GAB Decision 292
April 30, 1982 Combined Community Child Development Services, Inc.;
Docket No. 81-213 Settle, Norval; Teitz, Alexander Ford, Cecilia
This is an appeal from two disallowances of Appalachian Regional
Commission (ARC) funds, totalling $6,962, issued by the Office of Human
Development Services (OHDS), Department of Health and Human Services.
ARC awarded a grant to the Governor's Office of Human Development for
the State of Mississippi (State) for technical assistance, research, and
training under the Appalachian Child Development Program. /1/ The State,
in turn, contracted with Combined Community Child Development Services,
Inc. of Starkville, Mississippi (Combined Community), which incurred the
costs disallowed. One disallowance involved an over-expenditure of
$3,800 in federal funds for fiscal year 1978-1979. The second
disallowance involved interest and penalties in the amount of $3,162
which Combined Community incurred in fiscal year 1979-1980 for late
payment of payroll taxes. The State forwarded an appeal by Combined
Community for both disallowances on December 9, 1981. /2/ For the
reasons discussed below, we uphold both disallowances.
A. OVER-EXPENDITURE OF FEDERAL FUNDS
OHDS notified the State of the disallowance by letter dated March 27,
1981.OHDS based the disallowance on an audit report, written by a firm
of Certified Public Accountants (CPAs) selected by Combined Community,
and on the financial status report filed by Combined Community. These
documents indicated that Combined Community (2) obligated $3,800 more in
federal money than was authorized. /3/ The State forwarded the
disallowance letter to Combined Community and waited for a response.
OHDS argued that appeal of this disallowance was untimely, since the
disallowance was made some eight months before the State forwarded
Combined Community's appeal to the Board. However, respondent admitted
that the March disallowance letter did not state that it was a final
decision, nor did it contain notice of appeal rights. OHDS pointed to
past Board decisions which stated that the Board did not have the
authority to forgive an over-expenditure or direct the Agency to make a
supplemental award. /4/ Accordingly, OHDS argued that the issue
presented in this instance was outside the Board's jurisdiction and no
purpose would have been served by following the established procedure.
Before the Board can hear an appeal, an appellant must have received
a final written decision from the HHS component in charge of its
program. /5/ Clearly the March 27, 1981 letter was such a decision in
the eyes of OHDS. However, OHDS failed to communicate information about
appeal rights in the disallowance letter. Nevertheless, Board
regulations make it clear that the appellant had a right to appeal this
disallowance to the Board. /6/ The scope of the Board's review with
regard to forgiving a clear violation is not a question of jurisdiction.
Regardless of whether or not we could forgive an over-expenditure or
direct the Agency to make a supplemental award, OHDS is not relieved of
its obligation to provide full procedural notice (3) to this, or any,
appellant. We conclude that the appeal was not untimely filed since
OHDS did not provide adequate notice of appeal rights. /7/
The March 27 letter apparently provided Combined Community with two
options to correct the over-expenditure: it could repay the deficit
from non-federal sources, or it could repay it by amending its next
budget. Choosing the second alternative meant that Combined Community
would submit a revised budget for the same total amount previously
requested but include a separate line item in the amount of $3,800.
Thus, OHDS was permitting Combined Community to cover the
over-expenditure by committing $3,800 of the federal funds to the
previous deficit.
The record does not show that Combined Community responded to either
the State or OHDS about the disallowance. Although Combined Community
alleged that it had responded to the notice of disallowance, it has
offered no proof of that statement. /8/ OHDS, when it did not receive
any answer from either Combined Community or the State, made an
adjustment to the appellant's budget, committing $3,800 of the next
period's funding to cover the deficit.
