SUBJECT: Tuscarora Tribe of North Carolina

DECISION

The Tuscarora Tribe of North Carolina, Inc. (TTNC) appealed the determination of the Administration for Children and Families (ACF) to disallow $53,333.11 in federal funding for a runaway and homeless youth (RHY) grant administered by TTNC. TTNC received the RHY grant from ACF for the year beginning September 30, 1999. ACF subsequently awarded a continuation grant for the following year but attached special conditions to the grant to be completed by TTNC within specific deadlines. ACF concluded, following a site visit after the deadlines passed, that TTNC had not met any of the special conditions. The most significant special condition that ACF found to be out of compliance stated that TTNC "will be serving" runaway and homeless youth through its program "within 90 days." Based on its findings of non-compliance with the special conditions, ACF determined that TTNC had materially failed to comply with the terms and conditions of its grant award as required by 45 C.F.R. � 74.62(a). ACF then temporarily withheld cash reimbursement for TTNC's grant expenditures made after the first 90 days of the continuation grant and subsequently disallowed the costs represented by all of these expenditures. TTNC's primary argument on appeal of this disallowance is that these expenditures constituted allowable costs of the grant regardless of whether TTNC was in compliance with any or all of the special conditions.

For the reasons discussed below, we uphold the disallowance in full. We find that TTNC had not come into compliance with the most significant special condition imposed by ACF by the close of the initial 90-day period of the second year of the project and that TTNC indeed remained out of compliance with that special condition through the close of the second year of the project (at which time TTNC relinquished the grant altogether). TTNC's material failure to comply with this special condition meant that it was failing to accomplish the essential objective of the grant in question. The regulations specifically authorize ACF to disallow grant funding for an activity for the period in which the grantee has materially failed to comply with the terms and conditions of the grant award. Accordingly, we conclude that ACF properly disallowed grant funding for the period during which TTNC had failed to comply with the special condition in question.⁽¹⁾ TTNC did not dispute that all of the disallowed expenditures were made within this period, which ran from January 1, 2001 to September 30, 2001.

Applicable Legal Authority

Congress initially established the RHY program pursuant to the Juvenile Justice and Delinquency Prevention Act of 1974. See 42 U.S.C. � 5701 et seq. The Secretary of the Department of Health and Human Services (HHS) in turn promulgated the program's implementing regulations in 45 C.F.R. Part 1351. ACF is the agency responsible for administering RHY programs. The purpose of a grant awarded under the RHY program is "to establish or strengthen existing or proposed community-based runaway youth projects to provide temporary shelter and care to runaway or otherwise homeless youth who are in need of temporary shelter, counseling, and aftercare services." 45 C.F.R. � 1351.10. A "homeless youth" is "a person under 18 years of age who is in need of services and without a place of shelter where he or she receives supervision and care." 45 C.F.R. � 1351.1(f).

Project periods for RHY grants may vary, and ACF notifies a grantee in the initial notice of award of the length of time ACF intends to support the project without requiring the project to re-compete for funds. In any event, the project period may not exceed three years (five years as of October 16, 2000). 45 C.F.R. � 1351.14(a).

Generally, a grant will initially be awarded for a one-year budget period. A grantee must then submit a separate application to have the support continued for each subsequent year of the approved project period. ACF makes continuation awards "provided the grantee has made satisfactory progress, funds are available, and HHS determines that continued funding is in the best interest of the Government." 45 C.F.R. S 1351.14(b). Thus, the grantee does not compete with other grantees for continuation awards during the project period, but ACF is not obligated to make such awards.

When a grantee "materially fails to comply with the terms and conditions of an award, whether stated in a Federal statute or regulation, an assurance, an application, or a notice of award," the HHS awarding agency may take one or more actions as appropriate, including:

(1) Temporarily withhold cash payments pending correction of the deficiency by the recipient or more severe enforcement action. . . .

(2) Disallow (that is deny both use of the funds and any applicable matching credit for) all or part of the cost of the activity or action not in compliance.

45 C.F.R. � 74.62.⁽²⁾

Factual Background

On June 24, 1999, TTNC submitted an RHY grant application and on August 30, 1999, ACF awarded the initial year (grant number 04CY0658/01) of a three-year RHY project grant at $80,901 per year. ACF Ex. 4. The project period began September 30, 1999 and was expected to continue until September 30, 2002. TTNC had applied for and received the grant in order to provide temporary shelter, counseling, recreational and aftercare services to about 60 runaway and homeless youth, ages 10-17, per year. TTNC's application made repeated references to "Hope House," where TTNC would provide runaway or homeless youth with shelter and the other services contemplated by the grant. This grant represented the second project cycle awarded to TTNC for essentially the same purpose also utilizing "Hope House." Previously, TTNC had received a three-year grant (grant number 04CY0548) from September 1, 1995 through August 31, 1998, with an award for each of three years of $56,102. The second project cycle began after a funding hiatus that lasted from September 1, 1998 to September 30, 1999.

