GAB Decision 435
Docket No. 82-140
May 31, 1983
Colorado Department for Social Services;
Ford, Cecilia; Settle, Norval Garrett, Donald
The Colorado Department of Social Services (State or appellant)
appealed the decision by the Office of Human Development Services
(Agency or respondent) to disallow $47,649 in federal financial
participation (FFP) claimed under Titles III and VII of the Older
Americans Act (OAA) of 1965. During the course of this proceeding the
parties resolved a portion of the dispute amounting to $5,447, leaving
$42,202 to be decided by this Board.
The issues in dispute are whether the State's documentation is
adequate to establish the allowability of $25,444 of the State's claim,
whether $6,467.34 is allowable although spent outside the grant period
for which it was claimed, and whether the $14,291 balance should be
forgiven on grounds that it is such a small portion of the total grant
awards that it should not have been considered in the audits.
For the reasons stated below, the Board upholds the disallowance with
respect to the entire $42,202.
This decision is based on the written submissions and written
confirmations of two telephone conference calls.
Background
On January 2, 1979, the Agency issued an audit report on Colorado's
costs claimed under Titles III and VII of the OAA for the period July 1,
1975 through September 30, 1977. (Respondent's brief, Exhibit A) The
report concluded that the State's financial management system was
inadequate and recommended that the State make an adequate accounting of
allowable costs and refund the federal share of unallowable costs.
(Respondent's brief, Exhibit A, p. 3)
On February 25, 1981, the Agency issued an audit report on Colorado's
costs claimed under Title III and VII of the OAA for Fiscal Years 1976
and 1977. The audit was a follow-up to the (2) previous federal audit
and was conducted to review the adequacy of the State's accounting for
the expenditures questioned in the initial federal audit. This audit
concluded that the State had overclaimed $237,343 in federal funds for
FY 76 and FY 77 and recommended refund of that amount to the federal
government. (Respondent's brief, Exhibit B, p. 3)
In response to the February 25 audit report, the State requested the
opportunity to present additional written documentation to establish the
allowability of the questioned $237,343. On the basis of the State's
additional documentation, the Agency in its disallowance reduced the
audit exception from $237,343 to $47,649. (Respondent's brief, Exhibits
F and G) /1/ On appeal, the State submitted 116 pages of documentation
to establish the allowability of $33,358 of the disallowance.
(Attachment to Appellant's brief, hereafter referred to as "State's
Exhibit A")
WAS THE STATE'S DOCUMENTATION SUFFICIENT TO ESTABLISH THE ALLOWABILITY
OF THREE ITEMS OF EXPENDITURES?
(1) $20,845 -- SAN LUIS VALLEY NUTRITION PROGRAM (Title VII)
The Agency argued that the documentation for this portion of the
disallowance was not sufficient because the documentation did not show
when these expenditures were made, what grant year they were claimed
for, or whether they were for allowable program costs. The Agency also
argued that the State had not presented the documentation in such a way
that the Agency could determine whether the claimed cost had been
considered in the previous audits.
The State argued, in essence, that, since documentation showed that
all federal funds for the program for FY 73 through FY 77 (3) were
expended, this particular amount claimed for FY 76 and FY 77 should be
allowed. /2/
The documentation consisted of a "Summary of Cash Flow" compiled from
a series of yearly financial statements for the period December 31, 1973
through March 31, 1978. (State's Exhibit A, pp. 35, 36) The financial
statements were made up of pages showing summaries of each year's end
cash balances for various categories. (Exhibit A, pp. 37-97) /3/ The
financial statements also contained miscellaneous correspondence
explaining various calculations and entries, statements of accounting
policies applied in preparing the report, and, in most instances,
letters from the Certified Public Accounting (CPA) firm which prepared
the financial statements attesting to the firm's opinion that the
balance sheets fairly represented the final position of the program for
the relevant time period.
The State did not explain and it is not apparent to the Board how the
summary of cash flow and yearly financial statements establish the
State's claim. The State did not provide any (4) specific documentation
of expenditures that would support an additional $20,845 charge to the
program for FY 76 and FY 77. The State has made only conclusory
arguments that since it spent all federal funds awarded for FY 73
through FY 77 it necessarily spent for proper grant purposes the amount
in question during FY 76 and FY 77. The Board concludes that the
State's documentation and argument do not present a sufficient basis on
which to overturn this item of the disallowance.
