Oak Hill Regional Community Development Corporation, DAB No. 3196 (2025)

DECISION

In this consolidated appeal, Oak Hill Regional Community Development Corporation (Oak Hill) appeals a determination by the Administration for Children and Families (ACF) disallowing $76,000 in federal grant funds under a Community Services Block Grant awarded to Oak Hill by the ACF Office of Community Services (OCS) (grant no. 90EE1215).  ACF disallowed costs that Oak Hill charged to the grant for project design and development services, on the ground that Oak Hill failed to document that the costs were allowable under applicable uniform administrative requirements and cost principles.  We conclude that Oak Hill did not meet its burden to document the allowability of its charges to federal grant funds, and we sustain the disallowance.

Legal Background

The Community Services Block Grant Act at 42 U.S.C. §§ 9901-9926 established the Community and Economic Development (CED) program and created OCS to implement the authority of the Secretary of Health and Human Services to, among other activities, provide “grants on a competitive basis to private, nonprofit organizations that are community development corporations to provide technical and financial assistance for economic development activities designed to address the economic needs of low-income individuals and families by creating employment and business development opportunities.”  42 U.S.C. §§ 9912, 9921(a)(2)(A).

CED grants are subject to the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS [Department of Health and Human Services] Awards,” at 45 C.F.R. Part 75 (“Part 75”).  See 45 C.F.R. § 75.101(a).¹  CED grantees must, among other requirements, “[e]stablish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the

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Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.”  Id. § 75.303(a).

To be allowable charges to federal grant funds, a grantee’s costs “must  . . . [b]e necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles; . . . [c]onform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items;” and “[b]e adequately documented.”  Id. § 75.403(a), (b), (g).  “A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.”  Id. § 75.404.  “Disallowed costs” include “charges to a Federal award that the Federal awarding agency . . . determines to be unallowable, in accordance with the applicable Federal statutes, regulations, or the terms and conditions of the Federal award.”  Id. § 75.2.

Regarding “Professional service costs,” the cost principles require that the costs of “professional [or] consultant services” rendered by persons “who are not officers or employees of the non-Federal entity” must, among other requirements, be “reasonable in relation to the services rendered,” which in turn requires consideration of  listed “factors [that] are relevant,” including:  “[t]he nature and scope of the service rendered in relation to the service required,” “[t]he necessity of contracting for the service,” “[w]hether the service can be performed more economically by direct employment rather than contracting,” “[t]he qualifications of the individual or concern rendering the service and the customary fees charged,” and the “[a]dequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, and termination provisions).”  Id. § 75.459 (a), (b)(1), (2), (6), (7), (8).  In addition to these factors, “to be allowable, retainer fees must be supported by evidence of bona fide services available or rendered.”  Id. § 75.459(c).

Background

In June 2018, Oak Hill, located in Hernando, Mississippi, applied for a Community Services Block Grant Discretionary Award of $800,000 in federal funds for a portion of the cost of a CED Project described as Delta Commercial Retail Center.  ACF Ex. 1, at (unnumbered) 1-3.  The application requested federal funding for Personnel ($60,000), Fringe Benefits ($17,340), Travel ($4,500), Supplies ($2,000), and Other ($716,160).  Id. at 5.  A “Budget Narrative” for a “Desoto Commercial Center Project” that ACF reports was included with the grant application contains two entries labeled “Other,” one of which states:  “Professional Assistance for Business: $75,000”; “Market developing and Marketing Assistance: $45,500”; “Business Development and Planning for Project: $46,160”; “Professional Assistance - Accounting and Finance Assistance for Business Planning, Updating and Expansion. - $125 per hour”; and “Market and Marketing Assistance - Market Evaluation, Updates and Strategy for Continued Expansion and

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Positioning. - $100 per hour.”  ACF Ex. 2; see also Oak Hill Notice of Appeal (Dec. 1, 2021) (stating that the disallowed amount of $76,000 was spent on “Professional Assistance for Business,” “Market developing and Marketing Assistance,” and “Business Development and Planning for Project”).  ACF reports, and Oak Hill does not dispute, that “ACF awarded Oak Hill [the] CED grant to assist in a project to develop a commercial retail center in an economically distressed area of Mississippi.”²  ACF Br. at 4-5.

