GAB Decision 265
March 26, 1982 Inter-Tribal Council of California, Inc.; Docket No.
81-84 Ford, Cecilia; Settle, Norval Garrett, Donald
The Inter-Tribal Council of California, Inc. (Grantee) appealed part
of a determination by the Office of Human Development Services (Agency)
regarding the operation of Grantee's Headstart program for the year
ended May 31, 1979. The Agency disallowed $15,848 on the ground that
some of the children served by Grantee were ineligible for the program,
and $12,292 on the ground that Grantee did not provide enough
non-federal share to match the grant awarded. Grantee did not appeal
from that part of the determination requiring that $1,189 of costs in
excess of the amount awarded be absorbed from non-federal funds. /1/ Our
decision is based on the written record. As discussed below, we reverse
the disallowance in part on the ground that it was improperly
calculated, although we do not accept the substantive arguments made by
Grantee on appeal.
Ineligible Children
The authorizing legislation for the Headstart program provides that
the Secretary may, in regulations presribing eligibility for
participation in the Headstart program, include criteria that allow, "to
a reasonable extent, participation of children in the area served who
would benefit from such programs but whose families do meet the
low-income criteria . . . ." 42 U.S.C. 2928g(a)(1). Pursuant to this
provision, 45 CFR 1305.4 provides that "(at) least 90 percent of the
children who are enrolled in each Headstart program shall be from
low-income families," defined at section 1305.2(1) and (2) as families
whose total annual income before taxes is equal to, or less than the
official poverty line specified by the U.S. Office of Management and
Budget. Section 1305.4 was published on April 7, 1978 (43 Fed. Reg.
14935) with a stated effective (2) date of May 8, 1978, and hence is
applicable to the grant in question in this case. The auditor found
that Grantee exceeded, by eight children, the 10% limit on the
enrollment of children from families not meeting the low-income
criteria. The Agency determined that a disallowance based on the number
of "ineligible" children was required, and arrived at the amount of
the
disallowance ($15,848) by multiplying total federal funding ($109,295)
by the percentage of ineligible children (14.5%).
Grantee did not dispute the Agency's findings regarding the number of
ineligible children served or the amount of the grant allocable to those
children. In support of its appeal, it argued only that it was
difficult to locate eligible children to participate in the program and
that its staff was not adequately trained with respect to age and income
requirements due to the lack of funding for that purpose.
Grantee's arguments do not provide a basis for reversing the
disallowance. This Board has previously refused to excuse an
unauthorized expenditure because of "hardship." American Foundation
for
Negro Affairs, Decision No. 73, December 28, 1979, p. 3. Accordingly,
we cannot reverse the disallowance based on Grantee's substantive
arguments. As discussed later, however, we find that the amount of the
disallowance for this item was improperly calculated and must be
reduced.
Non-Federal Share
The auditor reported that Grantee failed to meet its non-federal
share requirement of $27,323 since it had furnished only $11,656 in
in-kind donations. The authorizing legislation for the Headstart
program limits the federal share of approved program costs to 80%,
although it further provides that "the Secretary may approve assistance
in excess of such percentage if the Secretary determines in accordance
with regulations establishing objective criteria, that such action is
required in furtherance of the purposes of this part . . . ." 42 U.S.C.
2928b(c). Taking 80% of Grantee's actual cash expenditures of $108,085
plus in-kind contributions of $11,656, the auditor determined that the
federal share could not exceed $95,793, and recommended that the
difference between that amount and the $108,085 in actual costs --
amounting to $12,292 -- be disallowed. The Agency stated in the
notification of disallowance that it agreed with the recommendation in
the audit report.
Grantee appealed this determination on the grounds that the Headstart
centers which it operated were located in communities where the per
capita income is below federally established proverty levels, and that
it had made a "sincere effort" to meet the non-federal share
requirement. (3) Grantee's appeal is tantamount to a request that the
Board waive the non-federal share requirement applicable to its grant.
Although regulations have been promulgated (at 45 CFR 1301.21)
establishing criteria for a waiver, the Secretary's statutory authority
to make a waiver is delegated to "(the) responsible HEW official,"
defined as "the official of the Department of Health, Education, and
Welfare who has authority to make (Headstart) grants . . . ." 45 CFR
1301.21 and 1301.2. Accordingly, we do not have authority to reverse
the disallowance based on Grantee's arguments. We note, however, that
an Order to Develop Record issued by the Presiding Board Member stated
that "Grantee's application for review alleges facts which may . . .
meet the criteria for a waiver under 45 CFR 1031.21." The Order thus
inquired whether there was any basis for the Agency to waive the
non-federal share requirement in this case. In response, the Agency
stated that Grantee had orally requested a waiver and had been advised
by Agency officials that its request had to be submitted in writing and
justified under the provisions of 45 CFR 1301.21. The Agency further
indicated that no written request was ever submitted by Grantee.
Agency's memorandum dated September 17, 1981, attachment. We see no
reason why the Agency could not consider a written request for a waiver
under Section 1301.21 submitted by Grantee after receipt of this
decision, however.
We find that the amount of the disallowance must nevertheless be
reduced, since, as discussed below, it was improperly calculated.
Calculation of Disallowance
We have identified two errors in the Agency's calculation of the
disallowance. The first error involves the Agency's use of the amount
of total federal funding to determine the disallowance for ineligible
children. The audit report on Grantee's program shows that actual cash
expenditures were $108,085, whereas total federal funding (the amount of
the grant award) was $109,295. Since Grantee spent less than the amount
awarded, the Agency should have multiplied actual cash expenditures
rather than total federal funding by the percentage (14.5) of ineligible
children, resulting in a disallowance of $15,672 rather than $15,848 for
this item.
The second error was the Agency's failure to take the disallowance
for ineligible children into account in calculating the disallowance for
Grantee's failure to meet its non-federal share requirement. Since
14.5% of the children was ineligible, approved program costs should have
been reduced by that percentage to $92,413 in actual cash expenditures
and $9,966 in in-kind contributions, for total of $102,379. Eighty
percent of $102,379 yields the maximum federal share, $81,903. Grantee
must thus repay the difference between $81,903 and $92,413 (the actual
cash expenditures reduced by 14.5%), for a disallowance of $10,510 (4)
rather than $12,292. Viewed in another light, the $10,510 represents
the shortfall in Grantee's non-federal share, since Grantee needed to
pay $20,476 to support the $92,413 which it drew down in federal funds.
Conclusion
The disallowance is reversed in part on the grounds that the portion
of the disallowance pertaining to ineligible children should have been
calculated based on actual cash expenditures and that the portion of the
disallowance pertaining to the non-federal share should have been
calculated taking into account the costs attributable to ineligible
children. The disallowance for the ineligible children is therefore
reduced to $15,672 and the disallowance for failure to meet the
non-federal share requirement is therefore reduced to $10,510, for a
total disallowance of $26,182. This amount is, however, subject to
adjustment if Grantee seeks a waiver and the Agency determines that a
waiver should be granted. /1/ We note that the Agency may have
incorrectly characterized the $1,189 in question, which appears
instead to have represented the amount by which costs claimed on
Grantee's May 31, 1979 Financial Status Report exceeded actual program
costs found by the auditors. (Letter from HHS Audit Agency to Grantee,
dated September 30, 1980, p. 2)
OCTOBER 22, 1983