GAB Decision 755
May 22, 1986
Yonkers Community Action Program, Inc.;
Docket No. 84-210;
Audit Control No. 02-35105
Ballard, Judith A.; Ford, Cecilia S. Settle, Norval D.
The Yonkers Community Action Program, Inc. (YCAP or Appellant)
appealed the determination of the Office of Human Development Services
(OHDS or Agency) to disallow $40,213 of Head Start funds for the payment
by Appellant to the Yonkers Day Care Center (YDCC) for the operation at
YDCC of a program from January 18, 1982 through July 31, 1982. The
basis for the disallowance was the Appellant's failure to obtain prior
approval, as required by regulation, for delegating program performance
to YDCC. After this appeal was instituted, proceedings before the Board
were postponed while Appellant sought to obtain approval retroactively
for the payment to YDCC. OHDS denied this request.
For the reasons discussed below, we uphold the disallowance.
We
consider first a preliminary legal issue of whether the prior
approval
requirement could be waived by OHDS here. We next address
whether YCAP
actually received prior approval for the delegation, and find
that it
did not. We finally consider the denial of retroactive
approval, and
conclude that OHDS did not abuse its discretion to deny
approval in the
facts of this case.
I. Can the failure to obtain prior approval be "waived"?
A preliminary issue before the Board was whether OHDS had the authority
to
"waive" the requirement that a Head Start grantee receive prior
approval
before delegating performance of a Head Start program to a
"delegate agency."
OHDS argued it could not. In the course of the
appeal, the Agency
requested the Board's ruling on this legal issue,
which the Agency argued was
dispositive of the appeal. /1/ The Board
postponed ruling(2) on the issue in
order to allow Appellant to present
its substantive case at a hearing before
the Board. Since we uphold the
disallowance on the basis that the
Agency reasonably determined to deny
retroactive approval, we do not find it
necessary to reach the "waiver"
issue.
II. Did Appellant obtain prior approval for the delegation?
Appellant initially admitted in proceedings before the Board that it
did
not seek prior approval for the delegation to YDCC:
Due to the urgent need for increased Head Start service,
prior
approval of the awarding party for these costs, within the grant
total
but not specified in the budget, was not sought pursuant to 45
CFR
74.177(b)(3) (requiring a grantee to seek written prior approval
under
certain circumstances).(3)
Appellant's Opening Brief, p. 2. /2/ Nonetheless, at the
hearing,
Appellant sought to demonstrate that OHDS knew about the delegation
as
early as December 1981, but did not object to the delegation until
June
1982. Appellant appeared to argue, therefore, that it received at
least
tacit approval for the delegation to YDCC.
We find that Appellant did not formally seek prior approval for
the
delegation to YDCC and the Agency did nothing to affirmatively
grant
approval which would have satisfied the requirements of 45 CFR
1301.33.
Appellant presented one exhibit as evidence of its communications to
the
Agency about its intended delegation, and related
testimony.
Appellant's Hearing Exhibit 1, a December 18, 1981 letter from
the
Executive Director of YCAP to a Community Representative of
OHDS,
described the general situation in the community, which
was
characterized by a shortage of federal funding and an "urgent need"
for
Head Start services. The Executive Director stated that YCAP's
Board of
Directors was considering funding "additional Head Start classrooms"
and
asked the OHDS representative whether YCAP could "proceed to develop
a
plan for the use of our unexpended funds for this purpose."
The
Executive Director testified that OHDS made no response to the
letter.
Tr., p. 40. The Executive Director testified that she told the
same
OHDS representative that YCAP was operating a program at Yonkers
Day
Care Center, yet the OHDS representative did not object to
the
arrangement. Tr., p. 41.
With regard to the letter, we find that this clearly did not
constitute
notification that YCAP was funding the Yonkers Day Care Center as
a new
delegate agency. The letter(4) describes the future possibility
of
funding new "classrooms" and makes no mention of YDCC,
specifically.