(2) $3,602 -- Mesa County Well Oldsters
The Agency argued 1) that the State had failed to show how grant
awards and financial reports presented by the State supported its claim
for this item of costs, 2) that the State's documentation was
insufficient without supporting documentation, and 3) that the State had
failed to show that the costs had not been claimed in prior audits.
The State argued, in effect, that the grant awards and financial
reports did establish that this amount was spent. /4/ One notification
of grant award was for the second project year of the grant and showed
an award of $12,545. Under the heading of "ACCOUNTING (5) DATA" the
notification showed "FY 77 12545." (State's Exhibit A, p. 101) The
other
notification of grant award was for the first project year of the grant
and showed an award of $7,202. Under the heading "ACCOUNTING DATA"
the
notification showed "3600-FY 75" and "3602-FY 76." (State's
Exhibit A,
p. 102) Both financial reports covered the report period February 1,
1977 to February 28, 1977. One showed total cash and in-kind
expenditures of $10,759. (State's Exhibit A, p. 103) The other showed
$10,770 as the total resources available, $10,759 as the total project
costs to date, and $11.00 as the cash balance on hand. (State's Exhibit
A, p. 104)
Again, the State has not explained and it is not apparent to the
Board how this documentation supports the State's case. Although the
amount in question appears on one of the grant awards, the State does
not explain how that entry establishes the validity of its claim. The
State has acknowledged that it has no further documentation to support
the reports and financial statements. (State's Submission, April 4,
1983, p. 1) Without specific documentation that would support this
discrete amount of alleged expenditure for the fiscal years in question,
we must sustain this item of the disallowance.
(3) $997 -- The Paonia Seniors
The Agency argued that it had reviewed audit workpapers which showed
$13,198 to be an allowable expenditure and that the documentation was
insufficient to establish $997 as an additional allowable expenditure.
The State argued that a financial report for the Paonia Seniors Title
III program and a note signed by Paonia's bookkeeper established that
the amount was spent. The State acknowledged that there were additional
records to support these items but argued, in effect, that the Board
should accept the report and letter as sufficient because the bookkeeper
for Paonia had died and it would be inappropriate to contact his
relatives for the supporting records.
The project financial report showed various cost categories and
program activities and listed amounts expended in each. It showed
$3,420 as total cash and in-kind expenditures. (State's Exhibit A, p.
117) The note signed by Paonia's bookkeeper requested permission to pay
certain listed bills from the "'Carry-Over' from the Interim Budget."
The note showed total expenditures of $1,263.72. (State's Exhibit A, p.
119)
Again, the State did not explain and it is not apparent to the Board
how the report and note support the State's case. The amount in
question appeared nowhere on either piece of (6) documentation and the
State did not specifically relate the amount in question to the report
and note. The Board cannot overlook the inadequacy of documentation
presented based on the State's conclusion that it would be inappropriate
to contact relatives of the deceased bookkeeper. The Board concludes
that the evidence and argument presented does not present a sufficient
basis to establish $997 of additional allowable expenditures.
With regard to the foregoing claims for San Luis, Mesa County, and
Paonia, the Board has considered the fundamental question of the
adequacy of the State's documentation. It is well established that a
grantee has the burden generally to document its claims. See, e.g.,
Urban Indian Health Board, Inc., Decision No. 315, June 28, 1982; see
also, 45 CFR 74.61(b) (1974 - 1977). This burden includes the need to
provide documentation that specifically relates to and supports the
claim. Where, as here, the documentation does not on its face establish
the appellant's case, the burden extends to providing a clear
explanation of why documents presented would support a given
expenditure. The Board has concluded above that the State has not met
this burden.
The Agency argued that these expenditures were not made during the
grant period for which claimed and, therefore, are not allowable. The
State acknowledged that these amounts were spent outside the grant
period for which the claim was made. The State did not argue that, as a
general rule, such expenditures are allowable; rather the State argued
that the Agency here indicated that it would allow expenditures outside
of the grant period if they were properly documented and not claimed in
a later grant period. (State's Submission, April 4, 1983, p. 1)
The State presented no evidence that the Agency had agreed to allow
properly documented expenditures made outside the grant period for which
they were claimed.Moreover, the State has presented no evidence, and the
Agency did not concede, that these expenditures had not already been
claimed. Without some showing by the appellant that the Agency would
allow expenditures outside the grant period and that these expenditures
were not claimed in a later period, the Board has no basis upon which to
overturn the disallowance. /5/
(7) SHOULD THE OVERCLAIM OF $14,291 BE ALLOWED ON GROUNDS THAT IT
REPRESENTS SUCH A SMALL PORTION OF THE TOTAL GRANT AWARD THAT IT SHOULD
NOT HAVE BEEN CONSIDERED IN THE AUDIT?