On September 23, 1996 (which was early in the second year of its first grant project cycle), TTNC sent a letter to the North Carolina Division of Social Services (NCDSS) acknowledging that it was no longer serving any children and had no licensed facility. ACF Ex. 8, at 2. NCDSS completed an internal form effective September 23, 1996, removing TTNC from the list of licensed facility vendors in North Carolina. Id. Although the first project period is not before the Board in this appeal, ACF alleged, and TTNC did not deny, that funding during this project cycle may have been used to cover staff and facility expenses, including rent, relating to a series of unlicensed houses, all of which TTNC had called "Hope House."

In its initial grant application for the second project cycle, dated June 24, 1999, TTNC made repeated reference to Hope House and in several instances stated that Hope House was a licensed facility. In its project summary, TTNC stated:

The applicant proposes to operate Hope House, a basic center program that will serve 180 homeless and runaway youth, ages 10-17 in a rural area of southeastern North Carolina.

ACF Ex. 4, 19^th page. As its Principal Objective 1, the grant application stated:

By the end of the project, 180 runaway/homeless youths will receive a maximum of 15 days (total of 2,700 resident shelter days, approximately 900 annually) of temporary shelter and services, that address/alleviate the immediate needs of youth and their families, as evidenced by the facility's license, unduplicated client count, quarterly chart review, admissions log, and intake information submitted to RHYMIS.

Id., 20^th page (emphasis supplied). As its Principal Subordinate Objective 1.1, the grant application stated:

The project will provide 60 unduplicated runaway/homeless youth ages 10-17 with two weeks of temporary basic shelter services in a safe home-like environment in compliance with state and local licensing requirements annually for the period October 1, 1999-September 30, 2002.

Id. (emphasis supplied).

Elsewhere in the application, TTNC provided a more explicit description of the "temporary shelter" to be provided:

Hope House provides emergency shelter, food and supervision to runaway and homeless youth. Shelter is provided on a temporary basis to all youth admitted to the residential services program. Such services include, but are not limited to:

o Provision of clean, safe and homelike state-licensed residential facilities

o Hope House is licensed to house five (5) children. No expansion of residential facilities is planned through this funding source.

Id., 22^nd page (emphasis supplied).

In spite of these statements, the Hope House facility was not licensed at the time this application was filed (and as discussed above had not been licensed since 1996). Indeed, during the prior year when TTNC had no grant, renters with no connection to the RHY grant program occupied the house, and TTNC was still in the process of evicting a renter when the second project period began at the end of September 1999. TTNC submitted an application to NCDSS to license Hope House on April 23, 2000. ACF Ex. 8, at 2. NCDSS approved a provisional 6-month license effective August 16, 2000, which was ten and a half months into the first year of the project.

ACF conducted an on-site visit of the program in February 2000 and found that Hope House was not a licensed facility and that TTNC was serving no RHY clients at all. ACF Exs. 6 and 7. On April 27, 2000, ACF placed TTNC on "high risk" status due to non-performance of the grant. ACF stated at that time:

A high-risk organization is one whose management practices raise serious questions about its ability to assure proper programmatic use of grant funds.

The provision of shelter and food is one of the basic responsibilities and vital components of all Basic Center grantees. Each facility in which temporary shelter is provided shall be in compliance with the State and local licensing requirements. A visit to your facility in February 2000 resulted in ongoing communication with the Social Services Division of the North Carolina Department of Health and Human Services, which verified that your facility failed to meet the terms and conditions of the Runaway and Homeless Youth Grant. These findings indicate a violation of the grant terms and are the reason for high-risk designation.

ACF Ex. 7, 4/27/00 letter at 1.

ACF also required a "cash management review of all bills to be paid and all invoices of goods and services provided by [TTNC]." Id., 6/15/00 letter at 1. This meant that ACF did not advance funds to TTNC but rather reviewed each expenditure prior to payment.

