Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Home Education
Livelihood Program, Inc.
Docket No. A-95-54 and A-95-55
Decision No. 1598
DATE: September 20, 1996
DECISION
The Administration for Children and Families (ACF) of the
Department of Health and Human Services (HHS) notified
Home Education Livelihood Program, Inc. (HELP) by letter
dated December 8, 1994 that ACF was disallowing $642,426
because of alleged improper expenditures of federal funds
for HELP's Migrant Head Start program (Board Docket No.
A-95-55). HELP appealed this disallowance pursuant to 45
C.F.R. Part 16.
ACF also notified HELP, by a separate letter dated
December 8, 1994, that it proposed to terminate HELP's
Migrant Head Start grant (Board Docket No. A-95-54).
This action was taken pursuant to 45 C.F.R. § 1303.14(b)
based on HELP's alleged non-compliance with requirements
of the program, including continuing failure to meet
performance standards, failure to comply with eligibility
requirements and limitations on enrollment, failure to
comply with the Head Start grants administration
requirements, and failure to abide by terms and
conditions of the award and other applicable laws, regu-
lations or requirements. See Termination Letter of
December 8, 1994, submitted with HELP's Notice of Appeal,
attachment 1 (Termination Letter), at 1-6; Respondent's
Statement of Basis for Allegations Concerning Pesticides
and Other Matters (April 17, 1995); 45 C.F.R. Part 1301
and § 1305.7.
These alleged failures were the result of findings made
during an on-site program review conducted at HELP's
facilities on August 22-26, 1994 (1994 on-site review),
including the fiscal findings which led to the
disallowance. Many of the alleged program violations
were also found during an on-site review conducted in
August 1991. The alleged violations on which this
termination was based were listed in the termination and
disallowance letters, as well as in the Departmental
Appeals Board's (DAB's) Rulings of February 2, 1995 (as
modified in the DAB's Summary of April 6, 1995
Teleconference) and Notice of May 17, 1995 issued
pursuant to 45 C.F.R. § 1303.16(g). HELP requested a
hearing on the proposed termination under 45 C.F.R.
§ 1303.14(c)(2).
The DAB held a hearing on both the disallowance and
termination actions in El Paso, Texas from June 5-9, 1995
and in Las Cruces, New Mexico from October 23 to November
1, 1995. The record consists of the transcripts of these
two hearings (Tr. I and Tr. II, respectively), as well as
many volumes of documents submitted by each party (which
we refer to as Appellant's Appeal File (AAF) and
Respondent's Appeal File (RAF)).
SUMMARY OF THE DECISION
ACF contended that its findings that HELP had charged the
grant with $642,426 in unallowable costs and that the
fiscal and administrative practices that led to this
misuse of federal funds, along with the 14 repeat
findings of program deficiencies and two safety-related
incidents that occurred during the 1994 on-site review,
showed that HELP was an unfit grantee and that
termination of the grant was therefore justified. After
fully considering all of the evidence of record and the
parties' arguments, we uphold only $58,965 of the
$642,426 alleged as misspent funds. After considering
all of the evidence and arguments (including the weight
that should be given to the hearing testimony and
documents presented by the parties), we sustain only two
of the fourteen findings of program deficiencies and
neither of the safety-related incidents. In addition,
although ACF alleged that any single finding of non-
compliance was sufficient in and of itself to justify
termination, it failed to provide us with any basis to
conclude that the two remaining findings of non-
compliance were material and therefore would satisfy the
criteria of 45 C.F.R. § 1303.14(b) for termination of
HELP's grant. We therefore conclude that ACF has not
shown that the standards set forth in 45 C.F.R.
§ 1303.14(b) for termination of a Head Start grant had
been satisfied.
The rationale for our decision is organized as follows.
First we review the applicable statute and regulations
(pages 3 to 6).
Next we address each item of the disallowance (pages 7
to 40). We find that ACF properly disallowed $58,965, as
follows:
m $5,200 for rental of the Deming Rainbow Center;
and
m $53,765 for exceeding the administrative cost
limit.
We reverse ACF's finding with regard to the remainder of
the eleven disallowed costs amounting to $581,923 of
federal expenditures.
We then review the findings of repeat deficiencies in
complying with program standards that were reported by
the 1994 OSPRI review team (pages 40 to 95). We conclude
that the record supported only two of the fourteen
alleged deficiencies. We also discuss the two safety-
related incidents in this section, which we find did not
support ACF's decision to terminate HELP's program.
Finally, we consider whether the findings of non-
compliance which are established by the record before us
amount to a material breach of the Head Start
regulations, since 45 C.F.R. § 74.113(a) (applicable to
all HHS grants) requires that termination under 45 C.F.R.
§ 1303.14(b) be based on a material failure to comply
with grant requirements (pages 95 to 100). We conclude
that the findings of non-compliance, either alone or in
combination, do not compromise HELP's ability to provide
quality Head Start services so as to amount to a material
breach. Consequently, the criteria of 45 C.F.R.
§ 1303.14(b) for termination of HELP's Migrant Head Start
program have not been satisfied.
BACKGROUND
I. Overview of Applicable Law and Regulations
The Head Start program is designed to deliver
comprehensive health, educational, nutritional, social
and other services to economically disadvantaged children
and their families. 42 U.S.C. § 9831 and 45 C.F.R.
§ 1304.1-3. Some Head Start funds are set aside for the
purpose of providing these comprehensive services to low-
income children whose families migrate to engage in
agricultural work. Campesinos Unidos, Inc., DAB No. 1518
at 4 (1995). ACF provides funds to grantees to serve as
Head Start agencies within designated communities and
reviews their performance in meeting program and fiscal
requirements. See generally 42 U.S.C. §§ 9836, 9837,
and 9846. The federal share of costs may not exceed 80%
of the program's budget and the grantee must provide a
20% matching share, unless a waiver is granted. Costs
expended for program administration may not exceed 15% of
the grantee's total annual budget. 42 U.S.C. §§ 9835(b)
and 9839(b).
The law requires that in administering a Head Start
grant --
[e]ach Head Start agency shall observe standards of
organization, management, and administration which
will assure, so far as reasonably possible, that all
program activities are conducted in a manner
consistent with the purposes of this subchapter and
the objective of providing assistance effectively,
efficiently and free of any taint of partisan
political bias or personal, or family favoritism.
Each such agency shall establish or adopt rules to
assure full staff accountability in matters governed
by law, regulations, or agency policy . . . . Each
such agency shall adopt for itself rules designed to
. . . assure that only persons capable of
discharging their duties with competence and
integrity are employed . . . .
42 U.S.C. § 9839(a); see also 45 C.F.R. § 1301.30. All
Head Start grantees are required to "keep such records"
as the Secretary of HHS (Secretary) prescribes, including
those which will fully disclose the disposition of
federal funds and will facilitate an effective audit. 42
U.S.C. § 9842(a). The Secretary ". . . shall have access
for the purpose of audit and examination to any books,
documents, papers, and records . . . that are pertinent
to the financial assistance received." 42 U.S.C.
§ 9842(b).
Grantees are subject to requirements related to
eligibility, enrollment and attendance of children
served. 42 U.S.C. § 9836(c)(2)(A). The Head Start
program is unique in that parents are expected to
participate in the management of the program, as well as
in the actual development and implementation of the
program. 42 U.S.C. § 9837. The Secretary is authorized
to prescribe regulations binding on all Head Start
agencies. 42 U.S.C. § 9839(c).
The Secretary has promulgated program performance
standards covering the education, health (including
medical, dental, mental health and nutrition),
disabilities, social services, and parent involvement
areas of Head Start. See 45 C.F.R. Parts 1304 and 1308.
Generally, each grantee is required to develop, with the
advice and concurrence of its Policy Council, a written
plan to implement the performance standards for each
component area and to update each plan at least annually.
45 C.F.R. § 1304.1-4. Under the Head Start Act, HHS is
required to conduct a full review of each Head Start
program at least once during each three-year period in
order to monitor the program's compliance with Head Start
requirements, including performance standards. 42 U.S.C.
§ 9836(c)(2)(A). The Head Start Act states that a
program will not be terminated based solely on one on-
site review finding program performance deficiencies. 42
U.S.C. § 9836(c)(4).
The regulations governing the general administration of
HHS grants contain the provisions applicable to the
financial reporting, procurement, and fiscal management
of Head Start grants. 45 C.F.R. Part 74; 45 C.F.R.
§ 1301.10. The requirements include:
(a) accurate, current and complete financial reporting;
(b) maintenance of accounting records which identify
adequately the source and application of grant
funds;
(c) maintenance of internal controls that effectively
account for all grant funds and other assets and
assure that all such property is safeguarded and
used only for authorized purposes;
(d) comparison of actual and budgeted amounts to
exercise budgetary control;
(e) adoption of procedures to minimize the time elapsing
between the advance of federal funds and their use
by the grantee;
(f) compliance with applicable cost principles to assure
that costs are allowable, reasonable, and properly
allocated;
(g) retention of source documentation, such as paid
bills, checks, or payroll records to support
accounting records; and
(h) systematic resolution of audit findings and
recommendations.
45 C.F.R. § 74.61. Each Head Start grantee must be
audited annually by an independent auditor and the audit
is subject to certain government requirements. 45 C.F.R.
§ 1301.12(a).
In addition to the codified regulations designed
specifically for Head Start, non-profit organizations
which receive Head Start funds are subject to the
requirements of Office of Management and Budget Circular
A-122 (see 45 Fed. Reg. 46022 (July 8, 1980) (OMB A-122),
made applicable to HHS grants by 45 C.F.R. § 74.174
(1993)). OMB A-122 provides a uniform set of cost
principles for determining costs of grants, contracts,
and other agreements and is designed to promote
efficiency and understanding between non-profit grantees
and the federal government. It provides guidance on
allowable direct costs and allocable indirect costs, as
well as guidance on specific cost items.
Finally, Head Start grantees are subject to the
requirements of the Office of Human Development Services
Discretionary Grants Administration Manual (OHDS/DGAM).
This manual provides the policies for management of all
Head Start grants, as well as other grants administered
by ACF. The OHDS/DGAM provides ACF grants policies on
competition and awarding, funding, payment procedures,
reporting and cost limits.
II. Factual Background of this Program
HELP is a non-profit organization, with a home office
located in Albuquerque, New Mexico, which was
incorporated on October 6, 1965. HELP's purpose is to
provide economic and other assistance to low-income
residents and farmworkers in New Mexico, and to foster
community-wide concern for the problems of such
underprivileged persons. AAF (HELP, Inc., Tab A) at
3223. At all times relevant to this proceeding, HELP
received federal funds from HHS through ACF to run a Head
Start program for families of migrant farm workers who
move into or within New Mexico for the purpose of
engaging in agricultural work (Migrant Head Start).
Throughout the relevant time period, HELP likewise
received federal funds from ACF to provide Head Start
services to low-income families who are regular residents
of New Mexico (Regional Head Start). 1/ HELP's two
Head Start programs were jointly administered by a
management team in Las Cruces until fall of 1992, when
ACF required that HELP separate the two programs and
administer them independently from one another (the
"divorce" of the programs). Tr. II at 681-682. HELP
regularly receives federal, state, and private funds to
run other types of assistance programs.
HELP operates on a fiscal year running from October 1
through September 30. 2/ AAF (HELP, Inc., Tab A) at
3220. During the relevant time period, HELP operated
five Migrant Head Start centers in New Mexico, located in
the areas (and referred to) as follows: Las Cruces,
Deming, Anthony, Rincon, and Portales. Each of the
centers, except for Portales, is located less than an
hour's drive from the program's offices in Las Cruces;
Portales is located approximately 250 miles to the east
of Las Cruces. Tr. II at 501. Throughout the relevant
time period (1992-1994), HELP's Migrant Head Start
centers were generally open from June until August, with
some open as late as November. The principal language of
the majority of the families served by HELP's Migrant
Head Start program is Spanish. AAF (HELP Inc., Tab D)
at 3375.
ANALYSIS
I. The Disallowance Proceeding
The disallowed expenditures consisted of the following
eleven items:
1. $155,384 for less-than-arms-length rental costs;
2. $134,251 for overexpenditures of federal funds;
3. $5,200 for the Deming Rainbow Center rental costs;
4. $4,175 for office equipment rental costs;
5. $62,411 for the Social Services and Parent
Involvement Coordinators' salaries;
6. $777 for prior year expenses;
7. $27,300 for La Primera Iglesia Bautista rental
costs;
8. $131,720 for exceeding administrative cost
limitations;
9. $30,633 for staff hired without prior approval;
10. $81,590 for the salary of the Child Development
Director; and
11. $7,447 for literacy programs.
Notice of Disallowance Letter of December 8, 1994,
submitted with HELP's Notice of Appeal, attachment 2
(disallowance letter). 3/
1. Less-Than-Arms-Length Rental Costs
ACF disallowed $155,384 on the grounds that HELP had
engaged in less-than-arms-length negotiations with regard
to leases for three buildings used for its Migrant Head
Start program. 4/ Disallowance Letter at 3-4. The
three buildings were leased from Rural Housing, Inc.
(RHI), and the disallowed amount represented 41 months
(April 1991 through August 1994) of rental payments for
each of the three buildings. ACF alleged that the three
lease arrangements were less-than-arms-length
transactions because the Executive Director of HELP also
functioned as the management agent who signed checks for
RHI and had broad authority over RHI's business
transactions, including the leases at issue. ACF Br. at
4, 5, 6. Moreover, according to ACF, the senior
accountant for RHI had the authority to sign checks
issued by both RHI and HELP. ACF Br. at 4. Finally, ACF
argued that RHI received a substantial loan from HELP and
that the terms of that loan contemplated that it might
become a donation to RHI, an agreement which would not be
consistent with an arms-length transaction. ACF Br. at
5. ACF found that these less-than-arms-length
transactions resulted in an overcharging of the grant in
violation of OMB A-122, att. B, sec. 42.c, which limits
payments for contracts which were not negotiated at arms-
length. 5/ Disallowance Letter at 4.
HELP responded that the concept of a less-than-arms-
length transaction was based on the ability of a person
or party to substantially influence the outcome of the
transaction. HELP Br. at 5. HELP argued that there
could be no substantial influence here due to the sheer
size of both organizations: RHI obtained only 2% of its
annual income from leasing the Migrant Head Start
facilities to HELP, and HELP obtained only 1.5% of its
revenue from (unrelated) management agreements with RHI.
HELP Br. at 6. HELP discussed several criteria
established by the DAB in prior decisions addressing
less-than-arms-length transactions and argued that,
applying these criteria to these transactions, the
transactions were arms-length transactions. See,
generally, HELP Br. at 7-14. In discussing these
criteria, HELP asserted that its Executive Director had
no role in negotiations with RHI on the Migrant Head
Start building leases which were in effect throughout the
relevant time period, and that the leases on which ACF
relied as evidence of a less-than-arms-length transaction
were not applicable to the time period at issue here.
HELP Br. at 12. Moreover, HELP argued, RHI's accountant
did not personally sign checks for HELP during the
relevant time period; her signature remained on a check
signing machine for HELP due to an oversight after she
left HELP's employment. HELP Br. at 15.
We do not find the evidence produced by ACF on this
matter to be convincing. There is no doubt that HELP and
RHI had a working relationship and engaged in business
transactions designed to foster the goals of each
organization. It is clear from the record that their
relationship took two main forms: 1) HELP managed
certain housing properties (unrelated to Migrant Head
Start) as a management agent for RHI; and 2) HELP leased
certain buildings and properties from RHI, three of which
were used for Migrant Head Start. 6/
With regard to the first of these two relationships, the
record provides evidence that HELP's Executive Director,
Ernest Ortega, served as the management agent for the
housing properties which HELP managed for RHI. Tr. II
at 632. With regard to the management agency agreements,
Mr. Ortega was involved in lease negotiations and signing
contracts. Mr. Ortega, as HELP's Executive Director,
represented HELP's interests in these matters and had a
fiduciary responsibility to HELP. Tr. II at 651. ACF
conceded that Mr. Ortega did not personally receive fees
for these services, but the fees went into HELP's bank
accounts. The management agreements involved the work of
RHI in providing housing to low-income persons with
HELP's assistance as a management agent; the agreements
had no impact on the interests of HELP's Migrant Head
Start program. See, generally, Tr. II at 622-633. Thus,
we are not concerned with Mr. Ortega's management agent
relationship with RHI through HELP in determining whether
the three leases for HELP's Migrant Head Start facilities
were the product of less-than-arms-length negotiations.
With regard to the leases for the three buildings used by
Migrant Head Start, we must carefully scrutinize the
relationship of Mr. Ortega to both organizations because
of the potential impact any conflict of interest might
have on the migrant program. We find that, while ACF
argued that Mr. Ortega was involved with lease
negotiations for both organizations, there is no evidence
of such involvement. We conclude that RHI and HELP did
not engage in less-than-arms-length transactions with
regard to these leases.
There are three completed leases in the record pertaining
to the buildings at issue: 1) a lease for the Deming
Center, effective October 1, 1987 through September 30,
1990 (the 1987-1990 Deming lease); 2) a lease for the Las
Cruces office, effective June 1, 1992 through May 30,
1997 (the 1992-1997 Las Cruces lease); and 3) a lease for
the Portales Center (as well as two other buildings
unrelated to the disallowance here), effective October 1,
1993 through September 30, 1998 (the 1993-1998 Portales
lease). RAF Tab 30, at 767-775. The 1987-1990 Deming
lease was signed on October 1, 1987 by Jack M. Harris for
RHI and by Mr. Ortega for HELP. Id. at 770. The 1992-
1997 Las Cruces lease and the 1993-1998 Portales lease
were signed on June 1, 1992 and October 1, 1993,
respectively, by Jack M. Harris for RHI and Henrietta C.
de Baca for HELP. 7/ Id. at 772, 775. Thus, the most
recent lease pertaining to any of the three buildings
used by Migrant Head Start which is signed by Mr. Ortega
is dated October 1, 1987, and is wholly irrelevant to the
time period at issue. 8/ The two leases which cover
the relevant time period, for the Las Cruces and Portales
facilities, were not signed by Mr. Ortega but by Ms. de
Baca. ACF has not argued that Ms. de Baca had any
relationship with RHI.
Mr. Ortega testified that he does not currently sign
leases with RHI for Head Start facilities. Tr. II
at 641. Mr. Ortega stated that he did not take part in
the 1992 and 1993 lease negotiations because, by that
time, HELP had become aware of the possible less-than-
arms-length transaction issue as a result of RHI's
dealings with the Department of Labor, and had made
efforts to correct any potential conflicts of interest.
Tr. II at 634-637. Mr. Ortega stated that the leases
effective throughout the relevant time period for the
three Migrant Head Start buildings were based on leasing
needs identified by HELP's Migrant Head Start Director,
Loui Reyes, and on negotiations between the Boards of
both RHI and HELP. Tr. II at 642. Mr. Ortega testified
that the Boards of the two organizations did not have
common members. Tr. II at 629. Moreover, Mr. Ortega
testified that RHI was discussed at HELP's Board meeting
solely because HELP was managing housing units for RHI
and HELP's Board had a duty to know the results of
actions taken under those contracts. Tr. II at 647.
Based on the above factors, we find no evidence of any
improper influence exerted by either party in the manner
in which the three leases were negotiated.
As asserted by HELP, OMB A-122, att. B, sec. 42.c
provides that a less-than-arms-length transaction is one
under which one party to the lease agreement is able to
control or substantially influence the actions of
another. The section provides examples of such
organizational relationships, such as when the parties
are divisions of the same larger organization, when the
parties have common officers, directors or members, or
where key personnel of one party have a controlling
interest in the other party. The provision states that
less-than-arms-length transactions are not limited to
transactions among parties with these specific
relationships. Enterprise for Progress in the Community,
Inc., DAB No. 1558, at 7 (1996) (EPIC). ACF conceded
that HELP and RHI did not have one of these specific
organizational relationships. ACF Br. at 2.
In EPIC, we stated that --
The Minutes, so far as they reflect the routine
business activities of the [landlord] Foundation,
support a conclusion that the Executive Director
[for the tenant Head Start program] was in a
position to, and often times did, exert substantial
influence over the Foundation's actions. This
factor alone supports a conclusion that the
organizations' relationship was less-than-arms-
length.
Id. 9/ Here, we find that there is no evidence that
Mr. Ortega was in a position to exert substantial
influence over both organizations. While he was the
Executive Director of HELP and thus presumably had
significant influence over the dealings of HELP, his only
proven relationship with RHI is that he was acting as the
management agent for HELP once certain housing properties
of RHI were contracted to HELP for management. However,
his fiduciary and employee relationships were still
exclusively with HELP. See RAF Tab 33, at 914-915
(letter from Mr. Ortega to ACF's William McCarron stating
that Mr. Ortega, as Executive Director for HELP, could
not provide proprietary or other information on RHI
because it was a separate and distinct legal authority);
Tr. II at 648-649, 651.
Moreover, we agree with HELP that the relationship
between RHI and HELP is clearly distinguishable from the
relationships between the organizations discussed in EPIC
and in Salt Lake City Community Action Program, DAB
No. 1261 (1991). In each of those cases, the
organizations providing facilities for lease to the Head
Start programs had no purpose other than to supply
facilities to Head Start. In this case, RHI is an
independent organization providing housing for low-income
persons in New Mexico; its leasing of Head Start
facilities to HELP is a very minimal part of its
business, as are HELP's management agreements with RHI a
minimal part of HELP's business.
ACF also argued that the senior accountant of RHI had
check signing authority for both organizations, and that
this indicated a less-than-arms-length relationship
between the organizations. HELP replied that the
accountant worked exclusively for RHI but her signature
inadvertently remained on a check signing machine for
HELP. Tr. II at 638-639. ACF did not introduce copies
of any checks issued by HELP within the relevant time
period which contained this employee's personal
signature. While we do not endorse the business practice
of having one employee's signature available to two
organizations involved in negotiations, contracts, and
the transfer of money, we find that this practice was the
result of oversight rather than of intentional undue
influence. Thus, we do not find it to be of material
significance on the less-than-arms-length negotiation
issue.
While during the late 1980's it was brought to HELP's
attention that the relationship between RHI and HELP
might be considered less-than-arms-length, HELP has
convinced us that it made a good faith effort to correct
this potential conflict of interest and that a conflict
of interest did not exist during the relevant time
period. There is also evidence that the Department of
Housing and Urban Development (HUD) considers the current
relationship to be arms-length. 10/ Finally, ACF, in
arguing that this was a less-than-arms-length
relationship, relied in part on the fact that HELP had
loaned money to RHI and that the loan's terms
contemplated that such loan might become a donation to
RHI. ACF Br. at 5. However, HELP argued, and ACF did
not rebut, that the loan came from funds raised by HELP
through its management agreements and was unrelated to
Migrant Head Start's funding. HELP Br. at 10; Tr. II at
704-705, citing ACF Hearing Ex. 1. Moreover, HELP stated
(and ACF did not rebut) that the loan always had been
repaid on a regular basis. See also HELP Br. at 10,
citing Tr. II at 1095.
For the above reasons, we reverse the disallowance of
$155,384 for what ACF characterized as less-than-arms-
length lease transactions.
2. Overexpenditure of Federal Funds
ACF disallowed $134,251 for overexpenditures which HELP
allegedly incurred during the 1992-93 program year and
which, according to ACF, HELP carried forward and paid
out of 1993-94 federal grant funds. 11/ ACF argued
that this carry-over of 1992-93 expenditures effectively
reduced the amount available from HELP's 1993-94 grant
award which could be utilized in meeting its program
needs for 1993-94. ACF Br. at 8. ACF disallowed this
amount as a violation of the requirement that expenses be
charged to the proper budget period, citing to OMB A-122,
att. A, sec. A. See Disallowance Letter at 4.
ACF's witness, William McCarron, testified that this
disallowed cost was based on HELP's Balance Sheet of
4/31/94 through 7/31/94 (1994 Balance Sheet) and on a
1993 Migrant Head Start itemized statement for the
program year 4/93 through 3/94 (1993 Statement). Tr. I
at 99-103, citing RAF Tab 30, at 786, 787. The 1994
Balance Sheet, under a category entitled "Capital and
Fund Balance," lists "-$134,250.82" in "prior year
unexpended" funds. The 1993 Statement lists $134,250.82
in unexpended funds. Mr. McCarron asserted that this
represented a 1992-93 overexpenditure that was paid for
from 1993-94 federal grant funds, thus leaving only
$1,031,276 of the $1,165,527 of federal funds HELP
received for 1993-94 available for 1993-94 expenses.
Tr. I at 107. He stated that he based this on the fact
that the records did not indicate that the $134,250.82
deficit was again carried over to 1994-95. Tr. I at 111.
