ChildCareGroup, DAB No. 3010 (2020)

DECISION

ChildCareGroup (CCG), a Head Start and Early Head Start grantee, appeals a decision by the Administration for Children and Families (ACF) disallowing $82,715 in technology services costs that CCG charged to its Early Head Start awards in 2015 and 2016.  ACF based its determination on an independent audit, which found CCG failed to comply with federal procurement requirements when it continued using an outside vendor for technology services after the procurement period relating to the vendor’s contract lapsed.

For the reasons discussed below, we uphold the disallowance.

Legal Background

Head Start and Early Head Start grantees must comply with regulations specific to those programs and with the uniform administrative requirements, cost principles, and audit requirements in 45 C.F.R. Part 75, which apply to all Department of Health and Human Services (HHS) awards.  45 C.F.R. §§ 1303.3, 75.104(b), 75.110(a).1

A non-federal recipient of an HHS award must have a financial management system that provides effective control over and accountability for all funds, assuring that they are used solely for authorized purposes.  45 C.F.R. § 75.302(b)(4).  The recipient must maintain records that identify adequately the source and application of funds for federally-funded activities.  Id. § 75.302(b)(3).  Based on these and related requirements, the Board has “consistently held that it is a fundamental principle of grants management” that the burden of demonstrating the allowability of costs for which funding was received “rests with the grantee.”  Rincon San Luiseno Band of Mission Indians, DAB No. 1826,

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at 3 (2002); see also Benaroya Research Inst., DAB No. 2197, at 3 (2008) (citing cases).

A Head Start or Early Head Start grantee must undergo an annual audit by an independent auditor to determine if the grantee is operating effectively under appropriate financial and administrative procedures and controls.  42 U.S.C. § 9842(c)(2); 45 C.F.R. § 75.501.  The grantee must promptly follow up and take corrective action on audit findings.  45 C.F.R.  §§ 75.508(c); 75.511(a). 

When a non-federal entity fails to comply with federal laws, regulations, or the terms and conditions of its award, and the awarding agency determines that noncompliance cannot be remedied by imposing additional conditions, the awarding agency may, as appropriate, disallow the cost of the activity or action not in compliance.  45 C.F.R. § 75.371.

Case Background

The independent audit report of CCG for the year ending December 31, 2016, questioned $82,715 in costs that CCG charged to its Head Start and Early Head Start awards for technology services furnished by an outside vendor in 2015 and 2016.  CCG Ex. 3, Audit Report at 10-11.  The audit report stated that the uniform administrative requirements obligate an award recipient to “have adequate procedures and controls in place related to procurement” and that such procedures “should provide for full and open competition supported by a cost or price analysis.”  Id. at 10.

CCG had procurement policies and procedures, the objectives of which were to comply with applicable laws and regulations; facilitate necessary purchases and prevent unnecessary purchases; and obtain “best pricing on what is purchased through free and open competition.”  CCG Supp. Ex. B, 2012 Purchasing Policies at 1 (Objectives); see also id. at 2 (Full and Open Competition (2 CFR Part 215.43)).2   CCG’s “Procured Vendors Process” directed staff to prepare procurement plans to define items or services needed, to establish the processes to acquire the items or services, and to schedule timeframes for delivery.  Id. at 4.  The procedures instructed staff to develop requests for proposals (RFPs) specifying, among other things, “[r]equired delivery or performance dates/schedules.”  Id.

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Relevant here, CCG issued an RFP for information technology consulting services in 2012.  CCG RFP #01-12.3   The RFP specified a limited “Contract Period” of one year, with “the option for two additional one-year periods after the initial base year.”  Id.at 2 ¶ 1.5.  The option would be exercised, the RFP provided, “based upon committee discussion and satisfaction with performance and pricing without requiring a full RFP process to be conducted.”  Id.

In this case, CCG executed a contract for technology services with an outside vendor in August 2012.  CCG Ex. 1.4   The auditor found “[t]he related procurement allowed for the selected vendor to remain under contract, pending annual approvals, through May 2015.”  CCG Ex. 3, at 10.  The auditor reported that CCG “did not renew the procurement in a timely manner” because CCG “had turnover in key personnel,” and “management made a decision to delay procurement of this contract” based “on an assessment of staff resources and cross training.”  CCG Ex. 3, at 11. 

