GAB Decision 425
Docket No. 83-5
May 13, 1983
Genesee County Community Action Agency;
Teitz, Alexander; Ford, Cecilia Settle, Norval
The Genesee County Community Action Agency (Appellant) asked the
Board to review a decision of the Office of Human Development Services
(OHDS) disallowing $10,000 which the appellant sought under Head Start
grants for indirect costs during the period August 1, 1980--July 31,
1981. OHDS maintained that it had never approved a budget for indirect
costs for the year in question, and that it had not approved an indirect
cost rate for that year. Appellant alleged that it had received
"telephone approval" from an OHDS official, and that the amount sought
was reasonable in the circumstances.
Based on the record established in this case (which includes briefs
and exhibits submitted by both parties and the record of a telephone
conference), we uphold the disallowance.
Appellant did not dispute that applicable rules required federal
approval of an indirect cost rate and cost allocation plan for costs
which Appellant wanted to claim as indirect costs. See, 45 CFR 74.176
(1980) (in particular, sections 74.176(a) and 74.176(b)(3)); and
OASC-10, p. 3). Furthermore, Appellant agreed that "... the proposed
budget submitted for FY-80 in March of 1980 did not reflect an allowance
for indirect costs." OHDS Brief, Exhibit 6 (a letter from Appellant to
OHDS commenting on audit findings). Although the lack of an award of
indirect costs, in and of itself, is a sufficient basis for the Board to
sustain the OHDS determination, we have gone further to also address
other concerns of the Appellant. Although not articulated in as
complete a fashion as the following might imply, the record indicates
that the Appellant has, at various points in the dispute, stated or
implied the following arguments:
1. The applicability of a U.S. Department of Labor rate.
It appear that the Appellant at one point was confused about
applicability of a U.S. Department of Labor indirect cost rate (2) which
apparently had been established for several years prior to the period in
question here. OHDS acknowledged that the Appellant had a rate
agreement applicable to its programs under the Comprehensive Employment
and Training Act (CETA), administered by the U.S. Department of Labor,
from 1975 through 1982. However, OHDS maintained, with no dispute by
Appellant, that this agreement was specifically restricted to
Appellant's CETA programs. OHDS submitted documents which appear to
bear that out. OHDS Brief, Exhibit 1. OHDS also stated, again without
disagreement, that Appellant first negotiated a rate with the U.S.
Department of Labor applicable to all programs (including Appellant's
Head Start programs) only in fiscal year 1983.
Based on the affirmative and unrebutted presentation of OHDS on this
issue we find that the U.S. Department of Labor rate was not applicable
to the OHDS grants in question during the period involved here.
Furthermore, even if OHDS had agreed to apply the CETA rate to the Head
Start grants, there would be no basis for recovery by Appellant, because
no funds for indirect costs were budgeted.
2. The effect of an indirect cost proposal submitted in April, 1981.
The Appellant, in responding to the audit (but not in its appeal
here) made note of its submission in April, 1981, of an indirect cost
proposal to OHDS. It is unclear what the Appellant meant by this
reference; in any event, nothing in the record indicates that the
proposal was then or later made effective for the period in question
here. Indeed, when an award of funds for indirect costs was made by
OHDS--for the subsequent period of August 1, 1981 through July 31,
1982--the award was specifically limited as follows:
Grantee may not spend any funds from this grant for indirect costs
until an indirect cost agreement between the grantee and the Department
of Health and Human Services for the budget period of this grant has
been signed. No funds budgeted to indirect costs may be used for direct
costs, nor may funds budgeted to direct costs be used for indirect
costs. OHDS Brief, Exhibit 3, Attachment 2.
Based on the foregoing, we find that the indirect cost proposal which
Appellant said was submitted in April, 1981, has no effect on the
determination here.
(3) 3. The alleged OHDS oral approval of the indirect cost claim.
