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| IN THE CASE OF | |
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The Human Development Corporation Decision No. 1703 |
Date: 1999 September 30 |
| DECISION | |
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The Human Development Corporation of Metropolitan St. Louis (HDC) appealed the November 12, 1998 decision by the Administration for Children and Families (ACF) terminating HDC's Head Start grant pursuant to 45 C.F.R. � 1303.14. ACF's decision was based on the results of an April 1997 On-Site Program Review (OSPR) and a June 1998 follow-up OSPR. ACF determined that these reviews established three grounds for termination: failure to comply with eligibility requirements and limitations on enrollment (section 1303.14(b)(5)); failure to comply with fiscal or program reporting requirements (section 1303.14(b)(3)); and failure to comply with requirements of the Head Start Act (section 1303.14(b)(7)), specifically, failure to comply with requirements for services to children with disabilities and for a community needs assessment. For the reasons discussed in detail below, we reverse ACF's decision to terminate HDC's Head Start grant. Under the amendments to the Head Start regulations that ACF adopted effective January 1, 1998, termination is permitted only where a grantee has been notified of a "deficiency" and given an opportunity to correct it either immediately or pursuant to a Quality Improvement Plan (QIP). The regulations define the types of non-compliance which constitute deficiencies and provide that other items of non-compliance which are not corrected after notice become deficiencies. The regulations further provide that any uncorrected deficiency is a material failure to comply with the terms and conditions of the grant and is a basis for termination. Thus, even a relatively minor non-compliance can become a basis for termination if a grantee fails to correct it after the proper notice has been given, i.e., notice that the non-compliance will be deemed a deficiency if uncorrected, followed by notice that the uncorrected non-compliance is now a deficiency. As explained later, we find that the items of non-compliance of which ACF gave notice to HDC in August 1997 did not constitute deficiencies within the meaning of ACF's amended regulations. Thus, while ACF gave HDC until June 1998 to correct these items of non-compliance, ACF's November 1998 determination that they remained uncorrected merely meant that they were now considered deficiencies. Under the regulatory scheme which ACF itself had adopted, ACF could not properly terminate HDC's grant based on these alleged deficiencies since ACF did not give HDC a further opportunity to correct them. (Moreover, ACF gave no prior notice of some of the items of non-compliance cited in ACF's November 1998 determination, so that they never rose to the level of deficiencies.) Contrary to what ACF argued, this conclusion is based on prospective application of a substantive rule. The salient provision, the definition of "deficiency," became effective after ACF first gave notice to HDC of an opportunity to correct the items of non-compliance at issue. Upon determining that HDC's efforts to correct had been unsuccessful, however, ACF could have complied with the regulatory scheme by giving HDC notice that its grant would be terminated unless the non-compliances that had become deficiencies were corrected either immediately, or, at ACF's option, pursuant to a QIP. Moreover, since the amended regulations were published in November 1996 with an effective date of January 1, 1998, ACF was aware even when it first gave notice of the items of non-compliance that these regulations might govern any termination occurring after the effective date. Thus, the fact that ACF gave this notice while the prior regulations were in effect did not prejudice its ability to comply with the amended regulations. In proceeding to terminate HDC's grant without the requisite notice and opportunity to correct, ACF ignored its own policy, reflected in the amended regulations, that certain violations of the applicable requirements should be treated differently from the violations described as "deficiencies," a single one of which may be the basis for termination if not immediately corrected. This policy is consistent with the Department's general grants administration regulations, which permit termination based on a material failure to comply with grant terms and conditions. It is also consistent with the expectation, borne out in practice, that ACF will generally continue to fund a Head Start grant once awarded. Having defined in the amended regulations what it believes constitutes a material failure, ACF cannot reasonably terminate HDC's grant based on a lesser failure, as it sought to do here, without providing the requisite notice and opportunity to correct under its amended regulations. Accordingly, we reverse ACF's decision to terminate HDC's grant. This disposition does not preclude ACF from relying on a finding of non-compliance made as a result of the April 1997 or June 1998 review of HDC's Head Start program as a basis for a future decision to terminate provided that the applicable requirements of the amended regulations are met. BACKGROUND Statutory and Regulatory Background The Head Start program is designed to deliver comprehensive health, educational, nutritional, social and other services to economically disadvantaged children and their families. See 42 U.S.C. � 9831 and 45 C.F.R. � 1304.1-3. ACF provides funds to grantees to serve as Head Start agencies within designated communities and periodically reviews their performance in meeting program and fiscal requirements. See generally 42 U.S.C. � 9836. Under section 1304.1-5(b) of the regulations which became effective in 1975, if "the responsible HHS official . . . is aware or has reason to believe that a Head Start program . . . is not in compliance with performance standards, he shall notify the grantee promptly in writing of the deficiencies and inform the grantee that it . . . has a period stated in the notice not to exceed 90 days to come into compliance." Section 1304.1-5(f) provides that "[t]he time within which a grantee . . . shall be required to correct deficiencies in implementation of the performance standards may be extended by the responsible HHS official to a maximum of one year" with respect to certain deficiencies. If a grantee has not corrected its deficiencies within the time period stated in the notice, the grantee is to "be notified promptly by the responsible HHS official of the commencement of suspension or termination proceedings or of the intention to deny refunding . . . under part 1303 (appeals procedures) of this chapter ."