Tennessee Department of Human Services, DAB No. 3199 (2025)

DECISION

The Tennessee Department of Human Services (TDHS) appeals a decision by the Administration for Children and Families (ACF) to disallow $1,150,550 in federal funds awarded to TDHS under a Low-Income Home Energy Assistance Program (LIHEAP) block grant for the fiscal year ending June 30, 2011 (FY 2011). The State of Tennessee Single Audit Report for FY 2011 found TDHS did not ensure that subrecipients of the grant followed the state plan for LIHEAP, as required by federal statute and regulations, resulting in “federal questioned costs” totaling $1,150,550. The U.S. Department of Health and Human Services (HHS) Office of Inspector General, Office of Audit Services (OIG-OAS) reviewed the State audit and found the expenditure of $1,150,550 in LIHEAP funds an instance of material noncompliance and a material weakness. By letter dated June 15, 2017, ACF disallowed $1,150,550 based on the FY 2011 Single Audit’s findings. On December 16, 2019, ACF sustained the disallowance following a hearing. TDHS contends that ACF’s disallowance is an inapplicable remedy for improper expenditure of LIHEAP block grant funds, and that its block grant funds for FY 2011 were obligated and expended in accordance with applicable law and procedure. We reject TDHS’s contentions and uphold the disallowance in full.

Legal Background

LIHEAP is a block grant program authorized by the Low-Income Home Energy Assistance Act (LIHEAP statute) of 1981, as amended. 42 U.S.C. §§ 8621-8630. LIHEAP provides grants to states, territories, and Indian tribes to “assist low-income households, particularly those with the lowest incomes, that pay a high proportion of household income for home energy, primarily in meeting their immediate home energy needs.” Id. § 8621(a). The LIHEAP statute requires states to annually prepare and furnish HHS with a plan that, among other information, “describes the benefit levels to be used by the State for each type of assistance including assistance to be provided for emergency crisis intervention and for weatherization and other energy-related home repair.” Id. § 8624(c)(1)(B). The LIHEAP statute further provides that “[t]he State shall expend funds in accordance with the State plan under this subchapter or in accordance with revisions applicable to such plan.” Id. § 8624(d). Additionally, the statute states

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that grantees must repay LIHEAP funds “found not to have been expended in accordance with this subchapter or the Secretary may offset such amounts against any other amount to which the State is or may become entitled under this subchapter.” Id. § 8624(g).

The LIHEAP statute affords great latitude to grantees to develop and administer their own programs within broad parameters set forth by the LIHEAP statute. See Final Rules, Block Grant Programs, 47 Fed. Reg. 29,472, 29,474, 29,476-77 (July 6, 1982) (explaining that the legislation establishing LIHEAP and other block grant programs was intended to “transfer primary responsibility for” program administration to the states and “confer substantial discretion on the States as to use of the block grant funds”). These parameters are generally set by 16 assurances to which a state must annually certify its agreement as conditions of receiving its block grant allotment. See 42 U.S.C. § 8624(a), (b).

Assurances 2 and 5 establish broad federal standards for who is eligible for assistance under the LIHEAP statute and how much eligible households should receive. Assurance 2 sets forth federal eligibility limits that are either categorical (based on households receiving benefits from one of four specified means-tested programs) or income-based (150 percent of state poverty levels or 60 percent of state median income). Id. § 8624(b)(2). The only parameter regarding benefit amount is Assurance 5, which requires states to “provide . . . that the highest level of assistance will be furnished to those households which have the lowest incomes and the highest energy costs or needs in relation to income, taking into account family size . . . .” Id. § 8624(b)(5).

Assurance 10 requires states to establish “such fiscal control and fund accounting procedures . . . as may be necessary to assure the proper disbursal of and accounting for Federal funds paid to the State under this subchapter, including procedures for monitoring the assistance provided under this subchapter, and provide that the State will comply with the provisions of chapter 75 of title 31 (commonly known as the ‘Single Audit Act’).” 42 U.S.C. § 8624(b)(10); see alsoid. 8624(e) (requiring a state, in carrying out the requirements in 8624(b)(10), to “obtain financial and compliance audits of any funds received” under the LIHEAP statute, and further providing that such audits will be “conducted in accordance with” the Single Audit Act). Within the limits set by Assurance 2 and Assurance 10, states have discretion to set their own eligibility requirements, including defining what counts as income and setting lower household income thresholds, and to establish benefit amounts and priorities. States report their eligibility requirements and benefit amounts in a state plan. Id. § 8624(c)(1).

The block grant regulations in 45 C.F.R. Part 96 apply to LIHEAP grants. See 45 C.F.R. § 96.1(g).¹ Those regulations provide that, except where otherwise required by federal

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law or regulation, “a State shall obligate and expend” LIHEAP funds “in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds.” Id. § 96.30(a). The regulations further require a state to establish fiscal control and accounting procedures that are sufficient to “(a) permit preparation of reports required by the statute authorizing the block grant and (b) permit the tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of the statute authorizing the block grant.” Id. In addition, the regulations require a state to establish appropriate systems and procedures to prevent, detect, and correct waste, fraud, and abuse by clients, vendors and administering agencies in activities funded under LIHEAP. Id. § 96.84(c).

Consistent with Assurance 10, section 96.31(a) of the block grant regulations makes a state responsible for obtaining audits “in accordance with the Single Audit Act” that “shall be made by an independent auditor in accordance with generally accepted Government auditing standards covering financial audits.” Section 96.32 states that a “State must repay [block grant funds] found after audit resolution to have been expended improperly,” and “[HHS] will undertake recovery” when repayment is not made voluntarily.

Under the heading “Enforcement,” section 96.51(a) provides that “[HHS] will order a State to repay amounts found not to have been expended in accordance with law o[r] the certifications provided by the State,” but only after it “has provided the State notice of the order and an opportunity for a hearing” in accordance with procedures in 45 C.F.R. Part 96, subpart F. Id. § 96.51(a). A decision “resulting from [a] repayment hearing held pursuant to § 96.51(a) . . . may be appealed” by the state or HHS to the Departmental Appeals Board (Board). Id. § 96.52(a); see also 45 C.F.R. Part 16, Appendix A, ¶ B(a)(5) (authorizing Board review of “[d]ecisions relating to repayment . . . under block grant programs as provided in 45 CFR 96.52”). Appeals to the Board are governed by 45 C.F.R. Part 16, except that the Board shall not hold a hearing. 45 C.F.R. § 96.52(d). In reviewing a repayment decision, the Board is “bound by all applicable laws and regulations.” Id. § 16.14.

