Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Pickens Community Action Committee, Inc.
DATE: January 31, 1994
Docket No. A-93-193
Audit Control No. A-04-90-05525
Decision No. 1460
DECISION
Pickens Community Action Committee, Inc. (PCAC) appealed a determination
by the Administration for Children, Youth and Families (ACF) disallowing
$8,387 in Head Start grant funds for the program year ended May 31,
1987. The disallowance was based on the report of an independent
auditor. ACF disallowed $8,100 charged to the grant as indirect costs
on the ground that the grant award did not include any indirect costs.
In addition, ACF disallowed $287 based on its finding that PCAC failed
to satisfy the non-federal matching requirement. During the proceedings
before the Board, ACF withdrew its disallowance of the $8,100 based on
its determination that these costs could have been properly charged as
direct costs. However, ACF increased the disallowance related to the
non-federal match to $1,907 based on the increased amount of allowable
direct costs. ACF letter dated 10/19/93.
PCAC contested the $1,907 disallowance, arguing that it could use
unclaimed indirect costs (other than the $8,100 originally at issue) to
satisfy the matching requirement. For the reasons discussed below, we
conclude that PCAC failed to establish that it had any unclaimed costs
which could be used to satisfy this requirement. Accordingly, we
sustain the disallowance of this amount.
This decision is based on written submissions by the parties and on a
telephone conference call with the parties. 1/
Background
Title V of the Economic Opportunity Act of 1964, as amended, authorizes
grants for Head Start programs to provide child development services for
low-income children. The implementing regulations (at 45 C.F.R.
1301.20) require that 20% of the total costs of the program be borne by
non-federal funds. This matching requirement may be satisfied by
allowable costs incurred by the grantee or by third-party in-kind
contributions (e.g., of property or services) which would constitute
allowable costs if paid for by the grantee. Indirect costs may not
ordinarily be used to satisfy the matching requirement. See 45 C.F.R.
74.52.
PCAC received a grant of $365,998 for its Head Start program for the
year ended May 31, 1987 and was required to provide a matching share of
$89,869. The total amount awarded was budgeted as direct costs. The
grant award specified indirect costs of "0." ACF Exhibit 7-1 (Notice
of
Financial Assistance Awarded).
Parties' Arguments
On appeal, PCAC did not dispute that it had a non-federal share deficit
of $1,907. However, it argued that it had incurred indirect costs in
excess of this amount which it had not charged to the grant and which
could be used to make up the deficit. ACF took the position that PCAC
could not use indirect costs as non-federal match since the grant award
did not provide for indirect costs.
PCAC subsequently identified the so-called "unclaimed indirect costs"
as
the difference between the appraised rental value of two buildings which
housed Head Start centers and the value PCAC had assigned to these
buildings in claiming them as an in-kind contribution. Confirmation of
Telephone Conference, dated 11/10/93, at 1. 2/ According to PCAC, it
claimed an in-kind contribution totaling $24,684 for the two buildings
each year for a period of more than ten years, including the 1986-1987
grant year. In 1990, PCAC had the buildings professionally appraised
for the first time and increased the amount claimed as an in-kind
contribution to $74,172, allegedly based on the appraisal. 3/ PCAC
asserted that the fact that the buildings were appraised at $74,172 in
1990 showed that the $24,684 claimed as an in-kind contribution in the
1986-87 grant year in question here was substantially understated.
Accordingly, PCAC argued, it should be permitted to claim an additional
$1,907 as an in-kind contribution for that year.
ACF responded that the rental value of the buildings constituted direct
rather than indirect costs, so that the lack of an indirect cost rate
was no longer an appropriate basis for the disallowance. ACF agreed to
consider whether an additional $1,907 could be claimed as an in-kind
contribution for 1986-1987 grant year based on the 1990 appraisal.
