Putnam-Clay-Flagler Economic Opportunity Council, Inc., DAB No. 1594 (1996)

Department of Health and Human Services


Appellate Division

SUBJECT: Putnam-Clay-Flagler Economic Opportunity Council, Inc.
Docket No. A-95-72
Control No. A-04-95-32922
Decision No. 1594

DATE: August 5, 1996


Putnam-Clay-Flagler Economic Opportunity Council, Inc.
(P-C-F) appealed a determination by the Administration
for Children and Families (ACF) disallowing $284,172 in
Head Start program funds for the budget period ending
October 31, 1993. During Board proceedings the amount in
dispute was reduced. The only issue remaining concerns
$178,320 related to P-C-F's failure to document the in-
kind valuation of property donated by the Putnam County
School Board for P-C-F's use for its Head Start program.
For the reasons described more fully below, we sustain
ACF's disallowance.


ACF administers the federal Head Start program which
provides comprehensive health, educational, nutritional,
social and other services to economically disadvantaged
pre-school children and their families. 42 U.S.C. §
9831. To carry out this program, ACF provides federal
funding to public and private agencies totalling
generally 80% of their approved Head Start budget, and
the public or private agency contributes 20% in matching
funds or in-kind contributions. 42 U.S.C. §§ 9833 and
9835(b); 45 C.F.R. § 1301.20.

With certain exceptions not relevant here, the general
grants administration requirements in 45 C.F.R. Part 74
(1992) apply to Head Start grants. 45 C.F.R. § 74.4 and
45 C.F.R. § 1301.10(a). Part 74 contains rules for
satisfying federal requirements for cost sharing or
matching. 45 C.F.R. § 74.50. 2/ Cost sharing or
matching is defined in the regulations as "the value of
third-party in-kind contributions and that portion of the
costs of a grant-supported project or program not borne
by the Federal Government." 45 C.F.R. § 74.51. That
regulation also defines "third-party in-kind
contributions" as "property or services which benefit a
grant-supported project or program and which are
contributed without charge to the grantee . . . under the
grant." Id. The regulations further provide that third-
party in-kind contributions claimed for a matching
requirement must be verifiable from the grantee's
records, and the grantee's records must show how the
value placed on third-party in-kind contributions was
determined. 45 C.F.R. §74.53(d). Such in-kind
contributions count towards satisfying a cost-sharing or
matching requirement only where the payments would be
allowable costs if the party receiving the contributions
were to pay for them. 45 C.F.R. § 74.53(e).

The value placed on third-party in-kind contributions for
cost-sharing or matching purposes must conform to the
rules set forth in the regulations. The rule for
valuation of donated or loaned space states that--

If a third party donates the use of . . . space in a
building but retains title, the contributions shall
be valued at the fair rental rate of the . . .

45 C.F.R. § 74.55(b). The regulations further provide
that the granting agency may require the fair rental rate
of space in a building to be established by a certified
real property appraiser. 45 C.F.R. § 74.57.

ACF determined that P-C-F had no support or documentation
indicating how it valued certain classroom and kitchen
space in two Putnam County School properties which the
Putnam County School Board had donated to P-C-F for its
Head Start program. ACF determined that P-C-F had not
properly valued the in-kind contribution. ACF
disallowance letter of January 17, 1995.

After the disallowance was issued, P-C-F offered for the
first time some documentation to support its valuation.
P-C-F Exhibit (Ex.) 3-A. This information consisted of a
letter dated January 25, 1995 from the School Board which
enclosed the School Board's policy on the use of school
property for educational and non-educational purposes and
the hourly charge for use of school facilities for non-
educational purposes. Based on this policy, which sets
the cost for the public to rent a classroom at $10 per
hour and the cost to rent a kitchen at $50 for three
hours, the School Board estimated its in-kind
contribution to be $270,100 (8 classrooms for 8 hours a
day for a year and two kitchens for three hours a day for
a year). ACF determined this valuation was unacceptable
because no lease or agreement was provided to show the
terms of the arrangement between P-C-F and the School
Board, P-C-F applied an inappropriate valuation rate (the
hourly rate charged for use of school property to the
public for non-educational purposes), and P-C-F failed to
provide an independent appraisal of the fair market
rental value of the donated classroom space and kitchens.
ACF response dated November 30, 1995. P-C-F made a
February 14, 1996 submission that included the lease
agreements with the School Board but failed to address
ACF's other concerns. P-C-F subsequently submitted

independent appraisals for the questioned space which
included a fair market yearly rental value for the two
properties in question. P-C-F March 18, 1996 submission.

ACF reviewed the independent appraisals and received
further clarification from P-C-F. Based on this, ACF
accepted the independent appraiser's fair market rental
values of $10,781 for the 157 South County Road 21
property and $10,796 for the 220 West Main Street
property, and it accordingly reduced the original
disallowance to $178,320. ACF May 3, 1996 letter to the
Board. 3/


The regulations pertaining to valuation of third-party
in-kind contributions of space in 45 C.F.R. Part 74
provide that ACF may require the valuation to be based on
an independent appraisal of the fair market rental value
of similarly situated properties. We therefore agree
with ACF that the School Board's valuation of the space
it contributed to P-C-F at $270,100 was not in accord
with the regulatory requirements and was therefore
inappropriate. Moreover, P-C-F did not argue that an
independent appraisal was unnecessary and, in fact,
finally did submit independent appraisals of the fair
market yearly rentals of the properties in question
totalling $21,577. ACF accepted that amount and reduced
the disallowance accordingly. We find no basis in the
record for allowing any amount in excess of the fair
market rental values for the donated space. The
regulations at 45 C.F.R. 74.53(d) clearly state that
costs and third-party in-kind contributions counting
towards satisfying a cost-sharing or matching requirement
must be verifiable from the grantee's records.
Accordingly, the disallowance of $178,320 must be upheld.


For the reasons stated above, we uphold ACF's
disallowance of $178,320.

Cecilia Sparks Ford

Donald F. Garrett

M. Terry Johnson
Presiding Board Member

* * * Footnotes * * *

1. The original disallowance was comprised of:
(1) $1,272 in unallowable costs for travel to and
attendance at a conference; (2) $83,003 for undisbursed
checks; and (3) $199,897 related to the in-kind valuation
of classroom and kitchen space donated from the Putnam
County School Board for P-C-F's use. The disallowance
was subsequently reduced when ACF accepted P-C-F's
documentation for all but $828 for unallowable travel
costs and P-C-F tendered a check for that amount to ACF
and ACF withdrew its disallowance for $83,003 for
undisbursed checks. This left in dispute only the
disallowance related to the in-kind valuation of the
property. ACF subsequently reduced that disallowance by
$21,577, the fair market rental value for the property as
established by an independent appraisal.
2. ACF cited section 23(h)(1) and (3) of Office
of Management and Budget (OMB) Circular, A-110, Uniform
Administrative Requirements for Grants and Agreements
with Institutions of Higher Education, Hospitals and
Other Nonprofit Organizations. We do not refer to these
provisions specifically here because Part 74 is the
Department's implementation of OMB Circular A-110.
3. At this point in the appeal proceeding, the
Board declined to allow P-C-F to further supplement its
briefing to present new argument and evidence of
purported other third-party in-kind contributions to
support its matching requirements. See letter dated July
11, 1996 to the parties. The Board found no good reason
for reopening the briefing process since P-C-F had
previously been given more than ample opportunity to
submit all its arguments and supporting documentation.