GAB Decision 549
Docket No. 84-25
July 3, 1984
Montana Department of Social and Rehabilitation Services;
Garrett, Donald; Teitz, Alexander Settle, Norval
The Montana Department of Social and Rehabilitation Services appealed
a decision by the Commissioner for the Administration on Aging (Agency)
to disallow $100,579 in administrative costs claimed for fiscal years
1980, 1981, and 1982 under Title III of the Older Americans Act, 42 USC
3021 et seq. (the Older Americans programs). The sole issue raised by
this appeal is whether the State's notices of grant award to its Area IV
agency properly obligated funds for the administration of the State's
seven area agencies during the fiscal years in question. We conclude
that the notices did properly obligate the funds in the fiscal years for
which they were appropriated and allotted, and accordingly reverse the
disallowance. Our decision is based on the parties' written
submissions.
Background
Montana uses an approved cost allocation plan (CAP) to identify and
distribute administration costs for all of the grant programs
administered by its Department of Social and Rehabilitation Services
(Montana SRS). Thus, for example, the CAP determines how much funding
is necessary for the State plan administration of the Older Americans
programs that are administered by the Montana SRS as the "State agency."
Regulations for the Older Americans programs permit the State agency to
use any part of its administration allotment that is not needed for
State plan purposes to pay part of the cost of the administration of
area plans. 45 CFR 1321.193(a)(2). The regulations also require that
funds for the administration of the State plan must be obligated during
the fiscal year in which they are appropriated and allotted. 42 USC
3024(b); 45 CFR 1321.197(b).
Because Montana SRS allocates costs for all of its grant programs
pursuant to its CAP, administration costs for individual programs cannot
be determined precisely until after the close of a fiscal year. State's
brief, p. 2. It is only after the close of the (2) fiscal year that
percentages for program administration can be assigned to each federal
program.
The delayed reporting in the cost allocation process and the
necessity to obligate the entire State plan administration allotment
within the fiscal year appropriated caused Montana to adopt the system
of obligating funds which is the source of this dispute. Montana
described the system as follows:
For convenience and efficiency sakes, Montana SRS chose to prepare
only one Notice of Grant Award obligating the entire amount of estimated
unused state administration funds to Area IV upon the condition that the
funds would be distributed in equal amounts to the other area agencies.
Montana SRS chose this method to reduce unnecessary paperwork. The
estimated funds were thus obligated and could be later distributed when
the exact amount of unused administration funds could be determined
under the cost allocation plan. State's reply brief, pp. 3-4.
Thus, during fiscal years 1980 through 1982, Montana issued a notice
of grant award prior to the end of each fiscal year to the Area IV
agency in Helena. State's Exhibits 2-4. These award documents, which
were signed by representatives of the Montana SRS and the Area IV
agency, awarded a specific amount of fiscal year Title III State agency
administration funds to the Area IV agency for a 16-day project period
beginning September 30 and ending October 15 of each of the calendar
years--1980, 1981, and 1982. The amounts awarded constituted estimates
of the remaining unobligated funds at the State level for State agency
administration. A condition appearing on each grant award stated:
"Commitment of these funds is subject to grantee's agreement that funds
will be reobligated to Area Agencies at the earliest date possible
following October 1. . . ." The award then identified the amount each of
the seven designated area agencies would receive, which was one-seventh
of the total. Montana alleged that the method of obligating the unused
State administration funds was used with the knowledge of the seven area
agencies and without objection from any agency. State's brief, p. 3.
Parties' Arguments
The Agency argued that the funds covered by the award notices were
not properly obligated during the fiscal year for which they were
appropriated and allotted and accordingly must be disallowed. The
Agency argued that the notice made no definite commitment to obligate
the funds to the Area IV agency as required by Comptroller (3) General
decisions, and that the State did not obligate funds to the area
agencies in a timely fashion, that is, within the fiscal year. Agency's
brief, pp. 4-7.