Indeed, it is not even clear from the letter that YCAP
contemplated
funding a new delegate agency at all, since YCAP already had
two
delegate agencies and the "new classrooms" presumably could have
been
created at these existing facilities.
With regard to the testimony that YCAP informed OHDS verbally of
the
delegation, the OHDS representative testified at the hearing that he
did
not become aware of the delegation until late in the spring of
that
year, after the program had been implemented. Tr., p. 251.
He further
testified that, even if he had been told of the delegation by
YCAP, he
lacked the necessary approval authority, a fact of which
YCAP's
Executive Director was aware. Id. (45 CFR 1301.33 requires
prior
approval by the "responsible HHS official.") The OHDS
representative
further stated that, although he could not recall any
conversations
specifically, he probably recommended that YCAP submit an
application to
fund the new delegate, given the circumstances here.
Id.
The testimony by YCAP, on the other hand, did not identify the time
or
details of any conversation in which the delegation to YDCC
was
described, and no explanation was offered for why YCAP failed to
respond
to OHDS' advice that YCAP should submit an application. Also,
the YCAP
Executive Director did not appear to maintain that the
OHDS
representative with whom she spoke was the "responsible HHS
authority"
to grant prior approval, or that she understood him to be
such.
Furthermore, YCAP's failure to submit a formal application is made
more
significant by Appellant's testimony throughout the hearing that it
was
an experienced Head Start agency, familiar with all federal
requirements
in the running of a Head Start program.
We therefore conclude that Appellant neither sought prior approval
from
OHDS for the funding of the program by YDCC, nor was it granted
such
approval by OHDS, as required by 45 CFR 1301.33. We turn now to
the
question of whether OHDS properly denied retroactive approval for
the
delegation.
III. OHDS' Denial of Retroactive Approval of the Delegation
A. Scope of the Board's Review
Chapter 1-105-60.B.1 of the HHS Grants Administration Manual, which
covers
retroactive approval, provides that the Agency may grant
retroactive approval
if, inter alia, "(the) transaction would have been
approved had the
organization requested approval in advance" and "(the)
organization agrees to
institute controls to ensure that prior approval
requirements are met in the
future."(5)
In applying this provision of the HHS Grant Administration Manual
in
another Head Start case, Economic Opportunity Atlanta, Inc.,
Decision
No. 313, June 24, 1982, the Board interpreted it as follows:
Since the language of this provision is permissive, i.e., may,
it
does not preclude the Agency's consideration of all relevant
factors,
such as a grantee's fiscal management history, in deciding whether
or
not to ultimately grant retroactive approval where prior approval
was
required but not obtained. In making its determination on a request
for
retroactive approval, the Agency has considerable, but not
completely
unbounded, discretion. Although the Board will not interfere
when the
Agency appropriately exercises its discretion, the Agency must state
the
basis for its decision and may not deny retroactive approval based
on
unsubstantiated conclusions or on bases so insubstantial that
the
decision fairly can be described as capricious. (Citations
omitted)$%
The Board applied this same standard of review in Economic
Opportunity
Council of Suffolk, Inc., Decision No. 714, December 27, 1985 and
Wayne
State Intermediate School District (Michigan), Decision No. 446,
June
30, 1983.
We are using the same standard here. If anything, one might argue
that
a more stringent standard should be applicable; the cases cited
above
dealt with discrete expenditure items, whereas the case before us
deals
with the general approval of an entire delegate agency (and threfore
an
entire class of expenditures). But in any event, we conclude, using
the
standard articulated in the cases above, that OHDS made a
reasonable
determination within the bounds of its program expertise.