However, ACF subsequently determined that since the appraisal was
performed three years after the program year in question, there was no
basis for concluding that the rental value of the buildings was any
higher than the $24,684 already claimed for that year. ACF further
determined that the results of the appraisal were overstated by PCAC and
that the appraisal itself was inflated. Thus, ACF argued, the appraisal
report did not support PCAC's position.
Analysis
We agree with ACF that PCAC incorrectly reported the results of the
appraisal. PCAC noted that--
[t]he appraisal states a per square foot rental of $.72 for the
8,200 sq. ft. building and $.265 for the 2,253 sq. ft. building. This
would mean approximately $78,000 per year just for the buildings alone
[i.e., exclusive of the playground area outside of each building] . . .
.
PCAC letter dated 11/30/93, at 2. As ACF pointed out, in arriving at
the $78,000 figure, PCAC apparently multiplied the rental rate stated in
the appraisal by 12, as though it were a monthly rate, when in fact the
rental is stated in the appraisal as an annual rate. The appraisal
report specifically identifies the "total annual rental" for the 8,200
square foot building as $5,904, with an additional $720 "annual rental"
for the 4,500 square foot playground (at $.16 per square foot).
Appraisal report at 7, 8 and 10. In addition, the appraisal report
specifically identifies the "annual rental" for the 2,253 square foot
building as $597.05, with an additional $513 "annual rental" for the
4,275 square foot playground (at $.12 per square foot). Appraisal report
at 13, 15. Thus, the appraisal report supports a claim of at most
$7,734.05 for the rental value of the two properties. As PCAC claimed a
rental value three times this amount, there were clearly no unclaimed
rental costs which PCAC could use as an additional in-kind contribution.
ACF also asserted that the appraisal was inflated "to the extent that
it
does not take into account the value of capitalized improvements made to
the property with federal funds between 1987 and 1990 in the approximate
amount of $6,000." ACF reply dated 1/3/94. We need not determine
whether PCAC could properly claim as an in-kind contribution that
portion of the appraised rental value of the buildings which was
attributable to any federally funded improvements, however. Even using
the figures in the appraisal report, it is clear that the rental value
of the buildings did not exceed the amount claimed as an in-kind
contribution.
For the same reason, it is not necessary for us to resolve the question
whether the appraised rental value of the buildings in 1990 was
probative of the actual value of the buildings three years earlier, in
the 1986-1987 grant year.
Conclusion
Based on the foregoing analysis, we conclude that the disallowance of
$1,907 should be sustained in full.
_________________________ Donald F. Garrett
_________________________ M. Terry Johnson
_________________________ Norval D. (John)
Settle Presiding Board Member
1. The Board initially raised a question as to its jurisdiction to
review this appeal, which was filed late. The Board later ruled that it
had jurisdiction, based on PCAC's assertion that a request for an
extension which it had sent to ACF within the time for appeal was
intended as a request for an extension to file the appeal, and on ACF's
statement that it did not object to Board review of the appeal. Ruling
on Jurisdiction dated 8/19/93.
2. PCAC contended in a submission following the telephone conference
that it "did not start out the conversation with the intention of using
the difference in space value as an unclaimed indirect cost," but only
suggested this "as an alternative way" to satisfy the non-federal
matching requirement "[w]hen told that [ACF] would not allow" it to
use
indirect costs to satisfy this requirement. PCAC letter dated 11/30/93.
While ACF took the position at the telephone conference that indirect
costs could not be used to satisfy the matching requirement, the Board
never ruled on this issue. Instead, PCAC was given a full opportunity
to identify the indirect costs which it had in mind. PCAC never
identified any costs other than the rental value of the two buildings
referred to here. Thus, even if indirect costs could be used to satisfy
the matching requirement, there is no evidence in the record that PCAC
incurred any such costs.
3. PCAC stated both in the telephone conference and in its November
30, 1993 letter to the Board that the professional appraisal was done in
1991. However, the appraisal report is clearly dated May 24, 1990. See
enclosure to 11/30/93 letter, at