Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Mexican American Unity Council Docket
DATE: June 23, 1992
Audit Control No. A-06-90-00052 No. A-91-073
Decision No. 1341
DECISION
The Mexican American Unity Council (MAUC) appealed a determination by
the
Office of Community Services (OCS) that MAUC remit $1,590,600 in
funds
relating to two grants MAUC received during 1985 and 1987.
Specifically, OCS
determined that MAUC must remit $1,130,187 as the
government's share of
proceeds from the sale of property funded, in
part, by a 1985 grant; $425,000
in 1987 grant funds which were not spent
on authorized grant purposes; and
$35,413 in interest earned on the
advanced 1987 grant funds. Both the
1985 and 1987 grants were awarded
under section 681(a)(2) of the Community
Services Block Grant (CSBG)
Act, which authorizes grants to certain local
organizations for the
purposes of creating job opportunities for low-income
persons.
For the reasons stated below, we uphold in full the OCS determination
for
both the 1985 and 1987 grants. We find that MAUC sold the real
property
which was funded, in part, by 1985 grant funds; therefore, MAUC
must remit
the federal share of the proceeds of the sale, which is
calculated to be
$1,130,187. We further find that MAUC has failed to
document that it
spent the 1987 grant, totalling $425,000, on project
purposes and therefore
must refund to OCS both the funds received under
the award and the interest
earned on those funds, calculated to be
$35,413.
BACKGROUND
The following facts are not in dispute. MAUC is a private,
nonprofit
community-based economic development corporation formed in
1967. MAUC
is located in San Antonio, Texas and serves the
poverty-stricken west
and southwest quadrants of the city. In the
Special Impact Area where
MAUC is located, the population is less
well-educated on average than in
other areas of the city and state, and the
median family income during
the mid-1980's was $9,842. MAUC Brief (Br.)
at 1, 2.
I. The 1985 Grant
In response to a Program Announcement published January 25, 1985 (50
Fed.
Reg. 3670), MAUC applied for and was awarded a discretionary grant
by OCS
under section 681(a)(2) of the CSBG Act. 42 U.S.C. . 9910(a)(2).
See
OCS Exhibit (Ex.) A. That section authorizes OCS to --
make grants, loans, or guarantees to States and public
agencies
and private nonprofit organizations . . . to provide for --
*
* *
(2) ongoing activities of national or
regional significance
related to the [amelioration of the causes
of poverty], including
special emphasis programs for -- (A)
special programs of
assistance, awarded on a competitive
basis, to private, locally
initiated, nonprofit
community development corporations, (or
affiliates of
such corporations) governed by a board consisting
of
residents of the community and business and
civic
leaders, which sponsor enterprises providing
employment
and business development opportunities for
low-income
residents of the community designed to increase
business
and employment opportunities in the community.
The Program Announcement for the 1985 grant year stated that the
purpose
of the grants to be awarded under the program was --
to support program activities of national or
regional
significance to alleviate the causes of poverty in
distressed
communities . . . . Projects under this announcement
must
result in direct benefits targeted toward low-income people
as
defined in the most recent Annual Revision of Poverty
Income
Guidelines.
50 Fed. Reg. at 3670; OCS Ex. B.
The initial grant application submitted by MAUC requested federal funds
in
the amount of $995,000 to support, in part, the Phase I development
of a new
industrial park to be constructed in the area of San Antonio
served by MAUC.
1/ OCS Ex. D, at i. MAUC had a commitment from a
Los
Angeles-based clothing manufacturer that it would lease space
for
manufacturing and retailing at the new industrial park and that
the
arrangement would result in 450 to 500 new jobs for low-income
residents
of the San Antonio area. OCS Ex. D, at ii. In addition,
MAUC
represented in its request for funds that many temporary
construction
jobs would also be created for low-income persons during the
building
phase of the project. 2/ OCS Ex. D, at 41.
On August 27, 1985, OCS notified MAUC that MAUC was being awarded the
full
amount of funds requested. The grant terms and conditions stated
that
--
[u]nless some other proportion is explicitly approved by
the
Director, OCS, or is required by technical or
skill
considerations, all jobs created through the implementation
of
the approved work program must be filled by low-income
people,
as defined in the latest annual revision of the above
referenced
poverty income guidelines.