B. Summary of Analysis
In evaluating the Appellant's request for retroactive approval, the
Agency
evaluated the operation of the YDCC program for the period in
dispute to see
whether YCAP ran a Head Start program in accordance with,
first, the Head
Start performance standards, and, second, applicable
financial management
standards. We address these two aspects of the
Agency's review in turn
below. As we explain in more detail, we
conclude that the Agency had
reasonable bases for its determination that
Appellant did not fully meet the
standards. In the programmatic area, we
conclude that OHDS properly found
Appellant out of compliance with at
least five of the six components of the
Head Start Performance Standards
which we address below. In the fiscal
area, we find in part that
Appellant did not have a sufficient cost
allocation plan and did not
explain other irregularities in the financial
records(6) of the program.
While there is some evidence that YCAP's
compliance may not have been as
deficient in all areas as OHDS found, this
does not undermine OHDS'
overall conclusion that retroactive approval should
be denied because
YCAP could not demonstrate full compliance with applicable
requirements
important to the operation of a Head Start program. /3/
C. Head Start Performance Standards
The Agency evaluated the YCAP program in terms of each of the
elements
contained in the Head Start performance standards, 45 CFR Part
1304.
See, e.g., Agency's Ex. R-S5. OHDS concluded, on the basis of
the
evidence submitted to it, that Appellant did not fully meet any of
these
requirements. We address each of these elements in turn
below.
The Appellant argued throughout the appeal that OHDS unfairly
reviewed
only documentation of how the program operated and that the program
may
still in fact have operated in accordance with standards despite
the
absence of documentation. The Board considered all evidence in
the
record, including the testimonial evidence developed at the hearing
and
deposition. As we have noted for several of the elements, however,
the
lack of documentary evidence per se may be significant in terms
of
verifying the extent of certain activities and in terms of
those
activities' utility to the program. Furthermore, it is clearly
the
Appellant's burden to prove that it met the standards, and the
nature
and detail of the standards is such that documentary evidence clearly
is
the best and most persuasive kind of evidence (particularly
years
after-the-fact). Oral testimony -- particularly when largely
conclusory
in nature about the good intentions, pride and practices of the
grantee
-- may be useful, but by itself is inherently less persuasive in
meeting
the grantee's burden.
1. Education Services
The Agency concluded that Appellant did not comply with the
following
requirement regarding "Education Services":
The education services component of the plan shall provide
procedures
for on-going observation, recording and evaluation of each
child's
growth and development for (7) the purpose of planning activities
to
suit individual needs. It shall provide, also, for integrating
the
educational aspects of other Head Start components into the
daily
education services program.
45 CFR 1304.2-2(d).
YDCC's Executive Director testified that program enrollees were
evaluated
periodically through "(on)-the-spot checks, diagnostic
activities, and for
those children that were going to first grade the
following year we used the
(California Test of Basic Skills)." Tr., pp.
115-116. While the witness
indicated that full documentation of this
activity is not in the record of
this appeal, she did indicate that some
record of these "observations" would
be in each student's individual
folder for the program which had been
submitted to OHDS. (The folders
for 17 of the students were submitted
to the Board as Appellant's
Hearing Exhibit 2). Id.
We cannot find, based on an evaluation of the 17 folders, recordings
of
"on-the-spot checks" or other types of "recording and evaluation of
each
child's growth and development for the purpose of planning activities
to
suit individual needs." 45 CFR 1304.2-2(d). While we acknowledge
that
not all evidence of such activity might be in the record, we
would
certainly expect some evidence of such activity in the
children's
folders. The 17 folders, which are relatively similar in
content, do
not contain any charts of such information, or even individual
notes.
Although the folders contain a form questionnaire filled out by
each
child's parents upon admission to the program, this is clearly not
a
record of "on-going observation" or "the evaluation of each
child's
growth and development." (See also a discussion below on pp. 12-13
of
parent involvement in the Education Services of the program.)
2. Health Services: Medical and Dental
The Agency concluded that Appellant did not comply with Head
Start
standards relating to "Medical and Dental history, screening,
and
examinations:"
(a) The health services component of the performance standards
plan
shall provide that for each child enrolled in the Head Start program
a
complete medical, dental and developmental history will be obtained
and
recorded, a thorough health screening will be given, and medical
and
dental examinations will be performed.
