GAB Decision 572
Docket No. 84-48
September 21, 1984
County Essex Department of Citizen;
Ballard, Judith; Teitz, Alexander Garrett, Donald
The County of Essex Department of Citizen Services (appellant)
appealed a decision by the Office of Human Development Services (OHDS,
respondent) to disallow $22,559 which the appellant charged to its Head
Start grant. /1/ The Board received briefing and documents from both
parties in this case, and held two telephone conference calls. For the
reasons discussed below, we uphold this disallowance.
Background
A major requirement of appellant's Head Start grant for the program
year ended December 31, 1982 was that it operate a center-based Head
Start program. (Appeal File, Respondent's Exhibits 7 and 12) The
appellant attempted to comply with this provision, and obligated funds
from its budget for this purpose. Also, the appellant contracted with
the Irvington Neighborhood Development Corporation (Irvington) to
operate a center-based program during 1982. During the months of April
and May, the appellant held discussions with four different churches as
possible sites for the Head Start program. In June, a proposal for the
use of one of the churches was submitted to the church board of
trustees. In July, the appellant held meetings to receive approval for
use of the building and for a zoning variance. In August, the (2)
appellant hired an educational staff to operate the center. The staff
consisted of an educational coordinator, three head teachers, and three
teacher assistants. The appellant alleged that it hired the staff in
August because it felt reasonably sure that the church would be
available by September as the site for its program. Nevertheless, in
August, the appellant did hold a meeting with the Mayor of Irvington
concerning another site for the program. The appellant's request for a
use variance for the church site was denied in September. The appellant
continued discussions in September and mounted a letter-writing campaign
to the Mayor in October concerning an alternate building site. The
appellant also alleged that it continued searching for an appropriate
site throughout the months of November and December. The appellant did
not present any evidence, however, that demonstrated that it was
considering any particular prospective site during those months that was
suitable for its purposes and that reasonably could have been expected
to become available within a short time frame. The appellant eventually
did find a site in the Montgomery Eagle Building, and began a
center-based program in February 1983.
The respondent disallowed salaries and fringe benefits for
educational staff from October 11, 1982 to December 31, 1982. /2/ The
educational staff was hired during the month of August, and the
respondent allowed the remaining days of August, the entire month of
September, and the first 10 days of October as preparation time. The
respondent based the disallowance for the rest of October and for
November and December on the fact that the educational staff had no
direct contact with children, and that there was no center-based program
or functioning home-based program in operation by the appellant during
this period, as required by the terms of the grant. The respondent
argued that when the appellant realized that the center-based program
would not be operational by October 1982, the appellant could have
furloughed the educational staff until the program became operational.
The respondent charged that the appellant did not fulfill its burden of
operating the Head Start program in an effective manner in accordance
with 45 CFR 1301.30, and that the appellant had not shown that the costs
were reasonable as required under the cost principles of OMB Circular
A-122. The respondent argued that it was reasonable, from the terms of
the grant, to require the appellant to have some type of program, either
home-based or center-based, in operation during the period in question.
(3) The appellant made several arguments, both in its submissions and
in the telephone conference calls, as follows:
* Although a center-based program did not exist in 1982, the
administrative and educational staff performed other duties relevant to
the Head Start program.
* During this time period, the educational staff along with the
Education Coordinator worked diligently to provide the structure which
was instrumental in the planning and designing of the Head Start Center.
Further, the educational staff also planned and designed educational
materials, i.e. curricula, classroom strategies, etc.
* The educational staff worked with parents to prepare them for some
of the experiences they would have in the program, and also discussed
with them "separation anxiety" and how to cope with it.
* The educational staff was not hired until it appeared that the
center-based program was going to be implemented within a short period
of time, even though in fact it was not implemented.
* The appellant felt that the respondent discouraged implementation
of a home-based program during the months in question.
Discussion
OMB Circular A-122, Cost Principles for Nonprofit Organizations,
requires costs to be reasonable for the performance of the award. /3/
Section A.3 of the Circular states that a cost is "reasonable if, in its
nature or amount, it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the time the
decision was made to incur the costs."
Both parties agree that the terms of the grant specifically required
a center-based program. The appellant also noted in its application
dated February 2, 1982 that "(a)lthough a site for the Head Start
program has been selected, and children have already been selected, it
still may be several weeks before children are in the classroom . . .