Case Background

A. TDHS LIHEAP Program

TDHS’s application for LIHEAP grant funding for FY 2011 included a state plan for the use of the funds along with certification as to the 16 statutory assurances required under 42 U.S.C. § 8624(b). App. Br. at 2; see also Ex. A-1.

TDHS was allocated approximately $71.6 million in LIHEAP block grant funds for FY 2011. App. Br. at 2; see also Ex. A-2, at 2. TDHS contracted with 19 regional subrecipients to administer the program, passing grant funds to those entities. App. Br.

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at 2; see also Ex. A-3, at 153. The state plan established the benefit paid to an energy provider of an eligible household using a priority point system based on income, family size, energy burden, and the presence of vulnerable members in the household. App. Br. at 2; see also Ex. A-4, at 18-19. The FY 2011 TDHS state plan differed from the plans used in the three previous years in that it had three mandated benefit tiers ($300, $450, and $600), and the subrecipients had no discretion to establish benefit amounts. App. Br. at 3; see also Ex. A-1, at 21. In the three prior years, there were four benefit tiers, with households in the lowest tier eligible for at least $300 and those in the highest tier eligible for no more than $600, and subject to those limits each subrecipient could establish the actual benefit amounts for each of the four tiers. App. Br. at 4; see also Ex. A-4, at 19.

TDHS’s FY 2011 state plan for LIHEAP included specific fiscal controls and programmatic monitoring procedures, including monthly review by TDHS of subrecipient expenditures, periodic on-site monitoring visits of subrecipients, as well as audit plans for the LIHEAP program and the local administering agencies. See Ex. A-1, at 36-39.

B. Tennessee’s Single Audit determined TDHS did not ensure that LIHEAP block grant subrecipients followed federal law and regulations or the state plan in expending block grant funds for FY 2011.

1. Parameters of the Tennessee Single Audit

In March 2012, the Comptroller of the Treasury for Tennessee published the report of its annual Single Audit covering FY 2011.² The 2011 Audit addressed the State’s compliance with the requirements described in Office of Management and Budget (OMB) Circular No. A-133 Audits of States, Local Governments, and Non-Profit Organizations, and the Circular A-133 Compliance Supplement that could have a direct and material effect on each of the State’s major federal programs. Full Audit Rpt. at 12. The audit found that the State did not comply with the requirements for a number of federal programs, including Finding 11-DHS-10, LIHEAP (93.568) requirements for Allowable Costs/Cost Principles; Eligibility; Procurement and Suspension and Debarment; and Subrecipient Monitoring. Id. at 13. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each major federal program is the responsibility of the State’s management, while the auditor’s responsibility was to express an opinion on the State’s compliance. Id. at 12-13. The audit noted that the audit methodology provided a reasonable basis for its opinion, but not a legal determination on

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the State’s compliance with those requirements. Id. at 13. The audit did not express an opinion on the effectiveness of the State’s internal control over compliance. Id. at 14.

The audit “was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses” and gave “no assurance that all deficiencies, significant deficiencies, or material weaknesses [were] identified.” Id. (italics added). For the purpose of the audit, the following definitions were used:

• “A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement on a timely basis.”  Id. at 15.
• “A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis.”  Id.
• “A significant deficiency in internal control over compliance is a deficiency or combination of deficiencies in internal control over compliance that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.”  Id.

The audit also indicated it applied the guidelines contained in a Department of Finance and Administration Policy 22 (Policy 22),³ titled “Subrecipient Contract Monitoring,” and a Tennessee Subrecipient Contract Monitoring Manual (Manual).⁴See Full Audit Rpt. at 60. Policy 22 established uniform monitoring of subrecipients by state agencies and required that all monitoring activities address the applicable core monitoring areas as defined by the Circular A-133 Compliance Supplement. Id. The Manual provided implementation guidance for Policy 22, including applying the cost principles for state and local governments in OMB Circular A-87. Id.; see also Manual at 14-19.

Tennessee used decentralized monitoring, with all agencies with subrecipient relationships responsible for ensuring subrecipient contracts were adequately monitored. Manual at 5. Monitoring was defined as the review process to determine a subrecipient’s “compliance with the requirements of a state and/or federal program, applicable laws and

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regulations, and stated results and outcomes,” and also included the review of internal controls to determine if the financial management and the accounting system were adequate to account for program funds in accordance with state and/or federal requirements. Id.; see also Policy 22, ¶ 7. All state agencies were required to develop and submit an annual monitoring plan that reflected program-specific state and federal monitoring requirements, and an annual risk assessment for each subrecipient, with one consideration being the risk each subrecipient posed considering the population or value of its contracts. Manual at 6-9; see also Tenn. Code Ann. §§ 9-18-102, 9-18-103 (2016). State agencies were required to issue reports summarizing any findings identified during monitoring reviews to the subrecipient within 30 days after completion of all fieldwork, with copies being provided to the Comptroller of the Treasury, Division of State Audit. See Policy 22, ¶ 15.

2. 2011 Audit findings involving TDHS and HHS OIG-OAS Review

.[5]

Finding 11-DHS-10 of the audit found TDHS “did not ensure the subrecipients followed the federal laws and regulations and [TDHS’s] state plan for [LIHEAP], resulting in federal questioned costs totaling $1,150,550 and increased risk of fraud, waste, abuse, and additional noncompliance.” Ex. A-3, at 152, 160. The finding was characterized as a significant deficiency, material weakness, and noncompliance. Id. at 152. While the audit found several distinct questioned costs, the focus of this appeal is based on payments to energy providers, where the audit determined that three subrecipients paid energy providers amounts that did not agree with the benefit levels in the state plan, with total federal questioned costs of $1,150,550. Id. at 158-59, 160. One subrecipient made 2,006 payments that did not agree with the state plan, but only a sample number of files (14) could be reviewed,⁶ resulting in a determination that 86% of the sample files contained overpayments totaling $2,150, identified as questioned costs. Id. at 158. A second subrecipient made 166 overpayments resulting in $8,300 in questioned costs. Id. at 159. Finally, a third subrecipient, Upper East Tennessee Human Development Agency (UETHDA), was found to have 17,269 overpayments (97% of its total payments), resulting in questioned costs of $1,137,550. Id. (explaining that UETHDA overpaid $100 on each of 5,482 payments resulting in an overpayment of $548,200; and overpaid $50 on

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each of 11,787 payments resulting in an overpayment of $589,350). Before the Board, TDHS challenges only the part of the disallowance associated with the UETHDA overpayments. See App. Br. at 8 n.3.⁷

The audit report stated that “[n]ot calculating priority points correctly increases the risk that clients may receive more benefits than they are entitled while other eligible individuals are turned away because funds were not available,” and [b]ecause . . . three subrecipient coordinators did not follow the established uniform benefit levels, the subrecipients did not have enough resources to serve additional clients who may have been eligible for assistance.” Ex. A-3, at 155, 159. Additionally, the audit report stated that TDHS management “did not identify and assess the risk of the [identified] errors in their risk assessment.” Id. at 159. Lastly, the audit recommendation stated that as the pass-through entity, TDHS was responsible for administering LIHEAP and must communicate all program requirements to all parties involved to perform their duties in accordance with the federal regulations. Id. at 161. The recommendation further stated that it was “imperative that management continue to carefully monitor the work performed by subrecipients to identify and mitigate” the potential for noncompliance, fraud, waste, and abuse in the LIHEAP program. Id.