* * *(8)
(b) Health screenings shall include:
(1) Growth assessment (head circumference up to two years
old),
height, weight and age.
(2) Vision testing.
(3) Hearing testing.
* * *
(8) Assessment of current immunization status.
(9) During the course of health screening, procedures must be
in
effect for identifying speech problems, determining their cause,
and
providing services.
(10) Identification of the special needs of handicapped children.
45 CFR 1304.3-3.
We find that the Agency's conclusion about this standard was supported
by
the record, since a review of the children's records reveals a lack
of
consistent compliance with the elements of 45 CFR 1304.3-3. Unlike
some
of the other performance standards considered in this decision,
oral
testimony that Appellant complied with such standards would
be
irrelevant; we would expect that all medical and dental screenings
or
examinations would be recorded in the children's folders.
Many of the 17 student folders lacked mention of several of the
required
areas of screening. For instance, although each child's folder
had a
medical form with a blank for recording vision and hearing (with
the
exception of one child's folder, which contained no medical form
at
all), most of the forms had no entry under these categories. See,
e.g.,
Appellant's "Packet III" submitted to Board on August 29, 1985;
Tr.,
pp. 174-177. Moreover, for a number of the children, the date of
the
medical examination for which data was recorded was after the period
in
dispute, making its utility here questionable.
3. Mental Health Services
The Agency concluded that Appellant did not comply with a requirement
that
mental health services be available:
(a) The mental health part of the plan shall provide that a
mental
health professional shall be available, at least on a
consultation
basis, to the Head Start program and to the children. The
mental health
professional shall:
(1) Assist in planning mental health program activities;(9)
(2) Train Head Start staff;
(3) Periodically observe children and consult with teachers and
other
staff;
(4) Advise and assist in developmental screening and assessment;
(5) Assist in providing special help for children with
atypical
behavior or development, including speech;
(6) Advise in the utilization of other community resources
and
referrals;
* * * *
45 CFR 1304.3-8.
The Appellant argued that this standard was met because there was
a
"process" which provided for the referral of a child to a mental
health
professional. Appellant noted that this "process" need not be
evidenced
in any child's folder, since no referral would need to be made
except if
there was a special need. Tr., p. 133. Nonetheless, we
again find it
significant that none of the 17 folders submitted to the Board
contained
evidence of use of mental health services.
Appellant appeared to admit that there was no mental health
professional
on staff but claimed that one was available, thus complying with
the
requirement that a mental health professional be available "at least
on
a consultation basis." However, Appellant never offered evidence to
show
how this person provided on-going functions as described in
the
regulation, such as assisting in planning mental health
activities,
training staff, or periodically observing children.
4. Nutrition
This is the only instance in which we find that the Agency's
determination
was not fully supported by the record. The Agency found
Appellant did
not meet the following standard:
(a) The nutrition services part of the health services component
of
the performance standards plan must identify the nutritional needs
and
problems of the children in the Head Start program and their
families.
In so doing account must be taken of:
(1) The nutrition assessment data (height, weight,
hemoglobin
hematocrit) obtained for each child;
(2) Information about family eating habits and special dietary
needs
and feeding problems, especially of handicapped children;
* * * *
45 CFR 1304.3-10.(10)
This standard does appear to be met by the data that was
routinely
recorded in each student's folder. On a form that was
completed upon
enrollment in the program, the parent filled out a section of
the form
asking about eating habits, information which presumably would be
used
in establishing the child's diet. The "nutrition assessment data"
was
recorded on the students' medical forms (although, as we
indicated
above, this information was not supplied for every child).
