GAB Decision 354
September 30, 1982 L.B.J. and C. Development Corporation; Docket No.
82-89 Ford, Cecilia; Teitz, Alexander Garrett, Donald
The L.B.J. & C. Development Corporation (appellant) appealed a $4,434
disallowance, by the Office of Human Development Services (respondent),
of personnel costs claimed under a Head Start grant. The issue in this
case is whether the appellant correctly charged to the Head Start grant
an award of back-pay to two employees who had been terminated and
subsequently reinstated. For reasons stated below, we conclude that the
back-pay was a reasonable cost and, therefore, reverse the disallowance.
This decision is based on the written record, including responses to an
invitation to brief issued by the Board, and a telephone conference call
as summarized in a letter to the parties.
I. Background
On September 18, 1979, a three-year old child was mistakenly left
alone inside appellant's Head Start Center, for a short time, at the end
of a school day. As a result of the incident, two employees, a teacher
and center coordinator (teacher) and a teacher's assistant (assistant)
were first suspended and then terminated.
The appellant has two governing bodies: the Policy Council and the
Board of Directors. Initially, both of those entities concurred in the
termination of the two employees.
In October 1979, the terminated teacher filed a grievance in
accordance with appellant's prescribed procedure. Subsequently, in
November 1979, a Policy Council Grievance Committee heard the teacher's
complaint and recommended that she not be reinstated. The teacher then
took the grievance to the Board of Directors.
In January 1980, the Board of Directors remanded the case to the
Policy Council with a recommendation that the teacher be reinstated.
At a Policy Council meeting in March 1980, the Council decided to
keep its official position, in order to allow the case to be heard by an
Arbitration Committee. However, the Policy Council recommended to the
Arbitration Committee that the teacher be reinstated. On April 1, 1980,
the Arbitration Committee, a three-member panel designed to be
impartial, heard the case and determined, based on the evidence
presented, that the (2) teacher should be reinstated with full back-pay.
Appellant's grievance procedures provide that an arbitration decision is
binding and can include an award of back-pay.
On June 10, 1980, the Board of Directors considered a request from
the assistant who had also been terminated. She requested that she be
given the same consideration as the teacher and be reinstated without
fault. The Board of Directors determined that it was not necessary to
require the assistant to follow the entire arbitration procedurs because
many of the same factors used in the determination of the techer's
grievance could also apply to the assistant. Therefore, it reinstated
her with back-pay.
A letter from the respondent, in October 1980, informed the appellant
that the respondent considered the actions of the employees to be
"careless and irresponsible conduct," and requested the appellant
to
take certain specific actions. * A further letter from the respondent,
in February 1981, stated that the appellant had not completed those
actions and that the appellant should submit evidence within 30 days to
show that the actions had been implemented.
In April 1982, the respondent issued a disallowance letter stating
that the appellant had failed to adequately respond to the letters of
October 1980 and February 1981.
II. The Respondent's Position
In the disallowance letter, the respondent stated that the back-pay
was disallowed because of the appellant's failure to respond to
respondent's letters.During Board proceedins, howeve, the respondent
took the position that the back-pay was not a reasonable charge to
federal funds under the standard of reasonableness set out at 45 CFR
Part 74, App. F, B.2d(a)(1979). The respondent contended that,
considering factors such as duty to the federal government, the public,
and the clients, an ordinarily prudent business person would not have
incurred the back-pay costs.The respondent stated that the employees
were responsible for the incident and admittedly negligent, and,
therefore, it was clearly unreasonable to impose no sanction at all.
The respondent further pointed out that the employees performed no
services during the termination period. According to the respondent,
back-pay could not be considered an ordinary and necessary cost of doing
business, chargeable to federal funds. (Respondent's brief, p. 3)
(3) in regard to the assistant, the respondent argued tht the
assistant had failed in her responsibilities, and that a prudent
business person would not award back-pay to an employee who had not
followed established procedures. (Respondent's reply to the Board's
invitation to brief, p. 5)
III. Discussion
The respondent's position here appears to stem primarily from strong
feelings regarding the potentially serious consequences of leaving a
child alone and the desire to avoid such incidents in the future. Also,
the respondent initially based its decision on dissatisfaction with the
appellant's reply to the respondent's request for an explanation
concerning the incident. The appellant has, however, provided a
thorough explanation regarding the incident. (See documents submitted
in appeal file, and in response to the Board's invitation to brief) We
agree with the respondent that this is a serious matter. However, the
record shows that the appellant also recognized that it was serious and
acted to establish better procedures to prevent such incidents and hired
additional personnel for the center. (Appellant's appeal file, tabbed
section III F, p. 3) Also, the appellant took action against the
employees who were involved, but, pursuant to approved procedures, later
determined that the action was too severe and that the employees should
be reinstated with back-pay. the issue is the reasonableness of the
back-pay as a charge to federal funds.
