corresponds to the pay
stub, and one is
described as the "final" check issued for the pay
period ending May 19, 1989,
prior to the employee being placed on
inactive status for the summer.
The pay stubs indicate that the checks
did not include payment for the
accrued annual leave that the Grantee
claimed was forfeited. However,
the documentation does not show that
accrued leave had to be either paid or
forfeited prior to an employee
being placed on inactive status for the
summer, or that accrued leave
was not carried forward after the employee's
return. 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);
Seminole Nation of Oklahoma, DAB No. 951 (1988); see 45 C.F.R. .
74.61.
By itself, the documentation does not clearly establish that
these
employees forfeited annual leave.
The Grantee alleged that one employee repaid $1,385.63 by working
without
pay for two weeks, and by having $84.21 taken out of her pay
each pay day for
28.5 pay periods beginning September 25, 1989.
However, the documentation
states that this employee was placed in "lay
off status" to recoup the
overpayment. The documentation does not
indicate whether the Grantee
performed any services while in lay off
status.
We therefore conclude that the documentation the Grantee submitted to
us
is not sufficient to show that its employees in fact forfeited leave
and
rendered unpaid services. Our decision does not, however, preclude
the
Grantee from providing further documentation to ACF to show that this
in
fact occurred and should affect the award of federal funds for PY
1989.
ACF's brief indicated that ACF might accept forfeited leave and
unpaid
services as in-kind contributions in PY 1989, and there are
other
accounting treatments of any repayment which might be acceptable.
7/
Conclusion
Based on the above analysis, we conclude that the Grantee failed to
meet
its non-federal share requirement for PY 1988, and that ACF
properly
denied the Grantee's request for a waiver of this requirement.
We
further conclude that annual leave and salaries that the
Grantee
reported were forfeited by its employees in 1989 may not be used
to
offset the disallowance of overpaid salaries in PY 1988.
Accordingly,
we uphold the entire disallowance.
M. Terry Johnson
Norval D. (John) Settle
Judith A. Ballard Presiding Board Member
1. The disallowance letter and ACF's brief refer to the disallowance
of
funds for the Head Start program year ending September 30,
1988.
However, the notices of grant awards provided by the Grantee
indicate
that the budget period in question was from December 1, 1987
through
November 30, 1988, and that all budget periods were for years ending
on
November 30. The Grantee did not allege that this discrepancy had
any
effect of the amount of the disallowance.
2. The Grantee did not challenge ACF's calculation of this part of
the
disallowance. We note, however, that past Board decisions have
found
that disallowances of unallowable cost items charged to federal
funds
may affect calculation of a disallowance for failure to meet
a
non-federal share requirement. See Dallas County Community
Action
Committee, Inc., DAB No. 1265 (1991); Inter-Tribal Council
of
California, Inc. DAB No. 265 (1982). In other words, if the
total
allowable costs are reduced, then the Grantee's percentage share is
also
reduced. The methodology for calculating the federal and
non-federal
shares is explained in the Department of Health and Human
Services
Grants Administration Manual, Chapter 1-401 (September 30, 1981
and
November 30, 1981). Since the record here does not indicate how
ACF
calculated the disallowance, we express no opinion on whether
that
calculation was correct.
3. The Grantee provided notices of grant awards which indicate that
the
requirement for its share of funding had been completely waived for
PY
1991, and partially waived for PYs 1986, 1987, 1989 and 1990.
4. In support of the disallowance, ACF cited the provisions of
45
C.F.R. Part 92, which contain the administrative requirements
for
certain grants to state, local, and Indian tribal governments.
However,
Part 92 was not promulgated until March 11, 1988, after the start of
the
grant period at issue here. 53 Fed. Reg. 8087 (1988). For
grant
periods beginning prior to that time, applicable cost principles
are
found at 45 C.F.R. Part 74, "Administration of Grants."
The
requirements for documenting in-kind contributions in the two parts
are
substantially similar. See 42 C.F.R. . 92.24(b)(6).
5. The Grantee did not dispute that leave forfeited by three
other
employees was earned after the end of PY 1988.
6. The Grantee reported that annual leave accrued at the rate of
four
hours per pay period. Grantee Reply Br., at 3.
7. For example, if an employee provided $20,000 worth of services in
PY
1989, the Grantee may be entitled to charge $20,000 in salary costs
to
Head Start funds for that year, so long as the Grantee can be
considered
to have paid the employee the $20,000. If the employee owed
the Grantee
$5,000 because the employee was overpaid in PY 1988 (and because
the
Grantee by reason of the disallowance is considered to have covered
the
overpayment with its own funds), the fact that the Grantee offsets
its
obligation to the employee for $5,000 of PY 1989 salary by
withholding
$5,000 owed to it by the employee might not preclude the Grantee
from
treating the full $20,000 as an allowable cost in
PY