5. Social Services
The Agency considered the following requirements in finding that
the
social services component was not met:
(a) The social services plan shall provide procedures for:
* * *
(3) Providing or referral for appropriate counseling;
(4) Emergency assistance or crisis intervention;
(5) Furnishing information about available community services
and how
to use them;
(6) Follow-up to assure delivery of needed assistance;
(7) Establishing a role of advocacy and spokesman for Head
Start
families;
* * *
(9) Identification of the social service needs of Head Start
families
and working with other community agencies to develop programs to
meet
those needs.
* * * *
45 CFR 1304.4-1.
YDCC's Executive Director testified that this component was met
since
there was a social worker on staff, who provided all of these
services
at one time or another. Tr., pp. 153-157. We find,
however, that the
17 student folders provide no evidence of social
services. While not
every child would be expected to use the social
worker's services, one
would expect some notation in some students' files if
at least some type
of social work services were provided. While we do
not reject the
testimony that some social services were provided, the
absolute lack of
any supportive documentary evidence weakens the credibility
of the
testimony. We therefore conclude that OHDS's findings about the
social
services component was fully supported by the record.(11)
6. Parent Involvement
The Head Start performance standards provide that the plan shall
provide
methods and opportunities for involving parents in:
(a) Experiences and activities which lead to enhancing
the
development of their skills, self-confidence, and sense of
independence
in fostering an environment in which their children can develop
to their
full potential.
* * *
(d) Health, mental health, dental and nutrition education.
(e) Identification, and use, of family and community resources
to
meet the basic life support needs of the family.
* * * *
45 CFR 1304.5-3. See generally 45 CFR Part 1304, Subpart E.
We conclude that the evidence supported OHDS' finding that YCAP was out
of
compliance with these requirements. A review of the 17 student
folders
indicates that the program was not intended to involve parents
in the
program. For each of the folders, the parents filled out an
initial
questionnaire to alert the school to particular needs and
problems of the
child. Two of the folders also included an "Appointment
Record of Parent
Conferences." (For one of the folders, submitted as
Appellant's Packet III,
discussed at the hearing, the word "conferences"
was crossed out and replaced
with "contact.") A review of these two
folders demonstrates the limited
nature of the contact. For the one
child's folder discussed at the
hearing, there is no indication that the
child's parents spoke personally
with school officials about the child's
progress. One would expect this
degree of minimal contact at any day
care program. Also, we find
significant the fact that 15 of the 17
folders contain no such notations at
all of parent contact.
There is evidence of three parent "workshops" conducted during
the
relevant period. See Appellant's Packet II submitted on August 29,
1985
(last portion of packet). While these workshops do appear to be
an
attempt to teach parenting skills, we find that the Agency
properly
found them insufficient. From the attendance lists, we find
that only
about 10 parents attended each meeting, thus affording each
parent
approximately one meeting for the duration of the program.
Furthermore,
the workshops appear to be lectures, essentially,(12) and make
no
attempt to involve parents in the running of the program. One
objective
of a Head Start program is to "recognize ($?) the parent as . .
.
(contributors) to the Head Start program. . . ." 45 CFR 1304.4-2.
The Agency also found that YCAP failed to demonstrate compliance with
a
requirement of parent participation as part of the "Education
Services"
component:
(e) The plan shall provide methods for enhancing the knowledge
and
understanding of both staff and parents of the educational
and
developmental needs and activities of children in the program.
These
shall include:
(1) Parent participation in planning the education program, and
in
center, classroom and home program activities;
* * *
(4) Participation in staff and staff-parent conferences and
the
making of periodic home visits (no less than two) by members of
the
education staff;
45 CFR 1304.2-2(e).
With regard to subsection (e) (1), parent participation in planning and
in
various activities, YDCC's Executive Director testified:
Q Do you involve the parents in the children's education?
A Yes.
Q How do you do that?
A Classroom observations, classroom participation,
correlating
materials, repair of furniture and furnishings in the center or
in the
classroom, committee meetings with parents. We have a parent
policy
group, a parent committee group. Parents participate in
workshops,
in-service training.