OCS Ex. E, at 1 (emphasis in original). The provisions also stated
that
the grant award was subject to the provisions of 45 C.F.R. Part
74
(which references Office of Management and Budget Circular No.
A-122)
and the Department of Health and Human Services (HHS)
Grants
Administration Manual. OCS Ex. E, at 1, 2. The grant award
required
matching funds from MAUC of $1,255,490. MAUC Ex. 1, App.
II.
Construction of Phase I of the industrial park was completed in 1988.
The
total project cost of the Phase I development was $3,249,333. MAUC
Ex.
1, App. II, n.2. However, prior to moving into the new
industrial
center and due to a change in the Texas economy, the Los
Angeles-based
clothing manufacturer reneged on its agreement to lease the
space. MAUC
was unable to find another tenant. MAUC Br. at
3. On January 31, 1989,
MAUC sold the building to SignTech, Inc.
(SignTech), a Canadian sign
manufacturer, for $3,500,000. MAUC Ex. 1,
at 5 and App. II, n.3. In
addition to the sales contract which SignTech
entered with MAUC,
SignTech entered into a contract with the city of San
Antonio in which
it agreed to make available 81 percent of the jobs created
at the new
location to low-income persons. MAUC Ex. 2. MAUC never
remitted any
proceeds from the sale of the property to OCS.
II. The 1987 Grant
In addition to the 1985 grant and in response to a February 9,
1987
Program Announcement (52 Fed. Reg. 4090), MAUC was awarded a
second
grant under section 681(a)(2) of the CSBG Act in the amount of
$425,000.
See generally OCS Exs. C, G. The second grant was awarded for
the
purpose of constructing another building to provide additional jobs
for
low-income people, including 150 temporary construction jobs and 250
to
300 new permanent jobs. At MAUC's request, the full amount of the
funds
was advanced to MAUC by Treasury check prior to the anticipated
starting
date of the project. MAUC Ex. 1, at 10.
However, instead of using the 1987 grant funds for the second
building
project, MAUC used $210,000 to purchase a certificate of deposit
which
it used as collateral on one of the bank loans it had taken out on
the
industrial park. On April 8, June 9, and June 15, 1988,
MAUC
transferred funds totaling $180,000 from the grant account to
another
MAUC account to pay expenses incurred during 1985 which were
unrelated
to the 1987 grant. MAUC Ex. 1, at 10, 11. MAUC used the
remaining
funds for unauthorized charges and for charges which could not
be
accounted for. On August 5, 1988, MAUC purchased a second
certificate
of deposit in the amount of $180,000, which it asserted
represented a
transfer back to the grant of the $180,000 in grant
funds. Id. The
interest earned on the two certificates of deposit
totalled $35,413.
Id. at 12. The second building, for which the grant
was intended, was
never built.
ANALYSIS
I. The 1985 Grant
The central issue before the Board concerning the 1985 grant is
whether
MAUC was required to remit to OCS a portion of the proceeds from
the
sale of the property acquired with grant funds.
The general restrictions on the use of, and the requirements for
the
transfer or sale of real property purchased with federal funds under
HHS
grants are contained in 45 C.F.R. . 74.134.
A. Analysis Under 45 C.F.R. . 74.134(a)
Subsection (a) of 45 C.F.R. . 74.134 requires that property which
is
acquired with grant support shall be used for the originally
authorized
grant purposes and, when the property is no longer needed for
such
purposes, the grantee may request permission from the agency to use
the
property for other limited purposes. For purposes of 45 C.F.R. Part
74,
Subpart O, in which section 74.134 appears, "acquisition" of
property
includes "purchase, construction, or fabrication of property . . .
."
45 C.F.R. . 74.132. The purpose of subsection (a) is to ensure that
the
grantee uses the property only to carry out purposes of the grant,
and,
when the property is no longer needed for those purposes, that
the
grantee uses the property only for other federal purposes which
are
authorized by the granting agency. MAUC characterized the matter of
the
property sale as not being ripe for briefing because the property
was
still being used for the original grant purposes after its sale
to
SignTech. In support of its argument, MAUC pointed out that
SignTech
had entered into a contract with the city of San Antonio to employ
a
certain percentage of low-income persons for the jobs which would
be
created once it bought the property. See MAUC Br. at 4.
