Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Coeur d'Alene
Tribe DATE: January 21, 1994 of
Idaho
Docket No. A-93-156 Audit Control
No.
A-10-92-06777 Decision No. 1456
DECISION
The Coeur D'Alene Tribe of Idaho (Grantee) appealed a disallowance
of
$14,349 taken by the Administration for Children, Youth and Families,
a
division of the Administration for Children and Families (ACF).
The
disallowance was based on an Office of Inspector General (OIG)
audit
review which concluded that: (1) the Grantee failed to
provide
adequate documentation to show that it had provided adequate match
for
two ACF-administered grants; and (2) the Grantee had overcharged one
of
the grants for indirect costs by using an incorrect indirect cost
rate.
The record in this appeal contains briefs from both parties, documents
and
written answers from the parties provided in response to questions
posed by
the Board, a tape of a telephone conference where both parties
responded to
further questions by the Board that had been supplied in
advance, and a
post-conference submission by the Grantee, to which ACF
declined to
reply. Notwithstanding this extensive record development,
the
calculation of components of this disallowance remains unclear,
since ACF was
unable to answer satisfactorily questions posed by the
Grantee and the Board.
1/ As discussed below, we find the following:
o The record supports the disallowance of $1,129 for failure to
provide
adequate match for grant no. 90CK2057/01, entitled "Runaway
Youth
Substance Abuse Prevention" (the "Runaway Grant").
o The record does not support the disallowance of $3,033 as
excess
indirect costs for grant no. 90CJ0953/01, entitled "Improving
Shelter
Staff Capacity to Deal with Problems of Alcohol Abuse Among Runaway
and
Homeless Youth" (the "Child Welfare Grant"), and we overturn that
part
of the disallowance.
o We agree with ACF that the Grantee's documentation of matching
costs
for the Child Welfare Grant was inadequate. However, we agree
with the
Grantee that ACF's calculation of the amount of this component
($10,187)
of the disallowance was overstated. Consequently, we
recalculate that
part of the disallowance using ACF's own methodology, i.e.,
the
methodology indicated by the Notice of Grant Award. To the
total
allowable costs for the audit period -- the figure shown in
the
independent audit report -- we add the additional allowable
indirect
costs in the amount of $3,033, and apply the matching rate for
this
grant. The net result of this recalculation is to reduce
the
disallowance related to the Child Welfare Grant from $13,220 to
$7,475.
Accordingly, the overall amount of the disallowance is reduced
from
$14,349 to $8,604.
Background
The Grantee is a federally-recognized Indian tribal government
that
successfully applied for two ACF-administered grants during 1989.
The
Runaway Grant was to be spent over a project period beginning
September
30, 1989 and ending September 29, 1990. The grant award
stated that the
Grantee was to match 25.6 percent of the total grant
costs. The Child
Welfare Grant was to cover a project period from May
1, 1989 to April
30, 1990. 2/ The terms of that grant award required
the Grantee to
supply match in the amount of 26.1 percent of total grant
costs.
As required by Office of Management and Budget Circular A-128, the
Grantee
obtained an independent audit of its operations during fiscal
year 1990
(10/1/89-9/30/90), which it submitted to the United States
Department of the
Interior, the cognizant federal audit agency. That
agency certified
that the audit report met federal requirements, and it
forwarded findings
relating to programs administered by the Department
of Health and Human
Services to the OIG. In a letter to the Grantee
dated September 9,
1992, the OIG provided its computation of the amounts
associated with
questioned costs and sought the Grantee's comments. The
Grantee
submitted a response, which the OIG found did not resolve the
questioned
costs, and ACF subsequently issued the disallowance.
With regard to the Runaway Grant, the OIG found a shortfall of $1,129
in
the Grantee's matching share. For the Child Welfare Grant, the
OIG
determined that the Grantee's use of an incorrect indirect cost
rate
resulted in its claiming $3,033 in excess federal funds. For that
same
grant, the OIG concluded that the Grantee had failed to document
$10,187
in matching costs.
We shall discuss each of these issues in turn.
Analysis
A. Matching shortfall for Runaway Grant
The OIG calculated the Grantee's total audited costs and
determined
that the amount charged to federal funds exceeded the
appropriate
federal share by $1,129.