Combined Community disputed that the over-expenditure had come from
federal funds. However, it presented no evidence to support its claims
or to challenge the audit or the financial status report. Combined
Community also argued that it wanted to repay the money from non-federal
sources rather than from federal funds. OHDS did not object to this
proposal since it in no way challenged the underlying basis of the
disallowance. The alternatives originally presented by OHDS would have
allowed Combined Community to cover the deficit from non-federal
sources. This amount would have to be in addition to the amount
Combined Community would have to raise as required matching funds (see
below). We believe that OHDS took a reasonable action in revising the
budget on the grant award for 1981-1982, in view of Combined Community's
failure to respond to the disallowance letter.
(4) Combined Community has produced no evidence to contradict OHDS'
finding that there was a $3,800 over-expenditure. This finding was
based upon an independent audit report and Combined Community's
financial status report. Therefore, we uphold the disallowance.
B. INTEREST AND PENALTIES
The second disallowance, for the fiscal year ending June 30, 1980,
stated that Combined Community had paid interest and penalties in the
amount of $3,162 from federal funds, in violation of 45 CFR Part 74,
Appendix F, G.14. The information upon which OHDS relied was contained
in another audit report written by an independent firm of CPAs.
Combined Community did not contest the fact that it had incurred the
fines and penalties; rather, it argued that it had submitted a budget
revision which showed that it paid those costs from non-federal sources.
OHDS stated that it had not received a budget revision from Combined
Community and, therefore, had no proof of such payment.
The State confirmed that Combined Community had submitted a budget
revision to it, proposing to pay the penalty out of non-federal sources.
However, the State further indicated that the revision proposed that the
payment be made from Combined Community's required non-federal share.
Such payment would mean that Combined Community would not meet its
required non-federal share for that period. The State indicated that
the prohibition against payment of interest and penalties from federal
funds extends to the non-federal share. OHDS agreed. /9/
Combined Community seeks to repay the disallowance from non-federal
funds; OHDS is seeking repayment of the disallowance, either from
non-federal money, over and above Combined Community's required matching
non-federal share, or from federal funds awarded, by means of a budget
revision. We uphold the disallowance because there is no dispute that
Combined Community incurred the disallowed costs, and that they should
have been disallowed. It also appears that there probably is no dispute
about the manner of repayment since OHDS is willing to accept
non-federal funds over and above the required matching share.
Conclusion
We uphold both disallowances in the full amounts of $3,800 and $3,162
because there is no evidence that the over-expenditure and payment of
(5) interest and penalties were not from federal funds, nor is there any
evidence that these amounts were allowable costs. /1/ Funds for the
Appalachian Child Development Program are awarded by ARC and
administered by OHDS. /2/ A detailed chronology of the
procedural background of this appeal is set out in an Appendix attached
to this Decision. /3/ The audit report and financial status
report included figures for Title XX, ARC, USDA, and CETA funds. The
reports indicated that the over-expenditure was an amount over the total
funds received from these sources. A notice of grant award included in
the record indicates the possibility that all of these funds were
awarded jointly and administered through OHDS. Since the federal
sources of these funds has not been raised as an issue in the appeal, we
will not discuss it further in this Decision. /4/ See, Community Action
Agency of Memphis and Shelby County, Decision No. 38, October 6,
1977; Pinellas Opportunity Council, Decision No. 80, February 6, 1980.
/5/ See, 45 CFR 16.5, (1980); rewritten and reissued with the Board's
new procedures at 45 CFR 16.3(b) (1981). /6/ See, 45 CFR
16.5(a)(2), (1980) and 45 CFR Part 16, Appendix A, C.(a)(1) (1981).
/7/ OHDS raised the argument that it was not legally required to engage
in a futile act. We believe the futility of the act was to be properly
determined from the appellant's perspective and that OHDS used this
argument out of its common legal issues, which might be within the
Board's scope of review, the appellant might raise with regard to the
disallowance. Here, for example, Combined Community argued that, in
fact, there was no over-expenditure of federal funds. /8/
Combined Community apparently did comment on the preliminary audit
report, issued in September 1980. However, Combined Community did not
provide the Board with a copy of those comments. /9/ This
position is supported by 45 CFR 74.52(b)(4) (1977), applicable to grants
administered by OHDS.
OCTOBER 22, 1983