The Centers for Family Life

Date: 1999 April 19

The Centers for Family Life (Family Life) appealed three determinations by the Substance Abuse and Mental Health Services Administration (SAMHSA) disallowing a total of $243,405 in grant funds awarded in fiscal years (FYs) 1993 through 1996.⁽¹⁾ In addition to the three disallowance determinations, Family Life requested the Board to review a withholding by SAMHSA of funds for costs in the amount of $50,585 for FYs 96 and 97. SAMHSA stated that it had not yet made a final determination on this withheld amount of $50,585, but had no objections to Family Life including these costs in its appeal and to the Board reviewing these withheld costs as a disallowance along with the disallowed costs.

For the reasons discussed below, we find that for all but one of the disallowed items Family Life failed to meet the requirements of the federal cost principles that governed the grant funds it received from SAMHSA. Accordingly, we sustain the disallowance as modified in the amount of $257,060 and reverse the disallowance of $2,923.

Factual Background

Family Life, a Nashville nonprofit organization, received a grant from the Center for Substance Abuse Prevention (CSAP), a division of SAMHSA, to fund a project for the prevention of alcohol and other drug abuse among high-risk youth.

Based on a series of audits, SAMHSA made the following determinations. For FYs 93 and 94 (Docket No. A-98-73), SAMHSA disallowed $151,559 in the following categories: $95,746 in rental costs; $50,115 in indirect costs; and $5,698 for earned interest.⁽²⁾ For FY 95 (Docket No. A-98-74), SAMHSA disallowed $69,819 in the following categories: $58,500 in accrued compensation; $3,022 in a facility use charge; and $8,297 in repair and maintenance costs. For FY 96 (Docket No. A-98-95), SAMHSA disallowed $21,667 in accrued compensation.

The additional $50,585 in questioned costs for FYs 96 and 97 that the parties have agreed that the Board should review involve salary costs, along with costs for other miscellaneous items such as supplies, automotive expenses, and equipment repairs.

These appeals were received by the Board on May 26, 1998, after the parties mutually agreed to bypass the informal procedures for resolution of grant disputes set forth at 42 C.F.R. Part 50, Subpart D.⁽³⁾

Discussion

The PHS Grants Policy Statement provides that non-profit organizations such as Family Life are subject to the cost principles set forth in Office of Management and Budget (OMB) Circular A-122. This provision in the PHS Grants Policy Statement replicates the regulatory requirement, set forth in 45 C.F.R. � 74.174 during the fiscal years in question (now recodified at 45 C.F.R. � 74.27(a)), that non-profit organizations that receive federal funds are subject to the cost principles set forth in OMB Circular A-122. OMB Circular 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.⁽⁴⁾

Below we discuss each of the items disallowed by SAMHSA.

A. Rental Costs

Citing the prohibition on less-than-arms-length rental arrangements set forth at paragraph 42.c of Attachment B to OMB Circular A-122 as authority, SAMHSA determined that Family Life had improperly claimed rent expenses totaling $95,746 for FYs 93 and 94 in excess of the costs of ownership for buildings Family Life owned and used for the CSAP grant.

Paragraph 42.c of Attachment B to OMB Circular A-122, in discussing prohibited less-than-arms-length lease arrangements between a grantee organization receiving federal funds and a lessor, provides that rental costs are "allowable only up to the amount that would be allowed had the title to the property vested in the organization." Prohibited lease arrangements include those between divisions of the same organization. An owner of property is allowed to charge to the grant for the use of property only the amount that could be charged through a use allowance or depreciation of the property. See paragraph 9.a of OMB Circular A-122.

SAMHSA found that Family Life had charged the CSAP grant $45,000 for rental costs in FY 93 for two properties Family Life owned at 901 and 905 Marina Street. SAMHSA determined that: Family Life had already been reimbursed for all normal costs of ownership, such as utilities, janitorial, insurance and repair expenses; Family Life had reported no property taxes as paid in FY 93; and the depreciation for the two properties totaled $2400, but Family Life had already charged $2400 to its contract with the Tennessee Department of Health, which funded another project at 901 and 905 Marina Street. SAMHSA therefore did not allow any additional amount for depreciation for FY 93, and disallowed the total rental costs of $45,000 for FY 93.