The auditor found CCG did not perform a “new procurement” for technology services until 2016, resulting in a new contract “with an effective contract start date in September 2016.”  CCG Ex. 3, at 10.  The auditor concluded ACF may disallow the technology services costs incurred during the lapse in procurements because the questioned amounts did not comply with federal procurement requirements.  Id. at 11.5   According to the audit report, CCG’s management accepted “full responsibility for this lapse in timing” and would undertake corrective actions to “ensure a more systematic procurement function with no lapses in procurements.”  Id. at 11-12.

By letter dated July 18, 2018, ACF notified CCG that it was disallowing the $82,715 in costs questioned by the auditor.  CCG Ex. 4.  ACF concluded that the costs did not meet the requirements of 45 C.F.R. § 75.328(a), which requires that all procurement transactions be conducted in a manner providing for full and open competition.  Id. at 2.  The notice advised CCG that it had a right to appeal the disallowance to the Departmental Appeals Board (Board) under the regulations in 45 C.F.R. Part 16.  Id. at 3.

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On August 16, 2018, CCG appealed the disallowance, contesting the allegations of its noncompliance with federal requirements and the reasonableness of the disallowed amount.  Notice of Appeal (NA).6  In its Notice of Appeal, CCG explained it “properly procured services from [an information technology services] vendor in 2012 for a one-year, automatically renewing contract term, and a three-year procurement period ending in May 2015.”  NA at 3.  CCG acknowledged the three-year procurement period “lapsed while CCG’s procurement department was without a manager and undergoing a complete, compliance-driven reorganization.”  Id.  CCG explained that “[t]o avoid interruption of services,” it allowed the vendor to continue providing services under “the 2012 contract throughout 2015 and into 2016.”  Id.

According to CCG, its replacement procurement manager, who was hired in October 2015, discovered the lapse and, in June 2016, initiated a competitive procurement process for a new technology services contract.  Id.  CCG reported that “[t]his competitive procurement process resulted in a new award” in September 2016 with the same vendor for the same scope of services.  Id.    

In its Notice of Appeal, CCG further acknowledged that the disallowed amount ($82,715) represents funds paid to its vendor in 2015 and 2016 as described in the audit report.  NA at 3 (“As the Audit notes, the Disputed Funds represent money paid to an information technology services vendor in 2015 and 2016.”); see also CCG Ex. 3, Audit Report at 10 (specifying questioned costs for the Head Start and Early Head Start programs in the amount of $39,813 for 2015, and $42,902 for 2016).

Analysis

1.       The disallowance is supported by audit findings, and CCG has not shown those findings are legally or factually unjustified.

In reviewing a disallowance, “the Board is ‘bound by all applicable laws and regulations.’”  Middletown Cmty. Health Ctr., Inc., DAB No. 2754, at 6 (2016) (quoting 45 C.F.R. § 16.14).  “The Board is empowered to resolve legal and factual disputes and has no authority to waive a disallowance.”  Id.  The Board previously described the parties’ respective burdens in a Head Start disallowance appeal as follows:

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“[T]he federal agency has the initial burden to provide sufficient detail about the basis for its determination to enable the grantee to respond.”  Me. Dep’t of Health & Human Servs., DAB No. 2292, at 9 (2009), aff’d, Me. Dep’t of Human Servs. v. U.S. Dep’t of Health & Human Servs., 766 F. Supp. 2d 288 (D. Me. 2011).  If the agency carries this burden, which the Board has called “minimal,” then the nonfederal party (the grantee, in this case) must demonstrate that the costs are, in fact, allowable.  Mass. Exec. Office of Health & Human Servs., DAB No. 2218, at 11 (2008), aff’d, Mass. v. Sebelius, 701 F. Supp. 2d 182 (D. Mass. 2010).  “When a disallowance is supported by audit findings, the grantee typically has the burden of showing that those findings are legally or factually unjustified.”  Id.