This being the case, we have elected to initiate a home-based program
(4) until that time when children can be in the center." (Appeal File,
Respondent's Exhibit 7 at p. 12) The terms of the grant did also allow
for a short term home-based program, but no home-based program existed
in 1982. /4/ Although the appellant argued that the educational staff
performed other relevant duties, they did not provide the activities
anticipated by the grant, nor did the appellant implement its own
program option. Even though the appellant said in its grant application
it had "elected" to initiate a home-based program for several weeks
until the center-based program was instituted, the appellant failed to
do so. The appellant represented the preparation time for the start-up
of the center-based Head Start program as several weeks, not several
months. (Appellant's application, Appeal File, Respondent's Exhibit 7)
As noted earlier, the respondent did allow $572.00 for workshops
performed during the time period in question and did not disallow costs
for a reasonable start-up. /5/
The appellant argued that the total support and labor of its entire
staff was necessary to implement its Head Start program. The appellant
noted that certain services, such as discussion of developmental
education needs and training of parents in education and child
development processes, could (5) be provided only by the educational
staff. /6/ However, it was not reasonable to justify the costs of a
full educational staff based on their performance of outreach services
which clearly were subsidiary to their primary teaching functions.
Although the position description of the Education Coordinator may have
some degree of overlap with the Community Services Coordinator, (and,
indeed, these individuals were directed to assist each other) the
Education Coordinator's duties were clearly assigned within an
operational classroom context. Further, the activities described by the
appellant were the responsibility of the Community Services Coordinator,
according to the position descriptions submitted in the record. (See
Respondent's Brief, Exhibit 7) Nothing in the position descriptions of
the Education Coordinator or other teaching staff included outreach
services.
The appellant, in accepting the grant, knew that it was required to
provide certain services. When there was no reasonable expectancy that
these services could be provided, due to the absence of a center site,
the appellant should have sought other alternatives with the approval of
the respondent or taken actions to avoid incurring expenditures related
to the educational staff. The appellant does not deny that it did not
fulfill its obligation. In this case, it was not reasonable for the
appellant to condtinue indefinitely to charge the salaries of the
educational staff to the grant when they were not performing teaching
duties and when there was no reasonable likelihood of the availability
of a center.
Conclusion
For the reasons discussed above, we uphold the disallowance of
$22,559. /1/ Originally, the disallowance and amount appealed totalled
$24,634, which represented $1,503 in vehicle usage costs and $23,131 for
salaries and fringe benefits. In a telephone conference on June 6,
1984, the appellant's representative stated that the appellant was not
contesting the $1,503 vehicle usage disallowance. In a second telephone
conference on June 29, 1984, the respondent's representative informed
the Board that the respondent had allowed an additional $572 for two
workshops performed by the appellant on October 21, and December 16,
1982. Therefore, $22,559 remains in dispute at this time. /2/ However,
the respondent allowed all other costs including staff costs for
a director, secretary, bookkeeper, community services coordinator,
social services coordinator, and all other equipment and supply
expenses. /3/ The OMB Circular is made binding on nonprofit
grantees by 45 CFR 74.174 (1982). /4/ In the telephone
conference call on June 6, 1984, the appellant stated that it did not
start a home-based program because it had not received approval from the
respondent to do so. However, this position is questionable given the
fact that the appellant's application elected to provide a home-based
program for several weeks until the center-based program was started.
Moreover, it was unreasonable for the appellant not to provide any type
of program. The appellant might not have known whether it had explicit
authority to carry on a home-based program; however, it knew that it was
required to provide some type of teaching activity. /5/ The
appellant took the position, as did its auditors, that if the Irvington
Center had complied with its contractual agreement with the appellant,
the appellant had complied with its contractual agreement with the
respondent. The auditors do not make final determinations as to the
allowability of costs. The final judgment remains with the respondent
to determine the allowability of all costs under its grant programs, and
compliance by Irvington Center would not be conclusive, in that
determination. (HHS Grants Administration Manual, Appeal File,
Respondent's Exhibit 13) /6/ Although the appellant argued that the
educational staff performed other duties, the appellant never
asserted that it had contractual obligations, of any type, to the staff
which would have made it financially burdensome to furlough the staff.
Nor did the appellant argue that the process of rehiring instructors
after a furlough would have been too financially burdensome or
time-consuming for the program.
MARCH 19, 1985