TDHS concurred in part with the audit results but did “not agree that [the overpayments to energy providers] were unallowable costs,” stating that “[w]hen this issue was brought to [its] attention, [it] sought and received guidance from our federal funding source,” which “said we have handled this issue appropriately.” Id. at 161-62. The auditor’s rebuttal stated:

Management’s comment does not include the complete details of the federal grantor’s opinion regarding the overpayments to energy providers.

Management sought guidance from the [LIHEAP] program officer at the U.S. Department of Health and Human Services (DHHS), [ACF] Office of Community Services.  However, based on our review of the correspondence, [T]DHS management did not clearly inform the DHHS program officer that [T]DHS’s subrecipients paid the energy providers amounts that were different from the approved benefit levels specifically identified in the [T]DHS State Plan.  The [T]DHS State Plan is approved by DHHS Administration for Children and Families.

[T]DHS management contacted the [HHS OIG] to obtain their agreement with the program officer’s determination regarding the differing payments.  OIG also contacted [the Division of State Audit] to gain a complete

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understanding of the finding. We and [T]DHS management were informed that any payments made to energy providers which differed from the approved State Plan were federal questioned costs.

Id. at 162. No timeframe is provided as to when the OIG contact occurred or when the OIG guidance was provided. TDHS did not voluntarily repay the federal questioned costs identified in the audit report.

In a letter dated April 27, 2012, the HHS OIG-OAS notified TDHS that the State’s audit report had been received by the Federal Audit Clearinghouse on March 26, 2012, and that based on its initial review of that report, Tennessee’s Single Audit for FY 2011 met federal audit requirements. Ex. A-8, at 1. Regarding the audit’s LIHEAP-related findings, the HHS OIG-OAS agreed with the auditor that TDHS’s “subrecipient monitoring” during FY 2011 was “an instance of material noncompliance and a material weakness” and “recommend[ed] [that] procedures be developed and implemented to ensure compliance with subrecipient monitoring requirements.” Id. at 4 (referencing recommendation code 004901100 and audit finding 11-DHS-10). The letter also indicated that “final determinations” concerning the HHS-OIG recommendations (including the identification of $1,150,550 in federal questioned costs), would be made by ACF, the HHS “department responsible for resolution” with respect to the LIHEAP audit findings. Id. at 1, 4. The letter contained an attached “summary sheet” showing “HHS Questioned/Avoided” costs by auditors $0, and by reviewers $0. Id. at 13.

C. ACF decision and subsequent hearing.

By letter dated June 15, 2017, ACF disallowed $1,150,550 of LIHEAP grant funding based on FY 2011 Single Audit report finding 11-DHS-10 (subrecipient monitoring). Ex. A-9, at 1-2, 9. ACF reviewed the various elements of that finding – including the audit’s identification of “Federal questioned costs” (consisting of subrecipient “overpayments” or “incorrect amounts” paid to energy providers), the auditor’s recommendations with respect to that finding, TDHS’s responses, and HHS OIG-OAS’s recommendations. Id. at 2-8. ACF noted that TDHS’s “planned [corrective] action will not satisfy the recommendation for which we have resolution responsibility.” Id. at 8.

ACF explained the basis for the disallowance as the state failed to comply with its statutorily mandated assurance to “‘provide that such fiscal control and fund accounting procedures will be established as may be necessary to assure the proper disbursal of and accounting for Federal funds paid to the State under this title, including procedures for monitoring the assistance provided under this title . . . .’” Id. at 9 (quoting 42 U.S.C. § 8624(b)(10) and citing 45 C.F.R. § 96.84(c)). ACF further found that the state failed to adhere to 45 C.F.R. § 96.30(a), which provides that “[e]xcept where otherwise required by Federal law or regulation, a State shall obligate and expend block funds in accordance

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with the laws and procedures applicable to the obligation and expenditure of its own funds.” Id.

The procedures at 45 C.F.R. § 96.32 require a state to “repay to the Department amounts found after audit resolution to have been expended improperly,” and ACF advised TDHS that it could request a hearing if it disagreed with its determination, which would otherwise become final in accordance with 45 C.F.R. § 96.51. Id. The letter explained that if a hearing were requested, ACF would designate a presiding officer to conduct the hearing and that either party (i.e., TDHS or ACF) could appeal the hearing decision to the Board. Id. at 10 (citing 45 C.F.R. § 96.52). Finally, the letter explained that if the State requested a hearing or appealed to the Board, it could elect to repay the amount at issue pending a final decision, or retain the funds pending that decision, and that if the disputed amount was not paid in full within 30 days, “interest [would] accrue” on the unpaid amount and “be calculated from the date of the disallowance letter.” Id. at 11.

TDHS requested a hearing, and it was held on February 21, 2019. Ex. A-10, at 1. By letter dated December 16, 2019, the presiding officer issued a final decision upholding the entire disallowance of $1,150,550. Id. at 2. In support of the decision, the presiding officer stated that TDHS, as a “pass-through entity,” was “responsible for administering LIHEAP in accordance with the applicable statute and regulations” but “failed to comply with the statutorily-mandated requirement to establish fiscal control and fund accounting procedures as may be necessary to assure the proper disbursal of and accounting for federal funds paid to the state.” Id. The presiding officer also noted the auditor’s overarching finding that TDHS “did not ensure that subrecipients followed the state plan for [LIHEAP], as required by federal regulations, resulting in Federal questioned costs.” Id. at 1. Finally, the presiding officer advised the parties of their right to appeal the final decision to the Board. Id. at 2.