During the briefing, ACF contended that indirect costs were not
allowable
as matching costs because the indirect cost category was left
blank on the
grant award. We have determined that counsel was mistaken
-- documents
submitted by ACF to the Board as a result of an Order to
Develop the Record
showed that indirect costs were included in
negotiations that took place
prior to grant approval and were included
in the "other costs" category on
the grant award. Compare Financial
Assistance Application
Approval/Negotiation Sheet, p. 75 of ACF
Additional Information submission
(ACF Add'l Info.) with Financial
Assistance Award for Grant No. 90CK2057/01,
p. 61 of ACF Add'l Info.
Moreover, when we examined the figures used by the
OIG in calculating
the amount of indirect costs which the Grantee supplied as
match, we
found that this amount exactly equalled the applicable indirect
cost
rate times the direct costs. Consequently, we conclude that the
OIG
analysis adopted by ACF as the basis for its disallowance did allow
as
match all of the allowable indirect costs that the independent
auditor
found had been incurred and paid by the Grantee.
The Grantee contended that it stated in its grant application that
its
matching share would be provided through its absorption of
allowable
indirect costs. The Grantee had projected at the time of
the
application that its indirect cost rate for the grant period would
be
24.8 percent. The Grantee asserted that after the grant period
was
over, the actual indirect cost rate which the Grantee negotiated
for
fiscal year 1990 turned out to be lower than 24.8 percent, and
this
resulted in the $1,129 shortfall in meeting its matching
requirement.
The Grantee argued that since ACF knew when it awarded the grant
that
the Grantee planned on meeting its matching requirement with
indirect
costs, ACF should simply forgive the shortfall that resulted when
the
indirect cost rate was lower than anticipated.
The Grantee was incorrect when it stated that the actual indirect
cost
rate for fiscal year 1990 was lower than 24.8 percent. The
indirect
cost agreement submitted by the Grantee shows that the final rate
for
fiscal year 1990 was 29.7 percent. See Notice of Appeal,
attachment
(att.) 5, at 1 of 3. We have determined that 29.7 percent
was the rate
used by the independent auditor to compute the Grantee's
matching
contribution. Our analysis revealed that the shortfall
resulted not
from a lower indirect cost rate than anticipated, but from the
fact that
the matching rate of 25.6 percent must be applied to overall
allowable
costs, which are the total of allowable direct costs plus
allowable
indirect costs. See Grants Administration Manual section
1-401-50
(incorporated by reference in the Notice of Grant Award).
Based on the
Notice of Grant Award and the negotiated. indirect cost
agreement, the
calculations look like this:
Required Match = Matching Rate(Direct Costs + (Indirect Cost Rate x
Direct
Costs))
Required Match = .256($32,232 + (.297 x $32,232))
Required Match = .256($32,232 + $9,573) = .256($41,805) = $10,702
Since the indirect costs paid by the Grantee were $9,573, it fell short
by
$1,129 of meeting its required match.
The 25.6 percent matching requirement was a condition expressly agreed
to
by the Grantee when it accepted the grant. The shortfall was due to
the
Grantee's misconception that using only indirect costs would be
adequate to
supply the necessary match. However, since the matching
percentage of
25.6 percent had to be applied to the sum of direct and
indirect costs, once
the direct costs exceeded a certain level (about
$5,000), indirect costs
alone, figured at 29.7 percent of direct costs,
would always be insufficient
to satisfy the matching requirement.
Moreover, the Grantee did not explain
how it expected that an estimated
indirect cost rate of 24.8 percent would
generate allowable costs equal
to 25.6 percent of overall expenditures, which
was the matching
percentage required by the grant. In fact, at the time
the Grantee was
using the 24.8 percent figure as an estimate, the indirect
cost rate in
effect was only 23.1 percent. (The 29.7 percent rate was
not approved
until December 1990, three months after the end of the grant
period.)
Consequently, at the time that it accepted the grant, the Grantee
knew
it was taking a risk that it might not meet its matching
requirement
solely with indirect costs. The result of ACF's
disallowance here is
merely to oblige the Grantee to do what it always should
have known it
would have to do -- make up the rest of the matching
contribution in
cash or in-kind contributions. The Grantee did not cite
any authority
for shifting the consequences of its miscalculation to
ACF.
Accordingly, we uphold this part of the disallowance.
B. Incorrect indirect cost rate for Child Welfare Grant
The independent auditor determined that, although the indirect cost
rate
stated on the grant award was 23.4 percent, the Grantee had used
an
indirect cost rate of 29.7 percent for this grant, which was the
rate
negotiated with the Department of Interior for the fiscal year
beginning
October 1, 1989, which began five months after the grant period
did.