SAMHSA found that Family Life had charged the CSAP grant $60,000 for rental costs in FY 94. SAMHSA stated that Family Life had purchased a building at 901 Meridian Street in July 1993 for the CSAP grant activities. SAMHSA determined that: Family Life had already been reimbursed for all normal costs of ownership, such as utilities, janitorial, insurance and repair expenses; Family Life had paid property taxes for the property; and Family Life was entitled to depreciate the property (even though the renovation of the property was not completed until February 1994). SAMHSA accordingly allowed the depreciation for the full year and the payment of the property taxes on the Meridian Street building. SAMHSA then offset the total of the depreciation and the property taxes, $9,254, against the claimed rental costs of $60,000, arriving at a figure of $50,746 in disallowed rental costs for FY 94.⁽⁵⁾

Family Life contended, citing page 7-1 of the PHS Grants Policy Statement, that costs for grant-supporting projects should be interpreted liberally as long as the costs are legitimately benefiting the project and are reasonable. Family Life believed that its CSAP-funded project could legitimately rent program space from Family Life, and it did not understand why federal cost principles allow for rent to be paid to third parties but not to the grantee. SAMHSA Exhibit (Ex.) 1. Family Life further maintained that it was entitled to transfer excess rental funds to make necessary capital improvements to the properties, such as the replacement of a boiler and other heating and furnace maintenance costs. Family Life argued that the PHS Grants Policy Statement specifically allows a grantee "a certain degree of latitude" in making minor changes in methodology, approach, or project objectives so long as there is no significant change to the purpose of the grant. Family Life Br. at 5-6, citing PHS Grants Policy Statement at 8-1. Family Life contended that the PHS Grants Policy Statement further permits a grantee to make post award changes and "to rebudget within and between budget categories in the approved total direct cost budget to meet unanticipated requirements or to accomplish certain programmatic changes." Id. Family Life maintained that one such area of permissible rebudgeting involves improvements to the internal environment of a building. Family Life stated that it availed itself of permissible rebudgeting in making necessary furnace repairs.

It is evident from its arguments that Family Life believed that it was permitted to charge rental costs to its CSAP grant and, since it did not actually have to pay any rent as it already owned the facilities, to use grant funds it designated as "rent" for other costs such as capital improvements to the facilities.

The prohibition on less-than-arms-length transactions, cited by SAMHSA, does not apply to these appeals, as Family Life did not lease the facilities at which the CSAP-funded activities were based. Rather, Family Life owned those properties. SAMHSA may have reasoned that Family Life, by charging rental costs to the CSAP grant for property it already owned, was in effect engaging in a rental agreement with itself.

SAMHSA's reliance on the prohibition on less-than-arms-length lease arrangements as authority for disallowing the rental costs was unnecessary, however, as

other applicable cost principles set forth in OMB Circular A-122 clearly barred Family Life from using grant funds to, in effect, pay itself rent for the use of its facilities. Paragraph 9.a of OMB Circular A-122 provides that "[c]ompensation for the use of buildings, other capital improvements, and equipment on hand may be made through use allowances or depreciation."

Thus, at most, Family Life was permitted to charge to the CSAP grant only depreciation and property taxes for the buildings it owned. SAMHSA correctly followed the provisions of OMB Circular A-122 here, allowing Family Life a credit for property taxes it paid and for depreciation of the properties used for the CSAP grant.⁽⁶⁾

Accordingly, inasmuch as Family Life was prohibited from using any CSAP grant funds as "rent," we sustain the disallowance of $95,746 for rental costs for FYs 93 and 94.

B. Indirect Costs

SAMHSA determined that Family Life charged the CSAP grant the same expenses as both direct and indirect costs. SAMHSA therefore disallowed indirect costs of $22,051 for FY 93 and $28,064 for FY 94. SAMHSA cited utilities, janitorial maintenance, and insurance as examples of items which were, under the CSAP approved budget and Notice of Grant Award, to be charged as a direct expense to the CSAP grant. SAMHSA found, however, that these same expenses were also included in the indirect cost pool for Family Life's approved indirect cost rate. According to SAMHSA, when Family Life applied the indirect cost rate to its salary and wage base, it recovered the costs twice. SAMHSA stated that Family Life's claiming of costs twice was caused by an inadequate accounting system and the lack of qualified accounting personnel.

SAMHSA specifically pointed to the "compilation reports" for FYs 93 and 94 (SAMHSA Ex. 6), where Family Life's accountant listed insurance for a building and a van as a direct cost to the grant. Id. at 3 and 5. SAMHSA maintained that the compilation reports did not state that the costs were properly classified as either direct or indirect.