HELP admitted that it kept its Migrant program open
longer than it originally planned in 1992-93 and 1993-94
(due to an extended agricultural season), resulting in
expenditures in excess of its budget for those program
years. Tr. II at 652-653. According to HELP, it carried
those expenditures on its books as "prior year
unexpended" while, at the same time, it sought money from
ACF to cover the overexpenditures. HELP alleged that
when ACF refused additional funding, HELP covered the
expenditures itself out of its unrestricted funds that it
earned from its RHI management contracts. Tr. II at 656.
HELP produced a journal entry form, dated March 31,
1994, reflecting a cash contribution to the Migrant Head
Start from HELP's unrestricted funds in the amount of
$134,250.54. ACF Hearing Ex. 2. HELP contended that Mr.
McCarron's conclusion from the documents that it used 93-
94 funds to cover these costs is contradicted by its
financial status report for the 1993-94 program year, as
well as its income statement, which showed that HELP
spent $130,928.72 more on its Migrant Head Start program
for the 1993-94 year than the amount which ACF claimed
that HELP spent. HELP Br. at 17-18, citing AAF (HELP,
Inc., 5/22/95 Filing, Tab F) at 3391. Moreover, HELP
argued, the on-site team reviewer who reviewed financial
matters testified that she found no payments for out-of-
period costs for the 1993-94 budget year among the
federal expenditures, which would have indicated HELP was
paying previous year's expenses with current year's grant
funds. HELP Br. at 18. HELP argued that it is clear
from the record that HELP had unrestricted funds from
which it could have paid the overexpenditures. HELP Br.
at 18-19.
We reverse this cost item of the disallowance. ACF did
not point to any evidence showing that the
overexpenditures were applied against federal funds
during the 1994 grant year, a year in which HELP actually
had federal funds totalling $188,132 left over. HELP's
submission of 8/4/96, attachment B. The disallowance is
based solely on the 1994 Balance Sheet and the 1993
Statement, which are internal documents of HELP and do
not show on their face that the overexpenditures came
from federal funds. Mr. McCarron stated that he was
given these documents as part of his request for
financial records from HELP, but he admitted he never
inquired as to what these documents were and did not
speak with anyone at HELP regarding this cost item.
Tr. I at 101-102, 113. Mr. McCarron asserted that he did
not believe that the overexpenditures were paid for out
of HELP's unrestricted funds simply because "[i]t is not
a normal practice for a grantee to use unrestricted funds
for situations such as this." Tr. I at 113. Yet ACF's
reviewer for the financial administration portion of the
OSPRI stated that she did not find any charges for a
prior year paid for with 1993-94 federal program funds.
Tr. I at 397. The record substantiates HELP's claim that
it had unrestricted funds available to cover the
overexpenditures in the full amount. HELP Submission of
July 8, 1996, att. 1, at 3.
Based on the above factors, we reverse ACF's findings
with regard to $134,251 for alleged out-of-period costs.
3. Deming Rainbow Center Rental
HELP paid RHI $5,200 to rent classroom space for four
months (June-September 1993) at a location known as the
Deming Rainbow Center. HELP argued that it leased and
renovated this facility to accommodate additional
children who could not be accommodated at its other Head
Start center located in Deming, New Mexico. See
Disallowance Letter at 4-5. The renovation was not
completed until December 1993, and there is no dispute
that the space was never utilized by HELP's Migrant Head
Start program due to an underenrollment of children in
the Deming area throughout the relevant time period. Id.
ACF disallowed the rental costs on the grounds that the
Migrant Head Start program received no benefit from the
rented space and that an expenditure without a comparable
benefit to the program was a violation of OMB A-122, att.
A, sec. A.3.c. 12/ ACF's witness, Mr. McCarron,
testified that this expenditure was a violation because
no children were ever served by the center. Tr. I at 22-
23, 121-122, 124.
In response, HELP argued that section A.3.c. clearly
establishes that whether a cost is reasonably incurred is
determined from the perspective of an individual making
an assessment at the time rather than from hindsight:
Since the cost standard at issue is whether a
grantee has a reasonable belief that it needs the
facility at the time that it signed the lease, Mr.
McCarron's formulation -- i.e., that it could not be
reasonable to lease a facility if the grantee ends
up not using it [citation omitted] -- is simply
wrong.
HELP Br. at 20 (emphasis added). HELP argued that since
it is impossible to know with certainty if a Migrant Head
Start program will reach peak enrollment during any given
year because of numerous factors outside of its control,
the cost incurred here for the Deming Rainbow Center was
reasonable. 13/ HELP Br. at 21-22. Moreover, HELP
argued, evidence in the record indicated that HELP leased
the center because it was under pressure from ACF to
increase its licensed capacity to its funded level. HELP
Br. at 21, citing Tr. II at 1342, 1432.
We conclude that ACF properly disallowed this
expenditure. We agree with HELP that the standard, which
calls for a determination of whether the decision-maker
acted with prudence under the circumstances known to him
at the time, clearly contemplates that a review should be
based on the perspective of the person making the
decision at the time rather than from hindsight.
However, we do not find that the decision to lease the
Deming Rainbow Center was based on a reasonable belief
that leasing this facility was necessary.
At the hearing, Mr. Loui V. Reyes, Director of HELP's
Migrant Head Start program, explained that the purpose of
the Deming Rainbow Center was to serve children in the
event that HELP's Migrant Head Start enrollment in the
Deming area at any given time exceeded the licensed
capacity of its other center in Deming. Mr. Reyes also
stated that the purpose of the center was to ensure that
HELP was licensed to accommodate 404 migrant children in
the event there were that many eligible children enrolled
in its Migrant Head Start program at one time. Tr. II
at 1342. The following colloquy then occurred:
Mr. Waters: In your opinion, was it
necessary to rent that
facility?
Mr. Reyes: No.
Mr. Reyes then explained that HELP rented the Deming
Rainbow Center because ACF asked that HELP's Migrant
program ensure that it had licensed capacity for its
funded enrollment of 404 children in the event that the
program was fully enrolled at any single point in time.
Id. Mr. Reyes also explained that the Las Cruces Public
Schools would accommodate HELP's migrant pre-school
children in the event of overflows and would not charge
rent to the program. Tr. II at 1342-1343. Las Cruces is
located approximately 60 miles east of Deming. Tr. II
at 501.
We find that HELP's actions were not based on a
reasonable belief that rental of the center was
necessary. First, HELP's Migrant Head Start Director,
Mr. Reyes, stated outright that he did not believe that
it was necessary to rent the facility. Mr. Reyes' belief
was apparently based on HELP's history of serving migrant
children in the Deming area and his belief that HELP's
current licensed capacity was adequate for the number of
children ordinarily served in Deming at any single point
in time. This belief is borne out by findings showing
that at least since 1991, HELP's migrant program enrolled
substantially fewer children than the 404 it was funded
to serve and there were no waiting lists at any of its
Head Start centers. RAF Tab 39, at 958; RAF Tab 48,
at 984, 990; Termination Letter at 5-6. ACF's
requirement that HELP have a licensed capacity for 404
was based on the fact that HELP requested and received
funding for 404 children. AAF (Cost Disallowances,
Tab 3) at 1343. HELP could have simply asked for funding
for fewer children if it believed that there would not be
a peak season in which the program was fully enrolled.
Moreover, HELP asserted that it had an agreement with the
Las Cruces Public Schools to take Migrant Head Start
children in the event the need exceeded the licensed
capacity at the Las Cruces center. Oral Argument at 258-
259; Tr. II at 1342-1343. While there was no evidence in
the record as to whether such agreement covered an
unlimited number of children, HELP used this agreement as
its defense to ACF's charge that it could not serve 404
children at once. Thus, it is reasonable to presume that
HELP believed such agreement would allow for serving a
total of at least 404 migrant children during a peak
season. Neither party presented any evidence that the
grant required that a precise number of children had to
be accommodated at a particular center.
Based on the standard asserted by HELP, and the testimony
of its Migrant Head Start Director, we conclude that it
was not reasonable and prudent for HELP to lease and
renovate the Deming Rainbow Center. We therefore uphold
ACF's disallowance of $5,200 for the rental of that
center.
4. Equipment Rental
HELP leased from RHI a Xerox typewriter which RHI
originally purchased for $499. According to ACF, during
the 87 months HELP leased the typewriter (May 1987
through August 1994), HELP's Migrant program paid RHI a
total of $1,465 in monthly payments ranging between $15
and $35. Disallowance Letter at 5. According to ACF,
the typewriter was used approximately 50% of the time by
HELP's Migrant Head Start program and 50% of the time by
HELP's Regional Head Start program. ACF disallowed
$1,215, which represented the total of the monthly
payments ($1,465) minus $250. The $250 which ACF
determined was the allowable cost of the typewriter was
based on Migrant Head Start's 50% usage of the equipment
multiplied by the purchase price of $499 (rounded to the
next dollar). Id.
HELP also leased a photocopying machine from RHI which
RHI purchased for $740. Over the 74 months that HELP
leased the machine, HELP's Migrant program paid RHI a
total of $3,700 in $50 monthly payments. The photocopier
was used exclusively by the Migrant Head Start program.
ACF disallowed $2,960, which represents the total of the
monthly rental payments minus the purchase price of the
photocopier. Id. at 5.
ACF alleged that these lease arrangements violated OMB A-
122, att. B, sec. 42.d, which, according to ACF, provides
that lease costs for office equipment are not allowable
beyond the purchase price of the equipment. ACF also
argued that these costs violated cost principles because
they were not reasonable to the performance of the award
and exceeded costs which would be incurred by a prudent
person. ACF Br. at 12-13. ACF argued that one of HELP's
witnesses, who stated that the typewriter was previously
transferred to the Regional Head Start program solely for
its use and that the photocopier had been disposed of,
could not explain why HELP's records did not reflect
these changes so that the migrant program was no longer
being charged for the equipment. 14/ ACF Br. at 13-
14.
HELP responded that ACF's witness on this matter, Mr.
McCarron, could not explain how he made his determination
on this disallowance item, but only stated that
purchasing this equipment "would have been more prudent."
HELP Br. at 22-23. HELP objected that this involved a
hindsight analysis not proper under the cost principles,
and that ACF generally does not allow funds for the
outright purchase of equipment. HELP Br. at 23.
Moreover, HELP argued, ACF received additional benefits
from the lease arrangements, including maintenance of the
equipment and replacement of both machines at least once
each. HELP Br. at 24.
The provision on which ACF relied in taking this
disallowance, section 42.d of OMB A-122, att. B, provides
that --
[r]ental costs under leases which create a
material equity in the leased property are
allowable only up to the amount that would be
allowed had the organization purchased the
property on the date the lease agreement was
executed; e.g. depreciation or use allowances,
maintenance, taxes, insurance but excluding
interest expense and other allowable costs.
For this purpose, a material equity in the
property exists if the lease is noncancelable
or is cancelable only upon the occurrence of
some remote contingency and has one or more of
[certain characteristics.]
(emphasis added). The equipment leases at issue here
were not introduced into the record, so it is not
possible for the Board to determine if the leases created
a material equity in the property and thus were covered
by the provision. 15/ However, we find it unlikely
that the leases were covered by this provision. HELP's
accountant testified that the equipment was replaced
during the term of the lease, the leases were eventually
terminated, and the equipment was returned. Tr. II at
1099-1100, 1103-1104. These actions would be consistent
only with a term lease arrangement and not with a lease-
purchase contract.
HELP did not show that it requested funds for the
purchase of the office equipment and was denied them.
HELP provided no evidence supporting its assertion that
ACF did not usually approve funding for the outright
purchase of equipment. In fact, instances of ACF giving
advance approval for the purchase of office equipment for
use in Head Start programs have come before the Board in
previous cases. E.g., Urban League of Arkansas, Inc.,
DAB No. 1269 at 3 (1991) (prior approval for purchase of
an electric typewriter was granted); Inter-Tribal Council
of California, DAB No. 1418 at 5, n.4 (1993) (prior
approval for purchase of an office computer was granted).
Nonetheless, we do not find the failure to request funds
from ACF for purchasing office equipment to be
determinative of this matter. Entering into term leases
for the use of office equipment is a common business
practice today, and ACF has not shown that the terms of
the lease were outside that which is normally reasonable.
ACF also did not allege that the equipment was not
needed by HELP for the efficient operation of its
program. ACF's only charge is that leasing rather than
purchasing this equipment was not prudent; however, this
is based on a hindsight analysis of the fact that HELP's
lease costs, over a period of many years, far exceeded
the purchase price of the equipment. ACF has not shown
that equipment term leases are per se prohibited. While
the cost may not seem reasonable in retrospect, it may
have been a reasonable arrangement at the time it was
entered into; HELP may not have known how long it would
need the equipment or whether the equipment would meet
HELP's needs. Moreover, HELP may have contemplated that
the equipment would need servicing and eventual
replacement. ACF has not established sufficient grounds
on which to disallow these expenditures absent some offer
of proof that term lease arrangements for office
equipment are always prohibited or that the terms of
these leases were unfavorable when compared with other
lease arrangements either entered into in the normal
course of business or which HELP could have entered into
in these instances.
For the reasons stated above, we reverse ACF's
disallowance of $4,175 for office equipment leases.
However, ACF may bring a future disallowance with regard
to this amount if either it can show that the lease terms
were not reasonable because they were not similar to
those entered into in the normal course of business or
were not among the best terms available to HELP at the
time.
5. Social Services and Parent Involvement
Coordinators' Salaries
During program year 1992-93, HELP's Migrant Head Start
budget (as approved as part of its grant application)
called for a Social Services Coordinator and a Parent
Involvement Coordinator each to be paid $24,685. 16/
According to ACF, instead of hiring personnel to fill
each of these two positions, HELP hired only one person
to fill both positions. Thus, ACF disallowed $24,685.
Disallowance Letter at 6.
During program year 1993-94, the budget called for a
Social Services Coordinator to be paid $28,881 and for a
Parent Involvement Coordinator to be paid $26,526.
According to ACF, the Social Services Coordinator
position was filled but the Parent Involvement
Coordinator position was not filled. Thus, ACF
disallowed $26,526. Id.
During program year 1994-95, the budget called for the
Social Services Coordinator to be paid $26,859. ACF
determined that this position was not filled (at least)
during the first five months of the program year. Thus,
ACF disallowed $11,200. Id.
Based on these three findings, ACF disallowed a total of
$62,411. ACF stated that its finding with regard to each
of the three hiring failures was based on a lack of
documentation to support the expenditure of funds for
these key positions. ACF stated that there were no
carry-over funds reflected which would indicate that the
money for these positions was never spent; moreover,
filling these positions was a condition of the grant as
approved. ACF Br. at 18.
ACF argued that HELP's Parent Involvement Coordinator,
Rita Morales, testified as to her functions in enrollment
and recruitment, responsibilities which are listed in the
regulations as part of the social services component.
17/ ACF argued that Ms. Morales' testimony indicated
that she performed all of the tasks of a Social Services
Coordinator as well as the tasks of a Parent Involvement
Coordinator except for staff training, stating that she
had to do these tasks in order to supervise two summer
interns. ACF Br. at 19-20. ACF argued that HELP had Ms.
Morales providing most of the social services functions
so that the designated Social Services Coordinator, Nancy
Baptiste, who had been denied separate funding by ACF as
a child development associate (CDA) trainer, could still
be paid by Head Start to provide training to the program
under the guise of being the Social Services
Coordinator. 18/ ACF Br. at 21-22.
In response, HELP submitted personnel action reports
showing annual increases for Social Services Coordinator
Nancy Baptiste and for Parent Involvement Coordinator
Rita Morales for each of the years 1991, 1992, 1993 and
1994. Both were hired in 1987, and each held their
respective positions for each of the years 1991-1994.
AAF (Cost Disallowances, Tab 6) at 1355-1366. HELP did
not dispute that Ms. Baptiste's primary function was to
train staff; however, HELP argued, ACF conceded that the
job duties of coordinator positions are left up to the
grantee and that HELP had the authority to move the
Social Services Coordinator's salary to a new position
under which training would be a primary function. HELP
Br. at 25-26. Moreover, HELP argued, ACF conceded at the
oral argument that providing staff training was an
important part of the Social Services Coordinator's
responsibility as listed in the position description
provided by HELP; thus, at most, ACF should disallow only
the portion of the Social Services Coordinator's position
in excess of the amount of time ACF believes a Social
Services Coordinator should spend on training. HELP Br.
at 199.
There are documents in the record which list Ms. Baptiste
as the Social Services Coordinator throughout the
relevant time period. AAF (Cost Disallowances, Tab 6)
at 1355. There are other documents in the record which
list Ms. Baptiste as the CDA trainer or the Professional
Development Coordinator throughout the relevant time
period and which either do not refer to the existence of
a Social Services Coordinator position or list such
position as being vacant. RAF Tab 30 at 856, 858, 860,
862, and 864. However, the labels applied to a
particular position are not what is relevant in
determining whether a salary cost should be disallowed;
the relevant consideration is the functions which Ms.
Morales and Ms. Baptiste were performing.
Following the in-person hearing, briefing and oral
argument, it is clear from the record that the majority
of Ms. Baptiste's duties were to oversee and perform CDA
and other training for HELP's staff. E.g., Tr. II at
931-932; HELP Br. at 25; Oral Argument Tr. at 200-201.
Ms. Morales was performing all of the remaining usual
functions of a Social Services Coordinator and all of the
usual functions of a Parent Involvement Coordinator.
This is essentially undisputed by both parties. While we
do not agree with ACF that HELP had no left-over funds
from its migrant program for program year 1993-94, it is
undisputed that HELP was paying salaries both to Ms.
Morales and Ms. Baptiste throughout the time period at
issue. The question remains whether HELP had the
flexibility to structure these positions in this manner
under its grant award, and, if not, whether all or only a
portion of Ms. Baptiste's salary should be disallowed.
We reverse this cost item of the disallowance. It is
undisputed that both Ms. Baptiste and Ms. Morales were
working for and being paid by HELP's Migrant Head Start
program. However, both employees were performing
functions required by the Head Start Act and
regulations -- Ms. Morales was performing the usual tasks
of a Parent Involvement Coordinator as well as overseeing
recruitment and enrollment, and Ms. Baptiste was
performing training required by the Head Start Act to
qualify HELP's teaching staff for continued employment.
ACF has not disputed that the program received a benefit
from the services of both employees. While ACF argued
that it had previously denied funding for HELP to hire a
CDA trainer, ACF has not provided any proof or
explanation of that denial. The Board does not know the
basis for such alleged denial or whether that denial was
clearly communicated to HELP. The Board has been
presented with no basis as to why ACF would deny funding
for an employee who was providing services required by
the Head Start Act.
Under the OHDS/DGAM, a grantee has certain flexibility in
structuring positions as it desires and, except for
expenditures requiring prior approval, may make revisions
between and among the object class categories within the
total direct costs of the project, provided that the
funds are used for allowable costs of the project.
OHDS/DGAM at chapter 1, § L.3. Moreover, this case is
clearly distinguishable from Lake County Economic
Opportunity Council, Inc., DAB No. 1580 (1996), where ACF
clearly informed the grantee that ACF considered failure
to fill two coordinator positions inimical to proper
grant administration, and the grantee could not even say
what it had done with the funds it failed to spend. In
this case, HELP clearly hired and paid two full-time
employees to perform tasks required by the grant. ACF
may not base a disallowance simply on HELP's approved
budget items unrelated to any finding that expenses
charged to grant funds were unallowable.
For the reasons stated above, we reverse ACF's
disallowance of $62,411 for the salary of the Social
Services Coordinator.
6. Prior Year Expenses
HELP incurred $777 of costs for tuition payments made to
New Mexico State University for classes taken by HELP's
Migrant Head Start Director, Mr. Reyes, during the 1992-
93 school year. There is no dispute that these tuition
costs were paid for from the 1993-94 program year budget.
ACF disallowed the tuition costs in full as not being
charged to the proper grant period, in violation of OMB
A-122, att. A, sec. A. Disallowance Letter at 7.
In response, HELP submitted the bill for Mr. Reyes'
tuition charges, dated February 28, 1993, and a grade
report summary dated May 19, 1993. HELP also submitted
several pages from its Personnel Rules and Regulations,
effective January 1993, which provide that employees may
be reimbursed up to $1,500 per year for tuition costs for
furthering their education if they maintain a grade of
"C" or better. AAF (Cost Disallowances, Tab 9) at 1377-
1383. These documents were submitted to show that the
cost was charged to the following year's budget because
that was when the grade report was received showing that
the student maintained at least a grade of "C" and was
thus eligible for reimbursement. ACF informed the Board
during the hearing in El Paso that it would withdraw this
portion of the disallowance if HELP established that this
policy was in writing and had been approved by its Policy
Council.
On October 12, 1995, prior to the second week of the
hearing in this matter, HELP submitted a copy of its
Personnel Rules and Regulations, which clearly establish
that it is HELP's policy to reimburse staff tuition costs
up to $1,500 annually if a grade of "C" or better is
obtained. These personnel policies are dated October
1988 and incorporate all revisions made since July 1,
1984. Tab B. Also attached to HELP's October 12, 1995
submission is a copy of the minutes of HELP's Policy
Council meeting of August 30, 1992. Tab C. At that
meeting, the Policy Council adopted the personnel
policies in full.
At the oral argument, ACF argued that the actions of this
Policy Council were irrelevant because the approval was
not made by the Policy Council acting for the applicable
time period -- i.e., the period to which the charges were
made. Oral Argument Tr. at 53-55. We disagree. The
classes were taken in the spring semester of 1993 and the
tuition was billed in February 1993; the spring semester
began and the billing date was within the 1992-93 grant
year. See AAF (Cost Disallowances, Tab 9) at 1383.
HELP's Policy Council approved the personnel policies on
August 30, 1992, which is also within the 1992-1993 grant
year and less than six months prior to the time in which
the tuition costs were incurred. ACF has not pointed to
any provision which holds that personnel rules approved
six months earlier would not still be in effect. The
fact that the Policy Council may not have yet approved
the policies for 1993-94 is not determinative; even
though the costs were paid from the 1993-94 grant, this
transaction was completed when the grade report was
received in May 1993, which was prior to the time the
Policy Council would have been expected to have revisited
the personnel policies in August 1993.
For the above reasons, we reverse ACF's findings with
regard to the $777 in tuition costs.
7. La Primera Iglesia Bautista Rent
HELP paid rent to a local church, La Primera Iglesia
Bautista, where its Las Cruces Migrant Head Start center
was located. The rental rate was $15,600 per year to be
paid in semi-annual installments due in May and November.
Based on this rate, HELP paid $39,000 for rental of the
church space between May 1992 and November 1994. See
Disallowance Letter at 7. According to ACF, the Migrant
Head Start program operated in the church only during the
months of June, July and August in 1992, 1993 and 1994.
ACF disallowed a majority of the cost on the ground that
it was not reasonable to pay rent for space for 12 months
each year when the facility was only being used for three
months each year. ACF Br. at 25. ACF determined that,
based on other lease arrangements its on-site teams had
reviewed, the payment of $5,200 per month ($15,600 per
year divided by the three months allegedly in use) was
not reasonable. Thus, ACF pro-rated the portion of the
rental payments made for these three June-August quarters
at $3,900 per three-month period (($15,600 per year
divided by four quarters) x (three years) = $11,700).
ACF disallowed $27,300, which represents the total rent
paid ($39,000) minus the allowable portion of the rent
paid ($11,700), on the ground that payment of rent when
space is not utilized is a violation of OMB A-122, att.
A, sec. A, which prohibits expenditures which are not
reasonable for the performance of the grant award.
Disallowance Letter at 7.
The record contains copies of HELP's leases, both in
English and in Spanish, for the rental of space in La
Primera Iglesia Bautista from May 20, 1992 through
November 20, 1995. The contract confirms the annual
rental cost of $15,600 made in two semi-annual payments.
The 1992-95 contract does not restrict HELP's use of the
space to limited months out of the year. 19/ AAF
(Cost Disallowances, Tab 8) at 1373-1376. HELP disputed
ACF's implication that space could be found to rent on a
part-year basis which met zoning and state child care
facility requirements and which could be obtained at the
monthly pro-rated amount allowed by ACF. HELP contended
that it was prudent to have annual leases on child care
facilities in New Mexico because there was a shortage of
available child care space and the cost of making
necessary renovations to meet state child care facility
licensing standards was enormous. Oral Argument Tr. at
203. HELP argued that ACF failed to controvert evidence
in the record showing that the lease amount was
reasonable. HELP Br. at 30, citing Tr. II at 662-664.
We reverse this cost item of the disallowance. According
to the applicable cost principles, a cost is reasonable
if it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the
time the decision was made to incur the cost. OMB A-122,
att. A, sec. A.3. While ACF asserted that it was a
violation of cost principles for HELP to rent space on an
annual basis when it was only using the center for three
months of each year, ACF offered no evidence to counter
the sound business reasons offered by HELP for year-round
leases. ACF also did not refute the testimony of Mr.