(1) 45 C.F.R. � 1304.1-5(e). Section 1304.14(b) states that "[f]inancial assistance may be terminated for any or all of the following reasons" and lists nine reasons, including the three specified by ACF as the grounds for terminating HDC's grant. On November 5, 1996, ACF published amendments to the Head Start regulations. The regulations contained a provision stating that they would be effective January 1, 1998. 61 Fed. Reg. 57186, 57211; 45 C.F.R. � 1304.2. Section 1304.60(b) provides that, if "the responsible HHS official" determines that a grantee has one or more deficiencies (as defined in section 1304.3(a)(6)), he or she will notify the grantee that it must correct the deficiencies "either immediately or pursuant to a Quality Improvement Plan" (QIP) which specifies, for each deficiency, "the actions that the grantee will take to correct the deficiency and the timeframe within which it will be corrected." Section 1304.60(c) provides that "[i]n no case can the timeframes proposed in the QIP exceed one year from the date that the grantee received official notification of the deficiencies to be corrected." Under section 1304.60(d), within 30 days of the receipt of the QIP, the responsible HHS official is to notify the grantee in writing of the approval of the QIP or specify the reasons why the QIP is disapproved. If the QIP is disapproved, the grantee must submit a revised QIP, making the changes necessary to address the reasons that the initial QIP was disapproved. Section 1304.60(e). Finally, section 1304.60(f) states in pertinent part:
45 C.F.R. � 1304.3(a)(6). The Head Start Act at 42 U.S.C. � 9841(a)(3) and regulations at 45 C.F.R.
� 1303.16(a) provide that a grantee shall have an "opportunity for a full
and fair hearing" on a proposed termination. Procedures for the conduct
of a hearing are set forth at 45 C.F.R. � 1303.16. The Board is authorized
to act on behalf of the Secretary to provide this opportunity for hearing.
57 Fed. Reg. 59,260 (December 14, 1992). The Board's procedural regulations
at 45 C.F.R. Part 16 apply to these proceedings insofar as they are not
inconsistent with Part 1303. 45 C.F.R. Procedural Background HDC is the designated Head Start agency in St. Louis, Missouri. From April 7 through 11, 1997, ACF conducted an on-site program review (OSPR) of HDC's Head Start program. In an undated letter received by HDC on August 22, 1997, ACF notified HDC that it had been found out of compliance with several OSPR items corresponding to performance standards and other regulatory requirements. ACF advised HDC that some of the non-compliance items constituted deficiencies which were required to be corrected within a period of time not to exceed one year. ACF stated that HDC was required to submit a quality improvement plan (QIP) for correction of these deficiencies within 45 days of its receipt of the letter. On October 14, 1997, HDC submitted a QIP; however, ACF notified HDC by letter dated November 14, 1997 that this QIP was unacceptable because it lacked specific and comprehensive procedures to correct the deficiencies. HDC submitted a revised QIP on December 17, 1997; however, ACF advised HDC by letter dated May 8, 1998 that this QIP was unacceptable as well and that ACF would conduct a follow-up OSPR from June 15 through 19, 1998. On November 12, 1998, ACF advised HDC that, based on the follow-up OSPR, ACF had determined that HDC had not corrected deficiencies in four areas, and that termination of HDC's grant was warranted on three of the bases stated in section 1303.14: failure to comply with eligibility requirements and limitations on enrollment (section 1303.14(b)(5)); failure to comply with fiscal or program reporting requirements (section 1303.14(b)(3)); and failure to comply with requirements of the Head Start Act, specifically requirements for services to children with disabilities and for a community needs assessment (section 1303.14(b)(7)).(2) ACF stated that it was terminating HDC's "designation as a Head Start Grantee and the Federal financial assistance it receives effective November 30, 1998." ACF letter dated 11/12/98, at 1. Thus, the proposed termination was to take effect on the last day of the grant that was awarded to HDC for the budget period beginning on December 1, 1997. On November 18, 1998, HDC timely appealed ACF's decision, requesting an in-person hearing on the proposed termination. Prior to the hearing, ACF submitted a motion for summary affirmance of the termination, asserting that HDC had not demonstrated that there was any material factual dispute concerning the findings of deficiencies on which the termination was based. The Board denied ACF's motion, finding that "HDC has raised disputed issues of material fact as to which testimony may be dispositive on some of the alleged deficiencies." Ruling on Motion for Summary Affirmation dated 4/16/99, at 1. The Board noted that the remaining deficiency findings appeared to be undisputed or on their face not to satisfy documentation requirements, but determined that a hearing was nevertheless warranted because it "may assist us in evaluating materiality." Id. Following the Board's receipt of written direct testimony, an in-person hearing was held in St. Louis, Missouri on June 21 and 22, 1999. After the hearing, the parties filed post-hearing briefs as well as responses to the Board's request for additional briefing. |
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| ISSUES | |