Family Life denied that it claimed the same expenses as both direct and indirect costs. Family Life referred to page 7-16 of the PHS Grants Policy Statement, concerning indirect costs, as putting forth the rule that "all costs," regardless of being direct or indirect, "may be charged directly to the benefiting projects or programs." Family Life Br. at 7. Family Life denied using the same figures for direct and indirect costs as claimed by SAMHSA, and maintained that its accountant had corrected all the costs and placed them in the proper categories.

Family Life Ex. 8 (accountant's letter).

In evaluating the parties' positions on this issue, we initially find that Family Life, in support of its position, selectively referred to a fragment of page 7-16 of the PHS Grants Policy Statement. The complete version of the text, however, reveals a totally opposite meaning to that advanced by Family Life:

In theory, all costs might be charged directly to benefiting projects or programs. However, most organizations incur allowable costs which cannot be readily identified with an individual project or program. In these situations, the costs are allocated to the projects and programs as "indirect costs." The end product of this allocation process is an indirect cost rate(s) which is then applied to individual grant-supported projects to determine the amount of its indirect costs.

At 7-16, emphasis added. Therefore, in some cases a cost cannot be directly charged to a grant because it is not readily identifiable, so that the grantee may recover the cost through an indirect cost rate. In any event, Family Life's argument is not responsive to SAMHSA's finding that Family Life charged the same costs both directly and indirectly.

Because of concerns that SAMHSA had not adequately explained how Family Life was claiming the same expenses as both direct and indirect costs, the Board issued an Order to Develop the Record to the parties.

In response to the Order, SAMHSA stated that it still did not have full confidence in the classification of costs reported in the compilation reports. While conceding that most costs except for insurance appear to be properly classified as direct, SAMHSA noted that the insurance costs are included in the compilation reports as both a direct cost and a cost included in the calculation of a 18.2% indirect cost rate for the period September 15, 1992 through May 31, 1994. SAMHSA then proposed to remove the insurance costs from the direct expenses and allow the indirect costs at the 18.2% rate, thus resulting in the reduction of the disallowance for indirect costs from $22,051 to $8,040 for FY 93 and from $28,064 to $13,766 for FY 94. SAMHSA Response to Order at 2.

We accept SAMHSA's proposed recalculation of the disallowed amount for indirect costs. By SAMHSA's removing the insurance costs from direct expenses, the insurance costs are no longer being claimed twice, while SAMHSA has acknowledged that the other questioned costs were properly explained in the compilation reports.

Accordingly, we sustain the disallowance in the reduced amount of $21,806.

C. Repair and Maintenance Costs

SAMHSA stated that in previous audits for FYs 93 and 94 Family Life had advised SAMHSA that the CSAP grant had used the entire building at Meridian Street. SAMHSA further stated that it was not until after the final determination letter for FYs 93 and 94 was issued that it learned from the CSAP project officer that the CSAP grant did not use the entire building. Although SAMHSA decided not to re-open the audits for those years, it requested supporting documentation for all of the repair and maintenance costs ($12,288) reported in the FY 95 audit to ascertain whether the costs were attributable to the areas of the building used for the CSAP grant. SAMHSA reviewed each item in Family Life's response. SAMHSA Ex. 9, at 4 - 7. In disallowing $8,297 in repair and maintenance costs charged by Family Life as a direct expense to the CSAP grant,⁽⁷⁾ SAMHSA found that: 1) the CSAP grant occupied floor one of the building fully, and the basement and floor two partially, with no use by the CSAP program of the third, fourth, or fifth floors of the building or of the gymnasium; 2) food service for the CSAP project was limited to snacks provided by an outside source with no kitchen preparation required; and 3) there were no indications how ironwork, glass replacement, or a sign for Family Life's bus were related to the CSAP grant. SAMHSA stated that it allowed all costs that supported the whole building, even though the CSAP grant activities took place in only a portion of the building. These allowed costs included air conditioning, roof, boiler, sewer, and plumbing services; $2,103 for connecting steam pipes to supply heating to the fourth and fifth floors (even though the CSAP grant did not occupy those floors); and $2,950 for the installation of an automotive gate and a chain link fence.

Family Life argued that the disallowed costs for repairs and maintenance also directly benefited the grant. Family Life asserted that it utilized all the floors of the building in which the repair and maintenance charges were incurred, with each item necessary for the grant's purpose. Family Life Br. at 7. Family Life specifically referred to the gymnasium located on the third and fourth floors of the building and the kitchen, where food was prepared, as areas of the building where repairs were needed.