On September 12, 2000, ACF awarded the second year's grant (grant number 04CY0658/02) for the second project cycle. That grant award contained "special conditions" to be completed by the deadlines specified in the grant award. The special conditions were that TTNC: (1) "will be serving youth within 90 days;" (2) "will submit an acceptable Corrective Action Plan by September 30, 2000;" (3) "will submit ALL reports in a timely manner;" and (4) "will remain in a high risk/cash reimbursement status until the agency meets the terms and conditions of the Runaway and Homeless Youth Grant." See ACF Ex. 5.

TTNC's grant application for the second year recognized TTNC's inability to serve any children during the first year of the grant project because it lacked a licensed facility. Under the heading of "Accomplishments of the Previous Year's Funding," TTNC stated that it had had a "difficult busy year" where the immediate goal was to procure a license for its facility. ACF Ex. 5 (TTNC application at 6). TTNC asserted that staff had learned that rules that guide the licensure process had been radically changed by North Carolina effective July 7, 1999 and that staffing requirements had become more stringent as well. As a result, the bulk of the program activities and accomplishments during the first three quarters of the year were concentrated on the development of a license application in accordance with the new rules. The application recognized that no license had been issued at the time the application was submitted on May 28, 2000. Nevertheless, in spite of the shortcomings of the first year, TTNC stated as the principal objective of the second year of the project period that 49 youths would receive shelter and services. Specifically, TTNC stated as its Principal Objective 1:

By the end of project year two, 49 runaway/homeless youths will receive a maximum of 15 days (total 735 shelter resident days) of temporary shelter and services that address/alleviate the immediate needs of youth and their families, as evidenced by the facility's license, unduplicated client count, semi-annual chart reviews, admissions log, and intake information submitted to RHYMIS.

ACF Ex. 5, p. 9 of application.

ACF conducted an on-site visit during March 20-23, 2001, and determined that TTNC had not met any of the special conditions imposed in the grant award for the second year of the project period. In particular, ACF determined that TTNC had not served any runaway youth in the 18 months since the beginning of the grant project. On May 1, 2001, ACF sent TTNC a letter summarizing the results of its prior reviews, including the March 2001 on-site visit (but did not send a copy of the report of that on-site visit).

In an August 1, 2001 letter, ACF formally explained to TTNC that it was withholding grant funds for expenditures made after the deadlines in the special conditions due to TTNC's failure to comply with the special conditions.

Finally, in a December 11, 2001 letter, ACF informed TTNC of the disallowance of costs represented by previously withheld funds due to TTNC's failure to satisfy the special conditions of the grant award, primarily TTNC's failure to offer evidence that it provided any RHY clients with temporary shelter and related services.

ACF's disallowance letter identified the disallowed costs only by the date each request for reimbursement was submitted, the period covered by each request, and the total amount of the request. The vouchers supporting the requests for reimbursement cover items including rent for Hope House, travel, food, salary for house parents, and utilities. ACF Ex. 9.

The basis for this disallowance is straightforward. ACF determined that TTNC failed to comply with special conditions it had imposed on TTNC's grant for the second year of the project period within the deadlines imposed in those conditions. ACF determined as a consequence that the subject grant expenditures, all of which were incurred after the last of the deadlines had passed, were not allowable under 45 C.F.R. � 74.62(a)(2). Under this provision, where a grantee materially fails to comply with the terms and conditions of the grant award, an awarding agency is authorized to disallow all or part of the cost of the grant activity not in compliance. ACF determined that at the time TTNC had incurred the disallowed expenditures at issue, TTNC was out of compliance with special conditions ACF had imposed on the entire grant at the beginning of the second year of the project period.

We here uphold ACF's determination to disallow the instant costs based solely on our conclusion that TTNC failed to comply with the first and most significant of the special conditions imposed at the beginning of the second year of the project period. This special condition was that TTNC "will be serving youth within 90 days." The backdrop for this special condition was that TTNC had failed to serve a single qualified child during the entire first year of the project period and indeed TTNC had not even had a licensed facility available to shelter youth for practically the entire first year in spite of assurances in its initial grant application that it had a licensed facility. The principal grant objective for both the first and second years of the project period was to provide temporary shelter and related services for runaway and homeless youth. TTNC recognized this objective under the heading "Principal Objective 1" of its grant application for the second year of the project period when it stated that it would serve by the end of the year 49 runaway/homeless youth for a maximum of 15 days each for a total of 735 shelter resident days. ACF in effect recognized this same purpose when it imposed in the grant award for the second year the special condition that TTNC "will be serving youth within 90 days." Nevertheless, in spite of the grant application objective and the special condition imposed in the grant award, TTNC failed, as we discuss in detail below, to show that it provided shelter for any qualifying youth during the entire second year of the project. This failure on TTNC's part to comply with a special condition of the grant award that went to the very heart of its project fully justified ACF in disallowing the subject expenditures, all of which were incurred after the 90-day period afforded in the special condition for TTNC to begin serving youth.