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Prior to the hearing, the Board raised the question of whether the Head Start regulations in effect prior to January 1, 1998 or the amended regulations effective beginning January 1, 1998 are applicable to this case. The Board directed the parties to be prepared to address this question in either post-hearing briefing or in oral argument at the hearing since differences between the two versions of the regulations could affect the disposition of the case. Regulatory Notice of Hearing and Confirmation of Pre-Hearing Conference, dated 5/6/99, at 4. In their post-hearing briefs, both parties took the position that this case is governed by the amended regulations. This position is contrary to the normal rule that the regulations in effect at the beginning of the budget period for which a discretionary grant is awarded (here, December 1, 1997) govern. We find nevertheless that ACF could properly apply the amended regulations in this case, since Head Start grantees were given more than a year's notice that they would be held to these regulations as of January 1, 1998, and since HDC acceded to the application of these regulations as of that date. However, this raises the issue of whether ACF's decision to terminate was based on "deficiencies" within the meaning of the amended regulations. These regulations permit termination only where a grantee has been notified of a "deficiency" to be corrected and given an opportunity to correct the deficiency either "immediately" or pursuant to a QIP. 45 C.F.R. � 1304.60(b). Not every level of non-compliance qualifies as a "deficiency" under the amended regulations, however. The amended regulations define the term "deficiency" (which was undefined in the earlier regulations) as including an "area of performance" that is out of compliance and that meets one of four additional conditions (45 C.F.R. � 1304.3(a)(6)(i)(A)-(D)). In addition, a deficiency is "any other violation" which "the grantee has shown an unwillingness or inability to correct within the period specified by the responsible HHS official, of which the . . . official has given the grantee written notice . . . pursuant to section 1304.61" (45 C.F.R. � 1304.3(a)(6)(iii).(3) Thus, unless section 1304.3(a)(6)(i) is applicable, an item of non-compliance does not become a deficiency until the grantee has had an opportunity to correct it, but failed to do so. At that point, the grantee is entitled to an opportunity to correct the non-compliance either immediately or pursuant to a QIP before the grant can be terminated.(4) HDC took the position that, contrary to what ACF indicated in the notice received by HDC on August 22, 1997, none of the items of non-compliance on which ACF relied as a basis for the proposed termination qualified as deficiencies when ACF issued its August 1997 notice. Instead, HDC argued, they remained items of non-compliance until ACF gave notice in its November 12, 1998 letter of its determination that HDC had failed to correct them. Thus, according to HDC, termination of its grant was premature, even assuming that ACF could establish as a matter of fact that there were items of non-compliance that had not been corrected.(5) (6) ACF did not dispute that, under the amended regulations, some items of non-compliance do not constitute deficiencies until after a grantee has been given an opportunity to correct and failed to do so, at which point the grantee must be given a further opportunity to correct before a grant may be terminated. Moreover, ACF continued to maintain that the amended regulations were effective as of January 1, 1998 regardless of the starting date for the grant sought to be terminated. Nevertheless, ACF took the position that it would constitute an impermissible retroactive application of the amended regulations here to require an additional opportunity to correct certain types of non-compliance before they can become deficiencies since the amended regulations were not in effect when ACF first gave notice of the items of non-compliance. ACF further argued that, even if the amended regulations are applicable, the items of non-compliance on which it relied as the basis for termination did in fact constitute deficiencies within the meaning of these regulations, so that termination is proper. We therefore consider as a threshold matter (1) whether ACF must have applied the definition of "deficiency" in the amended regulations in moving to terminate HDC's grant; and if so, (2) whether any of the items of non-compliance on which ACF relied as a basis for termination constituted deficiencies within the meaning of these regulations in the absence of an opportunity to correct. As discussed below, we conclude that ACF was required to apply the definition of "deficiency" in the amended regulations, but that none of the items of non-compliance cited by ACF constituted deficiencies when ACF first gave notice of them. Accordingly, there is no basis for termination of HDC's grant at this juncture. |
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| FINDINGS OF FACT AND CONCLUSIONS OF LAW | |
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| ANALYSIS | |
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Application of the definition of "deficiency" in the amended regulations does not constitute an impermissible retroactive application of the regulations. As indicated above, the amended regulations authorize termination based on a single deficiency, define for the first time what constitutes a deficiency and, where an item of non-compliance does not initially rise to the level of a deficiency, require that a grantee be given an opportunity to correct the non-compliance before it becomes a deficiency. ACF took the position that the amended regulations generally apply here but that it would constitute an impermissible retroactive application of these regulations to require that HDC be given a further opportunity to correct items of non-compliance that did not initially rise to the level of a deficiency. This argument has no merit. The opportunity to correct certain types of non-compliance before they can become a deficiency is an integral part of the definition of "deficiency" in the amended regulations. Since this definition was in effect when ACF proposed to terminate HDC's grant, its application here is prospective, not retroactive. ACF on the other hand would continue to apply the earlier regulations, which treated any non-compliance as a deficiency, after the amended regulations were already in effect. However, there is absolutely no indication in the wording of the amended regulations that ACF contemplated any such exception to the January 1, 1998 effective date. Indeed, the preamble to the amended regulations notes that the regulations establish "one specific date" when they would become effective. 