Ortega, who served on Boards and Advisory Councils for
the National Community Investment Coalition, the Federal
Home Loan Bank Board, and the State Housing Authority,
that the lease amount for this particular church was
reasonable. Tr. II at 662-663. ACF's position is
unequivocally based on at least two assumptions which it
did not substantiate. First, ACF assumed that HELP was
not using the space except during the three-month period
when children were present in the center. ACF did not
attempt to show what HELP did (or could do) with its
furniture, supplies, files and equipment during the
months the center was closed, nor did ACF show that it
was feasible to move such property, on an annual basis,
both to and from the center into storage. ACF did not
show that other Migrant programs vacate their properties
during the months when their centers are not open.
Second, ACF implied, but did not show, that other Migrant
programs are generally able to rent space on a less-than-
annual basis at the same pro-rated amount as they could
have if they were renting the space on an annual basis
(or that they have extensive documentation that they have
tried to do so). ACF has not pointed to any instructions
requiring Head Start grantees to present such
documentation. Thus, we have no evidence on which we
could determine that HELP did not act as prudently as
other Migrant Head Start programs. When asked at the
oral argument if it was possible that HELP's annual
payment rate for the facility was based on the lessor's
(and HELP's) assumption that HELP would have children in
the center for only a fraction of the year and would use
the premises for storage or other purposes during the
remainder of the year, ACF's counsel conceded that this
was possible. Oral Argument Tr. at 182-183.
Thus, ACF's determination that HELP should have been able
to arrange part-year leases for the same pro-rated amount
as an annual lease appears to have been based solely on
speculation. Of course, HELP should be required to make
the most favorable lease arrangements possible.
Nonetheless, there is absolutely nothing in the record
which would indicate that HELP's arrangement was
unreasonable or outside of the range of what other
Migrant Head Start programs are doing.
For the above reasons, we reverse ACF's disallowance of
$27,300 for the rental of La Primera Iglesia Bautista.
8. Administrative Cost Limitation
According to the disallowance letter, HELP was authorized
to spend $1,165,527 of federal funds for the 1993-94
program year, of which HELP expended $1,162,205. HELP
was also required by its financial assistance award to
contribute a non-federal matching share to the program of
$291,382, of which HELP was found to have contributed
$84,893. See Disallowance Letter at 8-9. Under
applicable Head Start regulations, a grantee is permitted
to spend no more than 15% of its total approved
expenditures for administrative costs. 45 C.F.R.
§ 1301.32. The disallowance letter calculated HELP's
total approved costs to be $1,247,893 ($1,162,205 +
$84,893), thus resulting in allowable expenditures for
administrative costs of $187,065 ($1,247,893 x 15%).
ACF found that HELP actually spent $318,785 for
administrative costs, thus exceeding the limit on
expenditures for administrative costs by $131,720
($318,785 - $187,065). ACF subsequently reduced this
portion of the disallowance by $480 to $131,240. 20/
ACF stated that HELP did not properly identify or
document which of its costs were administrative; ACF
asserted that it was HELP's responsibility to document
the allocation of its expenditures between administrative
and programmatic costs. ACF Br. at 28, 29. ACF took the
position that absent such documentation, any costs which
had some administrative component should be treated as
wholly administrative costs.
Specifically, ACF found that the salary of the Migrant
Head Start Director should be considered 100%
administrative absent some documentation showing
programmatic work he had done. ACF Br. at 29. According
to the ACF reviewer, the salaries of the Lead Teachers or
Center Directors should also be considered 100%
administrative based on conversations with these
employees during the 1994 on-site visit. ACF stated that
the testimony of lead teacher Nancy Moore, as well as
common sense, indicated that Lead Teachers and Center
Directors were involved in administrative (i.e.,
supervisory) functions at least part of the time,
although HELP designated these salaries in full as
program costs. ACF Br. at 29-30, 32-33. Moreover,
according to ACF, certain office supplies should have
been designated as administrative costs but were not.
ACF Br. at 31.
In response, HELP first disputed ACF's calculation of the
allowable expenditure for administrative costs. Thus,
HELP argued, the limit should have been $218,536 (15% x
($1,165,527 + $291,382)) rather than $187,065 (15% x
($1,165,527 + $84,893)). While ACF calculated the
allowable administrative cost limit using the amount of
non-matching funds actually provided and documented by
HELP, HELP argued that ACF should have applied the limit
using the amount of non-matching funds required by the
financial assistance award. HELP Br. at 32. In
determining the amount HELP actually spent on
administrative costs, HELP argued that ACF used the wrong
figure of $142,452 for indirect costs which were charged
to administrative costs of the program instead of the
correct figure of $134,948. HELP Br. at 33. HELP argued
that a significant percentage of the Migrant Program
Director's salary should be allocated to programmatic
costs because Mr. Reyes was involved in both
administrative and programmatic functions. 21/ HELP
disputed that the salaries of the Lead Teachers or Center
Directors, totalling $39,966, were administrative since
these employees were not involved in fiscal accounting
functions; HELP cited to attachments 2 and 3 to ACF's
brief. HELP Br. at 33-34. HELP argued that the office
supply costs were nearly 100% programmatic because the
paper and printing costs went toward carrying out
programmatic functions. HELP Br. at 35-36. HELP
nonetheless conceded that it exceeded the administrative
cost limit by $29,274 and requested retroactive approval
based on extenuating circumstances. HELP Br. at 37.
Initially, we note that the administrative cost limit is
to be based on 15% of "total approved costs." This term
is defined in the regulations as follows:
Total approved costs mean the sum of all costs of
the Head Start program approved for a given budget
period by the Administration on Children, Youth and
Families as indicated on the Financial Assistance
Award. Total approved costs consist of the Federal
share plus any approved non-Federal share, including
non-Federal share above the statutory minimum.
45 C.F.R. § 1301.2 (1993). We believe that a common
sense interpretation of the plain language of this
regulation supports HELP's calculation here using the
total of the federal financial award plus the amount of
non-federal matching funds indicated in the financial
assistance award. If ACF had intended for grantees to be
limited by the amount of non-federal matching funds
actually credited to each grantee at the close of the
budget period, ACF could have written the regulation to
say that the administrative cost limit would be based on
15% of the approved federal award plus the non-matching
share actually raised (where the amount raised is less
than that required by the financial assistance award).
While there might be strong policy reasons to support
such an approach, such approach would not be consistent
with the plain language of the current regulation and
grantees would not fairly be on notice that they should
limit their administrative costs in such manner. Thus,
we believe that the proper amount of allowable
administrative costs should be $218,536, as calculated by
HELP.
Second, we agree with HELP that ACF applied an
unsupported amount for indirect costs. Apparently, the
figure of $142,452 which ACF applied for indirect costs
came from the 1994 on-site investigation notes of a
member of the 1994 on-site investigation team who did not
testify at the hearing. See RAF 30, at 828; Tr. I at
186-187. Neither Mr. McCarron, any of ACF's witnesses,
nor ACF's counsel explained how this figure was derived.
HELP argued that its indirect costs instead should have
been $134,948, as found in its independent audit for the
applicable time period. Oral Argument Tr. at 204. We
agree with HELP that an indirect cost rate substantiated
by an independent audit is reliable; a page of
handwritten notes by a reviewer who was not a witness and
regarding which no ACF witness testified is not.
However, we find that the indirect costs should be
$135,998 (based on the breakdown of $134,948 and $1,050
listed as indirect costs in HELP's independent audit),
instead of $134,948 as contended by HELP.
With regard to the salary of the Head Start Director, we
agree with ACF that 100% of his salary should be charged
to administrative costs absent any reliable documentation
indicating what portion of his time was spent on
programmatic functions. It is generally anticipated that
a Head Start Director, who is responsible for overseeing
a program and supervising all aspects of the program,
would be performing administrative functions nearly
exclusively, except for occasional tasks to fill in for
others as necessary. See ACF Br., Tab 2 (Information
Memorandum to all Head Start grantees regarding 15% limit
on administrative costs, dated 4/11/83). Mr. Reyes'
position description confirms that it was his duty to
perform tasks which would be considered administrative.
AAF (Cost Disallowances, Tab 10) at 1386-1390. If HELP
intended to allocate part of the director's salary to
programmatic costs for other occasional tasks, it should
have kept accurate documentation of the time spent on
these tasks. Moreover, HELP's line-item budget
attributes 100% of the director's salary to
administrative costs; this indicates what HELP
anticipated the director's work would be at the time it
filed its refunding application. RAF Tab 30, at 829.
Thus, we uphold ACF's allocation of Mr. Reyes' salary in
full to administrative costs.
However, with regard to the salaries of the Lead
Teachers, we do not agree with ACF that their salaries,
totalling $39,966 should be allocated to administrative
costs. First, the line-item budget for HELP lists
teachers as 0% administrative. RAF Tab 30, at 831.
There is no separate category for "Lead Teachers;" thus,
we assume that the Lead Teachers are included among the
20 teachers accounted for in this item and that the
budget assumed that none of their time would be counted
as administrative. While there is a separate line item
for a "Center Director" which contemplates that a Center
Director's time would be 100% administrative, there is no
funding provided for such a position in the budget and no
indication that there was such a position within HELP's
particular Migrant Head Start program during the relevant
time period. RAF Tab 30, at 829.
Mr. Reyes testified that the Lead Teachers were
responsible for the overall implementation of the program
at each center, including observing and mentoring
teachers. They would also be doing home visits, family
needs assessments, referrals for health examinations, and
working with disabled children. Tr. II at 1320-1321.
These activities would make their salaries programmatic
costs. This is consistent with the testimony of Lead
Teacher Nancy Moore, who indicated that most of her time
was spent on programmatic functions with some limited
amount of time spent on supervisory functions. She
testified that she was not responsible for budget
matters, which appear to be the majority of
administrative costs associated with ACF's guidelines.
See ACF Br., Tab 2; Tr. II at 1034, 1049-1050. Moreover,
ACF's finding was based on a conversation by its reviewer
with a single, unnamed Lead Teacher. This is not
persuasive evidence, especially for the conclusion that
100% of the time of all Lead Teachers was administrative.
Thus, we conclude that the Lead Teachers' time should
not be charged to administrative costs.
Finally, with regard to the office supply costs, we find
that -- absent a more specific breakdown of what the
supplies were used for -- these costs should be
considered 100% administrative. This is consistent with
the general guidelines developed by ACF in the
Information Memorandum of 4/11/83, and we see no reason
to depart from them absent better documentation. ACF
Br., Tab 2, at 6 (unnumbered). Moreover, HELP has an
obligation to document its costs. See 45 C.F.R. § 74.21
(formerly 45 C.F.R. §74.62).
For the above reasons, we reduce the disallowance for
exceeding limits on administrative costs to $53,765.
22/ An explanation follows:
$1,165,527 Federal Expenditures
+ 291,382 Non-Federal Share
$1,456,909 Total Approved Costs
$1,456,909 Total Approved Costs
x 15% Allowable Administrative
Percentage
$ 218,536 Allowable Administrative
Expenditures
$ 272,301 Funds Expended for
Administration
- 218,536 Less Allowable Administrative
Costs
$ 53,765 Amount Disallowed
$ 272,301 Funds Expended for
Administration
(a) $135,998 Indirect Costs
$134,948 Indirect Costs
$ 1,050 Indirect Costs H/C
(b) $ 80,095 Personnel 23/
$40,950 H.S. Director
$17,438 Admin. Asst.
$21,707 Accts. Payable Clerk
(c) $ 22,346 Fringe Benefits ($80,095 x
27.9%)
(d) $ 33,862 Other (Office Supplies, etc.)
9. Staff Hired Without Prior Approval
ACF disallowed the cost of a professional staff developer
who was paid a total of $30,633 (including fringe
benefits) from HELP's Migrant Head Start funds for the
period April 1, 1993 through August 30, 1994. ACF
disallowed this amount in full on the grounds that the
position was not approved in advance by the Migrant
Programs Branch of ACF, allegedly in violation of 45
C.F.R. § 74.103(c)(2). 24/ See Disallowance Letter at
9. ACF argued that this employee was hired as a staff
CDA trainer and never functioned as the Social Services
Coordinator as HELP alleged.
The regulation on which ACF relied, which is
substantially the same as OHDS/DGAM, chapter 1,
§ L(4)(b), is inapplicable. The regulatory section
requires prior approval from ACF for a grantee to replace
persons named and expressly identified as "key project
people" in the notice of grant award. The purpose of the
provision, which is more fully developed in the
OHDS/DGAM, is to address situations where a grant may
have been awarded in part based on the qualifications or
participation of a named project director or principal
investigator. The Board has not been provided with any
evidence that the Social Services Coordinator was
expressly identified as one of the key personnel in the
notice of grant award. In fact, the notices of grant
award for the relevant time period list only Mr. Ortega
and Mr. Reyes by name. (Mr. Reyes is listed as the
Principal Investigator or Program Director.) RAF Tab 30,
at 850-855. Thus, we have no basis on which to find that
the Social Services Coordinator position requires prior
approval from ACF.
Thus, we reverse ACF's disallowance of $30,633 based on
an alleged failure to obtain prior approval to hire this
employee.
10. Salary of Child Development Director
ACF calculated the salary for HELP's Migrant Head Start
Director, listed as the Child Development Director, to
total $81,590 for April 1993 through August 1994
(including fringe benefits). ACF disallowed the entire
salary on the grounds that HELP did not have a full-time
Head Start Director as represented in its Migrant Head
Start application. Instead, according to ACF, HELP's
Child Development Director also had overall
responsibility for the nutrition program, the Regional
Head Start program, the before- and after-school child
care program, and the Institute of Children, Youth and
Family Studies, as well as the Migrant Head Start
program. According to the disallowance letter, the Child
Development Director's entire salary was paid by the
Migrant Head Start program. See Disallowance Letter
at 10.
In support of its position, ACF introduced a promotional
brochure developed by HELP which indicated that the Child
Development Director had authority over these five
different programs. ACF Br. at 40, citing RAF 30 at 868.
HELP provided no documentation showing an allocation of
the Director's time between Migrant Head Start and other
programs. ACF alleged that this division of time by the
Migrant Head Start Director was a violation of the grant
award, and thus of applicable cost principles, since a
full-time Migrant Head Start Director was approved in the
budget request. ACF Br. at 41.
HELP responded that, while the Migrant Head Start
Director did have involvement in other programs, he
devoted at least the equivalent of a full-time position
to the migrant program. HELP Br. at 38; 41, n.40. HELP
conceded that, during the seventeen-month period involved
here, the Migrant Head Start Director reported on
Regional Head Start to HELP's Executive Director (Mr.
Ortega) and Board, interacted with ACF's Regional project
manager, oversaw a 1994 on-site visit to Regional Head
Start, provided occasional advice to the Regional
program, and managed the food program for both Migrant
and Regional Head Start. HELP Br. at 38-39. However,
HELP argued, the time which the Migrant Head Start
Director spent on these other programs was insignificant
and was justified by the nature of the other programs or
by his prior relationship with these programs.
Based on testimony presented at the hearing, we find that
HELP sufficiently proved that Mr. Reyes was a full-time
Migrant Head Start Director and that his contact with the
other programs was minimal and appropriate. HELP
provided unrebutted testimony that Mr. Reyes had charge
of the food program, which provides meals for Head Start
children in both Migrant and Regional Head Start, because
the state required one contract and one person to contact
per agency, not per program. Tr. II at 1366. The
testimony indicated that Mr. Ortega was temporarily
assigned responsibility for Regional Head Start following
the "divorce" of the programs, and that Priscilla Mendoza
was appointed to take over as Director of the Regional
Head Start program on September 3, 1992. AAF (Cost
Disallowances, Tab 12) at 1396. Mr. Reyes' contacts with
the Regional program were limited to contacts with Ms.
Mendoza to answer questions, contact with on-site
reviewers to the Regional program who were reviewing a
period inclusive of when Mr. Reyes had run both the
Regional and Migrant programs, and some very limited
presentations to HELP's Board which encompassed both the
Regional and Migrant programs (and were done in order to
limit the number of persons who would have to travel from
Las Cruces to Albuquerque.) See generally Tr. II at
1182-1186. Mr. Reyes stated that he did not have
responsibility for the school-age child care program.
Moreover, Mr. Reyes stated that while he did have
responsibility for the Institute for Children, Youth, and
Family Studies, this program was a training and research
arm of Migrant Head Start and was chargeable to the
Migrant Head Start grant. Tr. II at 1366- 1367.
To the extent that Mr. Reyes had contact with the other
programs, his testimony indicated that his time spent
with such programs was minimal and that he put in many
overtime hours serving HELP's migrant program on a
regular basis. We found Mr. Reyes generally to be a
credible witness, and do not find it determinative that
some of the staff still believed him to be associated
with the regional program, since he had previously
performed both roles. We find it curious that ACF would
urge us to rely on HELP's promotional brochures and
position descriptions rather than on Mr. Reyes' testimony
when, with reference to other disallowed items, ACF
argued that written documents contemplating what an
employee or consultant is expected to do are unreliable
as to what an employee or consultant actually did. Thus,
absent any evidence to the contrary, we conclude that Mr.
Reyes functioned and was properly paid as the Director of
the Migrant Head Start program.
For the above reasons, we reverse ACF's disallowance of
$81,890 for the Migrant Head Start Director's salary.
11. Literacy Program
HELP requested and was awarded $7,447 ($2,447 in 1993 and
$5,000 in 1994) for consulting services to operate a
literacy training program for parents of Migrant Head
Start children. According to ACF, there was no
documentation showing that these funds were spent on a
literacy program, and it was not certain to what use the
funds were put. ACF alleged that this violated the basic
cost principles of OMB A-122, att. A, sec. A. See
Disallowance Letter at 11.
In response, HELP submitted copies of the following three
signed contracts for literacy consulting services:
m a contract entered into with C.V. on June 7, 1993
for a fixed fee of $5,000;
m a contract entered into with S.W. on July 1, 1994
for a fixed fee of $5,000; and
m a contract entered into with V.D. on August 1, 1994
for a fixed fee of $2,500.
AAF (Cost Disallowances, Tab 13) at 1397-1405. Each of
these documents contained an attached list of services to
be provided by the consultants. Two of these contracts
specifically stated that payment will be made upon
receipt of invoices. 25/ Id. at 1397, 1399.
Following the oral argument and at the request of the
Board, HELP provided the Board with a copy of a payment
voucher for program year 1993 covering services provided
by consultant V.D., a copy of an invoice signed by V.D.,
and a copy of a check dated August 31, 1993 made payable
to V.D. The voucher, the invoice, and the check were
each for the amount of $2,500. See HELP submission of
July 8, 1996. In addition, HELP provided the Board with
a July 17, 1996 letter from HELP's independent accountant
stating that the Migrant program paid consultant V.D.
$1,250 and consultant S.W. $2,500 for literacy services
provided during the period July through December 1994.
See HELP submission of July 17, 1996.
A reliable invoice has been produced for the 1993 program
year, along with a payment voucher and a copy of a check
made payable to one of the listed literacy program
consultants. Since HELP was given $2,447 for budget year
1993 and since HELP paid a literacy consultant $2,500 for
services for the 1993 program year, we find that HELP has
met its burden of showing that it spent the money it was
awarded for literacy services in 1993 on such services.
We likewise find that HELP has met its burden of documen-
tation with regard to literacy services provided during
program year 1994. The July 17, 1996 statement signed by
HELP's independent certified public accountant indicates
that a total of $3,750 was paid by HELP's Migrant Head
Start program to two consultants for literacy program
seminars provided during the second half of calendar year
1994. The accountant gave the dates of the checks and
the check numbers. We conclude that HELP spent $3,750 of
the $5,000 it was awarded on literacy services for 1994.
The disallowance letter was unclear as to whether the
funding for literacy services was specifically
appropriated (and therefore mandated) for those services
or whether the funds were simply a line-item in HELP's
budget. 26/ If the funds were not awarded to HELP
with any restrictions, then HELP had some flexibility
under the OHDS/DGAM to reprogram the $1,250 in 1994
literacy program funds which it did not spend on literacy
services to other budget categories or to request
permission to carry over the excess funds to the
following program year. OHDS/DGAM, chapter 1, § L(3).
There is no requirement that a grantee spend the full
amount in its budget for a specific item or service if,
for example, it can obtain the item or service for less
money than it expected when it developed its budget.
With regard to HELP, we note that according to its
financial status report (SF-269) submitted to ACF, it did
not spend the full amount of its financial award in 1994.
See HELP submission of August 14, 1996. Thus, the
$1,250 which HELP did not spend on its literacy services
in 1994 could have been accounted for in its unobligated
balance for that year.
For the above reasons, we reverse ACF's disallowance of
$7,447 for literacy services. However, if ACF determines
that the $5,000 it sought to disallow for literacy
services for 1994 was restricted and could only be used
for literacy services, if that restriction was clearly
communicated to HELP, and if HELP nevertheless spent the
$1,250 for other purposes, then ACF is not barred from
bringing a disallowance limited to the amount of $1,250
for this item.
12. Conclusion on Disallowance
For the above reasons, we uphold $58,965 and reverse
$581,923 of the disallowance.
II. The Termination Proceeding
Pursuant to 42 U.S.C. § 9841 and the Head Start
regulations at 45 C.F.R. §§ 1303.14(c)(2) and 1303.16(a),
a full and fair hearing must be afforded to a Head Start
grantee before its grant is terminated. The Head Start
regulations at 45 C.F.R. § 1303.16 set forth procedures
for the conduct of a hearing. To the extent not
inconsistent with these procedures, the hearing
procedures of the DAB at 45 C.F.R. Part 16 also govern.
See 45 C.F.R. § 1303.14(c)(2).
The regulations list nine grounds for which a Head Start
grantee may be terminated from the program.
Specifically, a grantee may be terminated when the
grantee --
(1) is no longer financially viable;
(2) has lost the requisite legal status or permits;
(3) has failed to comply with the required fiscal or
program reporting requirements;
(4) has failed to meet the performance standards for
operation of Head Start programs;
(5) has violated enrollment or eligibility rules;
(6) has failed to comply with the Head Start grants
administration requirements;
(7) has failed to comply with the requirements of the
Head Start Act;
(8) has been debarred from receiving federal funds; or
(9) has failed to abide by other terms and conditions of
its award of financial assistance, or any other
applicable laws, regulations, or other Federal or
State requirements or policies.
45 C.F.R. §§ 1303.14(b). Regulations which are
applicable to all HHS grant awards, including Head Start
grants, state that an agency of HHS may terminate for
cause when "a grantee has materially failed to comply
with the terms of a grant." 45 C.F.R. §§ 74.4, 74.113;
see also 45 C.F.R. § 74.115. ACF is seeking to terminate
HELP's Head Start program here based on grounds which
fall under above paragraphs 4, 5, 6 and 9 and which ACF
asserts amount to a material breach of Head Start
requirements. HELP Br., att. 1, at 6.
ACF must establish a prima facie case that HELP did not
meet the federal requirements to continue its program for
one or more of the reasons listed at 45 C.F.R. §
1303.14(b). To establish a prima facie case, ACF must
set forth reasons for its decision which are legally
adequate to support the termination. Once ACF
establishes a prima facie case, HELP has the burden of
rebutting that evidence by providing evidence to show
that ACF's position is wrong and that the grantee did
meet Head Start requirements during the relevant period.
Rural Day Care Association of Northeastern North
Carolina, DAB No. 1489 (1994) at 7-8; Meriden Community
Action Agency, DAB No. 1501 (1994) at 6.
For policy reasons, the Head Start Act does not allow
grantees an unlimited amount of time to correct
deficiencies in meeting performance standards; otherwise
families would not receive the full benefits of the Head
Start program and grantees would not have an incentive to
improve their programs until termination or denial of
refunding proceedings were initiated. Meriden at 6.
HELP was notified in a November 1, 1991 report of
deficiencies which were found to exist in its program
during an August 1991 on-site visit; HELP received a
written report on December 27, 1994 identifying
deficiencies found to exist during the August 1994 on-
site visit. See, generally, RAF Tabs 1-28, at 1-758.
Thus, we have determined that the relevant time period
for this matter is the period reviewed in the August 1991
on-site visit through the August 1994 on-site review.
Below we discuss each of the findings of non-compliance
on which the proposed termination is based, along with
our conclusions as to each item. During this appeal
process, HELP produced documents and supporting testimony
which, if credible and reliable, showed that HELP's
compliance with the performance standards was
significantly better than the reviewers found. In
response, ACF argued that nearly all of HELP's witnesses
were not credible. We found HELP's witnesses, as well as
the majority of ACF's, to be sincere and capable people
with a desire to serve children and to provide the best
services available. Notwithstanding ACF's allegations,
we found all of HELP's witnesses to be honest and
credible.
A. Financial Management System
Following the 1994 on-site visit, ACF concluded that HELP
violated the regulatory standard measured by On-Site
Program Review Instrument (OSPRI) Item 218, which
requires that --
[t]here is a financial management system that
ensures budget management, maintains control over
current operations, and provides timely, accurate,
current and complete disclosure of financial
matters.
