GAB Decision 320
June 30, 1982 Southeast Mississippi Community Action Agency ; Docket
No. 81-130 Garrett, Donald; Settle, Norval Teitz, Alexander
Southeast Mississippi Community Action Agency (Grantee) appealed the
disallowance by the Office of Human Development Services (Agency) of
costs totalling $37,042 /1/ charged to its Headstart grant for the year
ended April 30, 1980 (Year "M"). The disallowed costs included: (1)
$356 loaned by Grantee to the Community Food and Nutrition Program; (2)
$3,719 loaned by Grantee to the Summer Food Program; (3) $27,509
expended in excess of the approved budget for equipment; (4) $5,100
transferred to a separated bank account earmarked for Parent Activity
Funds; and (5) interest charges as follows: $80 paid for accrued
interest on the assessment of State unemployment taxes; $164 paid as
interest on a bank loan obtained to meet payroll obligations; and $114
paid as interest under a lease-purchase agreement for a copier.
1. Loan to Community Food and Nutrition Program
The notification of disallowance for both grant years "L" and "M"
stated that $356 loaned by Grantee to the Community Food and Nutrition
Program was being disallowed. It appears that only one loan in that
amount was made, but that it was disallowed a second time because the
debt was still outstanding. In Decision No. 317, dated June 28, 1982,
the Board sustained the Year "L" disallowance of the $356. Accordingly,
no further disallowance is warranted in year "M".
Loan to Summer Food Program
Although Grantee stated that it was appealing the disallowance of
$3,719 loaned to the Summer Food Program, the record indicates that
there is in fact no dispute between the parties regarding this matter.
(2) In a letter addressed to the Board dated March 13, 1981, Grantee
stated that it intended to deduct the value of food items periodically
received from the Summer Food Program in order to reduce the amount
owed. (p. 2) On two subsequent occasions -- in the August 4, 1981
notification of disallowance and in a letter to Grantee dated November
3, 1981 -- the Agency stated that it had accepted the method used to
recover the debt from the Summer Food Program. Finally, Grantee in its
brief dated November 19, 1981 indicated that it intended to continue
recovering the amount loaned in the manner previously described. (p.
5) Accordingly, we need not consider this item further.
3. Equipment Costs in Excess of Approved Budget
The Agency disallowed $27,509 spent in excess of Grantee's approved
budget for equipment based on 45 CFR Part 74, Appendix F, Item G.7.,
(1979) which provides that "(the) costs of equipment . . . are
unallowable except as provided for in the grant/contract." Grantee
asserted in its notice of appeal, however, that since the unit cost of
all of the equipment purchased with the exception of one item discussed
below did not exceed $500, prior approval of the purchases was not
required. (Grantee's letter dated August 11, 1981) It asserted
elsewhere that the unit cost did not exceed $1,000, without explaining
the discrepancy between that figure and the figure previously given.
(Grantee's brief dated November 19, 1981, p. 2) Grantee did not cite any
regulation or guideline supporting its position. However, as noted in
Decision No. 317, the term "equipment" as defined in 45 CFR 74.132
(1979) applies only to tangible personal property with an acquisition
cost of $300 or more per unit. Furthermore, the OHD Grants
Administration Manual defines "equipment" as ". . . an item of
nonexpendable personal property having a unit cost of $300 or more . .
." Since purchases with a unit cost of less than $300 are therefore not
considered purchases of equipment, they would not have to be provided
for in the grant or otherwise approved by the Agency in order to be
allowable, if there were unobligated funds in other budget categories
which could be used to cover the costs. (See Decision No. 317 for
further discussion.) The audit report shows that Grantee underspent its
total grant budget by $148,351 (not taking into account questioned
costs.) (Audit Control No. 04-16141, p. 5) It is not clear from the
record, however, whether the unit cost of any of the purchases in
question was less than $300 and thus improperly disallowed.
Accordingly, the Agency is directed to consider any documentation of
"equipment" costs submitted by Grantee and to allow those costs to
the
extent that they represent items having a unit cost of less than $300.
(3)Grantee also asserted that $15,245 of the $27,509 disallowed
represented the purchase of a vehicle. (Letter dated August 11, 1981)
The same amount was charged to the Year "L" grant for the purchase
of a
vehicle, however. Although the cost was originally disallowed as a
charge to that grant, the Agency subsequently withdrew the disallowance.
(See Decision No. 317.) If, as appears to be the case, Grantee charged
the cost of the same vehicle to the Year "L" and Year "M"
grants, the
amount of the disallowance in Year "M" should be reduced by $15,245.