61 Fed. Reg. 57186, 57191 (November 6, 1996). It is of course true that the amended regulations became effective after ACF first gave notice to HDC in August 1997 of an opportunity to correct the items of non-compliance. However, upon determining that HDC's efforts to correct were unsuccessful, ACF could have complied with the amended regulations which had become effective by giving HDC notice that its grant would be terminated unless HDC corrected the alleged deficiencies either immediately, or, at ACF's option, pursuant to a QIP. Furthermore, since the amended regulations were published in November 1996, ACF was clearly aware before ACF issued the August 1997 notice that these regulations might govern any termination occurring after their January 1, 1998 effective date. Moreover, ACF cannot reasonably take the position that some parts of the amended regulations are applicable while other parts are not. ACF maintained that section 1304.60(f) of the amended regulations is applicable to this case. That provision states in pertinent part that "[a] deficiency that is not timely corrected shall be a material failure of a grantee to comply with the terms and conditions of an award . . . ." Unlike the regulations previously in effect, which required the Board to evaluate the materiality of uncorrected deficiencies (see, e.g., Community Action of Greene County, Inc., DAB No. 1674, at 4, n.1 (1998)), section 1304.60(f) permits termination based on a single deficiency. It would be unreasonable, and contrary to the apparent purpose of the amended regulations, to treat any non-compliance as material (and thus as a sufficient basis for termination), without providing the additional opportunity required by the amended regulations to correct certain types of non-compliance that do not initially rise to the level of a deficiency. Accordingly, in applying the definition of "deficiency" in the amended regulations to determine whether there is a basis for termination of HDC's Head Start grant, we merely apply prospectively a substantive rule which ACF itself fashioned to assure that Head Start grantees are terminated only for material violations of the applicable requirements. The items of non-compliance on which ACF relied as a basis for termination do not constitute deficiencies within the meaning of section 1303.4(a)(6)(i) of the amended regulations. ACF argued in the alternative that, if the Board concluded that the amended regulations applied here, the items of non-compliance on which ACF relied as a basis for termination constituted "deficiencies" under section 1304.3(a)(6)(i). If that were the case, then HDC would have been given an adequate opportunity to correct following receipt of ACF's August 1997 notice and there would be a legal basis for termination.(7) However, the record before us does not establish that the items of non-compliance constituted deficiencies at the relevant time. Below, we discuss the items of non-compliance grouped according to the headings in ACF's termination letter. 1. The alleged failure to comply with eligibility requirements and limitations on enrollment did not constitute a deficiency in the absence of an opportunity to correct. The first ground on which ACF proposed to terminate was its finding that HDC failed to comply with the requirements of 45 C.F.R. Part 1305 that a Head Start grantee maintain its funded enrollment, obtain a sufficient number of applications prior to the beginning of the school year, and maintain a waiting list.(8) ACF contended that this constituted a deficiency within the meaning of section 1304.3(a)(6)(i)(C) because it involved a failure to perform substantially the requirements related to Early Childhood Development and Health Services at 45 C.F.R. Part 1304, Subpart B. ACF noted that Subpart B includes requirements for the provision of various health services to Head Start children and their families. ACF argued that, since "[n]one of these services were provided to the significant number of children and families who were not enrolled in the Head [S]tart program," HDC substantially failed to provide these services. ACF Br. dated 8/13/99, at 7. Similarly, ACF contended that this non-compliance item constituted a deficiency within the meaning of section 1304.3(a)(6)(i)(C) because it involved a failure to perform substantially the requirements related to Family and Community Partnerships at 45 C.F.R. Part 1304, Subpart C. ACF noted that this subpart requires grantees to work closely with enrolled families to meet their goals and to foster parental involvement in the Head Start program. ACF argued that HDC was unable to meet these requirements with respect to the children who were not enrolled and their families. Finally, ACF contended that this non-compliance item constituted a deficiency within the meaning of section 1304.3(a)(6)(i)(D) because it involved the misuse of Head Start funds. Specifically, ACF argued that "HDC's failure to enroll anywhere near the number of children it was funded to serve leads inescapably to the conclusion that Head Start funds were misused." ACF Br. dated 8/13/99, at 8. We are not persuaded that the items of non-compliance related to enrollment constituted deficiencies under any of the provisions identified by ACF. ACF's position that HDC failed to provide required services or to meet other requirements with respect to children who were not enrolled in effect makes underenrollment the basis for finding a grantee out of compliance with virtually all of the Head Start requirements. We see nothing in the wording of Subparts B or C that supports such an expansive reading of the requirements related to enrollment, and ACF cited no other authority for this reading. Furthermore, we find ACF's position that HDC's underenrollment necessarily resulted in the misuse of Head Start funds to be untenable. ACF did not allege that the amount of Head Start funds awarded is precisely proportionate to a grantee's funded enrollment.