See also 45 C.F.R. Part 74, Subpart H. 27/ ACF's
financial reviewer, Barbara Ricketts, reached this
conclusion by examining HELP's financial records in its
home offices in Albuquerque and consulting other review
team members, including some who visited HELP's Migrant
Head Start headquarters and facilities in Las Cruces and
other locations. Tr. I at 380, 388-391. Specifically,
she found that accounting records were supported by
source documentation, but that HELP failed to post
accounts payable and indirect costs for the period April
through July 1994. She also found a violation of the
requirement that there be a clear separation of duties
with regard to financial operations in that one person
had the authority to authorize transactions, sign checks,
and reconcile bank accounts. In addition, she concluded
that HELP had not reconciled financial records and
individual cost elements to the cost categories in its
projects budget or used budgetary controls to prevent
overexpenditures in excess of the grant award, the object
classes, or the program account. Finally, she concluded
that HELP failed to ensure that expenses charged to Head
Start were properly allocable to Head Start.
HELP argued that ACF's determination on this matter,
which was based in substantial part on the cost
disallowances discussed above, should be overturned if
the majority of the cost disallowances were overturned.
HELP Br. at 46. We do not agree with HELP that such a
reversal automatically warrants a finding of compliance
with this OSPRI item. However, in reviewing the
testimony of the financial reviewer on this item, we find
that many of her conclusions on HELP's compliance with
financial requirements were indeed based on disallowed
items that we have found unsubstantiated or on reports of
other OSPRI team members that she may have misunderstood.
We find her conclusions on most other items to be
unsupported as well.
In connection with her review of whether transactions
were being posted in the accounting records in a
consistent and timely manner, Ms. Ricketts found during
her August 1994 visit that accounts payable and indirect
costs had not been posted for the period April through
July 1994. HELP attributed this delay to ACF's failure
to approve HELP's funding, which expired March 30, 1994,
until July 13, 1994. HELP Br. at 46-47. Ms. Ricketts
noted that HELP was also behind in posting in 1993, and
HELP responded that refunding that year was also delayed,
until July 8, 1993. Ms. Ricketts stated during cross
examination that HELP was not allowed to draw down funds
to pay its payables until its funding had been approved
and agreed that it also would not be prudent to post its
indirect costs until funding had been received. We
discuss below the parties' ongoing dispute about who was
to blame for HELP's late funding, but, as it applies
here, this would seem to explain the late posting of some
items. Consequently, we find that the late posting does
not support a finding that HELP's financial management
system was materially out of compliance with regulatory
standards.
HELP admitted that it made changes in its separation of
accounting duties as a result of the suggestions of its
independent auditors, although these changes occurred
after the 1994 on-site visit. HELP Br. at 47; Oral
Argument Tr. at 262. Thus, HELP recognized that it did
not have the proper separation of accounting functions
within its structure; however, it argued that this
failing alone did not justify a non-compliance finding on
the entire OSPRI item. HELP Br. at 47. We therefore
conclude that HELP did fail to implement this one
internal control as part of its financial management
system. We discuss below whether this was indeed the
only failing of HELP's system.
With respect to her review of whether financial records
and individual cost elements used were reconciled to the
cost categories in the project's approved budget, Ms.
Ricketts wrote that there were "major variances." ACF
ex. 26, p. 713. When questioned, Ms. Ricketts identified
those major variances as "instances of positions not
being filled causing variances within the salary category
of the general ledger. Also, equipment that had been
purchased had not been prior authorized." Tr. I at 345.
Specifically, she was referring to her understanding
that a Social Services Coordinator position had been
approved but not filled, and that a computer system had
been purchased without prior approval. Id. She could
not recall any other variances. Tr. I at 404. Ms.
Ricketts therefore was apparently basing her opinion on
whether the position was filled on the disallowance item,
which we have overturned, and on the $1,538 computer
system purchased without prior approval, for which HELP
is seeking retroactive approval. HELP conceded that
unforeseen events such as unusually severe weather had
caused it to exceed its budget for some consumables.
(See OHDS/DGAM, ch. 1, § L.3, which allows grantees
certain budget flexibility.) That admission coupled with
Ms. Ricketts' findings on this subitem are not sufficient
support to conclude that HELP had "major variances"
between its budgeted and actual expenditures. Moreover,
ACF did not refute HELP's assertion that it was extremely
hard to have adherence with a Migrant Head Start program
budget and that to expect such adherence was inconsistent
with the budget flexibility discretion accorded to
grantees and ACF's policy of being more lenient with
regard to Migrant program grantees. HELP Br. at 48, n.5.
Consequently, we conclude that these issues were not
significant enough to find HELP's financial management
system unsound.
We find a similar problem with Ms. Ricketts' finding
concerning whether "[b]udgetary controls are in place to
preclude incurring obligations in excess of total funds
available for (1) grant, (2) object class category,
and (3) program account." Ms. Ricketts testified that
her recommendation that this be found out of compliance
was "[b]ased on the fact that there had been significant
deficits incurred in a prior year's grant period. . . . I
believe it was around $130,000." Tr. I at 346. This is
a clear reference to the alleged overexpenditure
disallowance item that we have already found
unsubstantiated. Consequently, we conclude that this
finding cannot serve as a basis for determining that
HELP's financial management system was unsound.
Finally, Ms. Ricketts testified that she based her
finding as to whether budgetary controls were in place to
assure that obligations incurred for the Head Start
program were allocable to the Head Start program on her
understanding that "[t]here were numerous instances of
staff that were performing duties for the regional
program as well as the Migrant Head Start program . . . .
There was also a situation with food costs where USDA-
related expenditures and revenues were not being properly
allocated." Tr. I at 406. Ms. Ricketts based her
assertion that migrant staff were performing duties for
the regional program on her understanding of other OSPRI
team members' interviews, however, and we have determined
above that the disallowance item based on this assertion,
the disallowance of the Migrant Head Start Director's
salary, was not supported by substantial evidence in the
record. As for the assertion concerning the USDA
expenditures, these funds were apparently provided to
HELP from USDA through the state and thus, strictly
speaking, were irrelevant to the subitem under
consideration, since the subitem refers to assuring that
Head Start funds are spent only for the Head Start
program. We note that there was testimony by the Migrant
Head Start Director that USDA required a single contact
for all USDA programs, which would explain the unified
accounting system but not necessarily assuage Ms.
Ricketts' concerns that food costs were being improperly
allocated to the two Head Start programs run by HELP.
Without further information, however, we do not rely on
this assertion as establishing that HELP's financial
management system was materially deficient.
Thus, while we do not find that HELP's fiscal management
practices were perfect in that it failed on one internal
control, we do not find that ACF's substantiated findings
on this item provide a sufficient basis for concluding
that HELP's financial management system did not meet
program standards. We therefore reverse ACF's findings
with regard to OSPRI Item 218.
B. Education Component
The Head Start regulations require that there be --
procedures for ongoing observation, recording, and
evaluation of each child's growth and development
for the purpose of planning activities to suit each
child's individual needs.
45 C.F.R. § 1304.2-2(d); OSPRI Item 16 (1994 and 1991).
At the on-site visit in 1994, ACF found that there was a
lack of individualized education plans for children at
four of the five centers, and that classroom plans did
not reflect activities designed to meet children's needs
individually and in small groups at one of the centers.
See RAF Tab 18, at 130. ACF found that the Denver II
screening tool was being used by HELP as the only
assessment tool, and ACF offered testimony that the
Denver II could properly be used as a screening tool but
was insufficient as an assessment tool. Tr. II at 446-
447; ACF Br. at 55. Thus, according to ACF, HELP did not
meet the requirement of assessing and evaluating each
child. ACF alleged problems with the updating of HELP's
observations of the children's progress. ACF Br. at 53.
ACF disagreed with HELP's position that it properly used
a technique known as portfolio assessment to evaluate the
development of the children, although ACF conceded that
proper use of portfolio assessment by a program would
fulfill the assessment requirement. ACF Br. at 58. ACF
argued that the observations recorded in the children's
files by HELP were insufficient in number and frequency,
there was no assessment of the children's progress from
those observations, and no relating of any assessment to
developmental plans for the children. ACF Br. at 64, 68-
69. ACF stated that the teachers who were interviewed
during the on-site visit, when asked about assessment of
the children, referred only to the Denver II and did not
mention portfolios or observations. 28/ ACF Br. at
58-59, 67-68. In the 1991 OSPRI, ACF found that HELP did
not comply with this standard for similar reasons,
although ACF subsequently found some progress had been
made since 1991. ACF Br. at 53-54.
HELP argued in response that it provided ACF with a copy
of the Denver II in support of future compliance with
this OSPRI item in a quality improvement plan following
the 1991 OSPRI, and that ACF never stated that the Denver
II was inadequate. HELP Br. at 50, n.47, citing RAF at
1064-1067. Moreover, HELP responded, it properly used
portfolio assessment to evaluate the children and
suggested that what was at dispute here is a matter of
opinion as to what constitutes adequate portfolio
assessment. HELP Br. at 50. HELP argued that the new
proposed regulations for Head Start support its position
that ongoing assessment consists of a collection of
observations. Oral Argument Tr. at 212. HELP stated
that the files did not reflect numerous instances of
updating for each child because, at the time of the 1994
on-site visit, the centers had been operating for only a
few weeks and all the children did not begin the program
at the same time. HELP Br. at 54. Finally, HELP argued,
ACF's reviewer did not understand the requirement for
individualization of activities in that she reviewed
files for evidence of work on identified problems rather
than determining if HELP properly observed the children.
HELP argued that the education component reviewer's
approach was proper only for addressing the special needs
of children with disabilities and that there was no
requirement for individualized education plans (IEPs) for
all children. HELP Br. at 55 and n.53.
The record reflects some confusion in the use of the
terms "individualizing" and "individualized education
plan." 29/ ACF's education component reviewer
described "individualizing" as "classroom plans designed
to meet children's needs individually and in small
groups." She then related that concept to her review of
HELP's classroom plans. Tr. I at 448. She stated that
she did not see evidence of individualizing in all of the
children's folders, and stated that the needs of children
who did not have individual goals and plans were not
being met. Tr. I at 449-450. Thus, the reviewer implied
that HELP was to have IEP's (or some similar type of
individualized plans) for all of its children regardless
of whether they had identified disabilities or special
needs. ACF also argued this in its brief, where it
stated that each child's plan (file) should reflect the
individualized activities done with each child. ACF Br.
at 73. However, at no time did ACF present testimony as
to what individualization of classroom plans meant.
We find that IEP's are not necessary for children who do
not have identified disabilities. On April 11, 1995, the
Academy for Educational Development, a Migrant Head Start
task force which provides training and technical
assistance to Migrant Head Start grantees, sent HELP's
Migrant Head Start Education Coordinator some articles
discussing the evaluation of children in Head Start. See
Tr. II at 537, 591. One of those articles, "Screening
and Assessment in Head Start," issued by the Head Start
Bureau in 1993 ("Screening and Assessment" article),
states:
If the multidisciplinary evaluation team determines
that a child meets eligibility criteria for a
disability and needs special education, an
Individualized Education Plan (IEP) must be
developed.
AAF (Education Training Doc., 5/8/95 Filing) at 1538
(emphasis added). Likewise, another of those articles,
"An Introduction to Developmental Screening in the
Education Component," also issued by the Head Start
Bureau in 1993 ("Developmental Screening" article),
states that --
[w]hen screening identifies children who are in need
of further evaluation or diagnostic testing, and the
subsequent results indicate that the child has a
disability, an Individualized Education Plan (IEP)
must be developed for that child.
AAF (Education Training Documentation, 5/8/95 Filing)
at 1540 (emphasis added). Given the above language, we
reverse ACF's conclusion that HELP did not meet program
standards because it did not have IEP's for each of its
enrolled children at four out of five centers.
The "Developmental Screening" article also gives insight
into the meaning of the term "individualizing:"
Although IEP's differ from individualizing
curricula, the underlying spirit is similar to the
principle of individualizing as it applies to each
child in Head Start. In both situations, everyday
activities are designed to strengthen all areas of
development: physical, emotional, social, and
intellectual, and classroom teachers and home
visitors should work at including every child in
day-to-day activities and experiences, as well as
implementing the IEP.
Id. at 1545. It appears from the above-quoted language
that individualizing curricula means simply to have daily
activities which are designed to strengthen each child's
skills and to ensure that all children are able to
participate in each of the classroom experiences as much
as possible. It is not clear from the record on what
basis ACF's reviewer concluded that HELP's classroom
plans did not show individualized plans at one of the
five centers.
The record contains an Activity Plan Guide prepared by
some of HELP's component coordinators consisting of
hundreds of classroom ideas for teachers to use to teach
various skills to infants, toddlers and pre-schoolers in
the areas of education, health and nutrition. AAF
(Education, Tab 1) at 1 et seq. While each of the
proposed classroom plans has an area marked
"Individualized" and a place for a few children's names,
all of these areas are blank on each plan. However, the
fact that there are no specific plans for individuali-
zation on these forms is reasonable given that these are
merely lesson plan ideas, and the Migrant Head Start
coordinators who developed these plans could not predict
which plans each center would use and what
individualizing might have to be done with particular
children at each center. Such individualizing decisions
would have to be made by the teachers who worked with the
particular children at each center, and there are some
activity plans contained in the record which do show that
individual modifications were made in doing group
activities. AAF (Education, Tab 4) at 321-325. Given
that ACF has not shown that HELP failed to have
educational plans designed to strengthen the children's
skills and to ensure that all children could participate
to the best of their ability, we do not find any merit to
ACF's finding with regard to the individualization of
activities.
There also appears to be much confusion within ACF (and
undoubtedly among Head Start grantees) in the use of the
terms "screening" and "assessment." At the hearing,
ACF's education component reviewer stated that a grantee
must comprehensively screen its children and, regardless
of the results of the screening, perform an assessment of
each child. Tr. I at 480-481. However, the Head Start
Bureau makes a distinction between "indepth assessment"
(which is required only for those children whose
screenings indicate specific problems) and "on-going
assessment" (required of all Head Start children). The
"Screening and Assessment" article states that --
[i]f the results from the child's comprehensive
screening indicate some difficulties, the child is
referred for a more indepth evaluation of the
problems or concerns that were flagged in the
screening process . . . . [T]his is labeled as
"indepth assessment."
* * *
If no need for followup is indicated at any step
in the process, the child then is assessed on an
ongoing basis throughout his or her experience at
Head Start. Ongoing assessment provides information
on the progress of the child and the family, how the
program can be planned to meet the individual needs
of the child and the family, and how best to
communicate those needs to the parents.
In conducting the ongoing assessment process,
teachers are strongly encouraged to use a
combination of checklists, teacher observations,
parent reports, and collections of work done by the
child.
AAF (Education Training Doc., 5/8/95 Filing) at 1538-
1539. 30/
Thus, we agree with HELP that the real dispute in this
matter is what constitutes adequate ongoing assessment
and whether HELP was sufficiently conducting such
assessment through the portfolio method or otherwise.
The regulations do not specify how ongoing assessment is
to be conducted and the articles above emphasize that a
grantee is to have considerable flexibility.
HELP provided the Board with a list entitled "Migrant
Classroom Documentation Education Forms," which lists
various forms which Head Start teachers and staff are to
fill out and place in the children's records. The forms
applicable to screening and assessment are to be used on
the following schedule:
m Child's Observations -- one observation per month
per child, as well as when the need arises.
m I.E.P.'s -- only when the need arises, i.e. when
staff can detect a child having difficulty doing
a specific task. 31/
m "Notitas de Orgullo" 32/ -- three of these
notes to parents per program year per child.
m Denver II -- within two weeks after the child
enters the program.
m Report of Contacts -- two educational home visits
per child per program year.
m Infant/Toddler Checklist -- filed in child's
file.
m Child's Activity -- three activities per program
year per child.
AAF (Education Training Doc., 5/8/95 Filing) at 1489.
Samples of each of these documents are scattered
throughout the record and particularly in HELP's exhibit
marked "Sample Files." AAF (Sample Files, 5/8/95 Filing)
at 1553 et seq. The majority of these documents are
dated prior to the 1994 on-site visit. In the sample
files, HELP has included the education files for several
of its children. It is clear from the forms listed
above, as demonstrated in the sample files, that HELP was
using each of the methods discussed in the "Screening and
Assessment" article: checklists, teacher observations,
parent reports (through notes of discussions with parents
during home visits), and collections of the children's
work. While HELP did not introduce the files for each of
its children, it introduced sufficient information
through its sample files to convince the Board that HELP
was doing an adequate job in observing its children. We
do not find it reasonable to ask HELP to reproduce files
for hundreds of children served in 1992-1994 when ACF has
given us no basis on which to believe that the sample
files were not representative or that HELP's witnesses
who testified to this matter were not credible.
Finally, we need not address ACF's contention that Mr.
Reyes is not an expert on screening and assessment
procedures and that ACF was not informed following the
1991 on-site visit that HELP was using "portfolio
assessment" in addition to the Denver II screening
instrument. It is clear that Mr. Reyes , who is pursuing
his Ph.D. in childhood education and who has been with
Head Start for more than 20 years, is at least as
qualified as ACF's education component reviewer, who has
a bachelor's degree and five years with Head Start, to
discuss evaluation methods. Tr. I at 443-444; Tr. II at
1167-68, 1177. Moreover, it does not matter that HELP's
teachers did not specifically mention portfolios or
observations during the on-site visit; it is clear that
they were meeting the OSPRI requirement, and there is
apparently some confusion even among ACF and its
reviewers as to the meaning of terms such as screening,
indepth assessment, and ongoing assessment.
For the above reasons, we reverse ACF's finding that HELP
was out of compliance with the regulatory requirements
measured by OSPRI Item 16.
C. Disabilities Component
The Head Start regulations require that --
at least 10 percent of the total number of
enrollment opportunities in each grantee and
delegate agency during an enrollment year [be] made
available to children with disabilities who meet the
definition of children with disabilities.
42 C.F.R. § 1305.6; OSPRI Item 153 (1994). The
regulations further require that resources to implement
the disabilities services plan be adequate. 45 C.F.R.
§ 1308.4(n-o); OSPRI Item 155 (1994).
The 1994 on-site reviewer found that the program had not
met the ten percent mandate for the two previous program
years (1993 and 1992). See Termination Letter at 3-4.
The reviewer found that only six of the 270 enrolled
slots for the previous year were filled with children
with disabilities, and that this enrollment figure was
indicative, though not conclusive, of whether the program
was making such slots available to disabled children.
ACF Br. at 81, citing Tr. I at 599. ACF found that there
was no evidence of specialized efforts to recruit
disabled children and that there was no specific tracking
of funds set aside to provide services to disabled
children. ACF Br. at 81-82, citing Tr. II at 120-121,
124-125. ACF stated that HELP's position that it would
never turn away a disabled child on account of the
disability was never an issue in this matter, and that
ACF's position was that it was the responsibility of a
Head Start grantee to actively recruit disabled children
rather than simply enrolling them once the families got
in touch with the program. ACF Br. at 82.
Based on staff interviews, the 1994 on-site reviewer
found that the staff at the centers responsible for the
recruitment of children were unfamiliar with the laws and
program requirements relating to serving persons with
disabilities, including the Americans with Disabilities
Act (ADA) and the Individuals with Disabilities Education
Act (IDEA). ACF Br. at 77-78, citing Tr. I at 488. She
found that the local center staff had not received
training concerning specific disabilities occurring among
children in their centers; her conclusion was purportedly
based on a lack of attendance records from any training
and on no specific recollection by the staff that they
attended any training. ACF Br. at 78-79, citing Tr. I at
520. ACF concluded that a lack of an adequately trained
staff regarding services for children with disabilities
meant that HELP did not have adequate resources to serve
disabled children. Moreover, ACF found, the staff
exhibited uncertainty as to what kinds of activities
should be done with disabled children. ACF provided
testimony that the inappropriate placement of one child
in the program reinforced its belief that HELP lacked
sufficient knowledge in the area of disabilities. Tr. I
at 601-604. Finally, ACF found that there was no
documented training of parents regarding disabilities
even among parents whose children were believed to have
disabilities. ACF Br. at 80.
In response, HELP emphasized that the standards do not
require that 10% of enrollment slots actually be filled
with children with disabilities but only that they be
made available to such children, a fact not disputed by
ACF. HELP Br. at 56. HELP argued that the fact HELP had
not, and would not have, turned away disabled children
from enrollment in the program was evidence that at least
10% of its enrollment opportunities were available to
children with disabilities, particularly in the years at
issue when HELP was significantly underenrolled and thus
had plenty of room for additional children with or
without disabilities. HELP Br. at 57, citing Tr. II at
1069. HELP stated that it actively recruited children
with disabilities by "posting posters, placing public
services announcements, and obtaining referrals from
schools and governmental agencies;" HELP noted that ACF's
Migrant Head Start Branch Chief admitted that he saw one
of HELP's disabilities recruitment fliers. HELP Br. at
59, citing Tr. II at 400.
With regard to the adequacy of resources, HELP argued
that its staffing levels met state law requirements, that
it could supplement staff with temporary employees,
volunteers or parents, and that it would not be
reasonable for it to hire staff to handle children with
disabilities if such children were not, in fact,
enrolled. HELP Br. at 61. HELP noted that its
Disabilities Coordinator testified that she conducted
disabilities training sessions for all staff at the pre-
recruitment and pre-service training, and that ACF never
indicated or proved that separate sign-in sheets for such
training were necessary. HELP Br. at 62. HELP stated
that staff were trained in the requirements of the ADA,
the IDEA, and the requirements of state child care
regulations for serving persons with disabilities. HELP
argued that ACF's evidence on a lack of training of
parents on disabilities was weak. HELP Br. at 64. HELP
stated that it provided appropriate treatment to the one
child about whom ACF's reviewer raised questions. ACF
Br. at 60, n.58, citing Tr. II at 1036-1037.
As ACF conceded, the requirement that a program make 10%
of its enrollment positions available to children with
disabilities does not require that a grantee actually
ensure that 10% of its enrollment in any given year
consist of children with disabilities. Tr. II at 927-
928. In some years, it might not be possible to enroll
10% of a program with children with disabilities because
of a dearth of such children while, in other years, it
may be that a program can accommodate more than 10%.
HELP introduced a copy of its enrollment plan listing its
priorities for enrolling children. See AAF
(Disabilities, Tab 2) at 1331. The plan contemplates
that a disabled under-income child is the highest
priority for enrollment, and is enrolled ahead of other
under-income children. Likewise, a disabled over-income
child is enrolled ahead of other over-income children.
Thus, we conclude that HELP was aware of its
responsibility to serve children with disabilities and
would do so to the extent such children were available to
be enrolled. Moreover, we agree with HELP that it had at
least 10% of its slots available to serve disabled
children in each of the relevant program years where it
was underenrolled by at least 10% in each of those years.
Moreover, HELP introduced some records of children with
disabilities enrolled during the 1994 program year.
Those children included one with asthma, three with
speech impairments, one with Down's Syndrome, one with a
hearing impairment, and one with a combination of speech,
behavioral, and nutritional (weight) problems. AAF
(Disabilities, Tabs E-K) at 2608-2903. These documents
show the extensive efforts of HELP to diagnose and
provide services to these seven children. Thus, we
conclude that HELP was making reasonable efforts to
diagnose and assist children with disabilities.
A central charge of ACF is that HELP did not make
sufficient efforts to recruit children with disabilities.
We do not agree. HELP's Disabilities Coordinator
testified to the extensive efforts she made to recruit
children with disabilities, and the record contains
evidence of these efforts. These efforts included
contacting local and state agencies which serve children
with disabilities and asking for referrals of children
who might be eligible. Tr. II at 765-769. She also
testified that HELP put out public service announcements
and recruitment fliers which solicited the enrollment of
children with disabilities. We found this witness to be
quite credible. Moreover, ACF's Head Start Migrant
Programs Branch Chief testified that he had seen at least
one recruitment flier seeking the enrollment of disabled
children. Tr. II at 400.
The record contains a copy of HELP's 1994 recruitment
plan and copies of 1994 fliers, public service
announcements, posters, and notices. The recruitment
plan specifically contains references to developing
posters targeted to the enrollment of disabled children,
distributing information specifically to agencies which
serve children with disabilities, and training
recruitment staff to recruit disabled children. AAF
(Social Services, Tab 1) at 590-593. For example, a copy
of a June 8, 1994 letter addressed to the public service
departments of newspapers, radio stations, and cable
companies states that --
[t]he Migrant Head Start program will also accept
Migrant children with disabilities. Over income
migrant children with disabilities are considered.
AAF (Social Services, Tab 2) at 598. A copy of a letter
sent to agencies serving disabled children specifically
states --
[t]he Head Start Performance Standards mandate that
the Migrant Head Start Programs actively recruit and
serve children with disabilities. Having identified
your program as an organization that works with
special needs children, we are asking for your
assistance in helping us locate and serve migrant
children with disabilities.