ACF disallowed $76,000 that Oak Hill charged to the grant based on an invoice from “CED Group for project design and development.”  Amended Disallowance Letter, DAB E-File Item # 1a.³  The record documentation of that alleged expense is a single-page invoice to Oak Hill from CED Group of San Diego, California, dated October 22, 2018, and attached to Oak Hill’s brief.  Oak Hill Br. at 7.⁴  The invoice describes CED Group as “Specialists in community economic development, strategic planning and project development” and requests payment of $76,000 from Oak Hill upon receipt.  Id.  The invoice contains a brief “Description,” which states in full:

Market Research and Business Development retainer (per approved CED budget) for project implementation, services include but not limited to the following activities:

• Market Development and Evaluation;
• Marketing Assistance;
• Project Planning strategies;
• Market Analysis and Business Development.

Id. (emphasis added).

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Standard of Review

In appeals of disallowances governed by the Board’s regulations at 45 C.F.R. Part 16, the Board’s review is “generally limited to resolving disputes about material facts and deciding whether the appealed decision is consistent with applicable law and regulations.”  Tex. Health & Hum. Servs. Comm., DAB No. 3066, at 10 (2022).  “The Board must uphold a disallowance if it is authorized by law and the grantee has not disproved the factual basis for the disallowance.”  Next Door Found., Inc., DAB No. 3161, at 12 (2023) (citing Middletown Cmty. Health Ctr., Inc., DAB No. 2754, at 6 (2016) (internal quotes removed); see 45 C.F.R. § 16.14 (Board is “bound by all applicable laws and regulations”).

Discussion

On appeal, in response to ACF’s disallowance determination, Oak Hill has not provided any substantive information or documentation about the services CED Group purportedly rendered, other than the invoice and the pre-award information described above.  Oak Hill has provided no specific information about what CED Group did or was hired to do, what services (if any) it performed, or how the costs benefitted or even related to Oak Hill’s Community Services Block Grant.  For those reasons, as explained below, the Board sustains the disallowance.

I. Oak Hill, as a grantee, is required to document that its charges to federal grant funds were allowable under the applicable regulations.

“This Board has consistently held that HHS grantees bear the burden of documenting the allowability of all questioned costs charged to federal funds” and “has often explained that the grantee has the burden to prove, with appropriate documentation, that a cost questioned by the grantor agency is allowable under the cost principles and other relevant program requirements.”  Ne. La. Delta Comm. Dev. Corp., DAB No. 2165, at 3, 8 (2008) (sustaining disallowance of costs claimed under an OCS grant and citing, e.g., Action for a Better Cmty, DAB No. 2104 (2007); Marie Detty Youth & Family Services Center, Inc., DAB No. 2024 (2006)); see Ctr. for Enter. Cmty. Initiatives & Dev., Inc., DAB No. 2432, at 15 (2011) (“a grantee’s long-recognized burden of documenting the existence, allowability and allocability of its expenditures of federal funds means that the grantee has the burden to document that its expenditures of grant funds were made in support of grant objectives and in compliance with the terms and conditions of the grant” (internal quotation marks omitted)); see also 45 C.F.R. § 75.2 (defining “Improper payment” to include “any payment where insufficient or lack of documentation prevents a reviewer from discerning whether a payment was proper”).  Thus, “[o]nce a cost is questioned as lacking documentation, the grantee bears the burden to document, with records supported by source documentation, that the costs were actually incurred and represent allowable costs, allocable to the grant.”  Northstar Youth Servs., Inc., DAB No. 1884, at 5 (2003).