(9) Moreover, ACF neither disallowed any costs as improperly charged to HDC's Head Start grant during the period in question nor provided any evidence in proceedings before us that HDC's underenrollment in fact resulted in any funds being spent for unauthorized purposes.(10) Accordingly, we conclude that the items of non-compliance related to enrollment did not constitute a deficiency absent an opportunity for HDC to correct them and that termination based on these items of non-compliance was therefore premature. 2. The alleged failure to comply with fiscal reporting requirements did not constitute a deficiency in the absence of an opportunity to correct. The second ground on which ACF proposed to terminate was its finding that HDC failed to maintain effective control over and accountability for all funds, property and other assets, adequately safeguard all such assets, and assure that they are used solely for authorized purposes, as required by 45 C.F.R. � 74.21(b)(3). Specifically, ACF found that HDC failed "to implement internal accounting controls and to adequately supervise appropriate employees to ensure that the agency's procedures and policies were being followed . . . ." ACF letter dated 11/12/98, at 2. ACF stated that this resulted in several conditions: a) . . . Substantial purchases were made using outdated bid information and without applying proper bid procedures. b) Because the grantee's general ledger had not been closed and adjusting entries were not made for more than 6 months, bank reconciliations for the same period could not be done. c) . . . . Records indicated that checks had been written but not issued to vendors in a timely fashion. d) . . . . Several purchases had not been properly accounted for in the property records. Equipment purchased with Head Start funds was used for unauthorized purposes. ACF argued preliminarily that since these items of non-compliance involved violations of 45 C.F.R. Part 74 rather than the Head Start performance standards, the violations need not constitute a deficiency within the meaning of the amended regulations in order to be a proper basis for termination. This argument has no merit. Section 1304.3(a)(6)(iii) provides that "any" violation of federal or state requirements which the grantee has shown an unwillingness or inability to correct constitutes a deficiency. The provision further states that this includes but is "not limited to" violations of the Head Start Act and certain specified Head Start regulations. Thus, the definition of "deficiency" in the amended regulations was clearly intended to encompass violations of requirements other than the performance standards, such as violations of Part 74. ACF argued alternatively that these items of non-compliance constituted a deficiency within the meaning of section 1304.3(a)(6)(i)(D) of the amended regulations--misuse of Head Start grant funds--because HDC "failed to take the steps required to assure that Head Start funds are being properly obligated and protected." ACF Br. dated 8/13/99, at 9. The items of non-compliance found by ACF could conceivably create an environment which facilitated the spending of Head Start funds for unauthorized purposes, i.e., misuse of Head Start funds. With one possible exception, however, it is not apparent that the items of non-compliance directly involved the misuse of Head Start funds.(11) Moreover, as indicated above, there is no indication in the record that ACF has disallowed any funds charged by HDC to its Head Start grant, nor is there any evidence in the record that any Head Start funds were spent for unauthorized purposes. In any event, HDC took the position that, even if these items of non-compliance constituted deficiencies under section 1304.3(a)(6)(i)(D) of the amended regulations, HDC had not had an adequate opportunity to correct. Specifically, HDC asserted that these items of non-compliance were not included in ACF's August 1997 notice, making the November 1998 termination letter the first notice of ACF's findings regarding these items. We agree that HDC in fact had no prior notice of two of the four items of non-compliance. The August 1997 notice states generally that 45 C.F.R. � 74.21(b)(3) and OSPRI #218 (the number in the on-site review report which corresponds to this regulatory section) require "effective control over and accountability for all funds, property and other assets" and that "[t]he financial management system did not provide effective control over or provide accountability for all funds, property and other assets." ACF's undated letter, received by HDC on 8/22/97, Attachment A, first unnumbered page. This is clearly inadequate notice of the specific "conditions" on which ACF based the termination since these statements are so broad that HDC could not reasonably know from them what its particular failings were in order to correct. Moreover, there is no evidence in the record that the factual basis for these statements was the same as the factual basis for items a) through d) above. The August 1997 notice also incorporated the on-site review report,(12) which indicates in OSPRI #218 that HDC was out of compliance with four requirements. ACF Ex. 4, at 99. One of those requirements--"Transactions are posted in the accounting records in a consistent and timely manner"--corresponds directly to item b) above. Another such requirement--"Accounting records are supported by source documentation, e.g., invoices, vouchers, bill statements, cancelled checks, etc."--corresponds to item c) above since checks written but not timely issued to vendors would not have been available as source documentation to support the accounting records (assuming that the checks were even entered into the accounting system).(13) However, ACF conceded that nothing in OSPRI #218 corresponds to item d) above.(14) ACF Br. dated 8/13/99, at 11. In addition, we find that there is nothing in OSPRI #218 which corresponds to item a) above.(15) We therefore agree with HDC that the two items of non-compliance of which HDC had no prior notice were not a proper basis for termination even if they were deficiencies under section 1304.3(a)(6)(i)(D). Accordingly, we conclude that the items of non-compliance related to failure to comply with fiscal reporting requirements did not constitute a deficiency absent an opportunity for HDC to correct them and that termination based on these items of non-compliance was therefore premature. 