AAF (Social Services, Tab 3) at 601. There are also
examples of recruitment fliers and newspaper articles in
the record; each of these sources contains references to
the enrollment of children with disabilities. AAF
(Social Services, Tabs 7-8) at 625-628. Based on the
above factors, we find that HELP made more than
sufficient efforts to recruit children with disabilities.
ACF also found that HELP did not adequately train staff
in specific disabilities. Again, we find this charge to
be without merit. The record contains copies of the
Migrant Head Start program's pre-service training agenda
schedules for 1991, 1992, 1993, and 1994. The record
also contains an in-service training agenda for July 11,
1994. See ACF Hearing Ex. 4. Each of these programs
provided some training in a combination of the following
relating to disabilities: the disabilities component
generally, identifying and using disabilities resources,
meeting special needs of and handling children with
disabilities, behavior disorders and differences
(including attention deficit hyperactive disorder and
learning disabilities), AIDs, child abuse reporting,
identifying children exposed to drug and alcohol abuse,
and helping crack-addicted children. With regard to the
1994 pre-service training, HELP introduced a detailed
agenda for the disabilities training. AAF (Disabilities,
Tab 1) at 1325-1326. The 1994 pre-service training
agenda contemplates that all staff will attend the
disabilities training. Thus, we do not find it
determinative that HELP did not have an individual sign-
in sheet for the pre-service disabilities training
session, as ACF's witness alleged was required. See Tr.
I at 521-522. While ACF's witness implied that HELP
should have had individual sign-in sheets for each of its
17 sessions throughout the week (each ranging between 45
minutes and several hours in length), ACF has pointed to
no source for such an unduly burdensome requirement.
Moreover, HELP provided testimony that if an employee
missed part of the mandatory pre-service training, the
Lead Teacher was responsible for ensuring that the
employee received the necessary training. Tr. II at
1071-1072.
While the ADA and the IDEA are not mentioned in the
training agenda, HELP's witnesses testified that HELP's
staff are trained in the requirements of the ADA and the
IDEA. Tr. II at 1074-1075, 1048. Copies of some
resource materials discussing the requirements of the ADA
and the IDEA, dated September 1992 and 1991,
respectively, are in the record, and HELP's Disabilities
Coordinator testified that these materials were used for
staff recruitment training and pre-service training. AAF
(Disabilities, 5/8/95 Filing, Tabs A-B) at 2553-2582; Tr.
II at 1074-1077. Thus, it is not significant under this
OSPRI item that the center staff in charge of recruitment
purportedly did not recognize usage of the terms "ADA"
and "IDEA" and what each law individually provided for,
as long as the staff was aware of the requirements for
serving disabled children. Tr. I at 488. HELP's
Disabilities Coordinator testified that she trained the
staff one-on-one, depending on the particular
disabilities identified at the various centers. Tr. II
at 1061. ACF has not convinced us that the staff was
unaware of the requirements for serving children with
disabilities.
With regard to the alleged inappropriate placement of one
child with disabilities, we do not find ACF's evidence
reliable. 33/ Moreover, HELP's Disabilities
Coordinator explained why the child was placed where he
was. Tr. II at 1066-1067. If ACF believed this
placement was inappropriate, it should have had an expert
testify; ACF's charge appears to be based on mere
speculation made by a non-expert who neither observed nor
assessed the child. Tr. II at 1067-1068.
Finally, with regard to training parents in disabilities,
HELP's Migrant Program Disabilities Coordinator stated
that HELP teaches parents whose children have
disabilities both individually and at monthly parent
meetings at each center. She stated that disabilities
information is available to the parents, and that the
pre-service and in-service training is open to them. Tr.
II at 1060. We find this training to be sufficient to
meet the standard, particularly given the limited
availability of Migrant parents to actively participate
in the program due to their work schedules.
For the reasons stated above, we reverse ACF's findings
with regard to HELP's compliance with the standards
measured by OSPRI Items 153 and 155.
D. Mental Health Component
The Head Start regulations provide that mental health
services shall include the active involvement of parents
in planning and implementing services to meet the
individual mental health needs of their children. 45
C.F.R. § 1304.3-8(b)(8); OSPRI Item 88 (1994) and OSPRI
Item 84 (1991). The 1994 on-site reviewer for mental
health found that parents were not in any way involved
with the mental health needs of their children. RAF Tab
20, at 330. ACF's reviewer testified that she based this
finding on interviews with staff members and parents; ACF
argued that HELP's Mental Health Consultant testified
only that she had contact with parents concerning mental
health needs at group meetings. ACF Br. at 93, citing
Tr. II at 1206-1209. The 1991 OSPRI found no written
documentation that the mental health component was
actively involving all of the parents, and suggested that
mental health awareness might decrease parental anxieties
concerning their children. RAF Tab 12, at 61.
HELP responded that, according to the testimony of its
Mental Health Coordinator, parents are asked to meet with
HELP's mental health consultants and staff once a child's
mental health needs are determined, and parents are
actively involved in the planning and implementation of
the mental health program. HELP Br. at 66-67. HELP
argued that the on-site reviewer did not interview key
staff such as the Mental Health Coordinator or
consultants regarding HELP's compliance with the mental
health component, and that the reviewer's questioning of
other staff was vague and misleading. 34/ HELP Br. at
68-69. HELP stated that its parents are also involved in
mental health planning through approval of the mental
health component by the Policy Council. HELP Br. at 66.
Moreover, HELP argued, ACF unfairly based its findings on
interviews with only two parents, whose children did not
have special mental health needs. HELP Br. at 68. HELP
argued that ACF failed to review the education and social
services components of the children's files which would
have indicated parental involvement in the mental health
needs of their children. HELP Br. at 70.
The conclusion of ACF's on-site reviewer that HELP had no
involvement of parents in the mental health program was
critically flawed because she reached this conclusion
without interviewing the Mental Health Coordinator or
either of the two mental health consultants. HELP's
Mental Health Coordinator testified that he traveled to
the various centers with the on-site review team and
introduced the members of the team to the staff at the
centers. Tr. II at 506. Clearly, the OSPRI team had
numerous opportunities to ask questions of him.
Moreover, one of the two mental health consultants, who
testified at the hearing, stated that her office is close
to HELP's office and that she and HELP's Mental Health
Coordinator speak on the phone whenever they have
concerns they need to discuss. Tr. II at 1214-1215.
ACF's on-site reviewer never testified that she attempted
to contact this mental health consultant but was unable
to reach her. We do not find that interviewing only two
parents and one staff member, none of whom were
specifically involved in the mental health program,
provides a reliable basis for drawing conclusions on this
matter. For these reasons, we find that the on-site
reviewer for this component did not undertake a thorough
review, and thus we find her to be less than credible on
the involvement of HELP's parents in the mental health
program.
HELP's Mental Health Coordinator testified specifically
as to the involvement of parents in the mental health
needs of the children. He testified that HELP retained
two mental health consultants. Tr. II at 561. The first
of these consultants was involved primarily in holding
meetings and training sessions with the parents to
discuss subjects such as the home environment and
discipline, or other subjects which the parents wished to
discuss. Id. at 562-563. He stated that staff are not
permitted to attend these sessions and that the parents
can, and reportedly do, ask very individualized questions
at these sessions about handling their children. Id. at
563. The subjects discussed at these meetings are based
on informal surveys of the parents and teachers about
what topics should be discussed with the parents. Tr. II
at 1210.
The second consultant was involved primarily in visiting
the centers and observing the children. Often she was
consulted about, and requested to observe, children who
were having particular problems in the classroom, and she
would meet with staff and parents individually in an
attempt to solve those problems. While this consultant
did not testify at the hearing, her role in working with
the staff, children and parents to identify and solve
problems was established by both HELP's Mental Health
Coordinator and the other mental health consultant, who
were sequestered during the testimony and were unable to
hear each other's statements. Tr. II at 505, 576, and
1205. The second consultant, who was the business
partner of the consultant who testified, worked
specifically with the parents in terms of obtaining
permission to work with their children, consulting and
"connecting" with them, soliciting information from them
about their children, and generally coordinating with
them. Tr. II at 1207-1208.
A review of HELP's sample files provides specific
examples of HELP having contacts with parents regarding
the mental health needs of their children. For example,
with regard to the first child in the sample files, there
is an assessment of the child's behavior, behavior at
play, and attitude. The comments section states that the
child adjusted well to the center and the teachers, which
is confirmed in a note to the parents in Spanish dated
July 20, 1994. AAF (Sample Files) at 1591, 1600. With
regard to the second child in the sample files, there is
a notation of a mental health observation notice to
parents and several notes to parents in Spanish
addressing the child's increasing ability to communicate.
Id. at 1640, 1669, 1079-1080. With regard to the sample
files of the third child, there is a mental health
evaluation which discusses the child's shyness, good
attitude, but total lack of communication and possible
need for speech therapy. Id. at 1885. The files reflect
many contacts with parents regarding obtaining speech
therapy for the child. E.g., id. at 1856, 1860, 1862,
1752-1753,
For the reasons discussed above, we reverse ACF's
findings with regard to OSPRI Item 88.
E. Parent Involvement
The Head Start regulations require that every Head Start
program must have effective parent participation in the
process of making decisions about the program. 45 C.F.R.
§ 1304.5-2(a) and Appendix B, I-30-2B. OSPRI Item 137
contains a checklist of items for a reviewer to examine
in determining whether a Head Start agency is effectively
involving parents. The list contains the following
requirements:
I. The Policy Council minutes for the last 12 months
should indicate that --
A) parents from all the program options are
represented;
B) training is provided for all policy groups;
C) the Policy Council members had input into
the budget prior to the meeting in which
final approval was considered;
D) the Policy Council approved or disapproved
all hiring and firing decisions prior to
action on them;
E) the Policy Council annually reviewed and
approved component plans, personnel policies
and recruitment plans;
F) the Policy Council was trained in and
actively participated in program self-
assessment; and
G) the Policy Council was presented with
periodic financial reports and statements of
funds expended for Head Start.
II. In addition, the program must show that --
H) the Policy Council has approved a written
complaint procedure for community or
parental concerns about Head Start;
I) no Policy Council member has served more
than three years total; and
J) there are approved by-laws reflecting the
current structure and operations of the
program.
On the sheet expressing the on-site reviewer's overall
findings with regard to this component, sections C
through H and J (corresponding to the letters above) of
the 1994 OSPRI were marked out of compliance. RAF Tab
25, at 650. The reviewer found that there was no input
of parents into the budget process and no training of the
parents in that process. ACF Br. at 97-98. ACF argued
that HELP's assertions that it provided parent training
in budget issues, despite the fact HELP offered some
training agendas into evidence, is undermined by the fact
that there was no documentation indicating that training
was actually provided, and none of HELP's witnesses
described the actual training received. ACF Br. at 98-
99. ACF found that there was no evidence that the Policy
Council was involved in hiring and firing decisions prior
to such decisions being implemented, and argued that
blanket pre-approvals for hiring staff are insufficient
to meet the requirements measured by OSPRI Item 137. ACF
Br. at 101-103. ACF argued against HELP's position --
that filling new positions with existing staff did not
require Policy Council approval -- on the grounds that
HELP might be filling particular positions with persons
who were not qualified to fill them. ACF Br. at 103-104.
ACF found that HELP had no annual reviews and approval
of component plans, personnel policies, or recruitment
plans at least prior to the ending of the program year
and prior to the 1994 on-site visit. ACF Br. at 104-105.
ACF found a lack of parental training in self-assessment
of the program, a failure to provide periodic financial
reports and statements of funds to the Policy Council, a
lack of a written complaint procedure for parents and
persons in the community, and no annual Policy Council
approval of bylaws that reflected the current structure
and operations of the program. ACF Br. at 105-110.
In response, HELP commented that the 1994 on-site
reviewer for the parent involvement component did not
properly fill out the OSPRI form and only spoke with one
member of the Policy Council prior to reaching her
conclusions. HELP Br. at 73. HELP stated that the
reviewer testified that HELP's Policy Council had
approved a 1993 budget, contradicting the OSPRI finding
to the contrary, and that she testified inconsistently
regarding parent participation in approval of hiring and
firing decisions. HELP Br. at 74. HELP referred to the
testimony of its Parent Involvement Coordinator, which
emphasized steps HELP was taking to encourage maximum
parental participation: holding Policy Council meetings
on Sundays; surveying parents as to their interests;
providing food at meetings as an incentive for
attendance; and providing information to parents on
topics such as child abuse, child development, nutrition,
and budgeting. HELP Br. at 75, citing Tr. II at 825-828,
832, 834. HELP acknowledged that the Policy Council gave
HELP the power to rehire employees who left in good
standing, and stated that there was not much turnover of
staff and therefore very few new hires each year. HELP
stated that its Parent Involvement Coordinator testified
to specific examples in the Policy Council minutes where
parents were informed of and encouraged to participate in
interviewing applicants for a new Lead Teacher position
at one center. HELP Br. at 76-77. HELP asserted that it
provided effective parent participation by having its
Policy Council involved in hiring decisions; by offering
educational activities in budget concepts; and by having
parents involved in mental health issues, nutrition,
health fairs, conducting self-assessments, approving
bylaws, and reviewing financial reports. HELP Br. at 77.
ACF's on-site reviewer for this component did not mark
her findings with regard to three out of five of HELP's
individual migrant centers. ACF argued that a failure to
properly fill out the OSPRI was a matter only of internal
concern within ACF. ACF Br. at 95. However, we do not
agree where the failure may indicate that the on-site
reviewer did not review three of the five centers for
each of the parent involvement requirements. The
reviewer's notes do not reflect that she specifically
reviewed all five centers. See RAF Tab 46, at 975-981.
Thus, we did not find her testimony or her findings to be
particularly thorough or reliable.
HELP's Parent Involvement Coordinator, Rita Morales,
testified at length concerning the efforts HELP has made,
particularly since the 1991 on-site visit, to perform all
the activities required by the parent involvement
regulations and index, as listed in OSPRI Item 137. With
regard to educating the parents in the budget process,
Ms. Morales testified that parents are educated about
budgeting through videotaped presentations. Tr. II at
832. Starting in July of each year and continuing
through subsequent monthly meetings, the Policy Council
is trained in the Head Start budgeting process and has
input into the budget which is being developed. Tr. II
at 839, 841, 854, and 901-902. Final approval of the
budget occurs in November or December of each year,
according to HELP's implementation of a timetable which
was supplied to HELP by the 1991 on-site reviewer for
parent involvement. Tr. II at 895-896 and 907-908. In
addition, financial reports and information are provided
at each Policy Council meeting. Tr. II at 913.
Ms. Morales' testimony is substantiated by documents in
the record. The documents show that the Policy Council
approved the tentative 1994 budget (pending receipt of
further materials from ACF) at a November 21, 1993
meeting. AAF (Policy Council Minutes, Vol. II) at 3089.
That budget was also discussed at an October 3, 1993
meeting, at which time Mr. Reyes instructed the Policy
Council on how to develop a budget. AAF (Policy Council
Minutes, Vol. II) at 3137, 3159. The following year, the
record reflects that training on the budget occurred at
the July 24, 1994 Policy Council meeting. Id. at 3033.
A copy of the budget training agenda is attached to the
minutes of that meeting. Id. at 3060. At the following
meeting on August 14, 1994, the Policy Council discussed
the role of in-kind contributions on the budget and ways
to give Migrant programs more funding. Id. at 3005-3006.
Financial reports for 1994 were reviewed by the Policy
Council at June 19, 1994 and August 26, 1994 meetings.
Id. at 2934; AAF (Parent Involvement) at 988. Based on
these documents and the testimony discussed above, we
find that HELP met the requirements embodied in OSPRI
Item 137(C) and (G) for training and soliciting the input
of parents into the budget process and presenting
financial reports on the fiscal condition of the program.
Ms. Morales testified extensively regarding the role of
parents in hiring and firing employees. She testified
that the Policy Council meets monthly and consists of
migrant parents who often do not have telephones in their
homes, so that they could not be consulted more
frequently. Because employees must often be hired
between meetings to fill vacancies which could not or
should not remain unfilled, they are hired on a
conditional basis until their employment is approved by
the Policy Council. Tr. II at 837-838, 902-903. The
Policy Council is also asked to approve or disapprove new
hires when it meets for the first time in June. Tr. II
at 910, 1582-1583. Ms. Morales testified that she had
permission from the Policy Council to dismiss immediately
any teacher who was mistreating a child in any manner, to
rehire employees who left in good standing (in accordance
with HELP's personnel policies), to fill vacancies which
could not wait until the next Policy Council meeting on a
conditional basis, and to hire employees where parental
input was reasonably sought but could not be obtained
because of the parents' work schedules. Tr. II at 837-
838, 849; cf. AAF (Policy Council Minutes, Vol. II) at
2953, 3065.
The Policy Council minutes reflect that parents did
regularly approve new hires at their meetings. E.g., AAF
(Policy Council Minutes, Vol. II) at 2934-2935, 2953,
3065, 3138, 3164. The record also reflects many
instances of individual parents being involved in
interviewing and selecting persons to fill positions.
E.g., AAF (Policy Council Minutes, Vol. II) at 2934-2935,
3064-3065, 3090, 3164; Tr. II at 862-863, 910. We find
it quite reasonable that HELP acted to fill vacancies
which could not wait until the next Policy Council
meeting, but hired the new employees on the condition
that they subsequently be approved by the Policy Council.
Given the conditional status of their hiring, these new
hires were not full employees of HELP until they were
approved by the Policy Council. Given the unique
circumstances of the migrant population, we do not see
how HELP could have dealt any more reasonably with the
need to fill vacancies which could or should not wait.
Moreover, while ACF argued that a Policy Council should
also be required to approve employees who switch
positions within the Migrant Head Start program, the
language of the regulation states only that "new hires"
must receive Policy Council approval and consequently,
HELP had no prior notice of this interpretation.
For the above reasons, we find that HELP did not fail to
involve parents in hiring decisions prior to implementing
them, and we find that HELP met the requirements of OSPRI
Item 137(D). 35/
With regard to annual approval of component plans, Ms.
Morales testified that the Policy Council spent a whole
day reviewing and approving the plans on October 24,
1993. Tr. II at 847, 978. That testimony is supported
by the record. AAF (Policy Council Minutes, Vol. II) at
3122-3123. The role of the Policy Council in reviewing
component plans was explained to the Policy Council at a
previous meeting. Id. at 3165. The following year, the
component plans were reviewed and approved on various
dates, beginning in June. Id. at 2934, 3034, 3067; AAF
(Parent Involvement) at 991. With regard to the
personnel policies, Ms. Morales stated that there was no
guidance on how often the personnel policies must be
reviewed but that it was HELP's practice to have the
Policy Council review them annually. Tr. II at 911. The
record reflects that the personnel policies were approved
on August 30, 1992 and August 29, 1993. HELP's 10/12/95
submission, Tab C, at 8-9 (unnumbered); AAF (Parent
Involvement) at 983. Portions of the personnel rules
relating to the firing process were again approved on
June 19, 1994. AAF (Parent Involvement) at 989. With
regard to the recruitment plan, Ms. Morales stated that
the recruitment plan was approved annually as part of the
social services component. Tr. II at 911. Moreover, the
record reflects that recruitment plans were specifically
discussed by the Policy Council on August 14, 1994 and at
times after the relevant time period at issue here. AAF
(Policy Council Minutes, Vol. II) at 2823, 2955. Based
on this testimony and documentation, we do not agree that
HELP failed to do annual reviews of component plans,
personnel policies, and recruitment plans, and we reverse
ACF's findings with regard to OSPRI Item 137(E).
Ms. Morales testified further that HELP performed an
annual self-assessment. While she stated that the self-
assessment for 1994 was not done as of the time of the
on-site visit because the centers had opened late that
year, she must have been mistaken. See Tr. II at 912.
The minutes of the August 14, 1994 Policy Council meeting
reflect that the results of a recent in-house OSPRI were
discussed. AAF (Policy Council Minutes, Vol. II) at
3008. Though the pages are difficult to read, it appears
that some parents participated in an in-house OSPRI at
the Anthony and Deming Centers in July 1994. AAF (Parent
Involvement) at 998-1001. The July 24, 1994 meeting
minutes state that the self-evaluation was completed.
AAF (Policy Council Minutes, Vol. II) at 3034. Ms.
Morales testified that training of the Policy Council in
the self-evaluation process usually starts in July, but
that the parents who do the self-evaluation at the
centers are usually not the same parents who are on the
Policy Council and so the training is often not helpful.
Tr. II at 840, 896, 903, 912. Ms. Morales testified
that she uses a training agenda for the in-house OSPRI
which she received at a Head Start parent training
conference. Tr. II at 975.
HELP's Policy Council minutes do not specifically reflect
that HELP provided training to parents in performing a
self-assessment; thus, HELP did not meet the requirement
that a grantee's Policy Council minutes reflect that it
provided such training. However, the sub-items of OSPRI
Item 137 are designed to ensure that parents are actively
participating in the Head Start program. Here, it is
clear that parents were trained and participating in
conducting a self-assessment, despite the severe
restrictions on their time because of work schedules. We
find that HELP did not materially violate the underlying
provisions of the parent participation regulations found
in 45 C.F.R. Part 1304, Subpart E and in Appendix B where
this one sub-item requiring references to training in the
Policy Council minutes was out of compliance.
Ms. Morales testified that HELP's Migrant Head Start
program contains a grievance procedure which is explained
to parents when their children are enrolled in the
program. Tr. II at 913-914. The record reflects that
grievance procedures were approved by the Policy Council
on July 18, 1993 and again on August 14, 1994. AAF
(Policy Council Minutes, Vol. II) at 3005, 3172.
However, the grievance forms attached to the minutes of
these two meetings are very narrow in scope; they appear
to apply only to discrimination in hiring and enrollment.
Elsewhere in the record, there is another copy of the
July 18, 1993 minutes with a copy of a different
grievance form attached. AAF (Parent Involvement) at
1005, 1009. This form is captioned "Personnel Rules and
Regulations" and has a place for an employee's supervisor
to sign and date it. Thus, it is designed for internal
rather than external complaints. There does not appear
to be a general grievance form for parental and community
complaints against the program unless the complaints are
limited to complaints about the failure to enroll, or
otherwise treat equitably, a child or family. However,
one parent testified that she speaks with the teachers on
a daily basis and lets them know if she has any problems.
Tr. I at 1059. She also stated that when she has a
complaint, she (as well as other parents) go straight to
the Migrant Head Start Director, Mr. Reyes. Tr. I at
1079. Thus, while we find that HELP failed to have an
approved general grievance procedure for parents and
community members which has been approved by the Policy
Council, we find that parents were not discouraged from
bringing complaints notwithstanding the lack of a formal
grievance process. Nonetheless, we agree that HELP did
not fully meet the standards of OSPRI Item 137(H). While
this is a violation of the requirement contained in
Appendix B to Part 1304, Chart B, Item II(d), we do not
find it to be sufficient to mark OSPRI Item 137 out of
compliance in its entirety because it is only one of ten
indicators included in this OSPRI item.
Finally, with regard to the approval of bylaws which
reflect the current structure and operation of HELP's
Migrant Program, OSPRI Item 137(J) does not specify what
bylaws a program must have. However, HELP's Parent
Policy Council Bylaws as well as the Parent Center
Committee Bylaws were adopted on July 18, 1993 after some
changes were made to both from their 1992 versions. AAF
(Policy Council Minutes, Vol. II) at 3170. The Parent
Policy Committee Bylaws were again adopted by the Policy
Council on July 24, 1994, after being reviewed at the
previous meeting. Id. at 3033, 3064. ACF has not argued
that either of these sets of bylaws does not accurately
reflect the structure of HELP's program. Copies of both
sets of bylaws are in the record. Id. at 3074-3079,
3080-3085. Thus, we find that HELP complied with OSPRI
Item 137(J).
For the above reasons, we reverse ACF's overall findings
with regard to OSPRI Item 137 and find that HELP complied
with the requirements of this section. See Lake County
at 50 (while grantee's performance in this area could be
improved, it was essentially in compliance with OSPRI
Item 137 where it sought to involve parents in the
program through various methods).
F. Administrative Component
1. OSPRI Item 181
Head Start regulations require that each program have a
comprehensive community needs assessment (CNA) completed
every three years, with annual updating, and that the
program be able to describe how the CNA data was used in
program planning and decision-making. 45 C.F.R. §
1305.3(b) and (d); OSPRI Item 181 (1994).
ACF asserted that HELP did not perform or update a CNA
for 1994, and that the one ACF reviewed during the 1994
on-site visit was for 1992-93. ACF Br. at 114. The 1994
on-site reviewer found that the CNA did not adequately
assess certain factors which were required to be
contained in a CNA. These factors included the
approximate number of children in the service area, the
ethnic composition of the families, the number of
disabled children within the community, and other
services available in the community to Head Start-
eligible children. ACF Br. at 111. ACF found that,
although HELP's CNA did contain an estimated number of
disabled children, HELP derived this number by applying a
random figure of 10% based on the federal mandate of 10%.