E Ctr., DAB No. 2657, at 5 (2015). 

Here, there is no dispute ACF provided sufficient detail about the basis for its disallowance to enable CCG to respond.  ACF’s notice of disallowance states that based on the audit findings, ACF “is disallowing the questioned cost amount of $82,715.00 for procurement costs during 2015 and 2016 associated with a contract selected without required competition.”  CCG Ex. 4, at 2.  CCG does not contend the disallowance notice contained insufficient detail to enable it to respond.  Accordingly, we conclude ACF carried its initial burden to provide sufficient detail about the basis for its determination.

Having found that ACF carried its initial “minimal” burden, the burden shifts to CCG to demonstrate that the questioned costs are allowable.  E Ctr., DAB No. 2657, at 5.  Since ACF’s disallowance determination is supported by audit findings, CCG must show that the auditor’s findings “are legally or factually unjustified.”  Id. (citations omitted); see also Middletown, DAB No. 2754, at 6 (explaining that the Board must uphold a disallowance when “the disallowance ‘is authorized by law and the grantee has not disproved the factual basis for the disallowance’” (citing S.A.G.E. Commc’ns Servs., DAB No. 2481, at 5-6 (2012))).

CCG has not shown that the audit findings are legally or factually unjustified.  As summarized in the audit report, the uniform administrative requirements imposed a duty on CCG to establish and maintain effective internal controls, providing reasonable assurance that it was managing award funds in compliance with federal statutes and regulations, including the regulations governing procurements.  CCG Ex. 3, at 3, 10-11; see also 45 C.F.R. § 75.303 (internal controls).  

As the audit report made clear, federal procurement regulations obligated CCG to “have adequate procedures and controls in place related to procurement” and “ensure that procedures are properly documented.”  CCG Ex. 3, at 10; see also 45 C.F.R. § 75.327(a) (“The non–Federal entity must use its own documented procurement procedures which

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reflect applicable State, local, and tribal laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in [Part 75].”).

Procurement procedures, the audit report stated, “should provide for full and open competition supported by a cost or price analysis.”  CCG Ex. 3, at 10; see also 45 C.F.R. § 75.328(a) (“All procurement transactions must be conducted in a manner providing full and open competition consistent with the standards of this section.”).  The “full and open competition” requirement protects the integrity of the procurement process and promotes key principles underlying the uniform administrative standards:  ensuring that federally-funded “programs function as effectively and efficiently as possible,” and holding award recipients to “a high level of accountability.”  Final Guidance, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards, 78 Fed. Reg. 78,589, 78,590-591 (Dec. 26, 2013).  A non-federal entity, such as CCG, “must have written procedures for procurement transactions” to ensure, among other things, that procurement transactions are conducted in a manner that promotes full and open competition.  See 45 C.F.R. § 75.328(c)(1).7

The facts, as reported by the auditor and supported by the record, are largely undisputed.  CCG executed a contract for technology services with an outside vendor in August 2012.  CCG Ex. 1.  The auditor found, and CCG acknowledged, that the “related procurement allowed for the selected vendor to remain under contract, pending annual approvals, through May 2015.”  CCG Ex. 3, at 10; NA at 3.  The auditor found CCG did not perform a new procurement for the technology services until 2016 and, therefore, “did not renew the procurement in a timely manner.”  CCG Ex. 3, at 10-11.  The auditor reported, and CCG does not dispute, that “management made a decision to delay procurement of this contract” based on an assessment of staff resources and training.  Id. at 11.  According to the auditor, CCG’s management accepted “full responsibility for this lapse in timing” and subsequently took (or will take) corrective action to “ensure a more systematic procurement function with no lapses in procurements.”  Id. at 11-12.  The auditor concluded the technology services costs incurred by CCG during the lapse in procurements and charged to the federal grants may be disallowed due to non-compliance with state and federal grant requirements.  Id. at 11 (“[T]he grantors could request corrective actions, including reimbursement of questioned costs.”).