At the outset, we conclude that the record unequivocally establishes that TTNC failed to serve any qualified youth after the first 90 days of the second year of the project period. TTNC failed to establish that it served qualified program youth at any time during the last nine months of the second year (January 1, 2001 to September 30, 2001) and indeed failed to establish that it served qualifying youth at any time during the entire first two years of the project period.⁽³⁾ ACF asserted in its brief that TTNC may at most have served one child during the last nine months of the second year, but that it was unclear whether this child would be a qualifying youth for purposes of the RHY program. Although TTNC argued it had provided "services" to some children during this period of time, TTNC acknowledged that these children may not have been qualified under the RHY program, and TTNC failed to identify which children it was referencing and what those services were. Cf. TTNC Br. dated 1/11/02, at 3-4. Thus, TTNC failed to establish through documentation that it served any qualifying youth, including the single child referenced by ACF, during the last nine months of the second year.

As this Board has previously held, the grantee has the burden to document that its expenditures of grant funds were made in support of grant objectives and in compliance with the terms and conditions of the grant. See New Opportunities for Waterbury, Inc., DAB No. 1512 (1995), citing Office of Management and Budget (OMB) Circular A-122, Att. A, Para. A.1.g. (made applicable by 45 C.F.R. � 74.27(a)). Here, TTNC failed altogether to document that its expenditures were in compliance with the grant condition in question since it did not show that it had served any qualifying youth during the entire second year period beginning September 30, 1999, including the last nine months of the second year. TTNC's complete failure to serve any youth is in striking contrast to expectations created by the primary project objective drafted by TTNC in its own applications for the first and second years of the project period. In its first application, TTNC expected to be able to serve 60 qualifying children during the first year. In the second year's application, after acknowledging its failure to have a licensed home during practically the entire first year, TTNC nevertheless indicated that it expected to be able to serve 49 children for a total of 735 shelter days. Therefore, even if TTNC were able to demonstrate that it had served one qualifying child during the last nine months of the second year (which it has not), TTNC could not be viewed as being in compliance with a grant condition that it "will be serving youth" after 90 days. One youth in comparison to the number identified by TTNC's own objectives in its grant application is far too insignificant to be considered material compliance, particularly when viewed in terms of TTNC's total lack of performance over the entire two-year period beginning September 30, 1999.

TTNC argued nevertheless that the disallowance should be reversed because the costs, including rental costs for Hope House and Hope House staffing costs, were "standard operating costs" and thus allowable as grant expenditures. TTNC, however, misunderstands the basis for the disallowance. ACF relies upon a uniform administrative requirement that specifies that where a grantee materially fails to comply with the terms and conditions of an award, ACF may disallow all or part of the funding for the activity not in compliance for the duration of the non-compliance. Here, ACF imposed a special condition that went to the very heart of what was expected to be accomplished under TTNC's grant project. ACF required TTNC to serve youth. Renting and staffing an empty home would accomplish nothing under the grant project, which was funded to provide temporary shelter for qualifying runaway and homeless youth. TTNC's failure to serve any youth during the first two years of the project period meant that it failed woefully to accomplish its primary grant objective to actually shelter youth. Therefore, this disallowance is clearly justified under 45 C.F.R. � 74.62(a)(2).

This conclusion is consistent with New Opportunities, where the Board upheld a disallowance that resulted from the grantee's failure to carry out a basic grant objective. The Board stated there in relevant part:

The mere fact that NOW may have incurred costs does not make those costs chargeable to the grant in question. Grant funds may only be used for costs which are allowable and allocable to the activities for which the grant was awarded. See Bedford Stuyvesant Community Restoration Corporation, DAB No. 1404 (1993); Action, Inc., DAB No. 1400 (1993); Ironbound Educational and Cultural Center, Inc., DAB No. 1302 (1992). This was not an open-ended grant award intended to provide NOW with an additional $400,000 to be used as it saw fit. Federal funding was awarded for certain aspects of a project designed to provide employment opportunities for low-income individuals. The award was subject to Special Conditions which NOW did not satisfy and the Project itself has never gotten off the ground. Thus, NOW has failed to meet the grant objectives, and it must return the funds that were not expended for allowable grant purposes.