ACF Br. at 116. ACF argued that HELP's assertion in its
CNA that there were no other programs serving Migrant
Head Start-eligible children was inconsistent with the
on-site reviewer's experience and with HELP's own
community resource book. ACF Br. at 112-113. ACF
questioned the validity of the CNA as a whole given that
it allegedly misstated that HELP would "continue to serve
404 children," which exceeded HELP's licensed capacity
and the number of children actually enrolled during
recent years. ACF Br. at 115, 117.
In response, HELP disputed ACF's authority to now
question a CNA which was attached to HELP's grant
application and was never rejected or brought to the
attention of HELP as being deficient. HELP Br. at 78-79,
n.80. HELP argued that, while it did not perform a
complete CNA in 1994, it was only required to (and did)
update its previous CNA since a complete CNA is only
required every three years. HELP Br. at 79, n.82. HELP
pointed to the testimony of Mr. Reyes, who stated that
HELP does consider the ethnic background of the
community's children in conducting the CNA, and asserted
that the estimated number of eligible children is clearly
stated in its CNA. HELP Br. at 79-80.
HELP also disputed the OSPRI finding that HELP was not
the only program providing child care services to migrant
families in the communities where its centers are
located. HELP stated that the other two programs
mentioned in its resource directory were not reliable
sources of assistance because they either charged the
families for services or were dependent on public funding
which had not been forthcoming. Moreover, HELP charged,
the on-site reviewer (who was from the State of
Washington) did not cite to any other programs serving
migrant children in New Mexico of which he had knowledge.
HELP Br. at 81-82. HELP stated that it reasonably
relied on the federal mandate of a minimum of 10%
enrollment opportunities for disabled children in
assuming that if the community had an estimated 1,236
migrant children, 123 of them would have disabilities.
HELP Br. at 83. HELP asserted that its CNA addresses
community resources available to migrant families, but
listed them in a separate community resources document
attached to the CNA. HELP Br. at 83-84.
Both parties agree that the CNA which the 1994 on-site
reviewer examined was for the 1992-93 year. Under the
regulations, a CNA must be done once every three years,
with annual updating. Thus, a 1992-93 CNA is valid for
the time period at issue here, which ended with the
August 1994 on-site visit. Moreover, HELP submitted a
copy of what appears to be a 1994 CNA update. Although
it is undated, it cites to 1993 findings and was
submitted in March 1995, prior to the time period in
which an updated CNA for 1995 would likely have been
prepared. See AAF (Administration, Tab 2) at 1017-1020.
We do not find that HELP conceded that it did not update
its CNA during 1994, as alleged by ACF, and HELP appears
to have in fact updated it.
HELP also submitted a copy of its 1992-93 CNA. See AAF
(HELP, Inc., 5/22/95 submission, Tab D) at 3367-3383. We
do not find that that CNA was lacking all of the required
information which ACF found missing. The CNA does state
that, at the time of the CNA, there are (approximately)
3,815 migrant children in New Mexico, of whom 1,236 are
under the age of five years. The CNA also states that
"[n]early 99 percent of Migrant children in New Mexico
are hispanic . . . ." Id. at 3375. Thus, we do not
agree that HELP's CNA failed to address the number or
ethnicity of migrant children and their families in its
service areas.
The one piece of information which we do agree with ACF
is missing from the CNA is an accurate estimate of the
number of children with disabilities in the service area.
HELP's CNA simply states that --
Presently 40 children have been identified with
special needs during FY 1991-1992. Given that the
program serves 404 children and that of the 404
children enrolled, 10% were identified as children
with special needs, we are assuming that there is a
greater amount of children with special needs. As
indicated earlier there are 1,236 eligible migrant
children in New Mexico. Utilizing the federal 10%
mandate as a guide to determine numbers of children
with special needs, it is estimated that there are
approximately 123.6 migrant children with special
needs.
Id. at 3377.
It appears from this language that HELP assumed that
there were 123.6 children with disabilities in its
service area based solely on the federal mandate that 10%
of its enrollment opportunities be available to children
with disabilities. However, the CNA requirement does not
require that a program identify how many slots for
disabled children it would have to make available in
order to meet the 10% goal if it could serve all eligible
children in the community. The provision requires a
grantee to determine how many disabled children there are
in its particular service area. Many more or many fewer
than 10% of the eligible children in the service area
might have disabilities, and the purpose of the CNA is to
assess the unique needs of a grantee's particular
community.
HELP stated that it identified 40 out of 404 children en-
rolled during the 1991-92 program year who had
disabilities. Mr. Reyes testified that HELP simply
applied the 10% mandate to its total enrollment of 404 in
the CNA and assumed that 40 of its 1991-92 enrolled
children had disabilities. Tr. II at 1394-1395. We find
that HELP should have made a greater effort to identify
the actual number of disabled children in its service
area. However, we find that the absence of an accurate
estimate of the number of disabled children in its
service area was insufficient to mark the entire OSPRI
item out of compliance.
We further find that HELP's decision not to list, in its
CNA, programs designed to serve migrant families where
those programs either charged the families for services
or were unfunded in recent years was a reasonable
exercise of judgment. ACF has pointed to no guidelines
which would specifically instruct a grantee to include
programs which the grantee believed to be effectively
unavailable to the families served. The fact that HELP
chose to list these services in its community resource
directory but not in its CNA is not critical.
Moreover, we are not concerned with HELP's statement in
its CNA update that HELP would "continue to serve 404
children." While this statement is technically
incorrect, it is quite possible that the CNA language was
based on HELP's projected enrollment. In any case, we do
not find the misstatement to be significant where ACF was
clearly aware of HELP's ongoing underenrollment.
For the reasons stated above, we reverse ACF's finding
with regard to OSPRI Item 181.
2. OSPRI Item 187
Head Start regulations require that there be written
procedures which include an ongoing monitoring process
that assures program objectives are completed in a timely
manner. 45 C.F.R. part 74, subpart J; OSPRI Item 187
(1994).
While the 1994 reviewers found a written monitoring
process, they alleged that they found no documentation
verifying that the written procedures were actually
implemented. RAF Tab 28, at 747. According to ACF,
written documentation such as periodic reports showing
actual implementation is referenced by the standard as
material which should exist and be reviewed. ACF Br.
at 118. ACF found that, from interviewing staff, no one
could provide attendance information or other information
which would indicate that regular monitoring was being
done. Id.
In response, HELP asserted that it did implement a
monitoring process and that evidence of that
implementation is found in Appellant's Hearing Exhibit 7.
HELP argued that this document shows that at several
times throughout program year 1994, HELP's Education
Coordinator monitored progress and data on children at
one of HELP's centers. HELP Br. at 87. HELP argued that
this document was representative of the monitoring which
HELP did at all five of its centers and in each component
area, and that each component area had a control summary
sheet providing the information which the on-site
reviewer was looking for. HELP stated that counsel for
ACF refused HELP's offer to provide documents indicating
implementation of HELP's monitoring process at each of
the five centers. HELP Br. at 88, n.91. HELP questioned
the ACF reviewer's testimony that, had HELP reported its
underenrollment to ACF, it would have been in compliance
with OSPRI Item 187, stating that reporting to ACF was
not covered by this item. HELP Br. at 89-90. HELP
asserted that it had submitted reliable documentary and
testimonial evidence of its compliance with this item.
HELP Br. at 91.
We find that HELP's Migrant Head Start program adequately
monitored its centers. HELP introduced copies of reports
of monitoring by its Migrant Head Start Education
Coordinator at one of its five centers between June and
November 1994. HELP's Hearing Ex. 7. With the exception
of October 1994 (a period of time not relevant here),
this monitoring occurred on a monthly basis. The
monitoring reports contain individual pages for the
infant, toddler and pre-school classrooms and indicate
what information needed to be obtained or action taken to
bring each child's file up-to-date. The reports note
instances where the following information is missing from
a particular child's file or where there are insufficient
instances of particular activities: home visits, class
activities, IEP follow-ups, Denver II screenings,
classroom observations, and health and behavior
observations. In addition, the monitoring reports note
where there are materials which need to be labeled, where
children's artwork needs to be displayed, and generally
where other improvements can be made. HELP's Migrant
Head Start Director testified regarding these reports
during the hearing. Tr. II at 1303-1307.
ACF complained that the 1994 monitoring only provided
evidence of monitoring at one center and only in one
component area. At the hearing, HELP offered evidence
regarding its monitoring at other centers and in other
component areas. ACF's counsel objected to the
production of additional volumes of documentation. The
record reflects that ACF's counsel, in lieu of having the
record flooded with additional voluminous documents,
agreed that HELP would introduce the records from the one
center as examples of the monitoring it did at each
center and that HELP's witnesses would testify that these
records were representative of the monitoring done at all
of the centers. Tr. II at 1299-1300. Thus, ACF cannot
complain now that HELP did not submit monitoring
documents with regard to each of its centers. Moreover,
in addition to the 1994 monitoring reports, HELP also
introduced some 1992 monitoring reports covering several
component areas at each of its centers. HELP's
submission of 10/12/95, Tab A.
We find the monitoring documents which HELP submitted to
be exactly of the type which OSPRI Item 187 calls for.
They are based on a thorough review of each child's file,
as well as observations by HELP's Education Coordinator
of the general practices at the center. HELP's Migrant
Head Start Director testified as to the general procedure
for setting up and conducting monitoring visits by the
component coordinators, how the coordinators work in
teams and assist one another, and how they report back at
weekly coordinator meetings. Tr. II at 1292-1293.
Moreover, several of HELP's component coordinators
testified to the monitoring they do at each center. For
example, HELP's Health Coordinator testified that he
helps each of the centers set-up for the program year and
then, for the first two months, he did two monitoring
visits per month. After that, he did one monitoring
visit per month at each center. Tr. II at 546. HELP's
Parent Involvement Coordinator testified that she visited
each center "at least once a month, if not more" for the
purpose of monitoring. Tr. II at 764. Thus, we conclude
that HELP's component coordinators were appropriately
monitoring the five Migrant Head Start centers.
For the above reasons, we reverse ACF's findings with
regard to OSPRI Item 187.
3. OSPRI Item 196
A Migrant Head Start program must maintain a system of
files and records for each staff member related to that
staff member's qualifications for appointment or
promotion, periodic pay increases, continued training or
education, performance evaluations, and any adverse
actions taken against such employee. 45 C.F.R. § 1301.31
and Appendix A; OSPRI Item 196 (1994).
The 1994 on-site reviewers found most of the required
personnel file data missing. RAF Tab 28, at 754.
According to ACF's Migrant Head Start Branch Chief,
employees had multiple job descriptions in their files,
their files were not complete, and some did not have
performance evaluations. Tr. II at 128. ACF argued that
HELP's explanation that there were no performance
evaluations in the files because evaluations were not
done until the end of the year was not reasonable given
that the on-site reviewers did not find evaluations in
the files for the previous year. ACF Br. at 121-122.
ACF asserted that the multiple job descriptions suggested
that HELP's personnel might be performing job functions
for which they were not hired or qualified and that
HELP's Migrant Head Start Director had conceded as much.
ACF Br. at 122-123, citing Tr. II at 1321. ACF argued
that HELP's failure to produce complete personnel files
during this proceeding was evidence that such files did
not exist. ACF Br. at 125.
HELP argued in response that ACF never made clear the
basis for the 1994 OSPRI conclusions with regard to this
standard nor disclosed which files were reviewed. Oral
Argument Tr. at 223. HELP stated that its Migrant Head
Start Director testified that HELP maintained criminal
checks, tuberculosis (TB) testing records, and other
employee information at the employee's center location,
and that it kept information on reference checks,
qualifications, wage information, training, performance
evaluations, criminal checks and TB testing at its Las
Cruces office. Thus, HELP suggested, it is likely that
the on-site reviewers did not find all of the information
they were looking for because they did not look in these
locations. HELP Br. at 93-94. HELP pointed to evidence
in the record which suggested ACF reviewed employee files
which contained some of the information required by the
standard. HELP Br. at 94-95, citing RAF Tab 28, at 74.
HELP disputed ACF's finding that HELP waived appropriate
qualifications for personnel in some instances as not
being encompassed by this standard, and HELP asserted
that updating files to reflect new position descriptions
could not be given the highest priority due to the
ongoing process of "divorcing" HELP's Regional and
Migrant Head Start programs. HELP Br. at 95-96.
HELP has never stated that it had personnel files for the
relevant time period for each of its employees containing
all of the required information. At most, HELP has
pointed to a few sample personnel files in the record,
stating that they were examples of HELP's "substantial
compliance" with the requirements for these files. HELP
submitted some blank personnel forms which indicate that
HELP was aware that certain information needed to be
obtained, yet there is no evidence that such forms were
completed in the regular course of business. We do not
find it to be significant that ACF allegedly did not
identify which personnel files it reviewed or that HELP
may have kept substantial portions of its files in Las
Cruces and ACF only reviewed files in Albuquerque: HELP
could have produced sample completed personnel files for
1994 employees that were in existence as of the OSPRI
review, as well as performance evaluations for 1993
employees, during one of HELP's many opportunities to
submit documents throughout these proceedings. (As
previously noted, there was not much turnover from year
to year.) We agree with ACF that the fact that HELP did
not produce such documents indicates it is likely that
they do not exist.
We do not believe that whether HELP was using its
personnel to fill positions for which they were not
qualified is covered by this OSPRI item. Nonetheless,
HELP should not be excused from having accurate job
descriptions of the positions currently held by each
employee in its files on the grounds that the Migrant and
Regional programs were divorced in 1992; sufficient time
has passed that the administrative burden of separating
the programs no longer provides a valid basis for not
meeting requirements of the program. 36/
For the above reasons, we uphold ACF's findings with
regard to OSPRI Item 196.
G. Social Services/Enrollment Component
The Head Start regulations provide that there shall be
ongoing procedures for the recruitment of children into
the Head Start program, taking into account the
demographic make-up of the community and the needs of the
children and families. There shall also be procedures
for the recruitment of children with disabilities. 45
C.F.R. § 1304.4-2(a)(1-2); OSPRI Items 119(E) and (H)
(1994). A Head Start program is required to maintain a
waiting list which ranks children according to the
program's selection criteria to ensure that eligible
children enter the program as vacancies occur. A program
is to have clearly-established criteria for the selection
of children. 45 C.F.R. § 1305.6(d); OSPRI Item 174
(1994).
The 1994 reviewers found that there was no waiting list
of eligible children and that the program never reached
full funded enrollment for the 1994 year. ACF Br. at
126, citing Tr. I at 803-805 and 809. The 1994 reviewers
found that only 174 children were enrolled in the program
in 1994 even though the program was funded for 404
children. 37/ ACF Br. at 149. The 1994 reviewers
also questioned whether some of the children enrolled in
the program, who were counted in the number of children
served, were in fact eligible for Migrant Head Start;
thus, ACF argued that HELP's underenrollment of migrant
children was greater than the enrollment numbers alone
would reflect. ACF Br. at 127, 129. Moreover, ACF
argued, in some cases HELP knowingly enrolled ineligible
children, ignoring certain eligibility requirements of
the program relating to income sources and the definition
of migrancy. ACF Br. at 131-132.
In response, HELP conceded that it did not maintain a
waiting list at the time of the 1994 OSPRI, but argued
that it did not have to do so under 45 C.F.R. § 1305.5(c)
(1994 OSPRI Item 172). HELP argued that an underenrolled
program could not have a waiting list and that ACF's
reviewer agreed with that position. HELP Br. at 100.
HELP accused ACF of improperly trying to inject into the
case the new issue of whether HELP met its full funded
enrollment for the 1994 program year. HELP stated that
it was inconsistent for ACF to accuse it of not meeting
full funded enrollment for 1994 when the on-site visit,
which established the ending time period for the issues
before us, occurred prior to the end of the program year.
HELP Br. at 117. HELP explained that there were valid
reasons why it did not reach full funded enrollment in
1994. These reasons included extreme weather conditions
causing crop failures (thus resulting in fewer families
migrating into the area), and delayed center openings
caused by late funding of several months from ACF. HELP
Br. at 118. HELP argued that it had a history of
receiving late funding from the Migrant programs branch,
that other Migrant programs had had the same problem, and
that late funding without initiating a denial of
refunding or termination proceeding is a violation of the
Head Start Act. HELP Br. at 119, citing North Shore
Community Action Programs, Inc. v. Shalala, Civ. Action
No. 93-1834 (D.D.C. October 10, 1993). Moreover, HELP
argued, ACF should have followed its policy of reducing
funding prospectively in the case of underenrollment.
HELP Br. at 118, n.126.
With regard to selection criteria, HELP asserted that it
had such criteria, and that ACF agreed that the only
issue was with regard to whether the criteria were
implemented. HELP argued that the testimony indicated
that HELP did implement a process for intake of migrants
and review of their eligibility. HELP Br. at 102, citing
Tr. II at 804, 818-819. HELP argued that the eligibility
criteria for the Migrant Head Start program were
ambiguous, that the Chief of the Migrant Head Start
Branch did not fully understand them, and that HELP's
eligibility determinations fell within a reasonable
interpretation of those ambiguous criteria.
1. Recruitment System and Criteria
We agree with HELP that it had a recruitment system, and
that that system ranked children according to certain
criteria. The system for recruiting children is well
established in the record, where there is a recruitment
plan and copies of fliers, posters, and public service
announcements used for recruitment. AAF (Social
Services, Tabs 1, 2) at 588-595, 598-599. There are also
lists of media contacts and an extensive list of
locations where posters were displayed for the 1994
program year. Id., (Tabs 2, 5, 6) at 596-597, 610-611,
613-624. Ms. Morales testified to the extensive efforts
which HELP makes to recruit children, including visiting
the fields where migrant families work, leafletting
vehicles at migrant worksites, visiting houses and
barracks where migrant families have previously lived,
and looking for signs of migrant families (such as out-
of-state license plates and agricultural tools in front
yards). She stated that if the program was not fully
enrolled, HELP would constantly send recruitment teams
out to see if posters were still up and to see if public
service announcements could be run again. Tr. II at 765-
766. We find this recruitment system to be quite
extensive, and that it more than fulfills the requirement
that a grantee have a system for the recruitment of
children. 38/
Moreover, HELP has a system for prioritizing children for
enrollment which is also contained in the record. AAF
(Social Services, Tab 4) at 608. The system consists of
assigning points based on a family's income and whether
the child to be enrolled has disabilities. Thus, we also
find that HELP met the basic requirement that it have a
system in place to rank children for enrollment according
to set criteria.
2. Waiting Lists
HELP conceded that it had no waiting lists, but provided
testimony that it did not have any need for a waiting
list because the program was underenrolled in 1994 at the
time of the on-site visit. Tr. II at 917. ACF's Migrant
Programs Branch Chief agreed that an underenrolled
program would not have a waiting list. Tr. II at 403.
Thus, the parties appear to agree that the real issues
relate to the number of enrolled children in the program
and whether the enrollment numbers were inflated by the
enrollment of ineligible families.
3. Enrollment and Late Funding
There is no doubt that HELP's Migrant Head Start program
was underenrolled throughout the relevant time period.
While HELP was funded to serve 404 migrant children, its
enrollment had dropped to an all-time low of 200+ by
1994. 39/ HELP attributed the underenrollment in 1994
primarily to two factors: 1) there were fewer migrant
families migrating into New Mexico that year due to an
extended heatwave which reduced the volume of crops to be
harvested; and 2) HELP's migrant program did not receive
its approval for funding until July 13, 1994 even though
its program year was to begin on April 1, 1994; thus, its
centers were unable to open until July and many of the
migrant families who passed through the area early that
summer were not able to be enrolled in the program. HELP
Br. at 118-119.
There was conflicting testimony in the record as to how
funded enrollment must be calculated. ACF's Migrant
Programs Branch Chief, Mr. Fuentes, initially stated that
a program would meet full enrollment if it served the
total number of children it was funded to serve over the
course of the migrant season. Tr. II at 378. Consistent
with that testimony, Mr. Fuentes later testified that
funded enrollment is "the number of children that move
through sub-slots" over the course of a program year and
"the number of warm toasty bodies that [the grantee]
touch[es] during the year for any length of time." Tr.
II at 479-480. However, at another point in his
testimony, Mr. Fuentes stated that a Migrant Head Start
program would have to meet its full funded enrollment
level on a particular day (i.e., at some point in its
peak season) in order to comply with the requirement that
a grantee maintain its funded enrollment levels. Tr. II
at 379-380, citing 45 C.F.R. § 1305.7. ACF argued that
HELP's facilities were not licensed to accommodate 404
children at one time. 40/ ACF argued that, regardless
of how the regulation is interpreted, HELP still fell
seriously short of its funded enrollment. Oral Argument
at 41. However, Mr. Fuentes conceded that it was "an
understood ground rule" of the Migrant Programs Branch to
give migrant grantees more latitude in meeting funded
enrollment than Regional Head Start programs, and that
the "vast majority" of Migrant programs have trouble
meeting funded enrollment levels. Tr. II at 380-381,
383.
Mr. Reyes stated that he understood that ACF would want a
Migrant Head Start grantee to reach its funded capacity
at some point during its peak season, but that that
wasn't always possible because of a number of factors
unique to migrant programs. Tr. II at 1425. HELP argued
in favor of interpreting funded enrollment to allow a
program to serve the total number of children over the
course of the season rather than at one particular point
in time.
There was testimony in the record that there was a
heatwave in New Mexico during the summer of 1994 and that
that heatwave may have had a direct impact on the number
of families migrating into New Mexico. Tr. II at 1340,
1359. There was also testimony that many families from
Texas who normally migrated into the area did not come
during 1994, resulting in fewer migrant children
available to be enrolled. Tr. II at 273. Ms. Morales
testified that she believed that there were overall fewer
families migrating into New Mexico by 1994. Tr. II
at 917. There was conflicting testimony about whether
there were generally fewer migrant families in the
country than previously: Mr. Fuentes stated that he did
not believe that the migrant population had decreased
over the past decade, but conceded that "it depends on
who you talk to." Tr. II at 381-382. A report issued by
the Office of the Inspector General, which was based on
interviews with Migrant Head Start grantees who
represented a total of 28% of migrant families served,
expressed concern that there might be fewer families
generally who meet the definition of migrant because of
the changing nature of migrant work. AAF (Miscellaneous,
Tab 1) at 1424.
HELP also blamed the 1994 underenrollment in large part
on late funding approval (of 3-1/2 months) from ACF.
HELP did not receive its funding for 1994 until July 13
even though HELP's Migrant program centers usually begin
operating on approximately May 15 of each year and its
program year begins on April 1. AAF (Administration,
Tab 3) at 1021. Likewise, in 1993, HELP did not receive
its funding approval until July 8. The funding was also
late in 1992 and 1991. HELP provided testimony at the
hearing that many Migrant Head Start programs are not
funded on time, which led HELP and two other migrant
programs to complain to ACF about the management of the
Migrant Programs Branch. 41/
The instances of late funding are not disputed by ACF.
However, ACF asserted that the funding was late because
HELP did not submit an approvable application for
refunding, which ACF needed in order to fund the
program. 42/ ACF Br. at 175. According to ACF, the
1994 application was deficient because it did not have
Policy Council approval, lacked authorized signatures,
and had illegible pages and inexplicable changes. ACF
also argued that HELP received its funding at
approximately the same time every year (albeit well after
the start of its program year) and that the delays did
not result in the loss of any funds; thus, it should not
have had any impact on enrollment. ACF Br. at 177.
According to ACF, HELP never informed ACF that it was
having to curtail activities because it had not yet
received funding, and HELP stated when asked by ACF
during the funding process that it was running its
program as usual. 43/ Id. Moreover, ACF alleged,
HELP should have had excess funds because of its
substantial underenrollment. Oral Argument Tr. at 83.
ACF conceded that it could have issued the funding on
April 1 subject to "special conditions." Tr. II at 190-
191.
There is very little evidence in the record which would
firmly establish whose "fault" it was that HELP was not
being funded on time. There is very little documentation
which would indicate which party, if either, was making a
good faith effort to resolve the matter. However, there
is sufficient evidence in the record suggesting that
ACF's Migrant Programs branch often did not fund programs
on time and that communication with the branch was
difficult. AAF (Miscellaneous, Tab 1) at 1425-1426;
Tr. II at 492. Mr. Fuentes conceded that if late funding
made it impossible for a grantee to comply with certain
program regulations, the late funding would be a factor
to consider in determining whether the grantee had an
acceptable excuse for failure to meet the regulatory
requirements. Tr. II at 489.