D. TDHS Appeal to the Board.

On January 22, 2020, TDHS timely filed a notice of appeal with the Board. Notice of Appeal at 1. TDHS asserted that the final decision was perfunctory in nature, failing to establish facts relevant to the decision, to discuss or weigh the evidence presented by TDHS, or to discuss or weigh arguments made by TDHS at the hearing;⁸ that the decision is unsupported and contrary to the record as the disallowed payments at issue were allowable because “they went to eligible clients”; and that the disallowance is improper under 45 C.F.R. § 75.386(a)(1) because it was issued outside the record retention period,

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unfairly prejudicing TDHS in its presentation of the case.⁹Id. TDHA does not dispute that UETHDA made overpayments to energy providers and does not assert that any lost records would show the overpayments were not made.

After multiple extensions of the briefing deadline, TDHS filed an appeal brief requesting the Board reverse only the portion of disallowance attributable to “overpayments” by UETHDA, which totaled $1,137,550. App. Br. at 8.¹⁰ TDHS contends that ACF lacked authority to disallow these overpayments because disallowance is a remedy provided in 45 C.F.R. Part 92 (in effect when the payments were made), while LIHEAP block grants are governed by Part 96 not by Part 92. Id. at 9-10. TDHS asserts that Part 96 requires states to “repay” improperly expended amounts, and the distinction “changes the standard by which TDHS’s actions are reviewed.” Id. at 10. TDHS relies on language from the preamble to regulations implementing the Omnibus Budget Reconciliation Act of 1981 (OBRA 1981) which implemented seven block grant programs, including LIHEAP, stating “[i]f a State expends block grant funds contrary to its plan or a description of intended uses of the funds, such action would require the repayment of those funds only if the expenditure violated the State’s assurances or the statutory provisions.” Id. (quoting 47 Fed. Reg. at 29,478). TDHS further asserts that the State of Tennessee required compliance with cost principles established by OMB, specifically OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments,¹¹ and asserts that under those principles, the expenditures were allowable. Id. at 13-15.

In response, ACF asserts that 45 C.F.R. Part 96, specifically section 96.30(a), provides that states shall obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds, and that appropriate accounting and fiscal controls must be in place and sufficient to establish that such funds have not been used in violation of the restrictions and prohibitions of the statute authorizing the block grant. ACF Resp. Br. at 4. ACF notes that TDHS does not deny the overpayments, that “it remains uncontroverted that subrecipients of TDHS paid benefit amounts that were out of compliance with the duly executed state plan, resulting

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in overpayments”; and that “TDHS, as the direct grantee, is ultimately responsible for the misuse of federal grant funds.” Id. at 5, 8. ACF acknowledges that in 2011, TDHS communicated with ACF’s LIHEAP Liaison about the LIHEAP payments questioned by the audit but contends that the communication (Ex. A-5) “does not change its legal obligation to seek repayment of improperly expended funds,” and further asserts that the communication occurred before ACF’s receipt of the audit report, and did not disclose that overpayments were involved. Id. at 6-7. Finally, ACF asserts that the 2012 HHS OIG-OAS letter contained “recommendations” and explicitly indicated that the final determination with respect to actions to be taken concerning the FY 2011 audit findings would be made by ACF, which states that its “final decision with respect to the questioned costs [is] reflected in” its June 15, 2017 disallowance determination. Id. at 7-8.

Analysis

A. The disallowance is supported by audit findings.

When a grantee appeals a federal agency’s disallowance determination, the agency “‘has the initial burden to provide sufficient detail about the basis for its determination to enable the grantee to respond.’” Passamaquoddy Tribe at Pleasant Point, DAB No. 3144, at 8 (2024) (quoting E Center, DAB No. 2657, at 5 (2015)); see alsoMe. Dep’t of Health & Hum. Servs., DAB No. 2292, at 9 (2009), aff’d, 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) must demonstrate that the costs are, in fact, allowable.” Passamaquoddy Tribe at 8 (citing Mass. Exec. Off. of Health & Hum. Servs., DAB No. 2218, at 11 (2008), aff’d, 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. (quoting Mass. Exec. Off., DAB No. 2218, at 11). The Board must uphold a disallowance if it “is authorized by law and the grantee has not disproved the factual basis for the disallowance.” Middletown Cmty. Health Ctr., Inc., DAB No. 2754, at 6 (2016) (quoting S.A.G.E. Commc’ns Servs., DAB No. 2481, at 5-6 (2012)).

B. ACF met its initial burden in disallowing the questioned costs identified in the audit report

.

In its June 2017 determination letter, ACF explained it was disallowing $1,137,550 in LIHEAP grant-funded payments by subrecipient UETHDA that did not comply with the benefit levels stipulated in the state plan and determined to be overpayments. See Ex. A-9, at 4-5, 9. The determination letter further stated that “the auditor and the State were informed that any payments made to energy providers which differed from the State Plan were Federal questioned costs.” Id. at 9. ACF asserted one basis for the disallowance was the state’s failure to comply with its statutorily mandated assurance to “provide that

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such fiscal control and fund accounting procedures will be established as may be necessary to assure the proper disbursal of and accounting for Federal funds paid to the State . . . including procedures for monitoring the assistance provided . . . .” Id. (citing 42 U.S.C. § 8624(b)(10) and 45 C.F.R. § 96.84(c)). Additionally, ACF based the disallowance on the state’s failure to adhere to 45 C.F.R. § 96.30(a) requiring the state to obligate and expend block funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds. Id. Finally, the disallowance determination explained that “‘[t]he State must repay to the Department amounts found after audit resolution to have been expended improperly.’” Id. (quoting 45 C.F.R. § 96.32).

Before the Board, TDHS argues that ACF does not state what fiscal controls were not complied with or otherwise lacking, and neglects to address that the overpayments were discovered and corrected through TDHS’s existing fiscal controls. See Reply Br. at 2-3. TDHS asserts that if ACF relied on the deviation from the state plan as a violation of state law or procedure, “such reasoning is circular given the language of the preamble [to the 1982 rulemaking that implemented OBRA 1981] allowing deviations under certain conditions.” Id. at 7. These arguments do not negate that ACF provided a basis for its determination to enable the grantee to respond, and we will address these arguments below. We conclude, therefore, that ACF carried its initial burden to provide sufficient detail about the basis for the disallowance.

Having found that ACF met its initial burden, the burden shifts to TDHS to show that the questioned costs are allowable. See E Center at 5. Moreover, since ACF’s disallowance determination is supported by audit findings, TDHS must show that the audit findings “are legally or factually unjustified.” Id.

C. TDHS has not shown the audit findings are legally or factually unjustified or that the overpayments made by UETHDA are allowable costs.