The issue properly before us is not whether the repairs and maintenance were needed at the facility, but whether the repairs and maintenance were for those areas of the facility related to the CSAP-funded project so that grant funds could properly be used to pay for the costs of the repairs and maintenance. A grantee may not use grant funds to improve parts of its facility that are not used for grant-related activities because all grant-funded costs must be allocable to the grant. See OMB Circular A-122, Attachment A, � A.4. SAMHSA asserted, and Family Life did not dispute, that Family Life operated programs other than the CSAP-funded project at its facility. SAMHSA Ex. 2, at 2. SAMHSA also asserted that the CSAP-funded project used only discrete areas of Family Life's facility and did not occupy any of the third, fourth, and fifth floors of the building or the gym. SAMHSA Br. at 3. The CSAP-funded project should not bear the burden of costs for maintaining areas of the facility that are not allocable to the grant.

Moreover, Family Life bears the burden to show how the questioned costs were related to the CSAP-funded project. The requirement to document costs is a fundamental principle of grants management, and the burden to demonstrate the allowability and allocability of costs claimed in a grant program rests with the grantee. Lac Courte Oreilles Tribe, DAB No. 1132, at 5 n.4 (1990). Family Life has not met that burden here. The fact that SAMHSA may have elected to approve Family Life's use of grant funds for other general improvements such as the full cost of a chain link fence around the property or heating repairs to floors of the facility not used by the CSAP-funded project does not mean that Family Life had approval to make any improvements it wanted to its facility using CSAP funds.⁽⁸⁾ Family Life has failed to provide any evidence that showed how the CSAP grant benefited from repairs done on floors of the building not occupied by CSAP-related activities.

We note, however, that the list of questioned costs in this category also included a check for $2,923 for 1993 back taxes on the Meridian Street building. Family Life Ex. 7. Family Life did not explain why taxes were included among the costs for repairs and maintenance. Concerning this payment of 1993 taxes, the Board inquired in its Order to Develop the Record whether this payment of back taxes could be allocated to the CSAP grant and thus be allowable. SAMHSA responded that the taxes were for the Meridian Street property and this property was not occupied by the CSAP grant until February 1994, and that, accordingly, back taxes for 1993 were not allocable to the CSAP grant. Family Life replied that the Meridian Street property was purchased in 1993 after the start of the CSAP grant, but could not be occupied until 1994 when renovations had been completed and occupancy approved by municipal officials. Family Life noted that the cost of renovation for code approval was approved by CSAP officials and was paid for by CSAP grant funds.

As discussed above in the section on rental costs, SAMHSA allowed the payment of property taxes on the Meridian Street property for FY 94. The FY 93 audit report stated that SAMHSA could not identify any property taxes in FY 93. SAMHSA Ex. 2a at 4. Those property taxes have now been identified and documented. We see no basis for differentiating between the property taxes for FY 94 and FY 93. While the Meridian Street property may not have been physically occupied by the CSAP grant until 1994, the building was purchased in 1993 for use by the CSAP grant and renovated with CSAP funds. Accordingly, there is no basis for distinguishing between the property taxes for 1993 and those for 1994. We therefore reverse the disallowance for $2,923 for the 1993 property taxes on the Meridian Street property.

Accordingly, we sustain the disallowance in the reduced amount of $5,374 under the category of repair and maintenance costs.

D. Accrued Compensation

SAMHSA determined that Family Life drew down funds from the Payment Management System for accrued compensation for its executive director that was charged to the CSAP grant, with $17,000 being drawn down in FY 93,$41,500 in FY 94, and $21,667 in FY 95, for a total of $80,167. These amounts, however, were not identified as salary by Family Life's outside auditor in the yearly audit reports he prepared because the executive director had directed these amounts to Family Life to cover unallowable grant costs. Family Life Br. at 6; SAMHSA Ex. 10. SAMHSA stated that Family Life confirmed that the accrued compensation had not actually been paid and that withholding taxes and FICA payments on the funds designated as "compensation" were not made.

SAMHSA maintained that there is no federal regulation that permits a grantee to use federal funds for whatever expenses it so chooses. SAMHSA stated that, in order for the amounts drawn down to be allowed as salary costs, Family Life needed to confirm that the accrued compensation had been paid to the executive director and that Family Life had paid the withholding and FICA taxes to the appropriate entities. SAMHSA contended that Family Life had failed to provide any such documentation.