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For its part, CCG concedes the procurement period for the vendor’s contract “lapsed while CCG’s procurement department was without a manager.”  NA at 3.  According to CCG, it allowed its technology services vendor to continue providing services under the 2012 contract “throughout 2015 and into 2016” in order to “avoid interruption of services.”  Id.  In June 2016, after CCG’s replacement procurement manager “discovered” the lapse in procurements, CCG initiated a “competitive procurement process for a new contract covering the vendor’s scope of work.”  Id.  In September 2016, a new contract was awarded to the same vendor for the same scope of work.  Id.

Based on the foregoing, the Board finds CCG failed to carry its burden of showing that the audit findings are legally or factually unjustified.  It is undisputed there was a lapse in procurements for technology services between May 2015 and September 2016, during which CCG continued to receive technology services from its existing vendor and, despite the lapse in procurements, CCG charged those costs to its federal awards in 2015 and 2016.  The Board finds the technology services costs incurred by CCG between May 2015 and September 2016 were incurred in violation of CCG’s own procurement procedures.  Consistent with the audit findings, CCG violated federal regulations requiring a grantee to maintain effective internal controls, follow its own procurement procedures, and ensure that its procurements provided for full and open competition.  Cf. National Alliance on Mental Illness, DAB No. 2612, at 16 (2014) (sustaining disallowance for printing and professional services costs where grantee, among other things, “violated [its] own procedures for ensuring that it procured these services on a competitive basis”); Beaver Cnty. Head Start, DAB No. 2441, at 1-3 (2012) (sustaining disallowance of costs for building management contract where grantee failed to conduct competitive selection process).

2.       The Board rejects CCG’s argument that contract costs incurred during a lapse in procurements are allowable if the contract was subject to a competitive procurement some time before the lapse.

CCG challenges the audit finding that technology services costs incurred during the lapse in procurements “were not associated with a contract selected through a procurement process.”  CCG Ex. 3, at 10.  According to CCG, this finding is “patently false” because its vendor was “properly chosen through a competitive procurement process” in 2012, and continued to provide services “after the expiration of the procurement term” under a “still-valid contract.”  CCG Br. at 6-7.  CCG contends that it “fully complied” with 45 C.F.R. § 75.328(a), the sole regulation cited in ACF’s determination letter, because the 2012 contract was selected through a competitive process and automatically renewed

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each year.  CCG Reply at 2-3.8  CCG points out that 45 C.F.R. § 75.328(a) “says nothing whatsoever about a procurement period or requirements relating to one.”  CCG Reply at 2.  According to CCG, the goal of the regulation – full and open competition – was served because the vendor’s services were properly procured in 2012, and then re-procured through a competitive process in 2016.  CCG Br. at 6.

Consistent with the audit findings, ACF’s disallowance determination was based on CCG’s failure to timely initiate a new procurement process and enter into a new contract for technology services, after the initial procurement period expired in May 2015.  As ACF made clear in its response brief, CCG’s initial competition of the 2012 contract would not justify its continued use of that vendor’s contract after the associated procurement period ended.  ACF Br. at 7.  Furthermore, CCG’s response to a Board order to develop the record calls into question CCG’s claim that it properly awarded the 2012 contract through a competitive procurement process.  The Board ordered CCG to submit copies “of all records detailing the history of CCG’s procurement of the August 2012” contract.  June 19, 2020 Order to Develop Record at 2 (emphasis added).  In response, CCG produced only a copy of RFP #01-12, but no documentation of any proposals responding to the RFP or CCG’s evaluations of any such proposals.  Those documents, if they exist, would reflect whether CCG received timely and sufficient proposals responding to the RFP and properly evaluated the proposals based on the criteria set out in the RFP and CCG’s policies and procedures.  Moreover, the Workforce Solutions fiscal monitoring review report found “two proposals” responding to the 2012 RFP “were date stamped as received” prior to the RFP response deadline; “however, these proposals were not recorded on the received list,” and the “RFP was re-released due to inadequate competition . . . .”  CCG Supp. Ex. A at 7.  It is far from clear that the 2012 contract was properly selected through a competitive procurement process.  In any event, even assuming that it was, CCG may not rely on that contract to justify its continued use of the vendor’s services after the procurement period expired.