There is no merit to MAUC's argument that this transaction was covered
by
subsection (a). Subsection (a) contemplates only the situation
where
the property remains in the hands of the original grantee; when
a
disposition of property occurs, such as here, the transaction
becomes
either a transfer of title under subsection (b) or (c)(3), or a
sale
under subsection (c)(1) or (c)(2). 3/ Since MAUC has
completely
disposed of the property and was not a party to SignTech's
low-income
employment agreement with the city of San Antonio, MAUC has no
control
over or input into whether the property is ultimately used for
its
original purposes or for related activities.
B. Analysis Under 45 C.F.R. . 74.134(b) and (c)
It is reasonable to presume that property is no longer being used for
its
authorized purposes once it is transferred to another entity.
The
identity of the grantee is inextricably linked with the original
grant
purpose. United States v. County of Lassen, No.Civ.
S-90-0816-WBS/PAN
Memorandum and Order (E.D.Cal. 10/9/91). Once title
to property changes
hands, it can be assumed that the property is no longer
being used for
grant purposes absent explicit agreement by the transferee to
assume the
purposes and requirements of the grant.
Thus, subsection (b) of the regulation provides:
[A]pproval may be requested from the granting agency to
transfer
title to an eligible third party for continued use
for
authorized purposes . . . . If approval is permissable
[sic]
under Federal statutes and is given, the terms of the
transfer
shall provide that the transferee shall assume all the
rights
and obligations of the transferor set forth in this subpart
or
in other terms of the grant or subgrant.
(Emphasis added.) Subsection (c) provides for the disposition of
real
property with the grantor agency's permission, whether a transfer
of
title or a sale, when the property is no longer to be used
for
authorized purposes. Subsection (c)(1) provides a formula for
remitting
to the federal government a portion of the proceeds from the
sale.
In addition to its argument under subsection (a), MAUC argued that
the
transaction with SignTech was a transfer of title for the
continuation
of grant purposes under subsection (b) rather than a disposition
of
property for other purposes under subsection (c). 4/ MAUC argued
that
the transaction falls under subsection (b) because the grant was to
be
used by SignTech to provide jobs for low-income persons, as under
the
original grant, and because MAUC obtained OCS's approval of
the
transfer. MAUC argued that at least one OCS official knew about
the
transaction, and MAUC sought a hearing before the Board to determine
in
more detail the knowledge of this OCS official. See MAUC Br. at
4-6.
OCS, on the other hand, argued that the transaction was a sale of
property
under subsection (c) and, as such, required that certain
proceeds from the
sale be remitted to the federal government. OCS
argued that the
transaction was a sale because the property was disposed
of for
consideration. OCS also argued that the property was not
transferred to
an eligible third party, as required by subsection (b),
because SignTech, as
a profit-making entity, was not an eligible third
party, and there was no
permission from the granting agency for a
transfer. Brief of the Office
of Community Services, dated 4/28/92 (OCS
Br.), at 7-9.
There is no merit to MAUC's argument that this transaction was a
transfer
of title to property covered by subsection (b). Section 74.134
as a
whole clearly uses the term "transfer of title" to mean something
different
than the term "sale." The transaction does not fall under
subsection
(b) because it was a "sale" within the common definition of
the word, and
sales are referred to in subsection (c). The transaction
was a sale for
the simple reason that MAUC received $3.5 million in
proceeds from the
transaction in return for relinquishing all future
ownership and control over
the property. A common definition of "sale"
is the "exchange of
property of any kind, or of services, for an agreed
sum of money or other
valuable consideration." Webster's New World
Dictionary, Third College
Edition (Simon & Schuster 1988). There is no
doubt that this was a
sale within the common definition of the word. 5/
We therefore find that the proceeds of the transaction are governed by
45
C.F.R. . 74.134(c). While subsection (c) contemplates that a
grantee
would obtain disposition instructions before selling property
acquired
with grant funds, a grantee's failure to do so cannot reasonably be
a
basis for not applying provisions requiring a grantee to account for
the
federal share of any proceeds of a sale. Although there is no
specific
provision addressing a grantee's failure to obtain instructions from
the
grantor agency, the regulations at 45 C.F.R. Part 74, Subpart O, read
as
a whole, clearly make a grantee accountable for the federal interest
in
property acquired with grant funds.