The State argued a "doctrine of materiality" which, in effect, stated
that if an overclaim amounts only to a small percentage of the total
grant then it is not "material" and should be forgiven.The State argued
that since the Agency encouraged the use of CPA firms to do audits, it
should forgive the 2% to 3% overclaim in this case since CPA firms
generally hold variations of 2% to 3% in an account balance to be
immaterial unless such variations would mislead a trained user of
financial statements. /6/
The Agency argued that regulations (45 CFR Part 74) require grantees
to account for 100% of grant funds and that to allow any variance would
be tantamount to sanctioning the misspending of grant funds.
We agree with the Agency. The State has not argued that the amount
in question here was an allowable expenditure and, in fact, has admitted
that it was an overclaim. To allow the State's claim, indeed, would be
tantamount to sanctioning the misspending of grant funds. The Board has
no authority to do so.
Conclusion
Based on the foregoing, the Board concludes that the State has not
established the $42,202 in dispute here to be allowable and upholds the
disallowance of that amount. /1/ Although the notice of appeal stated
that the State was appealing $33,358, the State's argument
indicated that the State was appealing the entire amount. The State's
subsequent brief further clarified that, indeed, the State was appealing
the entire $47,649. The statement of the amount appealed in the notice
raises an issue regarding the State's right to prosecute the $14,921
balance.(Cf., Michigan Department of Social Services, Decision No. 370,
December 28, 1982) We do not reach that issue here since, for other
reasons, we find against the State on its claim for that amount.
/2/ The State originally raised an additional argument regarding this
claim. The argument involved whether the Agency had considered
consistently the four year period FY 76 through FY 79 in calculating the
disallowance for the two-year period FY 76 and FY 77. During the first
conference call the State extended this argument to other disputed costs
that were disallowed because they were incurred outside the appropriate
grant periods. (See text at p. 6) The Board asked the State to clarify
the scope and content of this argument in writing if the parties could
not resolve it informally. (Confirmation of Telephone Conference Call,
February 4, 1983, p. 2; Summary of Events and Next Steps, March 24, p.
2) No resolution was forthcoming and the issue was never clarified in
writing. (See, Agency Position Statement, p. 2; State's Submission,
April 4, 1983) Subsequently, the State, in effect, withdrew the
argument. (Confirmation of Telephone Conference Call, May 20, 1983, p.
ending November 30, 1974 contained the following: (1) at page 2, a
"Balance Sheet" listing assests and liabilities; (2) at page 3, a
"Statement Of Changes In Fund Balance" noting revenues and expenditures;
(3) at page 4, a "Statement of Revenue and Expenditures" showing the
source of the revenue (federal, project, other) and the category of
expenditure (personnel, travel, etc.); (4) at page 5, a "Detail
Schedule of Revenue and Expenditures" listing similar items as at page
4
(see above), but listing in more detail the components of each category.
/4/ The argument presented in the State's opening brief reads as
follows: The Director of the Area Agency on Aging has asserted that
$3,602.00 of the FY 1976 money granted to the Well Oldsters Clinic has
not been accounted for. These sums are in addition to the $12,545.00
granted to the program for FY 1977. This deficit has been verified by
the records maintained by the Mesa County Finance Office (pp. 101-104).
There is no documentation to indicate that there was an error in those
reports. Therefore, the Department requests that a subsequent grant be
increased by the sum $3,602.00. (Appellant's brief, p. 2) During the
first conference call the Board asked the State's attorney to clarify
this argument. The attorney who had written the opening brief had been
replaced, and the new attorney could not clarify the argument but agreed
to look for additional documentation to support the State's case. The
new attorney subsequently notified the Board that no further
documentation was available; he did not present any additional
explanation to clarify the State's argument on how the documentation
supported the State's case on this amount. /5/ The State did not
argue that the Agency was estopped by the representation. /6/
The State showed the Title III overclaim of $4,727 to be 0.21% of total
expenditures for the period in question, and Title VII overclaim of
$9,564 to be 0.295% of total expenditures for the period in question.
(Appellant's brief, p. 5)
JULY 07, 1984