Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT:Nicholas
County
Community
Action Association
Docket No. 90-174
Decision
No. 1209
DATE: November 20, 1990
DECISION
Nicholas County Community Action Association (Grantee, NCCAA) appealed
a
decision by the Office of Human Development Services (OHDS, Agency)
to
disallow $3,571.49 charged to its federal Head Start grant.
Grantee
incurred the costs in question during two budget periods
--$2,129.19,
within the period September 1, 1988 through August 31, 1989,
and
$1,442.30, within the period September 1, 1989 through August 31,
1990.
The amount at issue was paid to the full time Executive Director
of
NCCAA, who also acted as theinterim Head Start Director following
the
death of the Head Start Director on July 1, 1989, until the
appointment
of a new Head Start Director in October 1989.The Agency
disallowed the
costs because it found that the Grantee could not pay one
individual two
full time salaries from federal funds.
For the reasons discussed below, we uphold the disallowance in full.
Background
The Executive Director of NCCAA notified the Board of Directors in
a
meeting on July 14, 1989 that the Head Start Director had died
suddenly;
the Executive Director offered to act as Head Start Director until
the
position could be filled.Grantee's brief and appeal file, at p.
3.
The Board of Directors approved the action by unanimous vote
and
continued on to other business.Id.The Board of Directors
did not
discuss or approve any type of compensation or salary.
Subsequently, on
July 17, 1989, the Executive Director informed OHDS by
telephone of his
assumption of the Head Start Director duties, but no salary
or
compensation was discussed.When OHDS reviewed the Grantee's
draw-down
of federal funds for the Head Start program and questioned
certain
expenditures, the Grantee confirmed to the Agency that the
expenditures
represented the Head Start portion of monies paid to the
Executive
Director based on his services as Head Start Director, in addition
to
his salary as Executive Director.Thereafter, OHDS notified the
Grantee
that the costs would be disallowed as Head Start program costs.
Analysis
The Agency, in its disallowance letter, noted that both the positions
of
Executive Director and Head Start Director are full time positions
paid
out of federal funds.The Agency determined that an individual
could
not serve full time as Executive Director and at the same time serve
as
a full time Head Start Director drawing a second full time salary
from
the Head Start budget. 1/
The Grantee argued that the Executive Director had approval from its
Board
of Directors and the Agency's regional office in Philadelphia for
the
Executive Director to continue to serve in his dual role as
Executive
Director and Head Start Director.Grantee's brief, p. 1.
Further, the
Grantee asserted that there was no doubt on the part of the
NCCAA Board of
Directors, or on the part of the Executive Director, that
the Executive
Director would be "adequately compensated" for taking on
extra duties as the
Head Start Director, and that the subject of
compensation did not come up
with the Agency's representatives.Id.
We agree with the Agency, that paying a second full time salary to
the
Executive Director is not a reasonable cost to the Head Start
grant.
The Grantee is a nonprofit organization and, pursuant to 45
C.F.R.
74.174(a) (1988), is subject to the cost principles of Office
of
Management and Budget (OMB) Circular A-122, applicable to grants
to
nonprofit organizations.OMB Circular A-122, Attachment A, paragraph
A,
provides:
2.Factors affecting allowability of costs.To be
allowable
under an award, costs must meet the following general
criteria:
a.Be reasonable for the performance of the award
and
be allocable thereto under these principles.
* * *
3.Reasonable costs.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 cost.. . .In
determining
the reasonableness of a given cost, consideration shall be
given
to:
a.Whether the cost is of a type generallyrecognized
as
ordinary and necessary for the operation of
the
organization or the performance of the award.
These general grant principles are intended to ensure that expenditures
of
grant funds are reasonable and proper.See, e.g., Northern
Michigan
Health Services, DAB No. 783 (1986).The Board found that
dual
compensation is not reasonable.Id.
The Grantee submitted minutes of its Board of Directors July 14,
1989
meeting to support its argument that everyone understood that
the
Executive Director would be paid a full time salary for each
position.
The minutes of the meeting consisted of one page, and the Head
Start
Director's position was the subject of one paragraph.In relevant
part,
the minutes state:
[The Executive Director] announced that the Head Start
Director
. . . had died . . . suddenly.It will take at least two
months
to replace him.The job will have to be advertised,
interviews
done, and decision approved by the Philadelphia
office.[The
Executive Director] said with the board's approval
he would act
as Head Start Director until the job was filled.[A
Board
Member] made a motion that [the Executive Director] act as
Head
Start Director until such time [sic] the position had
been
filled.[Another Board Member] seconded the motion and
the
motion carried unanimously.
Grantee's brief and appeal file, at p. 3.We find that the minutes
do
not support the Grantee's position -- there is no mention of paying
the
Executive Director any extra amount at all.In any event, the
Grantee
failed to show how such an arrangement would be reasonable. 2/
Further, we find the Grantee's assertions unreasonable in other
respects
as well.While the record indicates that the Executive
Director managed
to handle certain necessary aspects of the Head Start
Director's
position, nothing in the record indicates that he fulfilled all
the
duties required of the Head Start Director.Indeed, the Grantee did
not
allege that the Executive Director devoted 40 hours a week to the
Head
Start Director's position, which would be required of a full
time
position.We note that at least half of the period of time that
the
Executive Director served as interim Head Start Director was not
during
the Head Start school year, which might have required less time
and
effort than when children were present.
Finally, composition charts B and C found at 45 C.F.R. Part 1304,
Appendix
B, include the Executive Director as one of the individuals
charged with the
responsibility of hiring and firing the Head Start
Director.Therefore,
inherent in the Executive Director's position is
the overall responsibility
to ensure that the Head Start Director
performed adequately.In
general, if in the absence of a Head Start
Director, an Executive Director
were allowed to receive the full Head
Start Director's salary for performing
some duties, this might provide
an incentive not to hire a Head Start
Director.
Conclusion
Based on the foregoing, we uphold the Agency's disallowance in full.
____________________________
Cecilia
Sparks Ford
_____________________________
Norval
D. (John) Settle
____________________________
Alexander
G. Teitz Presiding
Board Member
1. Before the Board, the Agency also argued that
the disallowance
should be upheld since the Executive Director had
volunteered his
services to Head Start.Further, the Agency argued that
the Grantee
failed to obtain the Agency's prior approval of the Executive
Director
as interim Head Start Director.Since we find for the Agency
on other
grounds, we do not reach these arguments.
2. We note that even the Agency recognized that the
Executive
Director contributed substantially to the continued sound
administration
of the Grantee's Head Start program by acting as the interim
director.
We express no opinion, however, on whether the Board of Directors
could
vote the Executive Director a reasonable extra amount as a bonus
charged
directly to the Head Start grant, if the requirements of Circular
A-122
were met and funds were