Moreover, even if the transaction qualified as a transfer of title as
well
as a sale, this would not mean that the disposition here met the
terms of
subsection (b) or that MAUC would not have had to account for
the
proceeds. Subsection (b) requires that transferred property
be
continued in use for authorized purposes and that the transferee
assume
all rights and obligations of the original grantee. After the
transfer
to SignTech, the property here was not continued in use for
authorized
grant purposes. To the contrary, for example, the contract
between the
city of San Antonio and SignTech provided that SignTech agreed to
fill
81 percent of the jobs with low-income persons for two years. See
MAUC,
Ex. 2. The original grant from OCS required that 100 percent of
the
jobs be filled with low-income persons, unless the skill level of
the
job made this impossible or other arrangements were approved by OCS.
6/
Moreover, there is no evidence that SignTech agreed to each of
the
obligations MAUC had under the grant. The original grant required
the
grantee to adhere to certain cost principles and
non-discrimination
regulations. OCS Ex. E, at 1, 2. Also, under
the grant terms, the
federal interest in the property was protected by a
requirement that
MAUC obtain written instructions from OCS prior to disposing
of the
property. OCS Ex. E at 1, 5. MAUC offered no evidence that
SignTech
agreed to abide by these requirements. Indeed, what is
critical here is
that the transaction with SignTech did not continue to
protect the
federal interest in the property; thus, that interest must be
accounted
for in another way.
We further find that MAUC's reliance on subsection (b) is
misplaced
because that section requires that a grantee obtain approval from
the
granting agency before transferring title to real property. 45
C.F.R. .
74.134(b). While there is evidence that the OCS Program
Manager for the
grant knew about the sale of the industrial park to SignTech
before the
transaction was completed, MAUC did not allege that it had
requested or
that OCS ever provided any written approval of that
transaction. The
special terms and conditions of the grant refer to the
need for the
written approval by the Director of OCS of a plan "for the
disposition
of the tangible and intangible assets acquired wholly or
partially with
grant funds and owned or controlled by the grantee . . .
." OCS Ex. E,
at 5. Furthermore, the sale to SignTech constituted
a departure from
the approved project plan and therefore required prior
approval in
writing under the requirements of 45 C.F.R. .. 74.103(d) and
74.102(a).
7/
MAUC argued that the Program Manager was aware of the transaction and
that
a hearing was necessary to determine what was the extent of his
knowledge of
the transaction, whether he had agreed to the sale, and
whether he had
informed MAUC that it needed approval in writing. 8/
MAUC Br. at 5, 6.
MAUC seemed to suggest that an official's knowledge
of a transaction and
concurrent failure to affirmatively act could
constitute approval of the
agency. However, a grantee's informing an
agency of an impending
transaction does not constitute agency approval
of that action.
Kalamazoo County Human Services Department, DAB No.
1124 (1990). Even
if the Program Manager had offered incorrect
information to the grantee and
the grantee acted on that information
(which was not affirmatively alleged
here), the government cannot now be
estopped from applying grant
requirements. Cf. Heckler v. Community
Health Services, 467 U.S. 51
(1984).
Here, the plain terms of the grant required approval in writing for
the
disposition of the property, and MAUC did not allege that it had
such
approval. Moreover, mere approval of the sale would not relieve
MAUC of
the obligation to account for the federal share of the
proceeds. MAUC
did not allege that it had relied on a statement by the
Program Manager
or any other OCS official as a basis for retaining all of the
proceeds
of the sale, and, in any event, such reliance would not have
been
reasonable in light of subsection (c)(1), which clearly
contemplates
remitting a portion of the sale proceeds to the federal
government.
Finally, subsection (b) provides that a transfer of title can be made
only
to an eligible third party. OCS argued that it had a
long-standing
policy of not considering third parties to be eligible if they
were not
eligible for the original grant funds under this program. OCS
Br. at 8,
9; OCS Ex. J, at 2. SignTech would not have been eligible to
receive
funds under the original grant because it is not a
nonprofit
organization, as required by section 681(a)(2) of the CSBG Act and
by
the 1985 program announcement under which the grant was awarded.
See
OCS Ex. B. OCS stated that it has never granted any waivers of
this
policy. OCS Ex. J, at 2. MAUC presented nothing to support
its
position that SignTech should be considered an eligible third party.