New Opportunities, at 7-8.

Moreover, TTNC's failure to meet the special condition at issue here means that the disallowed costs were also unallowable on the ground that they were not reasonable for the performance of the award, as required by OMB Circular A-122, Att. A, Para. A.2.a. The costs were essentially incurred in support of an empty house well beyond what might have been considered a reasonable start-up period. Thus, these expenditures were not made for the purpose for which the grant was awarded. While TTNC noted that the costs had not been audited pursuant to OMB Circular A-133, there is no requirement that costs be questioned pursuant to an audit before an awarding agency can disallow them.

TTNC also asserted that it could only serve youth who had been placed in Hope House by the local department of social services and that this impacted on its failure to comply with the special condition at issue here. However, in applying for a grant where the primary objective is to serve 60 qualified children (first year application) and then 49 children (second year application), it was TTNC's responsibility to determine in advance of submitting its applications that these objectives were achievable. For example, TTNC could have coordinated with the appropriate state and local officials and with other appropriate organizations as necessary to determine the need and prerequisites in its area for providing temporary shelter for qualified runaway and homeless youth. Thus, even if local procedures were the only cause of TTNC's failure to comply with the special condition (which by no means was established by the record of this appeal), this is not a basis for reversing the disallowance.⁽⁴⁾ In accepting the grant with the subject special condition, TTNC became obliged to meet a condition containing no qualification pertaining to the impact of local procedures.

We also conclude that it would be no defense to this disallowance that ACF advised TTNC to take the very measures to serve youth which then resulted in the expenditures covered by this disallowance. TTNC pointed to a March 28, 2001 letter from the ACF project officer for the grant, which stated in relevant part that--

shelter and services must be made available to the runaway and homeless youth 24-hours a day, 7 days a week; therefore it is imperative that staff be located at the shelter immediately!

However, this instruction to locate staff at the shelter is clearly predicated on the assumption that TTNC would use the shelter for its intended purpose, i.e., to actually provide services to runaway and homeless youth. Nothing precluded ACF from addressing other potential deficiencies at the same time TTNC may still have been attempting to comply with the basic requirement to serve youth addressed by the special condition.

Nor is it a defense to this disallowance that ACF failed to provide TTNC with a report of a review that led ACF to conclude for the first time that TTNC had failed to meet the first special condition after the 90-day deadline. Contrary to what TTNC suggested, there is no requirement in 45 C.F.R. � 74.51 or � 74.53 that the awarding agency make reports available to the grantee; instead, these provisions require the grantee to submit program performance and financial reports to the agency. In any event, if TTNC wanted clarification of the basis for ACF's conclusion, nothing precluded TTNC from requesting such clarification at any time subsequent to the review. Moreover, ACF explained the basis for its conclusion in detail in its submissions to the Board in this case, to which TTNC had a full opportunity to respond.

Conclusion

For the foregoing reasons, we sustain the disallowance in full.

Cecilia Sparks Ford

Marc R. Hillson

Donald F. Garrett
Presiding Board Member

1. In view of our finding concerning the most significant special condition, it is not necessary for us to determine whether TTNC was also out of compliance with the two other special conditions as alleged by ACF. The two other special conditions pertained to the submission of a plan of correction and the submission of "all" reports. As important as these additional conditions were, they are clearly subsidiary to TTNC's failure to comply with the condition that youth actually be served under the project.

2. As authority for its actions, ACF cited provisions of 45 C.F.R. Part 74. TTNC did not dispute that its grant was subject to 45 C.F.R. Part 74, which is applicable to non-profit organizations, rather than 45 C.F.R. Part 92, which is applicable to Indian tribal governments.

3. Although ACF alleged, and TTNC did not dispute, that TTNC also failed to serve qualifying youth in a licensed home during a significant part of a prior project period (from approximately August 1996 through August 1998), it is not necessary for us to make a compliance finding for that period of time.

4. TTNC provided with its brief dated March 29, 2002 an Objective Progress Reported for the first six months of the second year of the project period (September 30, 2000 through March 31, 2001) and an Objective Evaluative Report covering the entire second year. In discussing the first grant objective--to provide youth with shelter, both reports focus on TTNC's efforts to obtain a license which had already been issued provisionally the prior year. Neither report provides any explanation for TTNC's failure to actually shelter youth during the second year. Nor did TTNC provide any other form of documentary evidence to this Board to explain why it never served youth during the second year.