Gila River Indian Community, DAB No. 339 (1982)

GAB Decision 339

July 30, 1982 Gila River Indian Community; Docket No. 82-3 Ford,
Cecilia; Settle, Norval Garrett, Donald


Gila River Indian Community (Grantee) appealed a determination by the
Office of Human Development Services (Agency) disallowing $68,549 with
respect to Grantee's Headstart program for the year ended August 31,
1980. The disallowance was based on an audit finding that only 67% of
the children enrolled in the program were from low-income families. The
Agency found that Grantee was therefore in violation of 45 CFR 1305.4,
which requires that at least 90% of enrollees be from Low-income
families, and computed the disalloance by multiplying the difference
between 90% and 67% by the amount of federal funds claimed by Grantee.
For the reasons discussed below, we sustain the disallowance, subject to
a possible setoff for indirect costs.

Grantee's Arguments

Grantee argued on appeal that legislation authorizing the Headstart
program (the Headstart-Follow Through Act ("Act")) allows children from
other than low-income families ("ineligible children") to participate in
the program "to a reasonable extent," and that the regulation limiting
their participation to 10% thus had no rational basis. It also argued
that the Act was passed for the benefit of Indian tribes, and that
therefore any doubt as to the proper construction of the legislation
should be resolved in favor of Grantee, an Indian tribe. Grantee argued
further that it was subject to the exception in the Act permitting a
Headstart program to establish under certain circumstances its own
criteria of eligibility. Additional arguments raised by Grantee were
that there was no notice that costs would be disallowed based on the
participation of ineligible children; that the Agency should not have
included fixed costs in computing the disallowance, since costs of the
program; and that any disallowance should be offset by indirect costs
and in-kind contributions which Grantee did not previously claim.
(Grantee's brief dated March 26, 1982) /1/ Each (2) of these arguments
is discussed separately belosw. As noted by the Agency, however, several
of the issues have already been addressed by the Board in Decision No.
264, March 4, 1982, which sustained a disallowance by the Agency based
on the participation of ineligible children during Grantee's program
year ended August 31, 1978. The principal difference between that case
and the instant case is that 45 CFR 1305.4 was not applicable to the
grant involved in Decision No. 264, since the regulation became
effective after the grant was awarded.


Particiatpion under the Act

In Decision No. 264, the Board interpreted the Act as requiring that
all children served be from low-income families unless the Secretary, by
regulation, permits the participation of other children.Thus, if Grantee
intended to argue here that the Act constitutes independent authority
for the participation of ineligible children, we reject its argument.
However, Decision No. 264 did not address the issue whether the
regulation promulgated pursuant to the Act has a rational basis.

Grantee, as noted above, relied on the provision of the Act
authorizing the Secretary to issue a regulation providing that a
Headstart program may include, "to a reasonable extent," participation
of ineligible children. 42 U.S.C. 2928g(a)(1). The Act also states,
however, that the Secretary may provide financial assistance for ". . .
. . a Headstart program focused primarily upon children from low-income
families." 42 U.S.C. 2928. /2/ Both provisions give the Secretary broad
direction in determining the degree of participation, if any, by
ineligible children. The latter provision also reflects Congress'
concern that a high percentage of participants be from low-income
families. The regulatory requirement that at least 90% of participants
be from low-income families is clearly consistent with Congressional
intent as expressed in this provision and is within the Secretary's
broad discretion. Accordingly, we find that the regulation has a
rational basis. /3/

Legislation for the Benefit of Indian Tribes

Even assuming, arguendo, that the Headstart legislation was
specifically intended to benefit Indian tribes, the result in this case
would not be affected. In Decision No. 264, the Board found that the
Act was clear (3) on its face that all children served must be from
low-income families unless the Secretary provided otherwise by
regulation. Accordingly, there is no ambiguity to be construed in favor
of Grantee by virtue of its status as an Indian tribe.

Grantee's Authority to Establish its Own Eligibility Criteria

This issue was addressed directly in Decision No. 264, where the
Board found that, since Grantee had conceded that it did not meet one of
the criteria for the application of the statutory exception permitting a
grantee to establish its own eligibility criteria, the exception did not
apply. Grantee made a similar concession in the instant case.
(Grantee's brief dated March 26, 1982, p. 11) It is not clear why the
Agency took the position that the Board " . . . did not in fact rule on
this issue in Decision No. 264." (Agency's brief dated April 29, 1982,
p. 9.) The Agency agreed in any event that the exception is not
applicable. (Id., pp. 9-13)

Notice of Disallowance as a Sanction

This issue was addressed directly in Decision No. 264, where the
Board concluded, based on the Act, that Grantee "should have known" that
funds spent for ineligible children might be subject to recovery.
(Decision No. 264, p. 5)

Disallowance Based on Costs Including Fixed Costs

This issue was addressed directly in Decision No. 264, where the
Board concluded that there was no evidence that all of the children,
including ineligible children, did not benefit from the fixed costs
incurred for Grantee's Headstart program. Grantee has provided no new
evidence here.

Setoff for In-Kind Contributions and Indirect Costs

The issue of in-kind contributions was addressed directly in Decision
No. 264, where the Board found that since such contributions did not
reduce the amount of federal funds used by Grantee, they could not be
used to offset the disallowance.

The Board also found in Decision No. 264 that since the Notice of
Grant Awarded showed indirect costs of "0" percent, the Board had no
authority to allow any indirect costs by way of setoff or otherwise
because that would constitute the making of an additional award. Since
no indirect costs were awarded in the instnt case, that conclusion
applies here as well. (4) The Board further stated in Decision No. 264
that the Agency may not have intended to preclude Grantee from receiving
indirect costs if a rate applicable to the term of the grant was
subsequently negotiated, and left it to the Agency's discretion to
decide whether to allow a setoff for ". . . those indirect costs which
Grantee demonstrates do not duplicate costs included in the grant award
as direct costs." (Decision No. 234, p. 7) In the instant case, however,
an indirect cost rate was in effect before the grant was awarded. See
Docket No. 81-48, Granteehs brief dated December 18, 1981, attached
Indirect Cost Negotiation Agreement dated October 17, 1978, showing
provisional indirect cost rate of 7.3%, applicable to all programs,
effective October 1, 1977, until amended. Thus, it is possible that the
Agency intended to preclude the award of indirect costs on the Headstart
grant. On the other hand, the Agency may have not awarded indirect
costs simply because Grantee failed to claim them. Thus, we again leave
it to the Agency's discretion to decide whether to allow a setoff for
indirect costs.

Conclusion

For the foregoing reasons, we sustain the disallowance subject to any
setoff for indirect costs. /1/ Granteee did not develop further the
argument in its January 6, 1982 notice of appeal that "(the)
decision to disallow Headstart grant funds was based upon insufficient
evidence as to the number of ineligible children." Since there is
nothing in the record supporting this assertion, consideration by the
Board is unwarranted. /2/ The preamble to the regulation states that
the regulation is based on this provision. 43 Fed. Reg.
14935-36 (April 7, 1978). /3/ In any event, the Board is bound by all
applicable regulations. 45 CFR 16.14.

OCTOBER 22, 1983