3. The alleged failure to comply with the requirements for services to children with disabilities did not constitute a deficiency in the absence of an opportunity to correct. The third ground on which ACF proposed to terminate was its finding that HDC failed to consult with parents in the preparation of its disabilities service plan, as required by 45 C.F.R. � 1308.4(e). ACF also found that HDC failed to carry out ten tasks relating to parent participation and transition of children with disabilities into Head Start and from Head Start to public school, as required by section 1308.21(a)(1) - (10).(16) ACF took the position that these items of non-compliance constituted deficiencies within the meaning of section 1304.3(a)(6)(i)(C), a failure to perform substantially the requirements related to Family and Community Partnerships at Subpart C of Part 1304, because they undermined the ability of parents to meet the developmental needs of their children and participate in their progress. ACF Br. dated 8/13/99, at 9. However, ACF did not identify any provision in Subpart C (nor are we aware of one) which refers to parent involvement in preparation of the disabilities services plan. Subpart C does contain a requirement that a Head Start grantee establish relationships with community organizations that provide services to children with disabilities and their families.(17) However, ACF did not allege that HDC failed to establish such relationships or suggest that that was the cause of HDC's alleged failure to carry out the ten tasks. Accordingly, we conclude that the items of non-compliance relating to requirements for services to children with disabilities did not constitute a deficiency absent an opportunity for HDC to correct them and that termination based on these items of non-compliance was therefore premature. 4. The alleged failure to comply with requirements for a community needs assessment did not constitute a deficiency in the absence of an opportunity to correct. The fourth ground on which ACF proposed to terminate was its finding that the Community Needs Assessment (CNA) developed by HDC did not collect and analyze certain information regarding the needs of Head Start families, as required by 45 C.F.R. � 1305.3(c)(3)-(6).(18) (19) The CNA in question, dated December 17, 1997, was a revised CNA developed in response to ACF's findings of deficiencies in this area in the April 1997 OSPR. ACF Ex. 18. ACF found specifically that "[i]nformation contained in the assessment, particularly information regarding the status of pre-school aged children, needed further clarification." ACF letter dated 11/12/98, at 4. ACF stated in addition that "[t]here was no evidence that information contained in the community needs assessment had been analyzed for program planning." Id. ACF further found that HDC failed to use information from its CNA to determine the types of program options needed or the location of Head Start centers, as required by section 1306.31(b).(20) ACF took the position that these items of non-compliance constituted a deficiency within the meaning of section 1304.3(a)(6)(i)(C) because they involved a failure to perform substantially the requirements for Program Design and Management at 45 C.F.R. Part 1304, Subpart D. ACF stated that, in the absence of any analysis of the data in the CNA, "HDC's program design and chosen program options were not specifically tailored to meet the needs of the Community, leading to other major program deficiencies such as under enrollment." ACF Br. dated 8/13/99, at 10. ACF did not identify any provision in Subpart D (nor are we aware of one) which refers to the requirement in section 1306.31(b) regarding use of information from the CNA. Section 1304.50(d)(iii) of Subpart D contains a reference to section 1305.3, which includes the requirement for analysis of the information in a CNA. Section 1304.50(d)(iii) provides in relevant part that the Head Start Policy Council must approve or disapprove procedures for program planning, including "[p]rocedures for program planning in accordance with this part and the requirements of 45 CFR 1305.3 . . . ." However, this requirement has no bearing on what constitutes a proper CNA, but appears instead to require that the Head Start Policy Council approve or disapprove the CNA. Accordingly, we conclude that the items of non-compliance relating to requirements for a CNA did not constitute a deficiency absent an opportunity for HDC to correct them and that termination based on these items of non-compliance was therefore premature. |
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| CONCLUSION | |
| For the foregoing reasons, we reverse ACF's decision to terminate HDC's grant. |
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| JUDGE | |
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Judith A. Ballard M. Terry Johnson Donald F. Garrett Presiding Board Member |
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| FOOTNOTES | |
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1. This procedure did not apply to violations of requirements other than the performance standards. 2. ACF also identified in its termination letter several "recurring noncompliant issues" as well as "new noncompliant issues" that it stated provided additional support for the conclusion that "HDC lacks the capacity to operate a Head Start program that meets required standards." ACF letter dated 11/12/98, at 5. However, ACF later stated that it was not relying on these issues as a basis for termination. 