DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Total Community Action
DATE: March 31, 1987
Docket No. 86-20
Decision No. 856
DECISION
Total Community Action (TCA) appealed the decision by the Office of
Human
Development Services (OHDS) to deny reimbursement for some
indirect costs
relating to the operation of TCA's Head Start program.
TCA had requested
reimbursement of $361,552 for under- payment of
indirect costs for the
program years ending December 31, 1977 through
December 31, 1981. OHDS
approved the reimburse- ment of $143,656, but
denied the further payment of
$217,896 because that amount exceeded
TCA's total obligation authority for
those program years.
The issue presented is whether OHDS properly refused to reimburse
the
$217,896. For the reasons explained below, we find that OHDS'
decision
to deny the transfer of unobligated funds from TCA's Head
Start
Handicapped grant to its basic Head Start grant was reasonable in
light
of certain statutory directives, but that, with OHDS approval, TCA
could
be permitted, within each grant program, to carry over any
unobligated
funds available from prior years to cover indirect costs.
Factual_Background
TCA operates and administers a number of community programs funded
by
agencies of the federal government. At issue here are grant
funds
received by TCA for the operation of a Head Start program and
a
companion Head Start Handicapped program. Each program was funded
by
distinct grants.
In December 1984, TCA and the federal government reached agreement
on
indirect cost rates to be applied to TCA's grants. TCA Ex. B. As
a
result of this agreement, TCA sought reimbursement for indirect
costs
for the years 1977 through 1981. For those years OHDS informed TCA
that
the following funds were available to TCA based on the unobligated
funds
balances from those years:
Head Start Grant 0473
1977 1978 1979 1980 1981
Underpayment $34,583 (21,820) 47,668 129,962
131,183 of indirect
costs
Audited 65,278
32,746 21,245 34,190 45,863
Unobligated
Funds
Funds
34,583 (21,820)* 21,245 34,190 45,863
Available
Within TOA (Total Obligational Authority) * overpayment
Head Start Handicapped Grant 6-C-40
1979 1980 1981
Underpayment
10,092
13,586 16,298 of indirect
costs
Audited Unobligated 222,874 3,205 144,876 Funds
Funds Available 10,092 3,205 16,298 Within TOA
Thus, for the five years of the basic Head Start grant, there was
a
total underpayment of $321,576 in indirect costs and a total of
$199,322
in unobligated funds. OHDS, treating each Head Start program
year
separately, found that a total of only $114,061 was available
to
reimburse TCA for indirect costs. For the three years of
the
Handicapped grant (the findings for the 1977 and 1978 program years
were
not disputed), there was a total under- payment of $39,976 and a
total
of $370,955 in unobligated funds. OHDS, also treating each
Handicapped
program year separately, found a total of $29,595 available to
reimburse
TCA for indirect costs.
Totaling the figures from the two grants, OHDS determined that there was
a
total underpayment of $361,552 for indirect costs, but funds were
available
to reimburse TCA for only $143,656. TCA Ex. C. OHDS stated
that
the remaining $217,896 would exceed TCA's total obligation
authority for the
years in question, and therefore was unallowable.
Discussion
In order to recoup the additional $217,896 in indirect costs, TCA
sought
to carry over any unobligated funds in each grant year for use in
other
years and to transfer unobligated funds available under the
Handicapped
grant to the Head Start grant. TCA explained that it had
intended to
combine all the grants it received from the federal government
into one
operational program to better meet the needs of the community
TCA
served. While some of the grants were so combined, according to
TCA,
the Handicapped grant, 6-C-40, was not combined because of
either
oversight or the grant's particular provisions for
handicapped
children's special needs. TCA termed the separation of the
Handicapped
grant funds from the Head Start grant funds an "accounting
distinction,"
which should not bar TCA from using unobligated Handicapped
funds to
cover the indirect costs of the Head Start program, since TCA
considered
its activities as one program serving the community.
In response to TCA's assertion that any unobligated funds should
be
carried over or transferred between the grants, OHDS responded,
citing
to various Board decisions, that the Board does not have the
authority
engage in grants administration and management; consequently, the
Board
cannot forgive a grantee's overexpenditures, transfer funds from
one
grant year to another, or transfer funds from one grant program
to
another. Thus OHDS argued, the Board cannot grant the relief TCA
is
seeking, the carry over of funds from one program year to another
and
the transfer of Handicapped grant funds to cover costs in the basic
Head
Start program grant.