The Board finds CCG did not properly procure the questioned technology services costs through a timely, competitive procurement process, consistent with the end-date of its 2012 competitive procurement and the regulations requiring a grantee to maintain effective internal controls, follow its own procedures, and ensure that its procurements

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allowed for full and open competition.  CCG’s competitive procurement of the 2012 contract cannot justify its continued use of that same contract for an indefinite period of time in violation of its own documented procurement procedures.

The fact that the procurement period was not expressed in the 2012 contract does not excuse CCG’s failure to undertake a new competitive procurement at the required time.  A federal grantee cannot “opt out” of its own procurement procedures, and related federal procurement regulations, by allowing its vendor contracts to automatically renew on an annual basis without regard to the relevant procurement period.

Although 45 C.F.R. § 75.328(a) does not specifically mention procurement periods or related procurement requirements, this regulation cannot be read in isolation and must be construed in accordance with all federal procurement requirements, including the requirement that federal grantees “must use [their] own documented procurement procedures” consistent with the standards identified in Part 75.  See 45 C.F.R. § 75.327(a).

The Board does not interpret the federal procurement regulations as allowing a federal grantee to ignore its own written procurement procedures once it selects a vendor through a single competitive procurement process.  If CCG were correct, then federal grantees would have no obligation to engage in any competitive procurement process for any selected vendor more than once.  Such an interpretation would severely undermine the “full and open competition” requirement in section 75.328.

The Board further rejects the argument that CCG’s re-procurement of technology services resulting in a new contract in September 2016 somehow establishes a basis for allowing the costs incurred between May 2015 and September 2016.  A copy of the September 2016 contract was not produced.9   In any event, a new competitive contract with an effective date of September 2016 cannot be used to allow costs incurred and charged to CCG’s federal awards before the effective date of the new contract.

3.      The Board may not reverse or modify a disallowance on equitable grounds.

CCG argues that “equity demands” the disallowance be reversed because it self-reported and cooperated with the government’s investigation and prosecution of its former procurement manager, who perpetrated a fraudulent scheme involving printing costs.  CCG Br. at 2-3, 10; Reply at 4-5.  CGG notes that it terminated the responsible

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procurement manager and repaid the funds fraudulently charged to its Head Start awards.  Id.  In addition, CCG explains that it undertook multiple corrective actions to revise its procurement process and strengthen its internal controls, including hiring a new procurement manger.  CCG Br. at 3-4; Reply at 4.  CCG further asserts that enforcement of the disallowance will cause extreme hardship as any reduction in funds will directly affect the programs CCG can offer its vulnerable clients.  CCG Br. at 9-10; Reply at 4. 

As ACF points out, the fraud committed by CCG’s former procurement manager was the subject of a different audit and separate matter that pre-dated the lapse in procurements for technology services.  ACF Br. at 7-8; ACF Ex. 2.  Moreover, the funds repaid by CCG in connection with its procurement manager’s fraud (ACF Ex. 2) are unrelated to the technology services costs disallowed in this case (CCG Ex. 3).  Still further, CCG’s implementation of a corrective action plan in response to audit findings was not optional or voluntary, but required by federal regulations.  See 45 C.F.R. §§ 75.508(c); 75.511(a). 

Even if the Board were persuaded by CCG’s equitable arguments, the Board has long held that it cannot reverse a disallowance based on such arguments.  See, e.g., Ohio Developmental Disabilities Planning Council, DAB No. 330, at 8 (1982).  The Board is “bound by all applicable laws and regulations,” 45 C.F.R. § 16.14, and is not empowered to reverse a disallowance based on equity.  See Kids Central, Inc., DAB No. 2897, at 15 (2018) (collecting cases).  When, as here, a disallowance is supported by the applicable regulations, the Board has no discretion to “invent equitable remedies without a basis in law.”  Camden Cnty. Council on Econ. Opportunity, DAB No. 881, at 7-8 (1987).  Thus, the corrective actions that CCG undertook to strengthen its procurement process, its cooperation with law enforcement, repayment of fraudulent charges in a separate matter, and the financial hardship that the disallowance may impose, provide no basis for the Board to modify or reverse the disallowance. 