The auditor recommended that in the future ACF conform its grant
awards
to be consistent with the approved indirect cost rate, and the
auditor
calculated the amount of excess indirect costs as $3,033. The
OIG
confirmed this figure. The Grantee stated that it had indeed
conformed
its indirect cost rate claim to the negotiated indirect cost rate,
and
it provided a copy of its rate agreement dated December 7, 1990.
Notice
of Appeal, attachment 5.
When the Board asked ACF what it considered the correct indirect cost
rate
to be for this grant, counsel for ACF stated that the project
period for this
grant (May 1, 1989 to April 30, 1990) included parts of
two different fiscal
years with two different indirect cost rates.
Thus, according to ACF, for the
first five months of the grant (May 1
through September 30, 1989), the
applicable indirect cost rate was 23.1
percent, while the rate for the last
seven months (October 1, 1989
through April 30, 1990) was at the 29.7 percent
level applied by the
Grantee. See p. 107 of ACF Add'l Info. ACF
apparently contended that
the disallowed $3,033 was the difference between
the Grantee's and the
independent auditor's calculations for the indirect
cost rate.
There are several problems with this part of the disallowance. We
agree
with ACF that the applicable indirect cost rate for this Grantee was
the
one in effect at the time the expenditures to which the indirect
cost
rate applied were made. That is not the method used by the
independent
auditor, however; the auditor used the 23.4 percent rate
mentioned in
the grant award, although there is no indication that this grant
was
somehow excepted from the generally applicable negotiated indirect
cost
rate. Moreover, even assuming the auditor's theory was correct,
other
documents submitted by ACF cast serious doubt on the auditor's
statement
that the Grantee used the 29.7 percent rate to claim indirect
costs
throughout the entire grant period. ACF provided a May 29,
1990
financial status report filed by the Grantee which covered the
entire
grant period and reported that the Grantee claimed an indirect cost
rate
of 23.1 percent, for a total of $7,314.02. ACF Add'l Info., p.
101.
ACF did not provide a corrected financial status report or
any
documentation from the independent auditor showing that this
financial
status report was incorrect. Consequently, there is no
evidence here
that the Grantee charged an excessive indirect cost rate.
Furthermore, even if the Grantee had later increased its indirect
cost
claim by claiming at a rate of 29.7 percent for the entire grant
period
(which ACF maintained was appropriate for only seven of the
twelve
months of the grant period), that 6.6 percent increase could not
result
in the $3,033 excess indirect costs alleged by the auditor, since
$3,033
is nearly half the reported indirect cost figure of $7,314.
In
addition, even if we were convinced that the Grantee had used the
29.7
percent rate before it became effective, the quarterly
expenditure
reports provided by ACF do not supply sufficient evidence to
enable us
to calculate the disallowance for the five months when, according
to
ACF, the correct indirect cost rate was 23.1 percent.
Since the documents provided by ACF indicate that the Grantee charged
the
grant for indirect costs at a lower rate than ACF now states was
applicable,
we are unable to sustain this portion of the disallowance.
As we note below,
by reversing this portion of the disallowance, we add
$3,033 to the allowable
expenditures for this grant, which changes the
calculation of the amount of
match required of the Grantee.
C. Matching shortfall for Child Welfare Grant
In its September 9, 1992 letter, the OIG stated that the total
audited
allowable costs for this grant were $39,032 for the audit period,
and
that the Grantee claimed $42,065 in federal funds (including the
$3,033
that the OIG recommended disallowing as excess indirect costs).
After
applying a 73.9 percent federal share rate to the allowable costs
(the
Grantee's matching share for this grant was 26.1 percent), the OIG
came
up with a figure of $28,845 for allowable federal costs. Then,
although
it appears from the placement of the numbers on the page that the
OIG
intended to subtract the $28,845 from the $42,065, the OIG listed
as
excess federal funds claimed $10,187. (The difference is
actually
$13,220.) ACF contended that $10,187 should be disallowed
because the
documentation provided by the Grantee, which consisted of a
single-page
narrative of alleged matching costs, was inadequate since it was
all
based on estimates without any supporting documents.
The Grantee's single-page document was authored by the former
project
manager for this grant and listed as the Grantee's matching
contribution
the following: estimated rental value of a building owned
by the
Grantee and used for the program; estimated electricity and heating
oil
costs for the building; and an estimate of the value of the time
of
child welfare specialists employed by the Grantee who met once
monthly
to discuss cases of children being served by the grant project.