Tr., p. 118.
While this testimony may at first blush provide evidence of an
acceptable
program, we find the statement flawed because of a lack of
any detail, such
as the number of parents involved and when the visits
to the school took
place. The credibility of the evidence is further
undermined because
there is a complete lack of documentary material in
the record to
substantiate it. (13)
With regard to subsection (e)(4), requiring that there be
"staff-parent
conferences" and at least two "periodic home visits," we have
no
documentary evidence of such contacts. YDCC's Executive
Director
admitted that there were no "formal home visits," but in at least
one
part of her testimony she explained that there were "informal" visits
by
teachers to the homes of parents. Tr., pp. 172-173, 120-121.
The
Director testified that if there were "significant findings" from
such
visits, they would be recorded. Tr., p. 121.
Again, we find it significant that we can find no written record of
such
home visits in any documents submitted by Appellant. The 17
student
folders contain no records of parent conferences or home
visits. This
appears especially meaningful to us since the student
folders are
clearly intended as comprehensive records for each child for
the
duration of the program, and since the folders constitute the
chief
documentary evidence submitted by Appellant in support of its
position
that it met the standards. If home visits were conducted
routinely
(albeit informally), as indicated by YDCC's Director, it is
difficult to
imagine that there were no "significant findings" which
Appellant admits
would have been recorded. Furthermore, it is hard to
imagine how such
visits would have been of utility to the program unless some
type of
record was kept.
We therefore conclude that OHDS reasonably concluded on the
evidence
before it that Appellant was out of compliance with the
parent
involvement standards.
In summary, it is clear that the record supported OHDS' determination
that
Appellant was out of compliance with a number of significant
program
standards.
D. Financial Management Standards
The second part of OHDS' review addressed whether YCAP operated a
Head
Start program at YDCC in accordance with applicable financial
standards.
Specifically, 45 CFR Part 74, Subpart Q, incorporates by reference
OMB
Circular A-122, which provides in part that to be allowable under
a
grant award, costs must:
a. Be reasonable for the performance of the award and be
allocable
thereto under these principles.
b. Conform to any limitations or exclusions set forth in
these
principles or in the award as to types or amount of cost items.
c. Be consistent with policies and procedures that apply
uniformly
to both federally financed and other activities of the
organization.(
14)
d. Be accorded consistent treatment.
e. Be determined in accordance with generally accepted
accounting
principles.
f. Not be included as a cost or used to meet cost sharing
or
matching requirements of any other federally financed program in
either
the current or a prior period.
g. Be adequately documented.
OMB Cir. A-122, Att. A., p. 23; see Agency's Ex. R-S2.
Two audits were conducted of YCAP for the period in dispute. Bloom
and
Streit, Certified Public Accounts, conducted one audit. See
attachment
to Agency's September 24, 1985 letter to the Board. On May
16, 1985,
while this appeal was stayed before the Board, Bloom and Streit
prepared
a letter for YCAP which generally found reasonable "expense records"
and
"allocation of services" of the program run by Yonkers Day Care
Center.
Appellant's Ex. 5. A second audit, addressed specifically to
the
operation of the Yonkers Day Care Center, was prepared by William
R.
Brown, P.C. See Appellant's Packet No. I submitted on August 29,
1985
(last several pages, unnumbered). William R. Brown, P.C. did
not
testify or express any opinion about the operation of a Head
Start
program at YDCC.
As we explain further below, we conclude that the record fully
supports
the Agency's finding that Appellant was out of compliance with
the
applicable cost principles in the delegation to YDCC. While Bloom
and
Streit appeared to express its approval of the operation at YDCC, it
is
clear that Bloom and Streit either did not consider, or were unaware
of,
several factors which entered into OHDS' review of the program at
YDCC.