9/
In sum, we conclude that the transaction was a sale governed by
subsection
(c) of the regulation rather than the type of transfer of
title contemplated
by subsection (b), but that MAUC would, in any event,
be required to account
for the proceeds.
C. Disposition of the Proceeds of Sale Under Subsection (c)
Given that we find that the property was sold, we must determine
the
respective rights of MAUC and OCS in relation to that property.
The
government has property rights in real property acquired with
grant
funds, and a grantee cannot unilaterally terminate the
government's
rights in such property. MAUC was required to obtain
instructions from
OCS as to the proper disposition of the property.
However, the fact
that MAUC did not obtain proper instructions from OCS but
sold the
property on its own to a third party does not relieve MAUC of its
duty
to remit to the government its fair share of the proceeds.
Under subsection (c)(1), the federal government shall be paid --
an amount computed by multiplying the Federal share of
the
property (see . 74.142) times the proceeds from sale
(after
deducting actual and reasonable selling and fix-up expenses,
if
any, from the sales proceeds.)
45 C.F.R. . 74.134(c)(1). The federal share of the property --
shall be the same percentage as the Federal share of
the
acquiring party's total costs under the grant during the
grant
or subgrant year (or other funding period) to which
the
acquisition cost of the property was charged.
45 C.F.R. . 74.142(a). "Costs under the grant" means allowable
costs
borne by the grant or counted as matching funds. Id.
The audit report stated that the property was sold for $3.5 million
to
SignTech. OCS determined that the federal share of the property
is
$1,130,187 and has requested that MAUC remit such amount. MAUC Br.,
Ex.
1, at 5. MAUC did not directly dispute this figure, but stated that
it
did not remit funds to the government because the property was sold at
a
"book loss" of $310,050. MAUC Br., Ex. 1, at 9. MAUC did not
provide
any documentation to substantiate this claim. 10/ Furthermore,
even if
a book loss of $310,950 occurred, OCS would still be entitled to
a
federal share of the actual proceeds from the sale after subtracting
the
reasonable costs of sale and fix-up expenses, regardless of
whether
these proceeds exceeded the original investment. We have
reviewed the
OCS calculation and it is correct. We therefore uphold
the
determination that MAUC is obligated to remit $1,130,187 in
proceeds
from the sale of the real property acquired, in part, with 1985
grant
funds. 11/
II. The 1987 Grant
A. The Principal
The 1987 grant which MAUC received in the amount of $425,000 and which
was
awarded for the purpose of constructing a 100,000 square foot
building was
never used for authorized purposes. MAUC stated that it
never proceeded
with construction of the building because "the real
estate market in San
Antonio was such that putting up a new building
would have been folly."
MAUC Br. at 6.
Indeed, beginning only six weeks after receiving the grant funds,
instead
of spending the funds on authorized purposes, MAUC spent a total
of $390,000
on two certificates of deposit, one of which was pledged as
collateral on the
industrial park. Additionally, the audit report
found, and MAUC did not
deny, that the remaining $35,000 was spent on
expenses incurred two years
prior to the grant period or was not
accounted for. MAUC Ex. 1, at 10,
11. There was nothing in the grant
award which authorized the grantee
to spend these funds in this manner,
and the grantee did not argue that it
was so authorized.
A grantee has the burden to document the existence and allowability
of
costs charged to grant programs. See, e.g., Lac Courte Oreilles
Tribe,
DAB No. 1132 (1990); New York City Human Resources Administration,
DAB
No. 1199 (1990). A grantee's failure to meet its obligation to
document
that grant funds were properly spent is a basis for disallowing
grant
costs. American Indian Center of Omaha, Inc., DAB No. 1157
(1990).
Here, where the grantee did not show and clearly cannot show that
any
grant funds were properly spent, OCS correctly disallowed the
entire
amount of funds received under the award.
