Hualapai Tribal Council, DAB No. 597 (1984)

GAB Decision 597

November 26, 1984

Hualapai Tribal Council;
Ballard, Judith; Garrett, Donald Settle, Norval
Docket No. 84-127


Hualapai Tribal Council (Grantee) appealed the decision of the
Administration of Native American (ANA, Agency) to disallow $23,106 in
costs claimed under the tribe's ANA grant for the budget period ended
April 30, 1982. The disallowed amounts involved (1) salaries, (2)
fringe benefits, (3) travel costs, (4) other direct costs not
specifically identified by budget category, and (5) indirect costs that
were associated with the disallowed direct costs. The disallowance
followed recommendations contained in an audit report prepared by the
Office of Inspector General, U.S. Department of the Interior (Audit
Control No. 44000-09).

The Agency took the disallowance on the basis that Grantee had not
provided the Agency with any information related to, or documentation in
support of, the specific costs disallowed.

Grantee argued that the disallowance should be reversed because
Grantee had successfully endeavored to carry out the purpose of the
grant -- exploration of mineral deposits on tribal lands for the
profitable development of these resources. Grantee also argued that it
should not be required to return the disallowed funds because the
problems were due to embezzlement by its accountant.

This decision is based on the written record and a tape recording of
the telephone conference provided for under 45 CFR 16.12 for expedited
appeals where the amount in dispute is $25,000 or less.

For the reasons discussed below, we uphold the disallowance.

(2) The Disallowance

The audit report, which had only two pages devoted to the grant
involved here, stated that the purpose of the grant was to develop
tribal expertise in the area of land and mineral resources and that the
auditors were unable to determine that the tribe had made any progress
toward this goal. The report stated that, due to the lack of program
accomplishment and the tribe's failure to adhere to grant provisions,
the Inspector General of the Department of Health and Human Services
should consider recovery of all grant funds -- $26,889.

Schedule D of the audit report contained recommendations for specific
disallowance as follows:

$2,712 Salaries not supported by adequate time and attendance
records (Payment of full salary of secretary who spent 50%
of her time on a tribal enterprise) 245 Fringe benefits
applicable to questioned salaries 515 Unsupported fringe benefit
life and health insurance payments 1,863 Not adequately
supported by invoices or other documentation 865 Indirect costs
applicable to costs questioned above (computed at budgeted rate
of 16.2 percent) 4,396 Costs not within scope of contract
4,508 Travel advance not supported by travel vouchers 866 Travel
unrelated to program activity 5,743 Expenditures made after the
grant period (791)Unsupported credit to travel expense 2,385
Indirect cost applicable to costs disallowed above (computed at
budgeted rate of 16.2 percent) (201)Adjustment for
unrecorded indirect cost $23,106 Total


(3) The audit report also questioned the purchase of equipment and
services for a tribal enterprise as being not related to grant purposes.

In addition to the enumerated recommended costs to be disallowed, the
"Financial Management" section of the report (discussing the entire
tribal grant-funded operation) provided more background information as
to the reasons for the disallowance of travel and fringe benefits. With
regard to travel, the audit report stated that there was not any
documented tribal travel policy. The auditors said that travel vouchers
with supporting receipts were either not prepared or reportedly lost.
Another inappropriate travel practice mentioned was gasoline purchased
with grant funds for personal automobile use. With regard to fringe
benefits the audit report stated that (1) amounts charged to federal
grants and contracts for health and life insurance provided to employees
were not adequately supported, (2) transfers from grants and contracts
to the general fund for health and life insurance were generally not
adequately supported by documentation, (3) a control account was not
maintained for health and life insurance costs, and (4) payments to
insurance carriers were made from both the general fund and from grant
and contract accounts.

In addition, the audit report stated that $100,000 had been embezzled
as a result of inadequacy of the financial management system.

The Agency's disallowance letter did not follow the audit report's
recommendation to disallow all grant expenditures but it did disallow
all the recommended itemized disallowances from Schedule D of the audit
report, stating that Grantee had failed to provide documentation to
support the costs. While the disallowance letter in this appeal merely
repeated what was stated in the audit report, Grantee indicated no
difficulty ascertaining which items were disallowed or why they were
disallowed.

Grantee failed to document the allowability of the disallowed charges
involved in this appeal.

The Board in previous decisions has stated that an elementary
principle of grants administration is the (4) requirement that a grantee
have documentation that claimed expenditures were incurred to further
the purposes of the project. University of Minnesota, Decision No. 44,
August 14, 1978, at page 3; Bullock County Health Services, Inc.,
Decision No. 360, November 30, 1982. To be an allowable cost, an
expenditure must be necessary reasonable for efficient administration of
the program to which it is charged. (OMB Circular A-87, Attachment A,
C.l.a. (1981)) The burden of showing that an expenditure meets these
conditions and is allowable rests on the grantee, who is required to
maintain a financial management system with procedures adequate to
determine the allowability and allocability of costs. 45 C.F.R. 74.61(
f) (1981). This system must provide for retention of records
identifying the application of grant funds, supported by source
documentation. 45 C.F.R. 74.61(b), (g) (1981). See also, Neighborhood
Services Department, Decision No. 110, July 15, 1980, at page 5; New
York Department of Social Services, Decision No. 520, February 29, 1984.

Grantee has provided some discussion of the expenditures in its brief
and documents provided to the Board. In some instances, the explanation
is just a confirmation of the Agency's position. For example, in its
response to the audit report, Grantee stated that with regard to the
secretary whose salary was disallowed because half her time was spent on
non-grant tribal enterprise, "(she) handled all of the Riverrunning
which had become a self-sustaining enterprise." (Response to audit
report, p. 2)

Other explanations do not demonstrate that the costs were
grant-related. Grantee's brief is primarily a list of descriptions of
activities, which Grantee submitted in response to the audit report's
assertion that the project goals were not accomplished, without any
explanation of how the activities furthered the purposes of the grant or
which disallowed costs were involved with the activities.

Grantee has also provided that Board with a list of checks from the
tribal checking account with descriptions such as "special savings,"
"tribe," and "national directory." However, Grantee has not provided any
explanation of which disallowed expenditure was involved with each check
or how the funds were used to further the purposes of the project.

Since Grantee has provided no documentation that the disallowed
expenditures were reasonable and necessary for the efficient
administration of the grant, we conclude that the Agency properly
disallowed these expenditures.

(5) Furthermore, Grantee can not avoid liability by claiming that the
disallowance was somehow due to the embezzlement of funds. The legal
relationship created by a grant award is between the Agency and the
Grantee. Grantee is responsibile to the Agency for documenting its
expenditures in accordance with Agency requirements.

An apparent tenet of Grantee is that objectives of the project were
accomplished, so that Grantee ought not to be penalized for the various
failures identified by federal auditors. While one may sympathize with
the Grantee's position at first glance (although we make no findings on
whether in fact the project was successful), it is clear that the
Grantee failed to comply with a number of specific documentation and
other requirements designed to assure that federal funds were spent for
the purposes intended. These are not mere red-tape technicalities.
These are basic requirements fundamental to the most minimal
business-like accountability for funds.

CONCLUSION

For the reasons discussed above, we uphold the disallowance of
$23,106.

MARCH 19, 1985