After receiving the parties' briefs and reviewing the record in
this
appeal, the Board found nothing to indicate that OHDS had itself
ever
formally considered whether to approve the use of carryover funds or
the
transfer of funds between the grant programs for the remaining
indirect
costs. The Board therefore requested OHDS to rule on TCA's
request,
stating the legal or programmatic rationale for denying the
request.
While noting that OHDS' brief dealt solely with limitations on
the
Board's authority in grants administration, the Board cited
Pinellas
Opportunity Council, Inc., Decision No. 80, February 6,
1980,
Anderson-Oconee Headstart Project, Inc., Decision No. 90, April
28,
1980, and Community Mental Health Center Services Board, Decision
No.
138, December 1, 1980, and observed that an agency decision
disapproving
the use of carryover funds or the transfer of funds from other
program
accounts could be reversed if the agency action were shown to
be
arbitrary and capricious.
OHDS' ruling was limited to the question of the transfer of funds.
OHDS
responded that it did not have authority to approve the transfer
of
unobligated funds under the Handicapped grant to cover the
indirect
costs incurred in excess of unobligated funds available under the
basic
Head Start grant. OHDS cited the 1972 Amendments to the
Economic
Opportunity Act, Pub. L. 92-424, as support for its position.
The authorization of appropriations in Pub. L. 92-424 provides, at
section
3(b)(2), that at least 10% of the total number of enrollment
opportunities in
the Head Start program should be available for
handicapped children. By
this provision Congress intended that local
Head Start programs should take
an active role in recruiting handicapped
children so that 10% of the children
enrolled are handicapped. S. REP.
NO. 792, 92d Cong., 2d Sess. 19
(1972). Subsequent appropriations
legislation has echoed this
provision, providing that a percentage of
Head Start funds be allotted for
handicapped children. See, e.g.,
section 640(a)(2) of the Omnibus
Budget Reconciliation Act of 1981, Pub.
L. 97-35.
Congress thus intended that a portion of the Head Start program and
its
appropriated funds be set aside for the sole purpose of
including
handicapped children as recipients of Head Start program
services.
Funds were set aside to encourage local Head Start agencies to
actively
recruit handicapped children. If TCA and other Head Start
agencies were
permitted to use funds designated for handicapped children for
other
portions of their Head Start activities, they would have no incentive
to
carry out this congressional mandate. The intermingling of funds
would
effectively defeat the purpose of the amendment. Moreover,
OHDS
particularly stressed that it had specifically informed all Head
Start
grantees that Handicapped grant funds were to be considered
separately
and were not to be used to increase the level of expenditures for
any
other program. OHDS Exs. 1, 2, and 3. 1/ Given the
explicit
Congressional directives, we think OHDS acted reasonably in
denying
TCA's request to use Handicapped funds for its Head Start program
in
general. We therefore find that OHDS has not acted arbitrarily
or
capriciously or abused its discretion in refusing to approve
the
transfer of funds from the Handicapped grant program account.
As to the use of carryover funds, however, OHDS did not present
any
rationale for denying TCA's request. The OHDS Grants
Administration
Manual provides both for the use of carryover funds, with
prior written
approval, and for the obligation of awarded funds at any time
during the
grant's project period. Section F, p. 1-1-3; and Section H-2, p.
1-1-4.
There is no dispute that the indirect costs in question are
allowable,
allocable costs of the program years in question.
Our calculations indicate that the Head Start grant's shortfall
of
indirect costs is $207,515, and the Handicapped grant's shortfall
is
$10,381. Yet the record shows that, in addition to the funds
within
each year's total obligation authority already used for indirect
costs,
the Head Start grant contains $85,261 in unobligated funds, and
the
Handicapped grant contains $341,360 in unobligated funds. To the
extent
that any of these funds are still available within their
respective
grants, i.e., if the funds have not been included in later awards
as a
carryover, we see no reason why, in the absence of any OHDS
explanation
to the contrary, OHDS could not authorize the funds as carryover
funds
to cover all or part of the indirect costs within each particular
grant.
Accordingly, we return this matter to OHDS for its action.
Should OHDS
deny the use of carry over funds, TCA may return to the Board for
review
of the reasonableness of that action.
Conclusion
For the reasons stated above, we uphold the disallowance, except to
the
extent carryover funds are still available within the separate grants
to
cover all or part of the indirect costs.
________________________________
Judith
A. Ballard
________________________________ Donald
F.
Garrett
________________________________
Cecilia
Sparks Ford Presiding Board Member
1. OHDS pointed out that the Handicapped grants had been awarded
to
TCA as the lead grantee in a consortium of grantees and were designed
to
fund handicapped programs for a number of