The
Grantee also contended that the amount of grant expenditures used by
the
OIG to calculate the amount of match required of the Grantee
was
incorrect.
During the telephone conference call, the Presiding Board Member
explained
to the Grantee that it was likely the Board would find the
documentation
which the Grantee had supplied to date to be inadequate to
meet regulatory
requirements. Thus, she explored possible methods for
the Grantee to
substantiate these costs -- for example, providing an
affidavit from a real
estate expert stating the estimated rental value
for a building of the type
furnished by the Grantee and used during the
relevant period. ACF
agreed to review any such documents provided by
the Grantee; however, the
Grantee later informed the Board that it would
not be submitting any further
documentation. The Grantee did provide a
further explanation of its
position on the amount of matching costs that
it was required to document
here.
The provisions of 45 C.F.R. Part 74, which were incorporated by
reference
into this grant, contain very specific requirements for
documentation of
in-kind contributions. Section 74.53(d) provides --
Records. Costs and third-party in-kind contributions
counting
towards satisfying a cost-sharing or matching requirement
must
be verifiable from the records of recipients or
cost-type
contractors. These records must show how the value
placed on
third-party in-kind contributions was arrived at.
The documentation furnished by the Grantee simply did not meet
this
standard. Although the Grantee complained that the auditor should
have
visited its offices to examine its records for evidence of
matching
costs, the Grantee did not allege that source documentation
satisfying
this standard had ever actually existed. Since the Grantee
was required
by 45 C.F.R. . 74.21 to retain its grant records for three
years
following submission of its last expenditure report, which
was
apparently filed May 29, 1990, such records should have still existed
at
the time the OIG asked for them in spring 1992. Moreover, despite
being
given an opportunity to supplement the record with
non-contemporaneous
documentation, the Grantee was still unable to produce
evidence of any
matching costs. We therefore agree with ACF that the
Grantee's
documentation must be rejected.
As noted above, the Grantee also raised a question during the
telephone
conference call about the derivation of the $10,187 figure which
the OIG
calculated to be the correct amount of unmatched costs. In a
subsequent
submission, the Grantee supplied a page from a "Schedule of
Federal
Financial Assistance" (which was apparently a page from the
independent
auditor's report) which indicated that total expenditures for
this grant
during the audit period (fiscal year 1990) were $25,607. The
Grantee
noted that 26.1 percent of that figure was equal to $6,683. The
Grantee
stated that since its match for the previous fiscal year had not
been
questioned by the auditor, it could not understand how the OIG
derived
the $10,187 figure. The Grantee contended that the amount of
the
disallowance was overstated. ACF was given an opportunity to
address
this contention, but informed the Board that it would not file
a
response.
We have reviewed the Grantee's submission and conclude that its
position
has merit. The OIG's calculations are clearly mathematically
incorrect
on their face. ACF has not explained the origin of the
numbers used by
the OIG, which appear to relate to cash withdrawals rather
than to
financial status reports or audited expenditures. See att. to
Grantee's
11/26/93 submission. Consequently, we accept the Grantee's
position
that the amount that the OIG should have used in its calculations
was
$25,607. That figure, which was taken from the independent
auditor's
report, did not include the $3,033 in indirect costs that we
have
concluded above were not properly disallowed. Thus, the correct
amount
of expenditures to use is $28,640. When we apply the 26.1
matching
rate, this results in undocumented match of $7,475. We
therefore
sustain this part of the disallowance in this amount. .
Conclusion
Based on the analysis above, we uphold the disallowance for the
Runaway
Grant in the amount of $1,129. We reverse the part of the
disallowance
for the Child Welfare Grant that was based on the use of the
incorrect
indirect cost rate. We uphold the disallowance for the Child
Welfare
Grant based on the failure to document matching costs, but we find
that
the correct amount of this portion of the disallowance is $7,475.
___________________________
Judith
A.
Ballard
___________________________
Donald
F.
Garrett
___________________________
M.
Terry Johnson
Presiding
Board
Member
1. ACF counsel indicated some difficulty in obtaining
an explanation
of the disallowance calculations from ACF or the OIG.
See Tape of
Teleconference in Board Docket No. A-93-156.
2. Both the independent auditors whose review
underlies this
disallowance and the Grantee referred to this grant
interchangeably as
the "Child Welfare Grant" and the "Youth Shelter Alcohol
Program." At
the November 1, 1993 conference call held in this
proceeding, the
Grantee clarified that both names referred to Grant No.
90CJ0953/01,
which we refer to in this decision as the Child
Welfare