GAB Decision 590
October 31, 1984
Office of Human Concern;
Ballard, Judith; Garrett, Donald Teitz, Alexander
Docket Nos. 83-225 and 83-226
The Office of Human Concern (Grantee) appealed two decisions /1/ by
the Office of Human Development Services (OHDS, Agency) related to
Grantee's Head Start grants. The Agency disallowed $8,011 (comprised of
an overexpenditure of $974 and an unobligated fund balance of $7,037)
for the grant period ending December 31, 1981 and $8,509 in unobligated
fund balances for the grant period ending October 31, 1982.
For the reasons discussed below, we sustain the Agency's
disallowances.
Statement of the Case
The Grantee appealed on the basis that the audit reports upon which
the disallowances were based, performed by the Grantee's former auditor,
were in error. The Grantee believed that certain adjustments to its
previously reported fund balances occurred as a result of errors in
reporting by its former auditor so that there really were no unobligated
funds.
After several months delay, during which both the Agency and the
Grantee tried to secure the former auditor's workpapers for the period
in question, the workpapers were delivered to (2) the Grantee on May 23,
1984. /2/ Confirmation of Telephone call dated March 19, 1984; letter
dated May 23, 1984 from Daniel Flynn, CPA.
The Grantee's present auditor reviewed the workpapers and, as a
result, alleged that two adjustments in payment years 13 (January 1,
1980 through December 31, 1980) and 14 (January 1, 1981 through December
31, 1981) would result in additional expenses of $6,000 and $8,519
respectively. Letter dated July 13, 1984 from Sam Scott, CPA. The
Grantee contended that these adjustments offset the unobligated fund
balances disallowance totaling $15,546 and the overexpenditure
disallowance of $974.00. /3/
The auditor also suggested that, due to high unemployment
compensation costs attributable to the Head Start program, the Grantee
should assess additional state unemployment compensation costs for prior
years to Head Start. Consequently, Grantee, contending that the
Agency's policy was responsible for the $102,226.81 deficit in
unemployment compensation costs, requested reimbursement for this amount
from the Board so that the deficit could be corrected.
Analysis
1. The proposed adjustments by the Grantee do not consist of any
additional expenses to the program to offset the disallowance.
The Grantee suggested that certain adjustments should be made to the
Head Start fund balances. The Grantee suggested charging something in
one project year which was previously charged to another project year.
The ultimate result was the same as the disallowance, namely, that a
grantee may (3) have a lower amount of unobligated balance in one year
only to have an increased amount of unobligated fund balance or
overexpenditure in the other project year. However, the proposed
adjustments, contrary to the Grantee's initial allegations, did not
contain any additional total expenses in the project years in question
which would decrease the unobligated fund balances. Consequently, the
suggested adjustments would not modify the disallowance at issue
because, even if the amounts are transferred between project years as
suggested, the Grantee would still have overpayments or unobligated
balances for the years in question. /4/
The Grantee admitted as much in a telephone conference between the
parties and the Board on October 9, 1984. Tape of telephone conference
call, October 9, 1984. However, the Grantee indicated that due to the
problems with the financial records prepared by its former auditor there
might be a possibility of expenses that were never reported. Id.
However, the Grantee also admitted that it had not found any
documentation of additional expenses to the program that would support
OHDS making a change in its disallowance. Id. Consequently, we agree
with the Agency that the adjustments suggested by the Grantee do not
consist of any additional expense to the program sufficient to offset
the disallowances.
2. The unobligated fund balances in the amount of $15,546.00 were
properly disallowed.
The Agency noted that under the OHD Grants Administration Manual (OHD
GAM), Chapter 1(F), "Unobligated Balances" (1977), the Agency has
three
options to choose from in treating unobligated balances remaining at the
end of a budget period. The Agency may treat the unobligated balance
(1) as an offset (deduction) from a continuation award for the current
or succeeding budget period; (2) as a carryover for use in the current
budget period, if prior approval to do so is requested and granted; or
(3) as a refund to the (4) federal government, if the unobligated
balance is cash which has already been transferred to the grantee, or as
a withdrawal of obligating authority for funds not drawn.
In the instant case, the Agency had no choice but to choose the third
option inasmuch as the grant at issue here was being closed out. Under
the provisions of 45 CFR 74.110, "grant closeout" is defined as "the
process by which a granting agency determines that all applicable
administrative actions and all required work of the grant have been
completed by the grantee and the granting agency." The regulations at 45
CFR 74.111(b)(2) state that in closing out HHS grants, "The grantee
shall immediately refund . . . in accordance with instructions from HHS,
any unobligated balance of cash advanced to the grantee." The
regulations also provide that such sums constitute a debt owed by the
grantee to the federal government. 45 CFR 74.112. Consequently, since
the Grantee admittedly cannot show any additional expense which would
reduce or set off its unobligated balance, under the regulatory
provisions cited above, the Grantee must refund this amount immediately
to the federal government. Therefore, we sustain the Agency's
disallowance regarding the $15,546 in unobligated funds.
3. The overexpenditure in the amount of $974.00 was properly
disallowed.
As the Agency stated in its disallowance letter, OHDS assumes no
liability for project costs which exceed the total amount of federal
funds authorized in the Notice of Financial Assistance for any budget
period. See, also, OHD GAM, Chapter 1.H.2, "Expenditure of funds."
The
Grantee did not present any argument on this issue. Consequently, we
agree with the Agency that the overexpenditure of $974 is unallowable
and must be paid with funds from non-federal sources.
4. The Board cannot forgive the disallowances.
The Grantee requested that the Board forgive the disallowances at
issue. The Grantee, however, has admitted that it cannot present any
evidence which would change the position of the parties in this case.
It is the Grantee's responsibility to handle its funds in accordance
with Agency policy and document its expenses. See, e.g. 45 CFR 74.61(
b), (f), and (g), and Neighborhood Services Department, Decision No.
110, July 15, 1980. Moreover, the Board is bound by all (5) applicable
laws and regulations. 45 CFR 16.14. Therefore, the Board cannot
forgive the disallowances at issue.
5. Unemployment costs.
The Grantee requested the Board to require the Agency to reimburse
the Grantee for its deficit in unemployment compensation costs because
it contends the deficit was solely attributable to the Head Start
program. As we explained previously to the Grantee, the question of the
unemployment compensation cost deficit is not before this Board because
these costs have not been charged to the Head Start program and
subsequently disallowed by the Agency. Confirmation of Telephone Calls,
dated March 19, 1984.
Conclusion
For the reasons discussed above, we sustain the Agency's disallowance
of $15,546.00 and $974.00. /1/ The disallowance of $8,011 for the grant
period ending December 31, 1981 was docketed as Board Docket No.
83-226. The disallowance of $8,509 for the period ending October 31,
1982 was docketed as Board Docket No. 83-225. In a conference call on
December 12, 1983 the parties agreed to joint consideration of these two
appeals, as both cases involved similar issues. /2/ The
workpapers were delivered only after the Grantee filed a lawsuit seeking
a mandatory injunction against the former auditor as well as seeking
specific performance of the auditor's employment agreement. Letter
dated May 15, 1984 from John Elrod. /3/ The auditor is careful
to speak of "questionable" items, apparent authorization, "potential
adjustments," and "what appears to be an error." However, as
indicated
below, even if these potential adjustments could in fact be established,
they would not affect our decision sustaining the disallowances.
/4/ For example, decreasing the amount of expenditures in 1982 (PY 15)
by moving $6,251.36 to 1981 would simply increase the unobligated
balance for 1982 by the same amount. See Attachments A and B to
Respondent's Supplemental Brief.
MARCH 19, 1985