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CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
IN THE CASE OF  


SUBJECT:

Ute Indian Tribe

DATE: August 9, 2000
 

 

Docket No. A-2000-14
Control No. A-08-97-46601
Decision No. 1739
DECISION
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DECISION

The Ute Indian Tribe (Tribe) appealed the October 1, 1999 decision of the Administration on Children, Youth and Families, Administration for Children and Families (ACF), disallowing $62,865 charged to the Tribe's Head Start grant for the year ended August 31, 1994. The disallowance was based on an audit finding that the Tribe enrolled in its Head Start program more than the percentage of over-income children permitted by 45 C.F.R. 1305.4(b)(1). During the proceedings before the Board, ACF reduced the amount of the disallowance to $16,764 based on documentation submitted by the Tribe showing that the audit report incorrectly stated the total number of children actually found by the auditors to be over-income and that all but four of the children found by the auditors to be over-income were income-eligible in the prior program year and were therefore properly considered income-eligible in the 1993-1994 program year. ACF Br. dated 3/15/00, at 10-11; ACF Br. dated 6/9/00, at 1-2.

The Tribe did not dispute ACF's finding that four over-income children were not permitted to be served by the Tribe's Head Start grant. The sole remaining basis for the Tribe's appeal is its contention that it used tribal funds, not federal funds, to pay for services for these four children.

As discussed below, we conclude that the Tribe did not document that it expended non-federal funds for this purpose in addition to the Tribe's required non-federal share of Head Start program costs. Accordingly, we uphold the disallowance of the $16,764 remaining in dispute.

Background

The Head Start program is designed to deliver comprehensive health, educational, nutritional, social and other services to economically disadvantaged children and their families. 42 U.S.C. 9831. The Head Start Act requires the Secretary to prescribe by regulation eligibility criteria for participation in Head Start, and indicates that the criteria may provide for the inclusion, "to a reasonable extent," of children in the area served who would benefit from Head Start but whose families do not meet the low-income criteria. 42 U.S.C. 9840(a)(1). The applicable regulations provide that "[a]t least 90 percent of the children who are enrolled in each Head Start program must be from low-income families. . . ." 45 C.F.R. 1305.4(b) (1993).(1)

The Tribe enrolled a total of 230 children during its 1993-1994 program year; thus, no more than 23 over-income children could properly be served by the Head Start grant.(2) ACF ultimately found that the Tribe served 27 over-income children. To arrive at the disallowance amount of $16,764, ACF multiplied by four -- representing the excess over-income children -- the average cost per child incurred by the Tribe during the 1993-1994 school year of $4,191.(3

Conclusion

For the foregoing reasons, we find that the Tribe failed to show that the costs of the four excess over-income children were not paid for with Head Start funds. Accordingly, we sustain the disallowance of the $16,764 attributable to these children.

ANALYSIS
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On appeal, the Tribe contended that it had expended $69,529.92 in tribal funds to cover the costs of over-income children, so that a disallowance was not warranted. According to the Tribe, it contributed these funds to enable it to provide services to 15 children more than the 215 for whom it received federal funds. The Tribe stated that the funds were used for the salaries of two teachers and one cook, food costs, children's insurance, disability services, and a pro-rata share of office supplies, telephone usage and vehicle maintenance, and that all of these costs were attributable to the 15 children identified on its enrollment list (at Tribe's Appeal File, Tab B) as tribal over-income. The Tribe contended, moreover, that the $69,529.92 it expended for over-income children was in addition to contributions it made to satisfy its non-federal share requirement of $232,922.(4)

As ACF noted, the Board has held in prior cases that non-federal funds could not be used to offset a disallowance of costs attributable to excess over-income children since the non-federal funds did not reduce the amount of federal funds used by the grantee for the excess over-income children. See, e.g., Gila River Indian Community, DAB No. 954 (1988); Gila River Indian Community, DAB No. 937 (1988). The Tribe here made a different argument, however: that it did not expend federal funds for the excess over-income children. Thus, if the Tribe could show that it expended $16,764 of non-federal funds for the excess over-income children and that it did not rely on these non-federal funds to satisfy its non-federal share requirement, there would be no basis for the disallowance.

At the Board's request, ACF reviewed the documentation submitted by the Tribe and determined that the Tribe failed to document that any of the $69,529.92 in expenditures identified by the Tribe was paid for with non-federal funds or that any such expenditures would have been in addition to the Tribe's non-federal share.(5) The Board has consistently held that it is a fundamental principle of grants management that a grantee is required to document its costs, and that the burden of demonstrating the allowability and allocability of costs claimed in a grant program rests with the grantee. See, e.g., Child Opportunity Program, Inc., DAB No. 1700, at 1 (1999); see also 45 C.F.R. 74.61 (1993). In addition, a grantee must show that it has operated its program according to the terms and conditions of its grant and the applicable regulations. Lake County Economic Opportunity Program, Inc., DAB No. 1580, at 5 (1996). We conclude that ACF correctly determined that the Tribe failed to meet its burden here, and, accordingly, we sustain the disallowance of the amount remaining in dispute. Below, we discuss the documentation relied on by the Tribe and why it does not support the Tribe's position.(6)