Family Life argued that it properly accounted for grant funds intended to pay the salary of its executive director. Family Life cited page 7-11 of the PHS Grants Policy Statement as authority that compensation paid to its executive director was an allowable expense to the CSAP grant:

Compensation for personal services covers all amounts paid or accrued by the organization for services rendered to the project. These costs are allowable to the extent they are reasonable and conform to the established, consistently applied policy of the organization, and reflect no more than the percentage of time actually devoted to the PHS-funded project.

Family Life stated that its Board of Directors established an annual salary of $60,000 for its executive director. Family Life Ex. 5. Family Life maintained that this amount of compensation drawn down from the CSAP grant was not excessive or unusual in light of the executive director's many years of experience and the number of hours she worked. Family Life contended that it should not now be penalized for accepting part of the wages of its director as a gift. Family Life argued that if the executive director's gift of her wages to Family Life is found unacceptable, the compensation should be returned to the executive director.

In order for Family Life to have properly charged its executive director's entire approved salary to the CSAP grant, Family Life would have to have shown that:

1) the executive director devoted 100 percent of her time, as shown by activity reports, to the CSAP grant. Since Family Life conducted activities other than the CSAP grant, however, with the executive director presumably devoting some time to those activities, it is doubtful that 100 percent of her salary was allocable to the CSAP grant.

2) withholdings for taxes and FICA were made at the time the executive director's salary donation was credited to the grant and documentation of the donation to Family Life.

3) accounting entries, showing documented payrolls, were made to reflect the executive director's salary and her donations, and how these were allocated to each grant Family Life received.

Family Life has failed to provide any documentation that satisfies any one, let alone all, of these requirements. We have no indication from the record, nor has Family Life provided any information in its appeal before us, how much of her time the executive director of Family Life devoted to CSAP grant activities as opposed to her other responsibilities to Family Life. Page 7-11 of the PHS Grants Policy Statement, referred to by Family Life, continues on to require supporting documentation in the form of personnel activity reports. Family Life failed to provide such activity reports. Similarly, Family Life has failed to supply documentation that withholdings for taxes and FICA were made on the amount of salary claimed for the executive director under the CSAP grant, which would have been the case if the salary was being paid and returned. The record before us simply provides no basis at all for the accrued compensation claimed by Family Life or the donation. Indeed, the record here establishes that the funds were used for unallowable costs. Family Life Br. at 6.

Accordingly, we find that the amounts labeled accrued compensation were not properly documented as an allowable cost and were in fact applied to unallowable costs; therefore, we sustain the disallowance of accrued compensation for the executive director in the amount of $80,167.

E. Facility Use Charges

SAMHSA disallowed $3,022 in FY 95 claimed by Family Life as a direct expense to its CSAP grant for a facility use charge. SAMHSA stated that the only documentation proffered by Family Life for this expense was a canceled check payable to Opryland USA. SAMHSA Ex. 9, at 3. SAMHSA found that there was no further documentation to show how this cost was allocable to the CSAP grant.

Family Life contended that the funds in question were utilized for its annual training conference at a local hotel. Family Life asserted that this event was approved in its initial grant application and that it is allowable to provide facilities, meals, speakers, and other activities for grant purposes. Family Life contended that costs associated with these events at the Opryland facility have not been questioned in the past and that CSAP officials have been routinely invited to these annual events.

As discussed in the section of this decision concerning repair and maintenance costs, a grantee has the obligation to provide documentation to support its claim. Family Life failed to provide documentation or point to anything in the record -- a contract with the facility, agenda for the conference, list of speakers and/or attendees, training materials used -- to connect the event held at Opryland with the CSAP grant. A mere canceled check, with no additional information, is insufficient to establish that the cost was related to the grant. Accordingly, we sustain the disallowance of $3,022 for this item.

F. Earned Interest

In the course of this appeal, SAMHSA reversed in full its original determination to disallow $3,656 in FY 93 and $2,042 in FY 94 for interest earned by Family Life. SAMHSA Br. at 4. Thus, the total amount of the disallowance is reduced by $5,698.

G. FYs 96 and 97 Claims

Although SAMHSA had not yet issued a formal disallowance notification, the parties agreed that the Board should examine $50,585 in costs for FYs 96 and 97 for which SAMHSA had withheld payment. According to Family Life, these costs included: $30,000 for the executive director's salary in 1995; $6,958 for a raise in the executive director's salary in 1996; $4,000 to hire an evaluator; $1,059 for fuel and repair of a van; $13 for postage; $515 to replace a hot water heater; $782 in copier machine repairs; $48 in garbage removal; and $2,117 for supplies.⁽⁹⁾ Family Life Ex. 9.