It is undisputed that the audit found UETHDA made grant-funded payments exceeding those permitted in the 2011 state plan. Accordingly, the issue before the Board is whether the undisputed overpayments are “improper” expenditures, within the meaning of section 96.32, that must be repaid or may be recovered by ACF if not voluntarily repaid. In accordance with the audit parameters discussed above, the auditor did not provide a legal determination as to TDHS’s compliance, or the effectiveness of the state’s internal controls.

TDHS asserts that expenses out of compliance with the state plan (what they refer to as deviations) are not considered improper expenses if they do not violate the state’s assurances or the statutory provisions related to the grant, citing the OBRA 1981 rulemaking preamble. App. Br. at 10 (citing 47 Fed. Reg. at 29,478). TDHS’s position is that the proper focus of this case is whether the expended funds violated the state’s

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assurances or LIHEAP’s statutory provisions. Id.; see also App. Reply Br. at 2. TDHS also asserts the correct analysis for whether there is a basis for repayment was whether the expenditures were “allowable” under federal cost principles articulated in OMB Circular A-87, and proffers arguments to support that the payments by the subrecipient at issue met all those factors. App. Br. at 13-15; see also App. Reply Br. at 2. In addition, TDHS contends that its subrecipient monitoring plan was both reasonable and functional, and “[g]iven that it worked exactly as intended, TDHS fulfilled its statutory assurance under 42 U.S.C. § 8624(b)(10) to establish fiscal control and fund accounting procedures.” App. Br. at 12. Finally, TDHS argues that its telephonic and email communication with ACF’s LIHEAP Liaison in 2011 “implicitly acknowledged” the allowability of the questioned costs under federal cost principles when the LIHEAP Liaison indicated that it “was not a problem” if overpayments went only to eligible households. Id. at 15 (citing Ex. A-5, at 1).¹² We disagree and address each argument below.

1. The overpayments at issue violated the LIHEAP statutory provisions.

While TDHS relies on language in the initial rulemaking preamble, the LIHEAP statute was amended in 1984, relevant to the disallowance determination in this case. See Pub. L. 98-558 § 605(a)(9) (adding “The Secretary shall issue regulations to prevent waste, fraud, and abuse in the programs assisted by [the Low-Income Home Energy Assistance statute]” to 42 U.S.C. § 8624(b) after the text of the final enumerated assurance paragraph); § 605(b)(1) (adding to section 8624(c)(1) five additional requirements for the required state plan accompanying an annual application); and § 605(c) (modifying section 8624(d) to read: “The State shall expend funds in accordance with the State plan under this [subchapter] or in accordance with revisions applicable to such plan.”).

Three years later, as a result of the statutory changes, the block grant regulations at 45 C.F.R. Part 96 were revised and a number of new regulatory provisions were added, including sections 96.31 (Audits: requiring that single audits be conducted consistent with the Single Audit Act); 96.32 (Financial Settlement: requiring that states repay funds that have been determined after audit resolution to be expended improperly. In the event that repayment is not made voluntarily, the Department will undertake recovery.); 96.86 (State Plans: clarifies the statutory requirement that all of the assurances in section 2605(b) apply to each form of assistance provided by the grantee); and 96.87 (Prevention of waste, fraud and abuse: requiring that grantees have systems and procedures for preventing, detecting and correcting instances of waste, fraud, and abuse in the LIHEAP program which would be reviewed in the course of the compliance reviews conducted under 42 U.S.C. section 8627). 52 Fed. Reg. 37,957, 37,959-61 (Oct. 13, 1987).

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The preamble language for the new section 96.86 stated:

Section 605(c) of Pub. L. 98-558 amended the LIHEAP statute to require grantees to expend LIHEAP funds in accordance with the plan submitted as part of the grantee’s application for funding.  Consequently, the LIHEAP plan, as well as the statute and regulations, now governs the grantee’s use of funds and provides standards of compliance.  HHS, in exercising its statutory oversight and enforcement activities, and the State or independent tribal auditors, in carrying out their audit functions, must be able to ascertain the standard of compliance contained in the plan for each statutory provision and for each type of assistance provided by the grantee under its LIHEAP program.

Our review of State plans and programs over the past five years has indicated that many States have misinterpreted the statutory requirement in section 2605(c)(1) [42 U.S.C. § 8624(c)(1)] that grantees describe how they will carry out the assurances in section 2605(b) [42 U.S.C. § 8624(b)] of [OBRA 1981].

Id. at 37,961 (italics added). In 1992, an interim rule moved the content of section 96.86 to section 96.84(b) and (c), and in 1995 the final rule was published. See 57 Fed. Reg. 1960, 1963, 1977-78 (Jan. 16, 1992) (consolidating provisions in section 96.84 “due to space limitations in the LIHEAP portion of the block grant regulations”); 60 Fed. Reg. 21,322, 21,328-29 (May 1, 1995).

Based upon these amendments, TDHS’s assertion that the FY 2011 overpayments were not improper expenses is erroneous, and not supported by the facts. The approved state plan for FY 2011 explicitly designated the amounts the subrecipients could disburse to eligible residents. UETHDA’s payments included overpayments totaling $1,137,550. These overpayments were not in accordance with the state plan, and consequently were in violation of the statutory requirement that block grant funds be expended in accordance with the state plan. The overpayments were therefore improper expenses and must be repaid.

2. The overpayments violated regulatory provisions and the state’s assurances related to the LIHEAP grant.

TDHS asserts that at some point in time, the overpayments were “discover[ed]” and TDHS “immediately” informed ACF of the issue by phone:

• “An issue . . . was discovered by the State of Tennessee through its audit and compliance monitoring process and immediately fixed.” Br. at 1.

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• “The audit of the fiscal year 2011 grant found that three local agency subrecipients paid incorrect amounts to energy providers under the 2011 state plan.”  Id. at 3.
• “As a result of the monitoring, TDHS instructed the three subrecipients to update their computer software to reflect the benefit levels set forth in the new state plan.”  Id. at 5.

The evidence establishes that before the FY 2011 audit report was completed or issued, TDHS contacted the Regional ACF LIHEAP Liaison by telephone on September 20, 2011 – almost 90 days after the end of the FY 2011 grant period – and followed up with an email. See Ex. A-5, at 2. The content of the email included:

Thanks for your help today. I need to confirm your answer in writing please so we can respond to our monitors. We have an issue with three agencies that provided LIHEAP benefits between three and six hundred dollars. Eligibility for LIHEAP services is uniform and all clients were eligible for the program. However, the three agencies did not use the benefit level prescribed by the State. Their software was not updated to show the differing benefit levels. The State suggested benefit levels were also between three and six hundred dollars, but not the same amounts within the range. The agencies failed to update their software programs, and thus provided benefits at different levels within the same range.