3. ACF did not contend that section 1304.3(a)(6)(ii) is applicable here. 4. We note that, on their face, the grounds for termination in section 1303.14(a) do not provide for any opportunity to correct an item of non-compliance before it becomes a deficiency. However, it was clearly ACF's intent that section 1303.14(a) be applied in conjunction with provisions of the amended regulations that do provide for such an opportunity to correct. Thus, section 1303.14(a) must be read together with the definition of "deficiency" in section 1304.60 as well as with section 1304.61 to require an opportunity to correct certain types of non-compliance before as well as after they qualify as deficiencies in order for there to be a basis for termination. This reading of the regulations is further supported by the preamble to the amended regulations, which states with respect to section 1304.61: The intent here is to underscore that grantees are also expected to correct all areas of noncompliance which have been identified, including those which do not need to be addressed under a Quality Improvement Plan; and, that, if the responsible HHS official determines that the grantee is unable or unwilling to do so within the specified timeframes, the area or areas in which the violations exist become deficiencies, which must then be corrected either immediately or under a Quality Improvement Plan. 61 Fed. Reg. 57186, 57207 (November 5, 1996). 5. HDC conceded several of ACF's findings of non-compliance and disputed the rest, arguing either that it had already corrected the non-compliance or that it was not out of compliance in the first instance. In addition, HDC argued that it was unable to correct its deficiencies in a timely manner because of an impasse between the Head Start Policy Council and HDC's Board of Directors over the appointment of a new Head Start Director. Since we conclude below that HDC is entitled to a further opportunity to correct any non-compliance, these arguments are moot. We therefore do not address them below although they are fully developed in the record for this appeal. We note that HDC alleged that it had corrected some of the items of non-compliance after ACF issued the termination letter in November 1998. ACF may certainly remove a finding of non-compliance on the basis of corrective action during this period. However, if deficiencies remain, HDC is still entitled to a further opportunity to correct since the amended regulations require notice of an opportunity to correct deficiencies and ACF's termination letter did not give such notice. 6. HDC also argued that the Board should set aside ACF's decision to terminate its grant (presumably precluding ACF from pursuing termination based on the findings of non-compliance at issue here) because ACF's decision was tainted by ACF's ex parte contacts with various individuals, including a State Representative, a vendor who sold computers to HDC, and employees of the State of Missouri who were reviewing HDC in connection with a different grant. Since HDC did not comply with the Board's direction to identify all factual issues prior to the hearing, instead raising this issue in its post-hearing brief, we decline to consider it here. We note in any event that there is no evidence in the record that supports HDC's position that ACF's findings of non-compliance were influenced by ex parte contacts. 7. As indicated previously, however, we do not reach HDC's contention that it was not out of compliance in the first instance with some of the requirements cited by ACF or had corrected the non-compliance. 8. HDC argued as another threshold matter that these requirements do not fall within the scope of section 1303.14(b)(5), the regulatory basis for termination cited by ACF. That section provides for termination if "[t]he grantee has failed to comply with the eligibility requirements and limitations on enrollment in the Head Start program, or both." Even assuming that this were the case, however, ACF could remedy this situation by citing section 1303.14(b)(4). That section, added by the amended regulations, provides for termination where "[t]he grantee has failed to timely correct one or more deficiencies as defined in 45 CFR Part 1304." In any event, we are not persuaded that the items of non-compliance in question here are outside the scope of section 1303.14(a)(5). Section 1305.10 provides that "[a] grantee's failure to comply with the requirements of this Part may result in a denial of refunding or termination in accordance with 45 CFR part 1303." (Emphasis added.) This clearly means that a violation of any of the requirements of Part 1305 can be a basis for termination. Thus, to be consistent with this provision, section 1303.14(b)(5) must be read as referring to all provisions in Part 1305 that relate to eligibility requirements or limitations on enrollment. The requirements that a grantee maintain its funded enrollment, obtain a sufficient number of applications and maintain a waiting list relate to eligibility requirements and limitations on enrollment because a grantee cannot comply with these requirements without properly applying Head Start eligibility requirements for each applicant and without considering the various limitations on enrollment. 9. In any event, according to HDC's Comptroller, HDC actually spent less than the "per child" amount awarded for the year December 1, 1997 through November 30, 1998 (calculated by dividing the total amount awarded by the funded enrollment) since HDC's Head Start expenditures for that year were substantially less than the total amount awarded ($9,957,205 and $11,619,585, respectively). Affidavit of David S. McDowell dated 8/23/99. 10. ACF submitted the March 19, 1999 report of an independent auditor on HDC's Head Start program for the period December 1, 1995 through November 30, 1998. ACF Ex. 61 (final report substituted for draft report by letter dated 8/13/99). That report found a duplicate charge of $83,960 for computer equipment received in 1997 and $209.56 charged for a travel advance which should have been refunded because the travel was not performed. Id. at 9-10. However, there is no indication in the record of any connection between either of these items and the underenrollment. (We note in any event that HDC indicated in a July 20, 1999 response to the report that the travel advance was removed as a charge to the Head Start program and that the computer order was proper. HDC letter dated 8/24/99, attachment.) 