The State argued that the procedures used constituted valid
obligations and that there was no substantive difference in the
procedures used subsequent to fiscal year 1982, which the Agency
conceded were adequate. Montana stated that under its current practice,
it sends a notice of grant award to each area agency for the area
agency's equal share of the estimated amount of unused state
administration funds. Montana SRS then distributes the funds to the
agencies after the close of the fiscal year when the exact amount of
unused state administration funds is known. The State argued that there
is no substantive difference between this practice and the practice
challenged by the Agency, and that the Agency's position as a result is
"hypertechnical." State's reply brief, p. 1.
Analysis
HHS regulations concerning financial reporting requirements for
Department grantees define the term "obligations" as follows:
"Obligations" are the amounts of orders placed, contracts and
subgrants awarded, services received, and similar transactions during a
given period, which will require payment during the same or a future
period. 45 CFR 74.71.
The Agency here does not dispute that a notice of grant award may
qualify as an obligation under the definition above. Rather, the Agency
emphasizes that the notice language here lacked the requisite
definiteness to obligate funds to the Area IV agency. This is so,
according to the Agency, because Montana "intended to reobligate the
funds in question to its seven designated area agencies at the 'earliest
date possible following October 1. . . .'" Agency's brief, p. 5. The
Agency's position is based entirely on the notice language. The Agency
argued that under Montana case law the intention of the parties is to be
ascertained from the language of the instrument involved here the notice
of grant award. Id.
We disagree with the Agency as to the effect of the language
involved. Based on the plain meaning of the notices, we believe that
Montana made a definite, binding commitment to pay the funds in question
to the Area IV agency. The funding commitment did not lose its
definiteness or binding quality simply because it (4) was made to the
Area IV agency as the lead agency responsible for the subsequent
redistribution of the funds in equal portions to each of the area
agencies. The Agency cited no legal authority which prevents the State
agency from obligating the funds to a lead area agency in a capacity
similar to that of trustee. The stated purpose of such an arrangement
is to facilitate the ultimate distribution of the funds to the area
agencies. The plain language unquestionably binds the State agency to
turn over the funds to the Area IV agency in that capacity, and indeed
the award language does not appear to be susceptible to any other
interpretation. * It is undisputed that the ultimate purpose of the
arrangement is fully compatible with program regulations that provide
that the State agency may use any part of its State plan administration
allotment that is not needed for State plan purposes to pay part of the
cost of the administration of area plans.
We also believe that the notices to the Area IV agency on behalf of
the area agencies were timely obligations since they were made before
the close of the fiscal years for which the funds were appropriated and
allotted. The notices completed the obligation and the subsequent
distribution of the funds to the area agencies did not detract from
their effect.
As the State argued, the absence of any record showing deobligation
of the original award to the Area IV agency and reobligation to each of
the area agencies supports the State's position since a deobligation
would not be necessary when the original notices from the State to Area
IV served as valid obligations. The State's use of the word
"reobligation" in the original notice to Area IV refers only to the
ultimate distribution of funds to the other area agencies by Area IV and
does not mean that the State's intent to obligate the funds to the Area
IV agency was not timely or definite.
(5) Conclusion
Accordingly, we conclude that the State Agency through its notices
met the statutory and regulatory requirements to obligate funds during
the fiscal year for which the funds were appropriated and allotted. The
disallowance of $100,579 is reversed. * The Agency cited a previous
Board decision for the proposition that the State had the burden to show
a firm commitment of funds occurred during the required time limit.
Iowa State Department of Health, Decision No. 403, March 30, 1983. The
Iowa case is clearly distinguishable from the present case, however. In
the Iowa case the grantee failed to perform any act which definitely
committed the funds. The Board rejected grantee's arguments that a
commission vote and a newspaper report concerning the commission's
actions were evidence of a timely obligation. The present case, on the
other hand, involves the effect of a notice of grant award, which
unquestionably has the potential to be a valid obligation.
NOVEMBER 14, 1984