A. The arbitration and award of back-pay was provided for in an
established personnel policy
The respondent did not say that back-pay is unreasonable under any
circumstances, but alleged that, here, the "negligence" of the employees
renders the costs unallowable.
These back-pay awards were made under an established personnel
policy. The respondent does not contend that an ordinarily prudent
business person would not have procedures leading to a binding award of
back-pay. Indeed, the appellant stated, and the respondent did not
deny, that it had approved the procedures. Having such a policy
necessarily involves a risk of incurring costs which the organization
might not otherwise incur. Moreover, the respondent has submitted
nothing which would support a conclusion that prudent business practices
required appellant to disregard a determination made in accordance with
its policy. Such policies have certain purposes as protecting employees
from arbitrary action (which may be a danger in emotionally charged
circumstances such as these surrounding this incident), and fostering
employee morale by having grievance procedures. (4) We do not imply
here that costs are reasonable solely because paid pursuant to an
approved policy. However, we think that respondent here did not
sufficiently consider the effect of the policy on the question of
reasonableness.
B. The respondent's view of the underlying facts is also unsupported
by the record.
While the respondent recognized that there should be some
"presumption of validity" accorded to the arbitration decision, the
respondent argued that any such presumption was rebuted by the
underlying facts. (Respondent's reply to the Board's invitation to
brief, p. 1) Even assuming that it is proper to look behind the
arbitration decision when determining whether the resulting costs are
allowable as charges to federal funds, the record does not require the
respondent's view of the underlying facts.
1. There was no clear cut finding of "responsibility," "guilt,"
or
"negligence" as the respondent alleged.
A review of the records submitted by the appellant revealed that the
teacher admitted that she had made a mistake and that she wanted a
second chance. We find that an employee's admission that she made a
mistake is not tantamount to an admission that termination was
warranted. The record shows that there were extenuating circumstances:
(a) a shortage of personel; (b) the child was most likely hidden in the
classroom; and (c) the mother had been in the center that day and it
was believed that she had taken the child home. The respondent focuses
on the initial determination that termination was warranted, but this
determination was overturned and possibly was one which was colored by
the emotions of the situation. The later determination may have been
based, in part, on factors such as work record and parental support for
rehiring the employees, including a recommendation from the child's
father. (Appellant's appeal file, tabbed section III D, p. 3) However,
nothing supports the conclusion that this was the only basis for
reinstatement, nor has the respondent shown that such factors could not
properly be considered.
2. The respondent's position is also incorrectly premised on the view
that the award of back-pay means "no sanction."
The respondent's position is also premised on the view that an award
of back-pay means "no sanction," implying that this condoned the action
and might result in the incident happening again. We do not agree. The
incident clearly had an effect on the employees' lives, since both were
out of work for an extensive period of time and had received initial
adverse decisions from their employer. Further, the employees did not
have the use of the money during this period and were not awarded (5)
interest. Moreover, the money was not a windfall but was reasonable in
amount since any other compensation received by the employees during the
termination period was deducted from the back-pay awards.
3. Services by employees are not always required in order to receive
compensation.
The respondent's argument that the costs were unallowable because no
services were performed for the back-pay is without merit, since the
respondent recognizes that back-pay might be allowable in some
circumstances and would never relate directly to services performed.
Given these conclusions, we can not agree that these costs were not an
"ordinary and necessary" cost of doing business. We find that the
mere
unusualness of the circumstances does not render the back-pay
unallowable. Further, the respondent, in approving the procedures,
recognized that the appellant must incur such costs. Given the
procedures and their result, we can not say that the costs were not
necessary.
C. The assistant was not required to file a grievance.
The Board of Directors had the authority to terminate employees for
good causes and to reinstate employees where the circumstances required
it. The Board of Directors concluded that, since the factors relating
to the two employees were similar, it would be a waste of time to
require the application of the grievance procedures for the assistant.
We find that this was a reasonable conclusion, since similar evidence
and factors applied to the teacher could have been applied to the
assistant as well.
Conclusion
Based on the foregoing reasons, we reverse the disallowance, and find
that the appellant correctly charged the award of back-pay to the Head
Start grant. * The actions required were (1) that all of the Board
members be furnished a copy of the respondent's letter; (2) that
respondent be supplied a full detailed explanation of the Board's action
in reinstating the employees; (3) that the auditors be furnished with a
copy of the letter in order to evaluate the appropriateness of back-pay;
and (4) that the Board forward the respondent a copy of the steps taken
to insure that similar incidents would not occur again.
OCTOBER 22, 1983