If, on the other hand, the $15,245 charged to year "M" represented
the
purchase of a different item or items, tthe supportting documentation
produced by Grantee should be examined by the Agency as indicated above.
4. Parent Activity Funds
The audit report on which the disallowance was based found that
Grantee made a one-time transfer to a separate bank account of the
amount which was budgeted for Parent Activity Funds, but did not keep a
set of books on this account. The report stated that the auditors were
therefore unable to verify that the funds were properly disbursed and
accounted for. (Audit Control No. 04-16141, p. 15) The notification of
disallowance stated that unless Grantee's CPA submitted, within 45 days,
a statement based on documentation to be supplied by grantee to the
effect that all Parent Activity Funds were in fact disbursed and
accounted for properly, an "automatic disallowance" would result.
In a
letter to Grantee dated November 3, 1981, the Agency stated that no
documentation had been furnished to support the disbursements, and that
its determination regarding this item was therefore final. (p. 3)
Grantee subsequently conceded that ". . . in many instances records
(were) not properly maintained . . . ," but stated that "(every) effort
to correct this problem is being made." (Grantee's brief dated November
19, 1981, p. 5) It is not clear from this statement whether Grantee in
fact intended to appeal the disallowance of this item. We find in any
event that the disallowance was proper. This Board has previously
stated that it is a fundamental principle of grants administration that
all costs must be accounted for. (New York State Department of Social
Services, Decision No. 204, August 7, 1981, p. 5) Grantee's efforts to
assure that proper records are kept in the future does not excuse its
failure to document the expenditures in question here.
5. Interest Charges
The Agency disallowed the interest charges identified in item (5)
above based on 45 CFR Part 74, Appendix F, G.18.(a), which provides that
"(costs) incurred for interest on borrowed capital or temporary use of
endowment funds, however represented, are unallowable."
(4)Grantee conceded that all of the interest charges were
unallowable, with the exception noted below, but asked that it be
permitted to set off in-kind expenditures against the disallowed
interest costs. It asserted that it had $43,119 of in-kind
contributions in excess of the required 20 percent matching share.
(Grantee's brief dated November 19, 1981, p. 5) This Board has
previously indicated, however, that it cannot direct that in-kind
contributions be used to offset a disallowance which is required to be
paid in cash. Yakima Public Schools, Decision No. 81, February 6, 1980,
p. 3. Accordingly, we sustain the disallowance of the interest paid on
the bank loan and under the lease-purchase agreement on the ground that
the payments were unallowable under the regulation quoted above.
Grantee asserted, however, that the interest on State unemployment
taxes should be "pro-rated" since the taxes were paid for all employees
of the community action agency, not only those working on the Headstart
grant. (Grantee's brief dated November 19, 1981, p. 4) It is not clear
whether Grantee meant by this assertion (1) that the interest related to
the Headstart employees was allowable, or (2) that part of the amount
disallowed -- the interest related to other employees -- was not
actually charged to the grant. If Grantee intended the former, we find
no basis for reversing the disallowance, since interest costs related to
the grant are unallowable under G.18.(a). If Grantee intended the
later, we note that, while only the amount charged is properly
disallowed, the audit report indicates that the full amount of the check
($79.97) written to the State Employment Security Commission to cover
interest costs was charged to fringe benefits. (Audit Control No.
04-16141, p. 15) Accordingly, we sustain the disallowance in full.
Conclusion
For the reasons stated above, our disposition of this case is as
follows:
1. Loan of $356 to Community Food and Nutrition Program -- already
disallowed in Year "L"; disallowance in Year "M" reversed.
t2. Loan of $3,719 to Summer Food Program -- parties settled; not
considered.
3. Equipment Costs of $27,509 in Excess of Approved Budget -- The
cost of any items having a unit cost of less than $300 is allowed;
amount to be determined by Agency. If $15,245 of the amount disallowed
was already charged to Year "L", the Year "M" disallowance
should be
reduced by that amount.
(5)$UParent Activity Funds -- $5,100 disallowance sustained in full.
Interest Charges -- $80, $164, and $114 disallowances sustained in
full. /1/ Although Grantee indicated that it was appealing only $31,942
in disallowed costs (Grantee's brief dated November 19, 1981, p.4), it
also appeared to appeal the disallowance of an additional $5,100 (see
item (4) above), for a total of $37,042.
OCTOBER 22, 1983