The Tribe relied principally on a document that it identified as the auditor's trial balance for the 1993-1994 school year. Tribe's Reply Br. dated 5/5/00, at 5, citing Appeal File, Tab S at 1. The document is captioned "TB by Accounts Unclassified (Unadjusted to Adjusted Balance), Ute Tribe - General Fund, 9/30/94." (The identical document without this caption appears at Tab J of the Tribe's Appeal File.) The Tribe highlighted several line item accounts on this document (involving the types of costs the Tribe said it funded) for which the corresponding amounts in a column captioned "1994 Adjusted Balance" total $69,529.92, which the Tribe maintained represented non-federal expenditures. The Tribe also maintained that it satisfied its non-federal share requirement without relying on these expenditures. The Tribe pointed out that the same document in Tab S reflects that the Tribe expended $610,430.27 in salaries for its Head Start staff during the 1993-1994 school year. The Tribe asserted that, applying its negotiated indirect cost rate of 37.1% to this expenditure, it was entitled to claim $226,469.63 in indirect costs as part of its non-federal share since it had not received any federal funding for indirect costs. The Tribe also claimed that it had donated $31,706 in utilities to its Head Start program, which, together with the indirect costs, exceeded the required non-federal share. As evidence of the amount of donated utilities, the Tribe relied on its budget justifications for several years other than the one in question. Tribe's Reply Br. at 5, citing Tribe's Appeal File, Tabs O - R. Another document submitted by the Tribe, captioned "Head Start Line-Item Budget," which the Tribe's "Appeals File Index" attributes to 1993-94, shows the total amount of budgeted non-federal in-kind contributions to be $139,615 ($107,909 for depreciation/use allowance and $31,706 for utilities). Tribe's Appeal File, Tab K.

We agree with ACF, however, that nothing on the face of the document at Tab S cited by the Tribe establishes that the $69,529.92 represented non-federal expenditures, since there is no indication of the funding source for any account. Tab S also contains trial balances with "Special Revenue" in the heading rather than "General Revenue" as on the document cited by the Tribe. Tab S at 2-4. However, as ACF pointed out, there is no indication of what type of funds were covered by each trial balance (if indeed federal and non-federal funds were segregated). Thus, the Tribe failed to document that the $69,529.92 was paid with non-federal funds, despite ample opportunity to do so.

In addition, none of the documents shows the amount actually expended by the Tribe to satisfy its non-federal share requirement. Tabs O - R and Tab K merely show budgeted amounts, and only Tab K is purported to pertain to the year in question. Even if we were to assume that the Tribe actually expended the budgeted amount shown in Tab K, however, that amount would fall short of the required non-federal share ($139,615 versus $232,922).

Furthermore, any shortfall could not be made up by any unclaimed indirect costs. No indirect costs were included in the federal funds budgeted for the 1993-1994 program year. See notice of grant award at Tribe's Appeal File, Tab M (showing indirect costs of "0"). Moreover, recovery of indirect costs under a federal grant is contingent on having an approved indirect cost rate, and the Tribe presented no evidence that it even had an approved indirect cost rate applicable to the period in question. In addition, the applicable regulations limit the costs of developing and administering a Head Start program to 15 percent of the total approved costs of the program, unless a waiver is granted. 45 C.F.R. 1301.32(a)(1). The Tribe did not allege that it had requested or obtained a waiver. Indirect costs are generally considered administrative costs. Thus, except under circumstances that the Tribe did not allege were present here, the maximum amount the Tribe could have charged as indirect costs (assuming no direct costs count towards the 15 percent) would be $91,564.54 (15 percent of total approved program costs). See 45 C.F.R. 1301.32(b) - (f). This amount plus the $139,615 in budgeted non-federal expenditures would equal only $231,179.54, less than the $232,922 required non-federal share.

JUDGE
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Marc R. Hillson

M. Terry Johnson

Judith A. Ballard
Presiding Board Member

FOOTNOTES
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1. The regulations were revised in 1998 (after the program year at issue in this case) to create an exception to the 90 percent requirement for a Head Start program operated by an Indian Tribe if certain conditions are met. 45 C.F.R. 1305.4(b)(3).

2. ACF's disallowance letter, relying on the audit report, stated that there were 210 children in the Tribe's Head Start program, so that only 21 over-income children were permitted to be served by the Tribe's Head Start grant. ACF letter dated 10/21/99, at 1. However, ACF did not dispute the Tribe's representation before us that the Tribe served 15 children in addition to the 215 children specified in the notice of grant award (at Tribe's Appeal File, Tab M) as the "client population."

3. The use of an average cost per child to calculate the disallowance appears to be predicated on an assumption that the excess over-income children received the same services as other children enrolled in the Tribe's Head Start program. There is nothing in the record that indicates that the excess over-income children received different services.

We note that it is unclear how ACF calculated the average cost per child. If the Tribe drew down the entire $931,689 in federal funds awarded, the average cost per child would have been $4,051 rather than $4,191. The Tribe did not challenge ACF's calculation of the disallowance amount, however.

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