The fact of the late funding is undisputed, and we are
convinced that the late funding had an adverse effect on
HELP's ability to enroll sufficient numbers of migrant
children. Of course, given the probable decrease in the
number of migrant families in New Mexico, it is possible
that HELP would not have been able to reach full funded
enrollment anyway (although we note that late funding for
HELP began in 1991, which was the first year HELP did not
meet its full enrollment.)
The real issue is whether HELP was making its best
efforts to recruit and enroll eligible children and
whether it was a good steward of the federal funds to
which it was entrusted. HELP cannot enroll migrant
children who simply are not there. It is not reasonable
to hold HELP in violation of its grant award because it
could not accurately predict how many eligible children
would move into the area in a given season or because it
could not predict when it would receive its funding from
ACF. ACF was in no better position to accurately predict
the number of children HELP would be able to serve, and
it kept funding HELP for 404 children each year even when
HELP did not enroll that many. We find that HELP's well-
documented recruitment efforts were more than reasonable
under the circumstances.
We do not agree with ACF that HELP's late funding should
have had no impact on HELP's ability to serve children.
The fact that HELP was able to keep its program running
at all without its grant award is a testament to the
resourcefulness of HELP and does not diminish the
difficulty of the situation. The fact that HELP chose
not to discuss in depth with ACF its means of continuing
its program is not material. Moreover, we are inclined
to believe that the late funding could not have been
wholly HELP's fault; the record suggests that Mr. Ortega
may have mortgaged his home to keep the program running,
a step which a reasonably prudent person would not take
unless he had exhausted all simpler and less risky means.
Tr. II at 394.
Finally, ACF argued that HELP should have had unobligated
funds at the end of each fiscal year because it served
significantly fewer children than it was funded for. ACF
claimed that HELP did not have unobligated funds but in
fact overspent its budget. The financial reports for
1993 and 1994, which we find to be credible, show
unobligated funds of $3,322 and $188,132, respectively.
AAF (HELP, Inc., 5/22/95 submission, Tab F) at 3391; HELP
submission of August 14, 1996. ACF has not produced any
evidence showing us that HELP misappropriated, misspent,
or otherwise wasted the federal dollars which it did
spend during these years (other than the funds for the
Deming Rainbow Center, for which we have affirmed a
disallowance elsewhere in this decision). 44/
Moreover, as noted by ACF in Item 2 of the disallowance,
it is a violation of applicable cost principles for HELP
to spend prior year's funds for current year expenditures
without ACF approval.
4. Eligibility
ACF alleged that HELP's enrollment figures were
overstated because HELP enrolled ineligible children.
ACF limits eligibility for Migrant Head Start to
families --
with children under the age of compulsory school
attendance who change their residence by moving from
one geographic location to another, either
intrastate or interstate, within the past 12 months,
for the purpose of engaging in agricultural work
that involves the production and harvesting of tree
and field crops and whose family income comes
primarily from this activity.
45 C.F.R. § 1305.2(l). Mr. Fuentes testified that it was
the Migrant Branch's position that in order for children
to be eligible for full-day Migrant Head Start services,
both parents had to be working in agriculture. He said
that this policy was discussed at meetings with Migrant
Head Start Directors and that it was the understanding of
most migrant grantees. However, he stated that there was
no opinion from HHS's Office of General Counsel
confirming that interpretation and that he would have to
search his office for documentation of that
interpretation. Tr. II at 231-232. The Board has never
been provided with such documentation.
HELP argued its position that a child was eligible for
services if 1) more than 50% of his or her family's
income came from agriculture (regardless of whether one
or both parents worked in agriculture), and 2) the family
had moved within the past 12 months for the purpose of
working in agriculture. See, generally, HELP Br. at 102-
104. HELP said that this position was based on a
reasonable interpretation of the regulation and that it
had no notice of any alternative interpretation. We
agree with HELP that it reasonably relied on this
interpretation.
ACF pointed out one instance in the record where it
appeared that HELP had enrolled the child of a family
that did not migrate and another instance where it
appeared that HELP had enrolled a child whose family
income came primarily from non-agriculture. See AAF
(Social Services, 5/8/95 Filing) at 2487-2489, 2503-2505.
However, Ms. Morales testified as to these two families
at the hearing. With regard to the first family, Ms.
Morales testified that the error was made by an intern
and that, while the family was enrolled, the child was
subsequently dropped when Ms. Morales reviewed the
application. Tr. II at 960. With regard to the second
family, Ms. Morales stated that a closer look at the
family's employment revealed that the work from which the
greater portion of the income derived was, in fact,
related to agriculture. Tr. II at 949. Ms. Morales also
emphasized that HELP requires documentation of employment
of the families of all migrant children enrolled in its
program. Tr. II at 983, 986.
5. Conclusion
For the above reasons, we reverse ACF's findings with
regard to OSPRI Items 119(E) and (H) and Item 174.
H. Health Component
1. OSPRI Item 58
The Head Start regulations require that where funding is
provided by non-Head Start sources there be written
documentation that such funds are used to the maximum
extent feasible. 45 C.F.R. § 1304.3-4(a)(1); OSPRI
Item 58 (1994). In 1994, the on-site reviewers were
unable to determine the source of payment for the
children's medical care (with the exception of some
Medicaid coupons) or to verify that non-Head Start funds
were used to pay for medical care before Head Start funds
were used. RAF Tab 22, at 440. In 1991, the reviewers
found that there was no evidence or documentation showing
that sources other than Head Start funds were being used
to provide health care to the children, except for one
brief reference in a child's file to a dental examination
paid for by Medicaid. There was no documentation showing
how a $10,000 medical grant from Johnson and Johnson
Company was used. RAF Tab 10, at 35.
ACF stated that while it did find some limited evidence
of the use of non-Head Start sources to pay for health
care, such documentation was inadequate and inconsistent.
ACF argued that there should be some sort of
documentation if free services were provided in the
community, and that the contracts with local health
clinics to provide services did not constitute
documentation of payment from non-Head Start sources.
ACF Br. at 136. In fact, according to ACF, while the
contracts did provide for reduced fees for services
provided to Head Start children, the provider contracts
contemplated that bills would be sent to Head Start
(rather than to Medicaid first, as HELP alleged.) ACF
Br. at 139. ACF argued that there was no merit to the
implication on the part of HELP that there was no
documentation because there were no other sources of
funding for medical care in that the record established
that Medicaid was available in at least some instances.
ACF Br. at 137. ACF also argued that, contrary to what
HELP implied, HELP never introduced any evidence showing
that the children could not have yet been given medical
services at the time of the on-site visit because they
had just arrived in the program or left a short time
after enrollment. Id. In response, HELP pointed to
testimony in the record of its Health Coordinator
indicating that HELP used other sources of payment to the
extent possible. 45/ HELP Br. at 105.
We find that HELP did make some efforts to comply with
the requirement that a grantee use other sources of
funding for health care to the extent feasible, but that
it did not fully meet the requirement outlined in this
OSPRI item. HELP's Health Coordinator testified that
when children are enrolled in the Migrant Head Start
program, they are asked if they are on Medicaid or if
they have any other funding sources to pay for health
care. If they state they are on Medicaid, HELP obtains a
copy of their Medicaid card and places it in the child's
file. If they are not on Medicaid, they are referred to
the Medicaid office. Tr. II at 540-541. We found this
testimony to be credible, and, moreover, the record
contains copies of some bills which were submitted to
Medicaid by La Clinica de Familia for services provided
to nine children enrolled in HELP's Migrant program. AAF
(Health, Tab 5) at 535-543. 46/
However, we have difficulty reconciling HELP's Health
Coordinator's testimony that the providers were required
to bill Medicaid first before billing HELP with the face
of the contracts between HELP and the two primary
provider clinics which served HELP's children. Each of
those contracts provided that --
[the provider] agrees to bill HELP'S CHILDREN'S
DIVISION within ten (10) working days of the date
services are rendered. [The provider] will submit a
statement of charges for each child seen. HELP
CHILDREN'S DIVISION agrees to pay for the above
charges for services within [30 or 60] days of
receipt of billing.
AAF (Health, Tab 3) at 513 and 515. Neither contract
specifically requires initially billing Medicaid or First
Health. On the other hand, we know that such billing was
occurring in at least some instances because some
Medicaid bills are in the record, as acknowledged by ACF.
Perhaps these were the only children who qualified for
Medicaid; however, it would have been helpful to have had
some documentation of those facts. Moreover, it would
have been helpful to have clauses in the contracts with
the providers requiring that Medicaid be billed first,
since presumably HELP would not have the authority to
seek payment from Medicaid as it was neither the provider
nor the recipient of the health care.
Thus, what we are left with is the assumption that either
HELP had an informal agreement with the providers to bill
Medicaid first, or the providers did so on an individual
(and perhaps inconsistent) basis. In either case, this
would not fulfill the requirement that HELP document that
it was using other sources of payment for health care
first.
For the above reasons, we uphold ACF's finding that HELP
did not meet the requirements of OSPRI Item 58.
2. OSPRI Item 70
Head Start regulations provide that employed program
staff must have initial health examinations and periodic
check-ups as follows:
The plan shall provide, also, in accordance with
local and state health regulations that employed
program staff have initial health examinations,
periodic check-ups, and are found to be free from
communicable disease.
45 C.F.R. § 1304.3-3(d); OSPRI Item 70 (1994).
The 1994 on-site reviewer found no evidence of initial
examinations or periodic check-ups in the personnel
files. RAF Tab 22, at 446. ACF argued that the standard
requires the examinations and check-ups in accordance
with federal law even if they are not required by state
and local law, and that to read this protective provision
any other way would unduly weaken it by allowing programs
to not perform the examinations. ACF Br. at 143. ACF
argued that, although its Region VI office has taken a
different interpretation of this standard, the standard
should be interpreted in a manner consistent with the
view of the central office of ACF, which was communicated
to HELP in the 1991 OSPRI findings. ACF Br. at 143-144.
Moreover, ACF argued, HELP agreed to conduct the
examinations following the 1991 OSPRI and was obligated
to do so if it continued to accept Head Start funds. ACF
Br. at 145.
HELP argued in response that the regulation is worded in
such a way that grantees are directed to follow their
state and local laws regarding staff health examinations.
Given that there were no state or local requirements for
these examinations in New Mexico or in the localities
where HELP's centers are located, HELP did not require
them. HELP stated that ACF's Region VI office has taken
the position that health examinations and check-ups are
not required unless required by state or local law, and
that HELP, which also runs a Regional Head Start program
governed by the Region VI ACF office, reasonably took the
position that the health examinations were not required.
Moreover, HELP argued, ACF approved HELP's corrective
action plan following the 1991 OSPRI, which stated that
health screenings would be performed in accordance with
state law. HELP introduced a letter from the state
indicating that under state law, employees in child care
facilities are required to have tuberculosis screenings
but not health examinations. AAF (Miscellaneous, 5/8/95
Filing) at 2813-2815.
While it is true that the federal government can impose
restrictions more stringent than those of a state in
connection with its provision of funding for Head Start,
the federal government must be clear that that is its
intent. Here it was not at all clear from the wording of
the regulation that imposing a federal requirement for
annual staff health examinations where there were
otherwise no state or local requirements to that effect
was the intent of the regulation.
It is undisputed from the evidence in this case that
there are at least two conflicting interpretations of the
regulation even within ACF. Tr. II at 369. ACF's
central office, which oversees Migrant Head Start
programs, has taken the position that a program is
required to obtain annual staff health exams even in the
absence of a state or local regulation requiring them,
but must follow state and local requirements to the
extent they exist. Tr. II at 63. ACF's Region VI
office, which oversees Regional Head Start programs in
Texas, New Mexico and several other states, has taken the
position that such exams are only required where a state
or local provision requires them. HELP Br. at 107,
n.111. We find it reasonable that HELP, which runs two
Head Start programs, one governed by the central office
and one by the Region VI office, relied on the
interpretation of the Region VI office where ACF has
offered no evidence that there was ever any specific
intent or policy reason to treat the Migrant and Regional
programs differently on this matter. Moreover, HELP's
Health Coordinator testified that he requested
clarification as to how to interpret the regulation from
the Academy for Educational Development, a Migrant Head
Start task force, and the person he spoke with there was
"just as stumped as we were." Tr. II at 538.
It is clear from the record that the state of New Mexico
does not require annual health examinations for child
care workers. ACF has not argued, let alone proven, that
staff health examinations are required by local
ordinances in any of the communities where HELP's Migrant
Head Start centers are located. HELP's Health
Coordinator testified that once HELP became aware of the
central office's interpretation of the federal regulation
following its receipt of the 1994 OSPRI, HELP began
requiring annual health examinations of its staff. Tr.
II at 536-537. Although this change was made after the
relevant time period here, we find it indicative of
HELP's good faith attempt to comply with this
requirement.
ACF argued that it was pointed out to HELP in the 1991
OSPRI that HELP was required to obtain annual staff
health examinations, and that HELP agreed to do so.
However, the 1991 OSPRI indicated only that HELP was out
of compliance with the statement that "[e]mployed program
staff must have initial health examinations and periodic
check-ups" and HELP's plan of correction in response to
the 1991 OSPRI states only that HELP agreed to follow
state law. 1991 OSPRI, Item 66; RAF Tab 58 at 1141.
This is consistent with a reasonable interpretation of
the regulation, which the OSPRI language is intended to
implement. ACF accepted HELP's plan of correction, and
HELP then followed state law. HELP attempted to get
further clarification from the Academy for Educational
Development, a Migrant task force, but was unable to get
a definitive answer. While ACF argued that HELP's
further acceptance of the Migrant Head Start grant award
obligated HELP to begin doing annual staff examinations,
we do not agree that it was clear to HELP that that was
required of it. ACF conceded that there was no specific
line-item in HELP's grant award which would signal that
funds were being given to HELP specifically for the
purpose of staff health examinations. Oral Argument Tr.
at 150.
For the above reasons, we reverse ACF's finding that HELP
did not comply with OSPRI Item 70.
3. OSPRI Item 71
Staff and volunteers must have tuberculosis (TB)
screenings in accordance with state and local
regulations. 42 C.F.R. § 1304.3-3(d); OSPRI Item 71
(1994). According to HELP, New Mexico state regulations
require that volunteers who work with children more than
eight hours of any given week must be found to be free of
TB. HELP Br. at 109, citing Tr. II at 528, 530. In
1994, ACF found no evidence of TB screenings of
volunteers. RAF Tab 22, at 446. ACF argued that, while
HELP implied that the on-site reviewers simply did not
find the documentation, HELP has never produced
sufficient documentation even though it has had an
extensive opportunity to do so. ACF Br. at 147-148.
HELP conceded that it was not in compliance with this
standard at the time of the 1991 OSPRI; however, HELP
asserted that it was in compliance at the time of the
1994 on-site visit. HELP Br. at 109, n.114. HELP
pointed in the record to TB screenings of ten volunteers
taken during 1994 prior to the on-site visit, and stated
that it generally has only about 30 volunteers per year.
HELP Br. at 110.
We find that ACF has failed to establish that HELP
violated the standard requiring volunteers to obtain TB
tests in accordance with state or local law. In the
record are the results of TB tests performed prior to the
1994 OSPRI on ten persons, who HELP asserts were Migrant
program volunteers. AAF (Health, Tab 8) at 578-587; Tr.
II at 532-533. New Mexico law requires TB tests only of
those employees or volunteers who work directly with
children in facilities eight or more hours per week. AAF
(Miscellaneous, 5/8/95 Filing) at 2815. ACF has not
proven that during the 1994 on-site visit, at which time
HELP's centers had only been open a few weeks, HELP had
more than ten volunteers each working with children in
excess of eight hours per week.
For the above reasons, we reverse ACF's findings with
regard to OSPRI Item 71.
I. Safety-Related Incidents
ACF also alleged as grounds for terminating HELP's
Migrant program two alleged safety violations which
occurred during the on-site visit. These are not covered
by specific OSPRI items. ACF alleged that these safety
violations constitute violations of the Head Start Act,
and therefore provide a basis for termination under 45
C.F.R. § 1303.14(b)(7). We discuss the applicable
sections of the Head Start Act below.
1. Pesticide Spraying Incident
During the time of the 1994 on-site review, one of the
centers was sprayed with pesticides by a professional
exterminator at a time when the on-site team and children
were present at the center. ACF Br. at 152. ACF
presented evidence that the on-site team members
experienced symptoms such as burning noses and throats
and watering eyes, and that they observed damp spots on
the carpet in one or more classrooms where the
exterminator had sprayed and where children were later
playing. ACF Br. at 152, 156. ACF argued that HELP did
not produce evidence that the chemicals were safe and
that, in fact, the exterminator allegedly stated to the
Chief of the Migrant Programs Branch of ACF, Frank
Fuentes, that he normally would not spray with children
present. ACF Br. at 154. ACF argued that the documents
introduced by HELP, including a handwritten note and a
letter from the exterminator stating that persons in the
center during the spraying were not in any danger, were
not reliable because their authors were not subject to
cross-examination. ACF Br. at 154-155. Finally, ACF
argued that an alleged phone call from Mr. Fuentes to Mr.
Reyes to discuss the situation at the time it occurred
did take place despite the testimony to the contrary of
HELP's Health Coordinator. 47/ ACF Br. at 159, 161.
The Head Start Act provides that Head Start grantees
"will provide such comprehensive health . . . and other
services as will aid the children to attain their full
potential . . . ." 42 U.S.C. § 9833(a)(1). ACF alleged
that subjecting children to this health hazard did not
comport with the statutory directive. ACF Submission of
April 17, 1995, at 2.
In response, HELP conceded that the spraying occurred
when the center was open but argued that ACF had not
established that the spraying was dangerous. HELP Br. at
111. HELP stated that the testimony showed that
pesticide spraying did not occur when children were
present at the center except for this one occasion. Id.
HELP argued that the only person involved in this
incident who was an expert in pesticides, the
exterminator, told Mr. Fuentes that the spraying was
safe, and that ACF's allegation that the situation was
highly dangerous was based on hearsay. HELP Br. at 112,
citing Tr. II at 316. HELP pointed out that none of the
on-site reviewers had more than a minor allergic reaction
to the spray and that none of them acted to have the
children removed from the building, which they presumably
would have done had they sincerely believed the children
were in danger. HELP Br. at 112-113.
We find that ACF has not established that the children
(or on-site reviewers) were placed in any danger by being
present at the center when it was being sprayed by a
professional exterminator. ACF has not presented any
reliable evidence that the chemicals were dangerous. ACF
placed in the record some handwritten notes taken during
a telephone call to a poison control center after the
1994 on-site review. RAF Tab 32, at 894-896. However,
those notes are unreliable for the same reason ACF argued
that HELP's letters from its exterminator are unreliable:
they are based on hearsay, they do not establish the
qualifications of the person making the assertions, and
the person was not available for cross-examination.
While ACF provided testimony that several of its on-site
reviewers had reactions to the spraying, such as burning
eyes and coughing, there is no evidence that the children
were observed to have these reactions. Tr. I at 592-593.
In fact, the evidence showed that the exterminator
sprayed the building interior while the children were
outside, and sprayed the playground while the children
were inside, thus minimizing any contact the children had
with the pesticide chemicals. Tr. I at 497, 581-585.
While ACF's witnesses stated that they saw at least one
pool of fluid on a classroom floor following the spraying
and that this pool was near where at least one child was
playing, there is no evidence that this pool consisted of
pesticide nor is there any reliable evidence that the
child was in danger. Tr. I at 588, 685-686.
We believe that if ACF had sincerely believed the
children to be in danger, ACF's on-site reviewers would
have acted to have the appropriate HELP personnel order
that the children be removed immediately from the
center. 48/ In fact, during his phone call to Mr.
Reyes at the time of the incident, there is no evidence
that Mr. Fuentes suggested that the children ought to be
removed from the facility immediately. The fact that the
on-site reviewers did not take any actions to have the
children removed causes us to believe that the alleged
danger was greatly exaggerated. Cf. Tr. I at 709 (on-
site reviewer present during the incident stated that she
would have acted to remove the children had she believed
the children to be in danger). ACF stated that this
incident would not have been an issue had HELP
acknowledged the seriousness of the situation and taken
actions to assure that this was a one-time occurrence.
However, ACF has not disputed HELP's assertion that the
spraying ordinarily did not occur when the center was
open, and Mr. Fuentes acknowledged that Mr. Reyes stated
that the incident should not have happened. ACF Br. at
150-151; Tr. II at 297. Thus, we find that HELP did not
exhibit the indifference towards children's health which
ACF alleges, and we find that this incident did not
constitute a health hazard that violated the applicable
Head Start Act provision. Consequently, this incident
does not provide a basis for termination of HELP's
Migrant Head Start program.
2. Alleged Choking Incident
According to the findings of the 1994 on-site review
team, some members of the team allegedly observed a baby
being fed inappropriately-sized meat, causing it to cough
and thrash about. ACF asserted that HELP's staff did not
properly respond to the situation. ACF Br. at 165.
According to ACF, the staff member feeding the child had
trouble removing the child from a strapped-in safety seat
but eventually did, at which time she took the child into
another room and laid him face down on a changing table.
ACF Br. at 166, 167. Shortly thereafter the child
vomited the food and stopped choking. One of ACF's
witnesses estimated the child's age to be about 7-10
months; another ACF witness identified the child to be
about 18 months. Tr. I at 555; Tr. II at 138. ACF
alleged that it was improper for the child to be fed a
large chunk of meat, to be placed face down on a table
while choking, and to be cared for by staff untrained in
child care (i.e., a bus driver and bus aide). ACF Br.
at 167, 168.
The Head Start Act requires grantees to "assure that only
persons capable of discharging their duties with
competence and integrity are employed . . . ." 42 U.S.C.
§ 9839(a)(2). ACF alleged that HELP failed to meet this
requirement by having untrained staff caring for
children.
HELP responded that the child, who was seven months old
at the time, had a history of vomiting but was not
choking nor was he in any danger during the incident.
HELP Br. at 114. HELP stated that its position that the
child was not in danger was buttressed by the fact that
ACF's on-site reviewers who saw the child allegedly
choking did not intervene. HELP Br. at 115-116. HELP
questioned whether ACF's witnesses to the incident, who
placed the child at significantly different ages, were
credible and whether they had, in fact, observed the same
incident. HELP Br. at 115, 122. HELP also provided
documents showing that the staff involved were
experienced in child care and had certificates in first
aid and cardiopulmonary resuscitation (CPR).
Again, we find that ACF has not shown that HELP's
response with regard to this alleged choking incident was
improper or should provide a basis for terminating HELP's
program. ACF offered evidence that HELP's staff had
trouble removing the child from a feeding table because
he was strapped into the table. Tr. I at 492-493. ACF
offered no evidence that the child was strapped into the
seat in an inappropriate manner or that the child should
not have been strapped in at all. We find it perfectly
reasonable that an employee would have difficulty
removing a coughing child from a seatbelt when needing to
do so quickly. Moreover, ACF offered no expert testimony
that it was inappropriate to place the child face down on
the feeding table; the only testimony was that of the
health component reviewer, who stated that placing a
choking child on his side "is the best position." Tr. I
at 559. While Ms. Pasley testified that the size of the
meat was inappropriate for the age of the child, she and
Mr. Fuentes placed the child at widely different ages.
Tr. I at 555; Tr. II at 256-257. Moreover, HELP provided
unrefuted documentation and testimony that the two
principal staff members involved in the incident, Rosario
Diaz and Luz Rubelcaba, had had training in child care,
first aid, and CPR. AAF (HELP, Inc., Tab B) at 3306-3312
(Diaz), 3326-3333 (Rubelcaba); Tr.II at 1221-1223 (Diaz),
1440 (Rubelcaba).
Finally, ACF attacked the credibility of Luz Rubelcaba,
arguing that she was not the same person who was observed
attending to the choking child. ACF believed the person
attending to the child to be one Luz Deramos. ACF Br.
at 170. ACF argued that these were two different persons
based on the fact that ACF's on-site reviewers did not
recognize the witness as being the same person they saw
attending to the coughing child, and the witness
apparently did not recognize the members of the on-site
review team at the hearing. Id. However, evidence in
the record shows conclusively that Luz Rubelcaba, prior
to marriage, was Luz Deramos and that the witness was,
therefore, the same person attending to the coughing
child during the on-site visit. See App. Hearing Ex. 10
at 3 (unnumbered) (driver's license of Luz E. Deramos and
Social Security card of Luz E. Rubelcaba have same Social
Security number).
For the reasons stated above, we find that what has been
referred to throughout these proceedings as the alleged
choking incident does not show that HELP failed to have
qualified staff caring for the children in its program,
as required by the Head Start Act. Thus, this incident
does not provide a basis for terminating HELP's migrant
Head Start program. 49/
MATERIALITY
The Department-wide grants administration regulations in
Part 74 apply to all HHS grants to the extent that they
are not inconsistent with federal statutes, regulations,
or other terms of a particular grant. 45 C.F.R. §
74.4(a). The provisions for termination of a grant in
Part 74 state, "The granting agency may terminate any
grant in whole, or in part, at any time before the date
of expiration, whenever it determines that the grantee
has materially failed to comply with the terms of the
grant." 45 C.F.R. § 74.113(a) (1993). 50/ Thus, this
concept of "materiality" is included in 45 C.F.R.