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In order to show that the questioned costs were allowable, Oak Hill was required to, among other things, show that the costs were “adequately documented,” that they were “necessary and reasonable for the performance of” its grant award and “allocable thereto,” and that they “[c]onform[ed] to any limitations or exclusions set forth” in the uniform cost principles or in the grant “as to types or amount of cost items.”  45 C.F.R. § 75.403(a), (b), (g).  Making that showing obliged Oak Hill to demonstrate that the costs, in their “nature and amount . . . d[id] not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.”  Id. § 75.404.  And, because the disallowance related to “professional [or] consultant services” rendered by persons “who are not officers or employees of the non-Federal entity,” Oak Hill needed to demonstrate that the costs reflected on the invoice were “reasonable in relation to the services rendered,” which in turn required consideration of “relevant factors” including, among other things, “[t]he nature and scope of the service rendered in relation to the service required,” and the “[a]dequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, and termination provisions).”  Id. § 75.459 (a), (b)(1), (8).  Oak Hill provided none of this information here.

Oak Hill’s statement that ACF “claims that 0% of the services provided by the CED Group to Oak Hill . . . were costs associated with the ACF approved budget” (Notice of Appeal) misapprehends the burden of proof discussed above.  ACF was not required to prove that the costs were not allowable; rather, Oak Hill had the burden to prove that the questioned costs were allowable.  The Board thus rejected a grantee’s similar argument that the HHS agency “offered no evidence that the questioned expenditures were not grant-related,” holding that “[o]nce the agency questions the allowability of particular expenditures, as it did here, the burden falls on the grantee to demonstrate that the expenditures were allowable.”  Recovery Res. Ctr., Inc., DAB No. 2063, at 16 (2007).

II. Approval of the grant application did not relieve Oak Hill of its obligation to document the allowability of its payments to the CED Group once questioned by ACF.

Oak Hill provided no specific information about what CED Group did, or what services it performed, to justify the expenditure of $76,000 in federal funds.  Instead, Oak Hill argues that OCS’s award of the grant in response to the grant application containing only general descriptions of cost categories rendered those costs allowable, arguing that “the funds, under consideration for disallowance in the amount of $76,000, were used for an expense category approved in our approved grant application.”  Oak Hill Br. at 1.  However, “[m]ere inclusion of a cost item in an initial budget in the [notice of grant award] does not exempt the grantee from demonstrating that all expenditures comply with” the “applicable federal administrative requirements and cost principles.”  Se. Mich. Health Ass’n, DAB No. 2682, at 15 (2016) (citing R.I. Substance Abuse Task Force Ass’n, DAB No. 1681, at 4 (1999) (“[A] grantee’s obligation to document its costs is not

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extinguished by the inclusion of a cost in an approved budget.  A grantee must always be able to document that a cost charged to a grant was actually incurred, is properly allocated to the grant, and is reasonable.”)).

Thus, in Beloved Community Family Wellness Center, DAB No. 2961 (2019), where the grantee’s “approved grant application made clear that the grant project included purchasing and implementing a new [Electronic Medical Records] system,” the Board found “that the costs of developing, installing and implementing the EMR system were necessary for the performance of the award.”  Beloved at 13.  The Board nonetheless upheld a portion of the disallowance of EMR-related costs because the grantee “provided sufficient documentation for only some of the disallowed charges . . . but did not provide invoices, a contract, or any other documentation to show what services [that] individuals [paid as consultants] actually provided.”  Id. at 13-14.  By contrast, in ProED, Inc., DAB No. 1727 (2000), the Board reversed the disallowance of consulting costs paid to a scientist based on documentation comprising affidavits from the consultant, the grantee’s president, and a fellow scientist who worked on the grant project, and on contemporaneous laboratory notes showing that the consultant fees were allowable.  ProED at 6-10.

III. Oak Hill did not meet its burden of documenting that the disallowed costs were allowable charges to its federal grant award.

In contrast to the grantees in Beloved and ProED, which showed that certain disallowed costs were allowable, Oak Hill provided no comparable, contemporaneous documentation of the services the CED Group actually provided, and thus no basis for the Board to determine that the costs charged to the grant by Oak Hill were allowable.