4.       The Board rejects CCG’s contention that the disallowed amount is incorrect.

CCG additionally contends the “amount of funds demanded by ACF is incorrect.”  CCG Br. at 8-9.  According to CCG, the audit report “makes no allegations that the 2015 costs associated with [the vendor’s] contract were incurred without a properly procured contract, expressly limiting its scope to May 2016 to September 2016.”  Id.  We are not persuaded by CCG’s argument that the audit report limited questioned costs to the period from May 2016 to September 2016.

In the paragraph discussing the condition resulting in questioned costs, the auditor reported the undisputed fact that the related procurement allowed the vendor to remain under contract “through May 2015.”  CCG Ex. 3, at 10.  In the following sentence, the auditor further reported the undisputed fact that a new procurement did not occur until 2016, resulting in a new contract with an effective date of September 2016.  Id.  The auditor then erroneously referred to “[c]osts incurred between May 2016 and September

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2016,” when it was clear from the context that the lapse in procurements was between May 2015 and September 2016.  Id.  Any question about the auditor’s findings was clarified in the subsequent chart, where the auditor reported questioned costs for the Head Start and Early Head Start programs in both 2015 ($39,813) and 2016 ($42,902).  Id. Indeed, CCG’s own Notice of Appeal recognized the May 2016 date was a mistake when it quoted that portion of the audit report using the indicator “[sic]” after the erroneous date.  NA at 2.  CCG clearly understood and acknowledged that the disallowance was based on a lapse in procurements between May 2015 and September 2016.  NA at 3 (“As the Audit notes, the Disputed Funds [i.e., questioned costs] represent money paid to an information technology services vendor in 2015 and 2016.”).

ACF made clear in its response brief that the disallowance amount related to the lapse in procurements between May 2015 and September 2016.  ACF Br. at 8-9.  The Board has consistently held that a federal agency may cure any inadequacies in a determination letter during the appeal process as long as the recipient has had an opportunity to respond.  See Philadelphia Parent Child Ctr., DAB No. 2356, at 4 (2010).  CCG had an opportunity to respond to ACF’s clarification, but made no mention of this issue in reply.  CCG presented no evidence controverting ACF’s conclusion, as supported by the audit, that there was a lapse in procurements between May 2015 and September 2016.  For all of these reasons, the Board finds the audit report identified questioned costs in the amount of $82,715 for the Head Start and Early Head Start programs due to a lapse in procurements between May 2015 and September 2016. 

5.       The Board rejects CCG’s constitutional arguments.

CCG argues that ACF’s disallowance is “arbitrary and capricious and therefore a violation of due process.”  CCG Br. at 2, 6.  CCG argues that the regulation “says nothing . . . about a procurement period or requirements relating to one.”  CCG Reply at 2.  According to CCG, 45 C.F.R. § 75.328(a) is unconstitutionally vague and ACF’s attempt to enforce it against CCG is “arbitrary and discriminatory” and violates due process.  CCG Br. at 6-7. 

Insofar as CCG aims to attack the constitutionality of the procurement regulations, the Board does not have the authority to consider whether a regulation is unconstitutional.  See 45 C.F.R. § 16.14 (The Board is “bound by all applicable laws and regulations.”); see also Fady Fayad, M.D., DAB No. 2266, at 14 (2009), aff’d, Fayad v. Sebelius, 803 F. Supp. 2d 699 (E.D. Mich. 2011).  Moreover, we do not find any support for CCG’s argument that ACF attempted to enforce the regulation in an arbitrary or discriminatory way in this case.  Rather, as detailed above, the disallowance here was the result of CCG’s failure to comply with its own documented procurement policies and procedures, which required not only that it procure vendors’ services through full and open competition, but also that it adhere to the periods of performance that it alone established during the procurement process.