Part 1303, which is specifically applicable to
termination of Head Start grants, unless it is
inconsistent with the grant terms. Given the general
statutory preference for continuing funding to existing
grantees (42 U.S.C. § 9836a(c)(1)) and, where
appropriate, permitting a grantee the opportunity to
correct deficiencies (42 U.S.C. § 9836a(d)(1)(B)), it is
consistent to read materiality into 45 C.F.R.
§ 1303.14(b), which lists the bases for termination or
denial of refunding actions. 51/ Indeed, Mr. Fuentes
testified at the hearing that the overwhelming majority
of programs he reviewed during his five-year tenure as
Chief of the Migrant Programs Branch were not in
compliance with 100% of the OSPRI items. Tr. II at 200.
The Board has held that ACF may properly deny refunding
based on a single, material failure to meet the
performance standards for operation of a Head Start
program. Lonoke Economic Development Agency, DAB
No. 1568 (1996). As in that case, in order to support
termination of a Head Start grant, ACF must show that any
violation of performance, grant administration,
enrollment or eligibility standards that it establishes
by a preponderance of the evidence constitutes, either
alone or in combination with other established
violations, a material failure to comply with the terms
of the grant.
We note that in connection with recent amendments of the
Head Start Act, ACF has proposed incorporation of the
materiality standard through adoption of a distinction
between "non-compliance" and "deficiencies:"
[A] new distinction is made between "non-compliance"
(i.e., a single instance of a grantee's failure to
conform to some specific requirement) and
"deficiencies" which involve a grantee displaying
such serious problems in one or more areas of its
program that the grantee's ability to provide
quality Head Start services is being compromised.
61 Fed. Reg. 17754, 17774 (April 22, 1996).
In this case, ACF initially took the position that it
decided to terminate HELP's Migrant program based on "the
cumulative findings in both the programmatic and fiscal
management areas, and the seriousness of the issues and
all other information available to [it]." Termination
Letter at 6 (emphasis added). However, in its post-
hearing brief ACF contended that "if the Board sustains
any one of these grounds, especially any that constitute
repeat violations from 1991, the Board must sustain the
termination as these constitute material violations."
ACF Br. at 45, citing Springfield Action Commission,
Inc., DAB No. 1447 at 8 (1995). It also argued that --
. . . any of the stated grounds is sufficient to
uphold the termination of the grant. This is true
as a matter of law. Thus, there is nothing in the
regulations that says, for example, that a grantee
may consistently and continually violate Standard 16
and remain in the program. There is nothing in the
regulations or the statute which says that a grantee
has to violate more than one standard in order to
have its grant terminated. Indeed, such a rule
would undermine the program.
Id. at 157. ACF cited Community Action of Laramie
County, Inc. v. Bowen, 866 F.2d 347 (10th Cir. 1989), as
support for its assertion that a single violation of a
program standard could support termination.
Springfield involved a grantee that failed to contest
even one of 42 repeat deficiencies in seven performance
standard components. Laramie County involved, as did
Lonoke, a grantee that failed to obtain Policy Council
approval for its grant application, a fundamental failure
to comply with parental involvement standards. Neither
of those situations is applicable here, and ACF's post-
hearing submissions did not address the materiality of
the two particular OSPRI items that we have found out of
compliance. We therefore reviewed the underlying
regulations and the testimony of the 1994 on-site
reviewers, which ACF frequently cited in other instances
as instructive on the importance of various program
requirements, in light of ACF's most recent policy
announcement on distinguishing between serious and less
serious incidences of non-compliance. See 61 Fed. Reg.
17754, 17774 (April 22, 1996).
With respect to OSPRI Item 196, which reviews a grantee's
personnel files, we found that ACF provided no testimony
or documentation whatsoever on what impact the
particular, substantiated failings of this grantee would
have on programmatic performance. The regulation
underlying this item is 45 C.F.R. § 1301.31, which
generally requires a grantee to have personnel policies
in place governing the recruitment and selection of
personnel. These policies must be approved by the Policy
Council (we have found above that HELP's were) and must
include a requirement that, prior to employment, an
employee must sign a declaration concerning his or her
criminal record, the employee must be interviewed, and a
check of personal and employment references furnished by
the employee must be conducted. 52/ The OSPRI item is
apparently designed to review whether a grantee has, in
an organized records system, documentation showing that
its personnel policies have been followed.
In the present case, we have found that HELP failed to
produce any personnel files that contained all of the
documents listed in Item 196. This was not the same non-
compliance found in 1991. ACF's witnesses did not
testify that HELP had no personnel files during the 1994
review; rather, the testimony was that many staff
members' files were missing one or more of the documents
listed in Item 196. Tr. II at 128. While ACF
established noncompliance here, ACF did not establish the
extent of the non-compliance. Clearly some performance
evaluations and other documents were missing from some
files. The record before us, however, shows that HELP
had the required personnel policies and had documents in
the personnel files for some personnel; this shows that
HELP was applying each of these policies at least part of
the time. Moreover, the record shows that HELP's Policy
Council reviewed and approved personnel policies that met
the regulatory requirements discussed above, that at
least some applicants for positions were interviewed
(since the Policy Council minutes reflect participation
or requests for participation of parents in interviews),
and that the Policy Council approved applicants presented
to them. We can conclude from this that there was at
least a method for Policy Council oversight of HELP's
compliance with its personnel policies regarding hiring.
Credible testimony by HELP's witnesses indicates that
HELP was making a good faith effort to comply, and its
failings here may have been mere failure to retain and
file required documents. The concern that ACF expressed
-- that HELP may have been hiring unqualified personnel -
- was based in large part on ACF's findings regarding
position descriptions in the disallowance, which we found
above were not clearly established and which are not
based on a clear regulatory requirement. Since ACF's
evaluation of the noncompliance appeared to be so heavily
reliant on its position description findings, we cannot
rely on that evaluation to find that HELP's failings were
material. Contrary to what ACF argued, the evidence here
does not show that HELP was "lackadaisical" in its
approach to personnel policies. Thus, we conclude that,
under the circumstances present in this case, HELP's
failure to document fully its compliance does not
compromise HELP's ability to provide quality Head Start
services or otherwise constitute a material failure to
comply with the terms of the grant.
OSPRI Item 58 measures the grantee's compliance with 45
C.F.R. § 1304.3-4(a)(1): "Where funding [for treatment
of health problems] is provided by non-Head Start funding
sources there must be written documentation that such
funds are used to the maximum feasible extent. Head
Start funds may be used only when no other source of
funding is available." ACF's former Migrant Programs
Branch Chief testified that the purpose of this provision
was to avoid using Head Start to supplant other resources
in the community already available for such purposes. As
with the personnel records issue, ACF's reviewers found
evidence that HELP had some system for complying with
this requirement, but that there was not sufficient
documentation to show that HELP took all the steps
necessary for full compliance. Specifically, the record
showed that HELP's intake form called for a review of
whether a prospective enrollee had or could qualify for
Medicaid payment for health services, and HELP's Health
Coordinator testified that, if a family had a Medicaid
card, it was photocopied and placed in the child's file.
However, ACF's reviewer found the number of Medicaid
cards she would normally expect to find under such a
system in sampled files for only one HELP site, which she
marked in compliance. In addition, although HELP's
Health Coordinator testified that its contracts with
local health providers required those providers to bill
Medicaid first, he was mistaken, because the contracts
actually specified that HELP would be billed.
Consequently, although it is clear that HELP was aware of
this requirement and took some steps to comply with it,
HELP failed to document full compliance.
Although ACF contended in its post-hearing statement that
any single deficiency was sufficient to support
termination, we have no indication from the record before
us that ACF determined in its programmatic judgment that
this particular deficiency was as important as, for
example, a grantee's failure to obtain Policy Council
approval for its refunding application. Moreover, ACF
did not explain how this deficiency, either alone or in
combination with the other deficiency discussed above,
compromises HELP's ability to provide quality Head Start
services so as to amount to a material breach of the
terms and conditions of HELP's grant.
We do not mean to imply that a Head Start grantee may
blatantly disregard any requirement of its grant,
regardless of how minor the requirement may appear. In
fact, it may be that a grantee's inability or
unwillingness to bring itself into compliance with such a
requirement could ultimately amount to a material breach
of the grant. However, with respect to these two items,
it was apparent that HELP strove to meet all program
requirements when it understood ACF's interpretation of
those requirements.
Consequently, under the circumstance of this case, we are
compelled to find that the requirements of 45 C.F.R.
§ 1303.14(b) for termination of HELP's grant have not
been satisfied.
CONCLUSION
For the reasons stated above, we uphold $58,965 of the
disallowance as follows:
m $5,200 for rental of the Deming Rainbow Center;
and
m $53,765 for exceeding the administrative cost
limit.
We reverse the remaining $581,923 of the disallowance.
Moreover, we conclude that ACF did not provide sufficient
evidence to support terminating HELP's Migrant Head Start
program under the criteria of 45 C.F.R. § 1303.14(b) and
the circumstances of this case.
____________________________
Donald F. Garrett
____________________________
Norval D. (John) Settle
____________________________
M. Terry Johnson
Presiding Board Member
* * * Footnotes * * *
1. Funding for the Regional Head Start program is
not at issue in these proceedings.
2. This is in contrast with HELP's funding cycle or
"program year" for the Migrant Head Start program, which
runs April 1 through March 31. See RAF Tab 30, at 850-
855.
3. In the disallowance letter, ACF also disallowed
$1,538 based on HELP's purchase of a Vista I computer
system from CompuSoft in Albuquerque during May 1993.
ACF disallowed this expenditure on the grounds that no
prior approval was given by ACF for this purchase, in
violation of OMB Circular A-122, attachment B, section
13.b. Prior to hearings held in this matter, HELP stated
that it was not contesting this disallowed expenditure
but would be seeking retroactive approval for the
purchase from ACF. See Notice Pursuant to 45 C.F.R. §
1303.16(g) and Summary of May 17, 1995 Teleconference,
dated May 18 1995, at 7. ACF stated in its brief that
HELP had not yet repaid this amount (nor, presumably,
received retroactive approval from ACF). ACF Brief at
26-27. Thus, to the extent that this issue has not been
resolved by the parties, we uphold this portion of the
disallowance as uncontested.
4. The three buildings at issue were those used for
the Deming and Portales centers and for office space in
Las Cruces.
5. ACF conceded that disallowing the full $155,384
was not proper and that, under this provision of OMB A-
122, if the Board found the leases to have been the
result of less-than-arms-length transactions, HELP would
be entitled to rental costs up to an amount that would be
allowed had title to the properties been vested in the
organization. Oral Argument Tr. at 12-13.
6. RHI also leased to HELP the office equipment
which is at issue in Disallowance Item 4, discussed
below. However, there is no discussion in the record of
the extent of RHI's office equipment leasing arrangements
with HELP and there are no allegations that a less-than-
arms-length relationship existed with regard to these
expenditures.
7. Ms. de Baca is the Secretary of HELP's Board of
Directors. Tr. II at 641; AAF (HELP, Inc. Tab A) at
3217.
8. ACF's counsel argued at the oral argument that
this lease was extended to the relevant time period by
some handwritten notes on the leases themselves. Oral
Argument Tr. at 15-16. However, we do not find those
handwritten notes in the record. There is one cover page
of a 1990-1993 lease for the Deming center; however, it
does not contain any handwritten notes, and there are no
signatories shown. RAF Tab 30, at 766.
9. HELP focused on the fact that there was no
actual control or influence between the parties.
However, the OMB A-122 provision addresses whether one
organization is able (i.e., had the capability) to
control or influence the other party.
10. HELP submitted a letter from HUD, dated
December 19, 1994, stating that that department did not
consider the relationship between HELP and RHI to be
less-than-arms-length. AAF (Cost Disallowances, Tab 1)
at 1337. While, as ACF argued, the assessment by HUD is
not binding on HHS, we use this letter as an indication
that HELP and RHI may have reasonably believed that their
relationship did not violate the less-than-arms-length
transaction provisions of OMB A-122 and that they acted
in good faith.
11. Mr. Ortega testified that the $134,251 is
apparently cumulative of an alleged shortfall over both
fiscal years 1991-92 and 1992-93. Tr. II at 653-654.
However, because ACF has characterized these costs as a
1992-93 overexpenditure, we will refer to them in that
manner since the distinction is unimportant.
12. Section A.3.c of OMB A-122, att. A, states
that one consideration in determining the reasonableness
of a given cost is --
[w]hether the individuals concerned acted with
prudence in the circumstances considering their
responsibilities to the clients, the public at
large, and the government.
13. In this particular year, HELP argued, factors
contributing to underenrollment included late funding and
reduced migration into New Mexico due to crop failure.
HELP Br. at 21-22.
14. ACF also stated that this oversight was
further evidence that HELP had poor financial management
practices, an issue taken up in the termination
proceeding discussed below.
15. ACF's counsel conceded that this section might
not apply. ACF Br. at 12-13.
16. The salary figures quoted throughout this
section include expenditures for fringe benefits.
17. Neither party disputed that this witness
served in the role of the Parent Involvement Coordinator.
ACF Br. at 19; Tr. II at 894.
18. The Head Start Improvement Act required that
grantees ensure that a teacher with a CDA certificate or
the equivalent be assigned to each classroom no later
than September 30, 1994. Head Start Improvement Act of
1992, P.L. 102-401 (1992). Although the date was later
extended, this provision was applicable during the
relevant time period.
19. HELP also offered into evidence a copy of its
1991 contract for the church. The 1991 contract gave
HELP access to the building for less than a five-month
period, from May 21, 1991 until October 5, 1991, for a
total of $12,000 (made in two payments of $6,000 each).
AAF (Cost Disallowances, Tab 8) at 1370. Since this 1991
contract does not cover the relevant time period of the
disallowance, we are not relying on it in determining
this disallowance item. However, the 1991 lease (written
in Spanish) would seem to indicate HELP had once obtained
a lease for less than a 12-month period, but not for
significantly less total cost than what it was later
paying for an annual lease.
20. At the hearing and in its brief, ACF
recalculated this portion of the disallowance when it
purportedly accepted HELP's position that the
administrative cost limit should be based on 15% of a
program's total federal award plus the matching share,
not on 15% of its actual expenditure of federal funds
plus the matching share. See ACF Br. at 27, n.6. Thus,
ACF changed its calculation of the administrative cost
limit to 15% x ($1,165,527 + $84,893) rather than 15% x
($1,162,205 + 84,893). At the oral argument, ACF
retreated on its position that the administrative cost
limit should be based on 15% of the approved federal
award rather than actual expenditures, but stated that it
would allow the additional $480 because it had previously
agreed to do so. Oral Argument Tr. at 248-249. However,
we find that, based on the plain language of the
regulation, ACF properly revised the calculation of the
administrative cost limit using the higher figure of the
approved federal award rather than the lower figure of
the actual expenditures.
21. HELP also objected to disallowing any portion
of the director's salary for exceeding administrative
cost limits since ACF disallowed the salary in full on
the basis discussed in item 10 below. HELP Br. at 33.
However, since we are reversing ACF's decision to
disallow the Head Start Director's salary in item 10,
there is no double-counting of this cost item as argued
by HELP.
22. The Board does not have the authority to
retroactively approve overexpenditures by a grantee, as
requested by HELP. Such request should be made directly
to ACF.
23. In the disallowance letter, ACF had
incorrectly totalled the personnel costs to be $80,145.
Disallowance Letter at 9.
24. This section provides that a HHS grantee must
obtain prior approval from the awarding agency to replace
any persons expressly identified as key project people in
the notice of grant award.
25. The contract entered into with consultant V.D.
does not specify the procedure for payment. AAF (Cost
Disallowances, Tab 13) at 1403. However, since this
consultant submitted an invoice for services provided for
the 1993 program year, we assume that she would have
followed the same procedure for the 1994 program year.
26. At the hearing, ACF's witness Mr. McCarron
stated simply that --
[t]he grantee requested funds for consultant
services to operate a literacy training program for
parents of Migrant Head Start children. There's no
evidence of any work being done.
Tr. I at 291.
27. While OSPRI items do not, in themselves,
provide statutory or regulatory standards of the program,
they interpret the statutory and regulatory requirements
of the program. In most instances, the language of the
OSPRI item is substantially similar to the language of
the statute or regulation which it interprets. In
addition, both parties in this case frequently referred
to complying or not complying with an OSPRI item. For
this reason, in many instances we quote or summarize the
language of the OSPRI item rather than the underlying
statute or regulation.
28. In addition, the 1994 OSPRI found that there
was a problem with communicating with the parents in
their primary language (Spanish) concerning their
children's progress and needs. RAF Tab 18, at 130.
However, ACF did not pursue this matter in its brief nor
did it argue in support of this assertion at the oral
argument.
29. An individualized education plan is a written
plan developed by teachers and education specialists,
usually with the input of parents, to set out specific
goals or tasks to be accomplished by an individual child.
IEP's are used most frequently in establishing goals for
children with particular disabilities. See, e.g., 42
U.S.C. § 1413(a)(11) (requiring state plans for education
of the handicapped to provide for annual evaluations of
IEPs).
30. HELP cited to a recently-published Notice of
Proposed Rulemaking for Head Start regulations, which
states that --
[a]t a minimum, ongoing assessment procedures
include: periodic observations and recordings, as
appropriate, of individual children's developmental
progress, changes in physical appearance (e.g.,
signs of injury or illness) and emotional and
behavioral patterns. In addition, ongoing
assessments must include the periodic use of
parental, staff, and mental health consultant
observations about each child.
Oral Argument Tr. at 212, citing 61 Fed. Reg. 17754,
17778 (April 26, 1996). While these regulations are
neither final nor intended to be retroactively applied,
they give us additional guidance on what ACF envisions in
requiring ongoing assessments of Head Start children.
31. We note that HELP requires IEP's more
frequently than the Head Start program regulations: Head
Start requires them only when a child has been diagnosed
with a specific disability, not whenever he or she is
having difficulty with a specific task.
32. HELP's Education Coordinator testified that
Notitas de Orgullo were "notes of an accomplishment that
the children have done in the classroom" that were sent
home to parents, and were part of the observation
process. Tr. II at 1137-1138.
33. Although ACF's Disabilities Component reviewer
testified at the hearing in El Paso that she "observed"
an older child who was "much larger than the other
children in [the infant] room" and who "had some behavior
problems," she testified during the hearing in Las Cruces
that she did not see the child but only reviewed the
child's disability and mental health files. Tr. I at
602; Tr. II at 1627-1628. HELP's staff testified that
the child at issue was no longer enrolled in the program
at the time of the 1994 on-site visit; thus, it would
have been impossible for ACF's reviewer to have observed
the child. Tr. II at 1067-1068.
34. At the oral argument, ACF did not rebut HELP's
argument that ACF's on-site reviewer for this component
did not interview the Mental Health Coordinator or mental
health consultants. See Oral Argument at 180-181.
35. We are not aware of any firings which occurred
or were recommended during the relevant time period.
36. HELP alleged that ACF's requirement in 1992
that HELP separate its Regional and Migrant Head Start
programs, and its failure to provide additional funds for
it to do so, is still causing an impact on the Migrant
program today and is interfering with its ability to meet
program requirements. HELP argued that it was unfair for
ACF to use any deficiencies which were the direct result
of the separation of the programs as a grounds for the
disallowance or the termination. HELP Br. at 123.
37. ACF conceded that, while the regulation
requiring full funded enrollment in Head Start (45 C.F.R.
§ 1305.7) did not make any exceptions for Migrant
programs, it was ACF's policy to be more lenient with
Migrant programs. Tr. II at 380-381.
38. See "Disabilities Component" section above for
a discussion of HELP's efforts to recruit children with
disabilities.
39. We note that ACF's finding that there were
only 174 children enrolled in HELP's Migrant Head Start
program is based on a mathematical error and is possibly
misleading. In fact, the on-site reviewers' notes
contain figures which, if added correctly, suggest that
there were only 164 children who had been enrolled in
HELP's program during 1994 as of July 31. See RAF Tab
48, at 984. However, Mr. Reyes testified that there were
more than 200 children enrolled in 1994, including those
who entered the program in August. Tr. II at 1358.
40. We do not find this to be significant. As
stated earlier in this decision, we find that HELP had an
agreement with the Las Cruces public schools to
accommodate any overflow, which ACF's reviewer agreed
would meet the licensed capacity requirement.
41. In October 1992, Mr. Reyes and Mr. Ortega, as
well as representatives of Campesinos Unidos and Idaho
Migrant Head Start programs, complained to Olivia Golden,
ACF Commissioner about problems with the Migrant Head
Start Branch. Since that time, ACF's Migrant branch has
moved to terminate both HELP and Campesinos Unidos (whose
termination was upheld by the Board in 1995). See
Campesinos Unidos, Inc., DAB No. 1518 (1995). ACF has
also written to Idaho Migrant Head Start stating that it
has "serious deficiencies" which must be corrected or ACF
will have no recourse but to terminate. Tr. II at 468-
469.
42. ACF argued that a delay in refunding while ACF
seeks clarification from a grantee is not the same as a
denial of refunding (which involves a loss of the right
to funds) and therefore does not warrant notice and an
opportunity for a hearing, as HELP alleged. See ACF Br.
at 176-177; HELP Br. at 119.
43. Mr. Fuentes testified that ACF was wondering
how HELP was operating its program prior to its funding
award but that it was not his responsibility to ascertain
that information. Tr. II at 186. Mr. Fuentes stated
that he recalled Mr. Ortega had mentioned borrowing money
to pay the costs of the program, but that he had not been
informed that Mr. Ortega had mortgaged his house to
secure the loan. Tr. II at 393-394. Mr. Fuentes
admitted that interest on such a loan would not be an
allowable cost under federal cost principles. Id.
44. HELP's Health Coordinator stated that HELP had
extra expenditures during 1994 due to the heatwave. Tr.
II at 1339, 1341.
45. ACF also disputed HELP's assertion that there
were no dentists within 250 miles of the program who
would perform surgery on migrant children or accept
Medicaid reimbursement. ACF pointed out that El Paso,
Texas, a mid-sized city, was within a relatively short
drive of Las Cruces, where HELP's Migrant program is
administered. ACF Br. at 140. However, at the oral
argument, it became clear that HELP was asserting that
there was a shortage of pediatric dentists within the
vicinity of its Portales center, which is located in a
remote part of New Mexico far from its other centers and
more than 300 miles from El Paso. Oral Argument Tr. at
260.
46. The bills state that the payer is "First
Health." HELP's Health Coordinator testified that First
Health is Medicaid. Tr. II at 544.
47. At the oral argument, HELP agreed that the
alleged discussion by telephone between Mr. Fuentes and
Mr. Reyes concerning the pesticide spraying incident did,
in fact, take place, despite the testimony of HELP's
Health Coordinator, Mr. Masters, implying the contrary.
Oral Argument Tr. at 234. Thus, we do not discuss this
matter further.
48. ACF's counsel stated at the oral argument that
he would have advised the on-site reviewers that they did
not have the authority and should not act to remove the
children from the center because of the potential for
incurring liability. Oral Argument Tr. at 157-158.
49. HELP also took issue with allegations which
arose in the termination letter and again in the hearings
that the Las Cruces Head Start facility was not in an
acceptable and safe condition. Because this was not a
charge on which ACF was relying as a basis for the
termination action, we do not need to resolve it. See
Notice Pursuant to 45 C.F.R. § 1303.16(g) and Summary of
May 17, 1995 Teleconference, dated May 18, 1995.
50. This regulation has been amended and
redesignated as 45 C.F.R. § 74.62, but continues to
require materiality. See 59 Fed. Reg. 43,760 (August 25,
1994).
51. The Board first considered and ruled on
whether the materiality provision is consistent with the
termination provision in Rulings on Burden of Proof,
Materiality, and Jurisdiction Under 45 C.F.R. Part 1303,
Board Docket No. A-95-66 (May 19, 1995). The parties in
the HELP proceeding were furnished a copy of that ruling;
during the hearing the Presiding Board Member noted that
neither party had asked that the Board reconsider or not
apply that ruling in this case. Tr.I at 756.
52. There is nothing in the regulation referenced
by this OSPRI item requiring position descriptions or
performance evaluations. However, we take judicial
notice that § 9839(a) of the Head Start Act requires that
"[e]ach such agency shall adopt for itself rules designed
to . . . assure that only persons capable of discharging
their duties with competence and integrity are employed .
. . ." Thus, we find that the inclusion of position
descriptions and performance evaluations as part of this
OSPRI item's required review of personnel policy
provisions is intended to measure a grantee's
implementation of this statutory requirement.