Oak Hill failed to make that showing despite ample notice and opportunity to do so.  In its Notice of Appeal, Oak Hill reported having provided (with its earlier appeal) “a copy of the invoice detailing deliverables associated with” three of the items listed under “Other” in the Budget Narrative, and offered “to provide copies of these deliverables and to discuss the importance of these deliverables in the completion of this project[.]”  Yet, Oak Hill did not avail itself of its opportunity – and obligation – to provide any supporting documentation during the appeal process.  The Board responded to Oak Hill’s Notice of Appeal with its standard letter to both parties acknowledging receipt of the appeal and setting procedures for the case.  DAB E-File Item #2 (“A‑22-22 Acknowledgement of Appeal.pdf”).  The acknowledgment letter told Oak Hill to submit, within 30 days, “a written statement of its arguments concerning why the appealed decision is wrong (appellant’s brief)” and “copies of the documents on which its arguments are based (appellant’s appeal file),” and referred to the Board’s regulations at 45 C.F.R. § 16.8(a) and further instructions in the letter “for preparing appeal files.”  Those instructions advised that the Board “may decide the case based solely on the submissions described above” and that “[t]he appeal files should therefore include all

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documents which would assist the Board in making findings of fact on disputed issues, as well as documents which provide necessary background information.”  See 45 C.F.R. § 16.8(a)(1) (“Within 30 days after receiving the acknowledgment of the appeal, the appellant shall submit . . . [a]n appeal file containing the documents supporting the claim, tabbed and organized chronologically and accompanied by an indexed list identifying each document.”).

Oak Hill did not fulfill its offer to provide additional information and documentation demonstrating how the costs benefited the federal grant award.  Oak Hill’s mere assertion that it disputes the disallowance does not negate its failure to provide documentation in response to the disallowance and provides no basis for the Board to reverse the disallowance.  Arlington Cmty. Action Program, Inc., DAB No. 2141, at 6-7 (2008) (upholding disallowance where grantee failed to document allowability of costs charged to federal award).  Absent adequate documentation supporting the allowability of the disallowed costs, the Board must affirm the disallowance.

Conclusion

For the reasons explained above, we sustain the disallowance.

Endnotes

¹ We cite to the HHS regulations at 45 C.F.R. Part 75 in effect at the time of the award 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.  See 45 C.F.R. §§ 75.104, 75.106.

² The record in this case is sparse, in that ACF’s two exhibits do not include the grant opportunity announcement or the notice of award, documents that typically state the regulations and published policies that apply to the grant and that ACF has submitted in similar appeals involving discretionary OCS grants.  See, e.g., Ctr. for Enter. Cmty. Initiatives & Dev., Inc., DAB No. 2432 (2011); Vermont Slauson Econ. Dev. Corp., DAB No. 1955 (2004); Delta Foundation, Inc., DAB No. 1710 (1999), aff’d, 303 F.3d 551 (5th Cir. 2002).  ACF’s amended disallowance letter (Oct. 25, 2021) states that the “Notice of Award and award attachments” require that grantees adhere to the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards” (45 C.F.R. Part 75) and the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” (2 C.F.R. Part 200).  Oak Hill does not dispute any facts ACF reported or that the requirements of these cost principles in the federal regulations apply to its grant.

³ By letter dated May 4, 2021, ACF previously disallowed $158,600 based on the same invoice, an amount apparently derived from incorrectly adding the $76,000 charge to the amount that would be due if paid after November 23, 2018, $83,600.  Oak Hill appealed that initial disallowance in Board Docket No. A-21-68, which the Board administratively closed and consolidated with this case after Oak Hill appealed ACF’s amended disallowance notice.  Board “Notice,” Docket No. A-21-68 (Dec. 15, 2021).

⁴ Oak Hill’s brief is a one-page letter containing Oak Hill’s arguments and ten pages of attachments.