We do not contest MAUC's assertion that it would have been
economically
unwise to construct another building in San Antonio at the time
of the
1987 grant award. Nor do we pass judgment on MAUC's decision not
to go
forward with construction efforts at that time. However, MAUC's
conduct
with respect to the 1987 grant funds was totally without
justification,
and it is hard to believe that MAUC thought that such misuse
of grant
funds could be excused or overlooked. There is nothing in the
statutes,
regulations or principles of grants administration which allows
a
grantee to use funds for purposes not authorized under a grant or
to
invest the funds indefinitely. If MAUC chose not to go forward
with
construction, it had an obligation to return the funds to OCS or
to
request authorization to use the funds for other purposes. See
45
C.F.R. Part 74, Subpart L (regulations providing for prior approval
of
programmatic changes and budget revisions). Moreover,
under
administrative requirements, each grant must be closed out as
promptly
as feasible after the expiration date of the grant award, and
the
grantee must pay to the federal government any grant funds paid to
the
grantee in excess of the amount to which grantee is entitled under
the
terms of the award. 45 C.F.R. .. 74.111 and 74.112. MAUC
could not
have reasonably thought it could simply delay construction under
this
grant indefinitely. 12/ Thus, we uphold the disallowance of
$425,000,
which represents the full amount of the 1987 grant.
B. The Interest
The auditors found that MAUC requested and received the 1987 grant
funds
prior to its need for them in violation of 45 C.F.R. . 74.96(a).
MAUC
Br., Ex. 1, at 10, 12. This section provides that --
[i]f advances are made by Treasury check and the advances
are
not prescheduled, the grantee shall submit its requests
for
payment monthly. Less frequent requests are not
permitted
because they would result in advances covering excessive
periods
of time. The grantee shall not request advances in excess
of
the Federal share of reasonable estimates of its outlays for
the
month covered.
Where a grantee receives advanced funds, it must remit to the
granting
agency any interest or investment income earned on those advanced
funds:
Except when exempted by federal statute . . . , grantees
shall
remit to the Federal Government any interest or other
investment
income earned on advances of HHS grant funds. . . .
Unless the
grantee receives other instructions from the responsible
HHS
official, the grantee shall remit the amount due by check
or
money order payable to the Department of Health and
Human
Services.
45 C.F.R. . 74.47.
MAUC not only requested the 1987 grant funds in advance of the
proposed
starting date of the project, but also invested a substantial
portion of
the advanced funds and earned interest on those funds.
Accordingly, in
addition to the $425,000 in principal of the 1987 grant, MAUC
must remit
to OCS any interest or investment income earned on the advanced
funds
for the entire period in which they were held by MAUC.
The audit report found, and MAUC did not deny, that the two
certificates
of deposit, which MAUC bought with 1987 grant funds, earned
interest in
the amount of $35,413. MAUC did not credit the federal
government for
this interest. OCS took the position that this interest
belongs to the
federal government. OCS Br. at 12. We agree.
Since interest earned on
advanced funds must properly be credited to the
federal government, we
uphold the finding that MAUC must refund $35,413 in
interest to OCS.
CONCLUSION
For the above reasons, we uphold the decision of OCS and find that
MAUC
must remit to the federal government $1,130,187 in proceeds from
the
sale of property funded, in part, by a 1985 OCS grant; $425,000 in
funds
awarded to MAUC under a 1987 OCS grant which were never spent for
grant
purposes; and $35,413 in interest earned on the advanced 1987
grant
funds.
_________________________
Donald
F. Garrett
_________________________
Norval
D. (John) Settle
_________________________
Judith
A. Ballard
Presiding Board Member
1. While MAUC was the recipient of the OCS grants at issue in
this
case, MAUC undertook construction of the industrial park by
entering
into a joint venture with The East Los Angeles Community
Union
Development Corporation (TELACU). Since MAUC, as the grantee, was
the
party responsible for the grant funds, we use the term "MAUC" to
refer
to all actions of both MAUC and the joint venture.
2. An audit report found, and MAUC did not deny, that it had
no
documentation to show that low-income people had been hired for
the
temporary construction jobs. There was never any agreement with
the
construction company that it was to hire low-income persons, and
MAUC's
Vice President for Human Resources stated that she was never
advised
that the positions were required to go to low-income persons.
MAUC Br.,
Ex. 1, at 5. We note that OCS did not disallow portions of
the original
grant on the grounds that the grantee failed to fully meet
the
requirements of the grant, so this matter is not before the Board.
3. We note that MAUC offered no evidence that it had
requested
permission from OCS to retain ownership and control of the property
but
to use it for other purposes, as contemplated by subsection (a).