In summary, eligibility was determined correctly in a uniform manner. The result was a different benefit level that [sic] the amount the State had prescribed. We have found this in our monitoring and want to make sure this would not result in federal questioned cost. Please let me know if you need additional information.

Id. The LIHEAP Liaison email response stated: “As long as the eligibility criteria was the same at all agencies and no one ‘ineligible’ received benefits . . . this is not a problem. I would recommend nothing short of what you’ve already done . . . which was documenting the issue through your monitoring visits and ensuring for the new Fiscal Year that each agency has updated its software accordingly.” Id. at 1. The initial TDHS email provides the only facts upon which we can evaluate the liaison’s response. Neither the sender nor the recipient of the email provided an affidavit or testimony as to what, if anything, further was addressed during the phone call. Insofar as the email was drafted the day of the call, we accept it as a true and correct summary of the content of the facts relayed by TDHS.

We disagree that TDHS’s actions “immediately fixed” the overpayments for the FY 2011 grant period as it has already ended at the time of the discovery. While the phone call to the LIHEAP liaison was contemporaneous with the discovery, TDHS’s characterization

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of the LIHEAP Liaison’s response as “implicitly acknowledged[ing]” the allowability of the questioned costs under federal cost principles by indicating it “was not a problem” if overpayments went only to eligible households must be considered in context. TDHS’s email contains conflicting references to the benefit levels as being both “suggested” and “prescribed.” and as ACF indicates, the email did not disclose that the state-mandated benefit levels were set forth in the state plan or explicitly state there were overpayments. ACF Resp. Br. at 7; see also Ex. A-5, at 2. ACF also points out that at the time of that communication, ACF had not yet received the FY 2011 audit report and was in no position to state one way or the other whether the questioned costs found in the report would be disallowed. See ACF Resp. Br. at 7 (citing Ex. A-8). Notably, the auditor’s rebuttal language acknowledged that the complete details of ACF’s opinion regarding the overpayments was not captured in TDHS’s audit response, and TDHS did not clearly inform the liaison that the subrecipient paid energy providers amounts that were different from the approved levels identified in the state plan. See Ex. A-3, at 162.

The approved state plan called for multi-tiered monitoring by TDHS and the Internal Audit staff. See Ex. A-1, at 36-39; see also App. Br. at 11. With regard to fiscal control procedures, the plan included, inter alia, “review all proposed budgets to assure that all proposed expenditures are allowable in accordance with applicable State and Federal requirements,” “review on a monthly basis all expenditures made,” and “make periodic on-site monitoring visits . . . to review fiscal procedures.” See Ex. A-1, at 36. TDHS’s email included, “we have found this in our monitoring” but the LIHEAP Liaison’s response references “monitoring visits.” See Ex. A-5. TDHS does not provide any evidence of monitoring visits, and clearly asserts that the overpayments were discovered during the audit. See App. Br. at 1, 3. While the audit is technically part of the muti-tiered monitoring, we find the email to be somewhat misleading, particularly when coupled with the absence of any reference to overpayments. Accordingly, there is uncertainty as to the likelihood that TDHS had identified any irregularities in the way the grant funds were disbursed before the audit and during the FY11 grant period. In light of these factors, we find TDHS’s characterization of the email as “implicitly acknowledg[ing]” that an overpayment of this scope and magnitude was allowable under federal cost principles to be without merit.

Having considered the entire record, we agree with ACF that the email from the liaison does not change “[ACF’s] legal obligation to resolve audit findings” and “seek[ ] repayment of amounts found after audit resolution to have been expended improperly.” ACF Resp. Br. at 7 (internal quotation marks omitted).

We next address TDHS’s assertion that ACF does not state what fiscal controls were not complied with or otherwise lacking, and neglects to address that the overpayments were discovered and corrected through TDHS’s existing fiscal controls. See App. Reply Br. at 2-3. Again, we rely on the context of the verbiage in the audit report and June 2017 disallowance determination. Audit finding 11-DHS-10 included four separate

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compliance requirement deficiencies for LIHEAP, totaling $1,150,550, which included Allowable Costs/Cost Principles (Material Weakness and Noncompliance), Eligibility (Material Weakness and Noncompliance), Procurement and Suspension and Debarment (Significant Deficiency), and Subrecipient Monitoring (Material Weakness and Noncompliance). See Ex. A-3, at 152. The HHS-OIG-OAS letter and ACF disallowance determination only refer to Subrecipient Monitoring. See Ex. A-8, Attach. A, at 4; Ex. A-9, at 2. The disallowance determination clearly identified 42 U.S.C. § 8624(b)(10) (Assurance 10), and 45 C.F.R. §§ 96.30(a), 96.84(c) as the bases for the disallowance. See Ex. A-9, at 9.

The state audit defined a deficiency to be when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, federal program noncompliance on a timely basis. SeeFull Audit Rpt. at 15. A material weakness involves a deficiency, or combination of deficiencies, such that there is a reasonable possibility that material federal program noncompliance will not be prevented, or detected and corrected, on a timely basis. Id. Moreover, the audit findings identified noncompliance as to subrecipient monitoring, meaning a reasonable probability that either the design or execution of the compliance controls would not prevent, or timely detect and correct federal program noncompliance. Id.

While there is no dispute that TDHS established fiscal control procedures, including review of proposed budgets and recurring review of expenditures, TDHS has not offered any evidence to establish that those controls were implemented. The controls were designed, in part, to ensure expenditures of grant funds were for authorized purposes and in accordance with the state plan. See Ex. A-1, at 36; Ex. A-3, at 152, 154. The unallowable costs (overpayments) were not detected or corrected in a timely manner because of deficient subrecipient monitoring. The evidence is undisputed that 97 percent of the payments made by UETHDA did not follow the state plan and were only detected after the grant period had concluded, long after any opportunity to correct them in a timely manner. In other words, if TDHS had implemented the fiscal control and programmatic monitoring procedures contained within Assurance 10 of its state plan, that is, reviewed subrecipients’ expenditures on a monthly basis and performed periodic on-site monitoring visits (see Ex. A-1, at 36), the proposed benefit payments that did not conform to the state plan would have been identified long before they totaled over $1 million for FY 2011. As such, we disagree with TDHS’s argument that ACF did not state what fiscal controls were not complied with or otherwise lacking.