While Family Life's appeal was before the Board, SAMHSA

agreed to reimburse Family Life for two items, a hot water heater ($515) and copier repairs ($782). However, SAMHSA refused to allow the costs of the other items on the ground that Family Life failed to provide adequate documentation for the expenses. See SAMHSA Ex. 15, at 2 - 4.

The Board does not ordinarily review a dispute where a formal disallowance notification had not been issued. In the instant case, however, the parties have agreed that we should treat SAMHSA's withholding of funds as a disallowance, the items and the amounts in dispute are not contested, and judicial economy dictates the reasonableness of resolving a matter the parties agree is ripe for decision.

We are sustaining the disallowance by withholding of payment for all the expenses still in dispute. We have already discussed above the basis for denying the executive director's salary. All the other items were denied based on the failure of Family Life to provide documentation that the claimed costs were connected to the CSAP grant. As we discussed previously in this decision, it is the responsibility of a grantee to document its costs. Without documentation there is no way of establishing that these expenses benefited the CSAP grant. Despite repeated opportunities while its appeals were before the Board, including the opportunity to respond to a specific question in the Board's Order to Develop the Record pertaining to documentation for these claims, Family Life has not provided us with any documentation to support its claims for these items or to show how SAMHSA's initial determination was erroneous. In the absence of such documentation, we find that SAMHSA correctly withheld payment.

For the reasons discussed above, we sustain the disallowances as modified in the amount of $257,060 and reverse the disallowance of $2,923.

1. As discussed below, SAMHSA in the course of this proceeding withdrew a disallowance of $5,698 for earned interest and, in response to questions in an Order to Develop the Record issued by the Board, reduced the disallowance for indirect costs from $50,115 to $21,806.

2. In its April 2, 1996 disallowance determination, SAMHSA transposed the disallowed amount in one of the items, indirect costs for FY 93, and erroneously arrived at a disallowance amount of $152,009; the amount of the disallowed items correctly tabulated is $151,559.

3. Effective December 31, 1998, Part 50, Subpart D, was amended to remove SAMHSA from the list of agencies to which the informal appeals procedures apply. 63 Fed. Reg. 66,062 (December 1, 1998).

4. OMB Circular A-122 was extensively revised, effective June 1, 1998. See 63 Fed. Reg. 29,794. As the budget periods under review in these appeals predate the revision, we cite to provisions of OMB Circular A-122 as they were in effect during the period at issue.

5. In its brief SAMHSA stated that an additional $25,267 directly charged to the CSAP grant in FY 94 without any approval by the CSAP grants management officer for building repairs and maintenance should be disallowed, but that it was not disallowing this cost at this time. SAMHSA Brief (Br.) at 2.

6. SAMHSA allowed for property taxes and depreciation in FY 94, but denied allowances for these items for FY 93 as Family Life had reported no property taxes for that fiscal year and already charged the depreciation to a State of Tennessee grant. Family Life could have allocated the proportionate share of the depreciation to the CSAP grant, but elected not to do so. If it had, that share of the depreciation would have been an allowable cost.

7. These costs included, inter alia, sanding of the gymnasium floor, painting of the gymnasium, kitchen repairs, ironwork, glass replacement, and signs. Family Life Ex. 7.

8. Moreover, OMB Circular A-122 provides that capital expenditures are unallowable as a direct cost except with the prior approval of the awarding agency. Paragraph 13.d. There is no indication that SAMHSA approved the improvements to the gymnasium or the kitchen, or that Family Life ever requested such approval. Thus, even if the costs had been allocable to the CSAP grant, they would not have been allowable unless SAMHSA were to have determined that retroactive approval should be granted.

9. These items total $45,492. Family Life has given no explanation for the discrepancy between this amount and the $50,585 Family Life asserted was expended. SAMHSA stated that it had attempted to reconcile the amounts, but was unable to fully do so. SAMHSA Ex. 15, at 2. SAMHSA speculated that most of the unreconciled amount, $4,583, might represent salary payments to a psychologist in September and October 1996. Id. at 2 - 3. SAMHSA stated that these costs were disallowed because Family Life had failed to submit requested documentation (the psychologist's resume). Id. at 3.