4. MAUC did not expressly cite to either subsection (b) or (c).
MAUC
referred in its brief to agency approval, which is required
under
subsection (b), rather than disposition instructions, which are
required
under subsection (c). MAUC also discussed continuation of
grant
purposes, which is required by subsection (b), but not by
subsection
(c). For these reasons, we assume that MAUC is arguing that
this
transaction was a transfer of title under subsection (b), even
though
MAUC referred to the transaction alternately as both a transfer and
a
sale. We note that OCS also assumed in its responsive brief that
this
was MAUC's position, and MAUC did not challenge this assumption
by
filing a reply brief. See OCS Br. at 8.
5. It should be noted that there are several places in the record
where
MAUC itself referred to the transaction as a sale. For example,
MAUC
sent a letter to OCS referring to the property's "sale to a
Canadian
manufacturing firm." MAUC Br., Ex. 1, at 6. MAUC argued
that an OCS
Program Manager was "aware of the sale of the building" and
received a
copy of the contract "before the building was sold." MAUC
Br. at 5.
Finally, MAUC referred to SignTech, "who [sic] was willing to
purchase
the building." Id. at 3.
6. Furthermore, even had SignTech agreed to hire low-income persons
for
100% of the jobs, there would be no guarantee to OCS of fulfillment
of
this grant purpose. Neither OCS nor MAUC would be in a position
to
enforce the provision because neither was a party to the
low-income
hiring agreement.
7. Section 74.103 requires prior approval for certain departures
from
approved project plans including --
(b) ... (For construction projects, any material
change in
approved space utilization . . . .); . . .
(d)(2)
Transferring to a third party, by contracting out
or
other means, the actual performance of the
substantive
programmatic work.
Section 74.102(a) provides:
When requesting a prior approval required by this
subpart,
grantees shall address their requests to the responsible
grants
officer of the granting agency. Approvals shall not be
valid
unless they are in writing and signed . . . .
8. We have determined that a hearing is not necessary in this
case.
MAUC offered no affirmative evidence that it had received even
oral
approval. A declaration by the OCS Program Manager states that he
did
not receive a request for, nor give, approval under either
subsection
(b) or (c) of 45 C.F.R. . 74.134. MAUC Ex. 3. Even if
MAUC established
through cross-examination that the Program Manager was aware
of the
transaction, knew of its terms, and gave oral approval, this would
not
be sufficient to establish the required approval, and, in any
event,
would be insufficient to relieve MAUC of its obligation to account
for
the federal share of the proceeds.
9. The OCS Program Manager stated that he "assumed" that SignTech was
a
non-profit corporation. MAUC Ex. 3. Clearly, he should have
made
further inquiries and taken steps to ensure that MAUC accounted for
the
proceeds of the contemplated sale. But, as discussed above, MAUC
had
adequate notice that it could not retain the full proceeds if it
sold
the property to a third party.
10. A book loss appears to be implausible based on the
limited
documentation we have been presented. The property was sold to
SignTech
for $3.5 million. OCS invested $995,000 and MAUC invested
$2,254,333
($1,904,313 in reasonable project costs and $350,020 in
unallowable
costs). Therefore, the sale to SignTech resulted in a sale
over
investment of $250,667. If we subtract reasonable selling costs
of
$206,913, as determined by the auditors, there is still a net gain
of
$43,754. See MAUC Br., Ex. 1, App. II. If MAUC simply means
that it
sold the property for less than the amount MAUC had at one time
carried
on its books as the appraised value of the property, we fail to see
how
this is relevant, and MAUC offered no explanation.
11. It is worth noting that even had the transaction been considered
a
transfer of title rather than a sale, where such transaction was
for
consideration and the grant obligations not explicitly assumed
under
subsection (b), the original grantee still would not have been
entitled
to keep the full proceeds of the transaction under subsection
(c). The
grantee would have been entitled only to the non-federal
share
(percentage of investment) of the market value of the property.
See 45
C.F.R. . 74.134(c)(3). While MAUC indicated that the appraised
value of
the property may have been declining (which is apparently why MAUC
said
it had a "book loss"), it is reasonable to assume that the market
value
of the property at the time of the transaction was the $3.5
million
received.
12. OCS alleged and MAUC did not deny that twice MAUC sought
extensions
for the grant award and that these requests were denied.
While the
denial of these requests does not appear to be arbitrary, we do not
have
jurisdiction to review such denials, which are solely within
the
jurisdiction of the grantor