11. The possible exception pertains to the statement in item d) above that "[e]quipment purchased with Head Start funds was used for unauthorized purposes." During the proceedings before the Board, ACF indicated that this referred solely to a computer purchased with Head Start funds which was used by HDC's warehouse supervisor to maintain HDC's inventory records (a use which was conceded by HDC). See, e.g., Board's Regulatory Notice of Hearing and Confirmation of Pre-Hearing Conference, dated 5/6/99, at 6. This could be characterized as the misuse of Head Start funds since the cost of the computer should have been allocated among all of HDC's programs, not charged exclusively to Head Start. However, it is not clear whether ACF would treat this as a deficiency since it represents only a minor part of ACF's findings of non-compliance in this area. In any event, as explained later in the text, ACF could not properly rely on this as a basis for termination since HDC was not given even one opportunity to correct this non-compliance. 12. HDC disputed that it received this report with ACF's August 1997 notice. HDC stated that the notice indicates only that "Team Member Reports" are attached, that the copy of the notice provided by ACF for the record (at ACF Ex. 13) contains no attachments, and that it is therefore impossible to determine what the team member reports consisted of. Since ACF provided team members' narrative reports for each of the component areas intermingled with OSPRI forms completed by the team members as one exhibit (ACF Exhibit 4, identified in ACF's exhibit list as "OSPRIs from April 7-11, 1997"), it is likely that ACF was referring to both types of documents together as "Team Member Reports." Moreover, HDC's first QIP, dated October 14, 1997, states that "[e]nclosed you will find our response to the On Site Program Review Instrument (OSPRI) findings." ACF Ex. 17, at 1. It is doubtful that HDC would have referred to the OSPRI findings in this manner in its QIP had it not received the OSPRI with the August 1997 notice. 13. In addition, as HDC itself noted, one of the team member narrative reports stated that there were some instances where vendors were not paid on time. HDC Br. dated 7/21/99, at 23, citing ACF Ex. 4, at 4. 14. This item of non-compliance is covered by OSPRI #256. However, OSPRI #256 is not referred to in ACF's termination notice. Moreover, at the June 1998 survey the reviewers found HDC in overall compliance with this OSPRI item. ACF Ex. 4, at 110. 15. ACF argued that the requirement in OSPRI #218 that "Budgetary controls are in place to assure that obligations incurred for the Head Start program are allocable to the Head Start program" gave prior notice of the lack of proper bid procedures, item a) above. However, we fail to see how bid procedures would act to assure that costs are properly allocated to the Head Start program. Moreover, while another OSPRI item, #252, indicates that no determination could be made by the ACF reviewers as to whether, for a recent purchase over $5,000, an adequate number of bids was received that met the specifications or there was a justification for the bid chosen, ACF found HDC in overall compliance with that OSPRI item. ACF Ex. 4, at 108. 16. The tasks required by the regulation are: (1) Support parents of children with disabilities entering from infant/toddler programs; (2) Provide information to parents on how to foster the development of their child with disabilities; (3) Provide opportunities for parents to observe large group, small group and individual activities described in their child's [Individual Education Plan]; (4) Provide follow-up assistance and activities to reinforce program activities at home; (5) Refer parents to groups of parents of children with similar disabilities who can provide helpful peer support; (6) Inform parents of their rights under [the Individuals with Disabilities Education Act]; (7) Inform parents of resources which may be available to them from the Supplemental Security Income (SSI) Program, the Early Periodic Screening, Diagnosis and Treatment (EPSDT) Program and other sources and assist them with initial efforts to access such resources; (8) Identify needs (caused by the disability) of siblings and other family members; (9) Provide information in order to prevent disabilities among younger siblings; and (10) Build parent confidence, skill and knowledge in accessing resources and advocating to meet the special needs of their children. 17. Section 1304.41(a)(2)(iv) provides: Grantee and delegate agencies must take affirmative steps to establish collaborative relationships with community organizations . . . to ensure that Early Head Start and Head Start programs respond to community needs, including: * * * * (iv) Individuals and agencies that provide services to children with disabilities and their families (see 45 CFR 1308.4 for specific service requirements) . . . . 18. In its termination letter, ACF erroneously cited paragraph (b) rather than (c) of section 1305.3. 19. HDC argued that ACF's finding of non-compliance with the requirement for a CNA did not involve a violation of the Head Start Act within the meaning of section 1303.14(a)(7). As noted previously with respect to a similar argument concerning ACF's reliance on section 1303.14(a)(5), even if this were the case, ACF could remedy the situation by citing section 1303.14(a)(4) as the ground for termination if and when it issues a new notice of proposed termination. In any event, we are not persuaded that the items of non-compliance here fall outside the scope of section 1303.14(a)(7). The regulatory requirements that HDC allegedly violated implemented the requirement in the Head Start Act that the Secretary "establish procedures to enable Head Start agencies to develop locally designed or specialized service delivery models to address local community needs." 42 U.S.C. � 9835(f). A violation of the implementing regulations was in effect a violation of the Head Start Act. 20. In its reply to HDC's post-hearing brief, ACF stated that it "recognizes that HDC has an acceptable Community Needs Assessment." ACF Br. dated 8/2/99, at 7. However, in response to the Board's inquiry whether ACF intended to withdraw its findings that the CNA did not contain the required information and analysis, ACF maintained that HDC failed "to correct the findings related to analyzing the data in the CNA and then utilizing the data in its planning." ACF Br. dated 8/13/99, at 12. Thus, ACF appeared to recede only from its finding that certain information in the CNA needed clarification. |
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