On request of OHDS, Appellant submitted a cost allocation plan to
explain
the allocation of costs by YCAP from the several funding
services for YCAP
(Head Start funding was only one part of YCAP's
revenue). See
Appellant's Packet No. I submitted on August 29, 1985
(8th unnumbered page.)
OHDS, after reviewing the plan and other the
documentation submitted by YCAP,
found that the plan was incomplete
since it did not address the funding
stream to YCAP as explained by the
Brown audit, Appellant's Packet No. I
submitted on August 29, 1985,
Exhibit B of the Brown audit. According
to Exhibit B, the total revenue
of YDCC for the period of September 7, 1981
to total revenue of YDCC for
the period of Septembe 7, 1981 to July 31, 1982
was $119,550; the cost
allocation plan only considered the $41,792 which came
from YCAP. See
Tr. (Dep.),(15) pp. 17-20. /4/ Further, the Agency found
it significant
that there was no back-up documentation to indicate how the
Appellant
arrived at any of the allocations, including the Director's salary
and
the expenditure for rent. See Tr. (Dep.), pp. 20-22.
Although the letter from Bloom and Streit addressed the question
of
"allocation of costs" (see Appellant's Ex. 5), the Agency's
witness
explained several reasons why the letter was of little
significance.
The Bloom and Streit letter did not explain the methodology
used in the
cost allocation plan, nor did the letter explain whether any
back-up
documentation was supplied, a fact which the Agency found critical.
See
Tr. (Dep.), p. 27. Further, the Bloom and Streit letter assumed
that
YDCC served 19 children, while it was established before the Board
that
35 children were actually served. /5/ This fact would clearly affect
the
allocation of costs to YDCC. Bloom and Streit also did not address
the
discrepancy itself between the contract calling for 35 children and
the
auditors' assumption that only 19 children were served, as well as
the
fact that YCAP had failed to receive prior approval for the
delegation
to YDCC.
Appellant also submitted to the Agency copies of checks drawn on
YCAP's
account to explain expenditures for the operations at YDCC.
However,
the Agency found several irregularities with those checks, most of
which
Appellant was unable to explain. For example, the Agency
found
significant fluctuations in payroll transfers. See Tr. (Dep.),
pp.
10-13. Appellant never sought to explain the reason for this,
merely
submitting that "(payroll) fluctuations do not indicate error;
the
delegate's overall personnel changes (sic) to Head Start were for
the
Head Start Program's fair share. See Appellant's (Ex. 5) (the May
16,
1985 letter to YCAP from Bloom and Streit)." Appellant's
Post-Hearing
Brief, p. 6. /6/ See also Tr. (Dep.), pp. 14-17, pp. 7-9.
(16)
A further basis for OHDS' finding on the fiscal aspects of the program
at
YDCC was its finding that food and other related costs were not paid
by the
U.S. Department of Agriculture and were therefore apparently
charged to the
Head Start grant, even though unallowable. Appellant did
not dispute
that food costs were unallowable under Head Start, but
instead submitted by
affidavit that all food costs were paid by the
Department of
Agriculture. See Appellant's Ex. 3, p. 3. However,
neither of the
two audits or any other financial records substantiates
this. We
therefore find reasonable OHDS' conclusion that food costs
were paid by Head
Start and were therefore unallowable.
E. An Additional Argument of Appellant
Appellant argued that OHDS' denial of retroactive approval as
arbitrary
and capricious since one Agency witness testified that he might
have
granted prior approval had he been so requested at the proper time.
See
Appellant's Post-Hearing Brief, pp. 5-6; Tr., pp. 218-221.
We reject Appellant's argument for several reasons. First, as
explained
by the witness, the reason that he would have granted prior
approval was
that a policy judgment had been made at the time to encourage
the growth
of Head Start services. He explained that, in considering
prior
approval, OHDS would not have evaluated the actual program at YCAP
or
YDCC. However, once OHDS agreed to consider the question of
retroactive
approval, it was forced to look at how YCAP operated the program
and
concluded that the program did not comply with Head Start
standards.