The chief argument of Appellant was that a regional OHDS official
approved the indirect cost claim for the period in question. The
Appellant offered as its evidence a letter dated April 9, 1980 from a
Mr. Richard G. McGraw, controller of Genessee County, Michigan, to the
Executive Director of the Appellant. The letter states as follows:
Please be advised that a negotiated Indirect Cost Rate of 8.1% has
been approved by H.E.W. for the Headstart Program. The allowable Rate
is to be used in the preparation of the 1980-81 Program Budget proposal.
This information was obtained per a telephone conversation with (name
omitted), Department of H.E.W., Chicago, on April 7, 1980.
In the future, it will be necessary that all Headstart Program
budgets include indirect cost.
(Attachment to Notice of Appeal)
For the following reasons, we do not think that this letter can be
read to require approval of the Appellant's claim of indirect costs for
the period in question here:
* The approved budgets of the grants for the period in question
clearly and explicitly show no funds were awarded or budgeted for
indirect costs, and show no indirect cost rate. See, Attachment G to
Appellant's submission to the Board of February 18, 1983, front page,
and fourth (unnumbered) page entitled "budget information," and the
similar documents in Attachment F.
* Note, in contrast, that the approved budget for the subsequent
period equally clearly shows that there was an award of funds for
indirect costs calculated at a rate of 8.1% (although still unavailable
pending signing of an indirect cost agreement; see discussion of
limitation under paragraph 2 above). OHDS Brief, Exhibit 3.
* The April, 1980, letter was not from OHDS to the Appellant; it was
from one part of the County to another.
(4) * In the telephone conference held in this case, the alleged
approving official stated categorically that he did not approve an
indirect cost rate or award for the period in question, nor would he
have been authorized to do so. There was no substantial rebuttal of
this position.
* OHDS offered a rather lengthy explanation of delegations of
authority indicating that the supposed approving official, indeed, would
not have been authorized to approve the indirect cost rate or award.
Without reaching any possible estoppel issue, we believe this unrebutted
evidence serves as further support for the unlikelihood that OHDS
approved the 8.1% rate for the period in question here.
* In any event, the lack of an award of funds for indirect costs
appears to be dispositive. The letter itself stated that it would be
"necessary" for the program budget to include indirect costs.
Based on the foregoing analysis, we find that the April, 1980, letter
does not provide a sufficient basis for overturning the disallowance;
in fact, it appears to support it.
4. Whether Appellant should win because the amount is small and
reasonable.
Appellant's final argument essentially was, as stated in response to
the Board's inquiry as to the basis for Appellant's claim if not founded
on a rate or award, that the costs were necessary and "in relationship
to the total Grant of $1,568,039 - $10,000 is an exceptionally small
cost for administrative services...." Grantee's letter of February 18,
1983, p. 2. Appellant made a similar argument earlier in response to
the audit. OHDS Brief, Exhibit 6, p. 2.
The Board is not in a position to assess the reasonableness of the
costs involved based on the record before us, and, in any event, the
absence of an award of indirect costs appears to foreclose the necessity
for further inquiry. OHDS' grant agreement, negotiated with Appellant,
specified no budget for indirect costs. This Board has no authority to
allow, sua sponte, any indirect costs in this situation because that
would effectively constitute the making of an additional award, which is
beyond our (5) authority. * Cf., Horizon House, Decision No. 350
(September 30, 1982); Gila River Indian Community, Decision No. 264
(March 4, 1982); Franklin C. Fetter Family Health Center, Decision No.
99 (May 19, 1980).
Conclusion.
Based on the foregoing analysis, we uphold the disallowance. * This
limitation on the Board's authority might not be present if the
question, unlike here, was whether OHDS had acted unreasonably in
refusing to allow transfer of available funds within the grant to an
indirect cost status where an indirect rate was approved. However, the
parties indicated in the telephone conference that there were no
unexpended funds left under this particular grant, so that Appellant
was, indeed, seeking what would amount to a supplementary award.
JULY 07, 1984