TDHS asserts the audit recognized these payments were not in accordance with the state plan as the subrecipient was making four distinct levels of payments, whereas the new plan only allowed for three. See App. Br. at 3-4. TDHS determined the overpayments were a result of the subrecipient not updating their computer system for FY 2011. Id. at 4. Based on the distinct payment amounts, the error could have and should have been

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identified much earlier in the fiscal year using the identified fiscal controls in the state plan. Furthermore, the change in procedures for FY 2011 eliminated the discretion of the subrecipients to determine the amount of benefit payments (within the specified range of $300 to $600). This change alone was significant and posed a risk of improper payments, to include overpayments, which one would expect to be closely monitored. But there is no evidence to support when, if at all, any expenditure reviews or on-site monitoring visits occurred during FY 2011. Moreover, the audit also indicated that TDHS did not identify and assess the risk of these errors in its state-required risk assessment. Ex. A-3, at 159.[13] Based on the nature of the changes to the benefit levels and the removal of any discretion on the part of the subrecipients, we find this omission very compelling. Having considered all the evidence, we find there is no evidence to support that TDHS employed the established procedures contained in Assurance 10 of the approved state plan and thereby did not fulfill its statutory assurance under 42 U.S.C. § 8624(b)(10).

In summary, the overpayments establish that TDHS failed to ensure that LIHEAP block grant funds were expended in accordance with applicable state and federal law, regulations, and procedures. Specifically, TDHS failed to comply with section 8624(d) of the LIHEAP statute requiring it to expend funds in accordance with its state plan. That failure supports a finding of noncompliance with 45 C.F.R. § 96.30(a) requiring a state to obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds, which, contrary to TDHS’s arguments, can be based on its failure to comply with the provisions of its own state plan. TDHS also failed to comply with section 8624(b)(10), as the fiscal controls, including procedures for monitoring the assistance provided under LIHEAP, did not assure the proper disbursal of and accounting for federal funds paid to the state under the LIHEAP statute.

Finally, we address the allegation that TDHS failed to comply with 45 C.F.R. § 96.84(c) requiring it to establish appropriate systems and procedures to prevent, detect, and correct waste, fraud, and abuse in activities funded under the LIHEAP program. We acknowledge that the audit contains no specific finding as to that regulation, and ACF does not cite or mention the regulation in its brief. Having concluded, based on the record evidence, that TDHS was not in compliance with 45 C.F.R. § 96.30(a), we need not reach the question of whether TDHS was also not in compliance with 45 C.F.R. § 96.84(c).

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D. OMB Circular A-87 cost principles do not change the characterization of the overpayments as improper expenditures.

We are equally unpersuaded by TDHS’s assertion that the cost principles found in OMB Circular A-87 compel or permit a different result. As addressed above, the rulemaking preamble language TDHS relies on clearly states that a state expenditure contrary to its state plan would require the repayment of those funds “only if the expenditure violated the State’s assurances or the statutory provisions.” 47 Fed. Reg. at 29,478 (italics added). As we have already determined that the overpayment expenditures in this case violated the approved state plan, the statute, and the mandated assurances contained within the state plan, TDHS’s argument that those same overpayment expenditures met the applicable state cost principles is erroneous.

Title 45 C.F.R. § 96.30(a) provides that “[e]xcept where otherwise required by Federal law or regulation, a State shall obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds.” TDHS asserts that for federal block grants, Tennessee required compliance with the cost principles established by OMB. See App. Br. at 13. In 2011, the federal cost principles applicable to state governments were found in OMB Circular A-87. To be “allowable” under a grant or other “federal award,” a cost must be “necessary and reasonable for proper and efficient performance and administration” of the award; “[b]e allocable to” the award; “[b]e authorized or not prohibited under State or local laws or regulations”; and meet other conditions. 2 C.F.R. Part 225 (Jan. 1, 2011), App’x. A ¶ C.1-C.3.

The federal cost principles regarding whether the overpayments were improperly made do not render the overpayments allowable. While TDHS focuses largely on the “reasonable” principle, the cost principles also require that costs must “conform to any limitations or exclusions set forth in these principles, Federal laws, terms and conditions of the Federal award, or other governing regulations as to types or amounts of cost items.” 2 C.F.R. Part 225 (Jan. 1, 2011), App’x. A, ¶ C.1.d. 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., App’x. A, ¶ C.2. “The question of reasonableness is particularly important when governmental units or components are predominately federally-funded.” Id. “In determining reasonableness of a given cost, consideration shall be given to . . . [t]he restraints or requirements imposed by such factors as: [s]ound business practices; arm’s-length bargaining; Federal, State and other laws and regulations; and, terms and conditions of the Federal award.” Id., App’x. A, ¶ C.2.b (italics added).

Applying these principles, we disagree with TDHS’s assessment that the overpayments made by the subrecipient would be reasonable, and therefore allowable. The payments did not conform to the federal statute or governing regulations, or the terms and conditions of the approved state plan for the reasons discussed above. Additionally,

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TDHS’s assessment that “a prudent person would view” the subrecipient’s failure to use the revised benefit amounts mandated in the state plan as reasonable because the payments were made at the same levels for the preceding three years is implausible. Not only were the overpayments contrary to the precise changes implemented by the state to prescribe uniform benefit amounts, they also directly contradicted TDHS’s rescission of discretion previously allocated to the subrecipients. Accordingly, the overpayments were in contravention of the state plan, and a violation of the federal statutes and regulations. TDHS’s arguments are in direct conflict with the cost principles set out in OMB Circular A-87. Overpayments of any amount, let alone over $1 million, are not reasonable. If expenditures are not reasonable, they are, by definition, not allowable. Accordingly, the overpayments are improper expenditures and TDHS is obligated to repay them.

E. Availability of agency action to disallow and recover misspent funds.

TDHS asserts that ACF incorrectly terms its action as a “disallowance” determination. App. Br. at 9 (citing 45 C.F.R. § 92.43). Nevertheless, TDHS acknowledges that 45 C.F.R. § 96.32 indicates states are required to “repay” amounts audits found to have been expended improperly, also referring to the statutory and regulatory language requiring repayment of improperly expended funds found in 42 U.S.C. § 8624(g) (titled “[r]epayment of funds expended improperly”); 45 C.F.R. § 96.51 (“[t]he Department will order a State to repay amounts”); and 45 C.F.R. § 96.52 (“[d]ecisions resulting from repayment hearings”). Id. at 10. TDHS further asserts this is not a case about fraud, waste, or abuse resulting in a request for repayment, but rather an issue that was identified by the state through its compliance monitoring system and “immediately fixed” and “immediately reported” to ACF who at the time recommended no further action other than those already taken. Id. at 1.