See Tr., pp. 220-221.
Appellant cited no authority for the position that considerations of
prior
approval and retroactive approval must be based on identical
standards.
We find it reasonable for the Agency to have applied more
rigid standards in
considering retroactive approval, if for no other
reason than to deter future
parties from ignoring the prior approval
requirement; in any event, it
would be unreasonable to demand that OHDS
now ignore evidence which now
exists that shows clearly that standards
were not met. The HHS Grants
Administration Manual provides that an
agency may grant retroactive approval
if, "the grantee agrees to
institute controls to ensure that prior approval
requirements are met in
the future." 1-105-60.B.1. As we found in
another decision, this
language "does not preclude the Agency's consideration
of all relevant
factors, such as a grantee's fiscal management history, in
deciding(17)
whether to ultimately grant retroactive approval. . . ."
Economic
Opportunity Atlanta, Inc., Decision No. 313, June 24, 1983.
/7/
CONCLUSION
For the reasons discussed above, we uphold the disallowance. /1/
Agency
regulations at 45 CFR
1301.33 require prior approval before a
grantee may delegate program
operations to a Head Start "delegate
agency." There is no regulation applying
specifically to Head Start and
authorizing waiver of this prior
approval. The Agency observed that 45
CFR Part 74, which provides
general administrative requirements for all
grant programs supported by the
Department of Health and Human Services
(HHS), specifically authorizes the
waiver of the prior approval
requirement for expenditures made by a grantee.
See 45 CFR 74.177(c).
The Agency argued that the absence of a similar waiver
authority
applying to operation by a Head Start delegate agency was
purposeful and
is explained by the recognition that the delegation of an
entire program
to another entity is more significant than the mere
expenditure of money
by an already approved agency. See, e.g., Agency's
Post-Hearing Brief,
pp. 5-7. On the other hand, Appellant argued that the HHS
Grants
Administration Manual provides for "retroactive approval" of costs
by
the federal agency, regardless of the situation, and
establishes
criteria in judging whether the federal agency should grant
retroactive
approval. Chapter 1-105-60.B.1, HHS Grants Administration
Manual.
/2/ The parties later agreed that 45 CFR 1301.33 more
specifically
pertains to the prior approval situation here: Delegation
of program
operations. Federal financial assistance is not available for
program
operations where such operations have been delegated to a
delegate
agency by a Head Start agency unless the delegation of
program
operations is made by a written agreement and has been approved by
the
responsible HHS official before the delegation is made. (The
existence
of a "written agreement" delegating operations to YDCC was not
in
dispute for the appeal.) /3/ Although OHDS made its
initial
determination to deny
retroactive approval before briefing in
the appeal commenced, OHDS did not
object to the Board's consideration
of new evidence supplied during the
appeal process. OHDS reaffirmed its
decision to deny retroactive
approval at the hearing and at a
deposition, after all additional evidence
had been presented to
the
Board. /4/ The Agency's
witness who addressed the review of
fiscal requirements was deposed by
counsel, since he was unable to
attend the hearing held in the appeal.
We refer to the transcript of
the deposition as "Tr. (Dep.)" /5/ The
Appellant initially maintained
that approximately 19 children were served,
despite a contract that
called for the serving of 35 children. At the
hearing before the Board,
however, Appellant said that it had discovered the
records for the
remainder of the 35 children. See Tr., p.
163. /6/ Bloom and
Streit's
letter of May 16, 1985 made no reference to fluctuations in
payroll
transfers. /7/ The Agency's witness who signed
OHDS'
disallowance determination
testified that he would not have
granted prior approval to YCAP, if he had
been aware then of the
information that was submitted to OHDS on application
for retroactive
approval. Tr. (Dep.), p. 51. A second Agency
witness also testified to
similar effect. Tr., pp. 256-257.