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CCG also appears to confuse the Board’s standard for reviewing an ACF disallowance decision with the standard for a court reviewing an administrative action under the Administrative Procedure Act (APA), 5 U.S.C. § 706.  The APA allows courts to “hold unlawful and set aside agency action, findings, and conclusions” that are determined to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law” or “unsupported by substantial evidence” after a hearing on the record.  5 U.S.C. § 706(2)(A), (E).  “The Board is an appellate adjudicative body in an administrative appeal process.”  Arizona Health Care Cost Containment Sys., DAB No. 2824, at 8 (2017), affirmed, Arizona Health Care Cost Containment Sys. v. Centers for Medicare & Medicaid Servs., No. CV-17-04462, 2020 WL 805235 (D. Ariz. Feb. 18, 2020), appeal docketed, No. 20-15598 (9th Cir. Apr. 6, 2020).  In this administrative appeal, the Board is “bound by all applicable laws and regulations.”  45 C.F.R. § 16.14.  “The Board therefore must uphold a disallowance where, as in this case, the disallowance ‘is authorized by law and the grantee has not disproved the factual basis for the disallowance.’”  Middletown, DAB No. 2754, at 6 (citing S.A.G.E. Commc’ns Servs.  at 5-6). 

Conclusion

For all of the foregoing reasons, we sustain ACF’s disallowance of $82,715 in its entirety.

• 1. We cite to the HHS regulations at 45 C.F.R. Part 75, which were in effect at the time CCG incurred the costs at issue.  The Part 75 regulations implement the language in 2 C.F.R. Part 200 (Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards) and supersede OMB circulars and earlier regulations in Title 2 of the Code of Federal Regulations and HHS regulations at 45 C.F.R. Parts 74 and 92.  45 C.F.R. §§ 75.104, 75.106.  In this case, the audit report references and applies the uniform requirements at 2 C.F.R. Part 200.  CCG Ex. 3, Audit Report at 3.
• 2. “CCG Supp. Ex. _” refers to the three exhibits filed by CCG on July 6, 2020, in response to the Order to Develop Record issued on June 29, 2020.
• 3. CCG produced RFP #01-12 with its June 26, 2020 response to the June 19, 2020 Board Order to Develop Record.
• 4. The audit report mistakenly states that the services were originally procured in 2013. CCG Ex. 3, at 10.
• 5. The auditor discovered the lapse in procurements on review of “a report from Workforce Solutions Greater Dallas[,] a fiscal monitoring review report which identified this finding.”  CCG Ex. 3, at 11; see also CCG Supp. Ex. A, Workforce Solutions Report.
• 6. CCG requested in its opening brief to cross-examine all witnesses designated by ACF.  CCG Br. at 1.  ACF did not designate any witnesses.  See Respondent’s Supplement to the Appeal File.  Because the record has been fully developed on the parties’ written submissions, there is no need for an oral proceeding here.  See Appellate Division Practice Manual, available at https://www.hhs.gov/about/agencies/dab/different-appeals-at-dab/appeals-to-board/practice-manual/index.html#9.
• 7. The audit report further stated that a grantee’s procurement procedures must “also provide for retention of files and other supporting documentation which provides evidence of compliance with specified requirements.”  CCG Ex. 3, at 10; see also 45 C.F.R. § 75.327(i) (grantee “must maintain records sufficient to detail the history of procurement”).
• 8. CCG argued in its opening brief that the issue before the Board was “[w]hether CCG was in substantial compliance with contract procurement requirements found in 45 C.F.R. 75.328(a).”  CCG Br. at 2; see also id. at 5 (arguing substantial compliance).  In challenging a disallowance, however, a grantee must “demonstrate that it fully complied” with the applicable federal requirements, “not that it ‘substantially’ complied.”  N.Y. State Dep’t of Social Servs., DAB No. 713, at 6 (1985) (sustaining disallowance based on “numerous substantive deficiencies” in the grantee’s “procurement process”).  Recognizing in its reply that “substantial compliance” is insufficient, CCG now contends that it “fully complied” with 45 C.F.R. § 75.328(a). (CCG Reply at 3.)
• 9. Still further, the Workforce Solutions fiscal monitoring review report questioned whether the 2016 procurement complied with the “Full and Open Competition” requirement because it “appear[ed] that [a] late proposal was selected for award.” CCG Supp. Ex. A at 8.