TDHS’s assertions are belied by the facts of this case. The record supports ACF’s finding that TDHS did not ensure that subrecipients followed the state plan for LIHEAP, as required by the statute, federal regulations, and the assurances contained within the ACF approved state plan, which resulted in improperly expended payments. Accordingly, the expenditures were not reasonable, and we reject TDHS’s assertion that overpayments exceeding one million dollars could not constitute waste or abuse. Based upon the clearly articulated language in the statute, regulations, and conditions of approving the state plan, ACF had the authority to require TDHS repay the amount found after audit resolution to have been expended improperly, again which TDHS does not dispute. Furthermore, ACF determined that the corrections to prevent future overpayments did nothing to resolve the fact that overpayments for FY 2011 had occurred, nor did it “fix” those overpayments.

TDHS’s arguments become semantic, distinguishing a “repayment” from a “disallowance.” The determination that TDHS expended $1,150,550 in LIHEAP grant funds for unallowable costs established a debt to the federal government – a debt TDHS

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must repay. See 45 C.F.R. § 96.32; see also Teaching & Mentoring Communities, Inc., DAB No. 2790, at 6 (2017). ACF was authorized to initiate action to seek repayment of the improper expenditures and did so via the disallowance notice. The Board has upheld disallowances of a state’s payments made contrary to a state plan. See Tex. Dep’t of Hum. Res., DAB No. 617, at 9-10 (Jan. 17, 1985) (citing Ky. Dep’t of Hum. Servs., DAB No. 421 (1983) and Neb. Dep’t of Pub. Welfare, DAB No. 422 (1983)), amended in irrelevant part after court remand, Tex. Dep’t of Hum. Servs., DAB No. 617 (Amended Decision dated May 15, 1986).

Conclusion

For the foregoing reasons, we sustain the disallowance of $1,150,550 in its entirety.

Endnotes

¹ We cite to the Part 96 regulations in effect at the time of the grant period, July 1, 2010, to June 30, 2011. SeeKids Central, Inc., DAB No. 2897, at 1 n.2 (2018) (citing the regulations in effect at the time the grantee incurred the costs at issue).

² TDHS only offered an excerpt from the 2011 Single Audit’s findings regarding LIHEAP. See Ex. A-3 (Audit Report). The complete audit document was not offered as an exhibit but can be found at: https://comptroller.tn.gov/content/dam/cot/sa/advanced-search/disclaimer/2011/2011_tn_single_audit.pdf. As this decision cites to both the full report (Full Audit Rpt.) and the excerpt offered by TDHS (Ex. A-3), we cite to the page numbers located at the center of the bottom of the page which correspond to the full report.

³ Policy 22 is not in the record, but is available at https://web.archive.org/web/20120113183124/http://www.tn.gov/finance/act/documents/policy22.pdf. This policy was repealed and replaced by Policy #2013-007, initially effective May 28, 2013, and modified since then. Seehttps://www.tn.gov/generalservices/procurement/central-procurement-office--cpo-/library-.html.

⁴ The Manual is also not in the record, but is available at https://web.archive.org/web/20120113183127/http://www.tn.gov/finance/act/documents/policy22Manual.pdf.

⁵ The audit found additional questioned costs associated with the TDHS’s administration of LIHEAP not directly involved in this appeal. These included some subrecipients not calculating client priority points correctly, (applicants with lowest incomes, highest energy burden, and greatest vulnerability receive the most available points) resulting in overpayments of benefits with federal questioned costs of $450; not documenting supervisory review of potential client applications; not maintaining support for client and household members’ social security numbers required by the FY11 LIHEAP Program Overview with federal questioned costs of $2,100; not ensuring client files contained adequate documentation of crisis assistance payments; not providing crisis assistance within 48 hours in accordance with federal law; and DHS management’s lack of internal controls to ensure energy providers were not suspended or debarred in accordance with the state plan and federal regulations. Ex. A-3, at 154-57.

⁶ The auditors requested the details for all client payments to determine if there were underpayments or overpayments, but obtaining that information required the production of a special report which the subrecipient would not fund. Ex. A-3, at 158.

⁷ Nothing in the record establishes whether the remaining $13,000 disallowed by ACF was repaid by TDHS.

⁸ TDHS did not submit its request for hearing, any written evidence it presented to the presiding officer, arguments made at the hearing, post hearing briefs if they were permitted, or any communications with the presiding officer after reviewing the decision prior to it being issued. See 45 C.F.R. §§ 96.66, 96.68. Therefore, we are unable to address these assertions. In any event, our review of ACF’s disallowance determination is de novo.

⁹ It is well-established that grantees have “‘a fundamental obligation to account for federal funding which is not defeated per se by the passage of the record retention period.’” Ca. Dept. of HealthServs., DAB No. 1007, at 4 (1989) (emphasis in original) (quoting Ca. Dep’t of Soc. Servs., DAB No. 855, at 3 (1987); see alsoPassamaquoddy Tribe at 5 (citing Va. Dep’t of Med. Assist. Servs., DAB No. 3108, at 28 (2023); Mich. Dep’t of Health & Hum. Servs., Office of Child Support, DAB No. 2868, at 7 (2018); and Md. Dep’t of Hum. Res., DAB No. 519, at 3 (1984)).

¹⁰ TDHS asserted that due to the amount of time between the questioned expenditures and the disallowance, it only had contemporaneous working papers of the state auditor for UETHDA and did not have similar documentation for the other subrecipients whose payments were questioned in the FY 2011 audit. TDHS failed to present any evidence that specific documents relevant to the other subrecipient overpayments actually existed, were retained for the full three-year record retention period, and then were innocently destroyed to TDHS’s prejudice. See Ca. Dep’t of Health Servs., DAB No. 1007, at 6-8.

¹¹ During the audit period, OMB Circular A-87 was codified in Appendix A to 2 C.F.R. Part 225. See 2 C.F.R. § 225.45 (Jan. 1, 2011).

¹² TDHS states it does not raise this point to estop ACF from making an argument contrary to its prior statements, as equitable arguments are disfavored by the Board. See Tex. Health & Hum. Servs. Comm’n., DAB No. 2886, at 29 n.15 (2018). Rather, TDHS raises this point to show factually that its monitoring and auditing plan was in place and that ACF viewed it as acceptable at the time of the relevant events. App. Br. at 12 n.4.

¹³ The risk assessment is not part of the record. We interpret the audit findings to mean that a risk assessment was performed, but it did not address the benefit tier changes, removal of subrecipient discretion as to benefit amounts, or both.