DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Tulsa Community Action Agency
Docket Nos. 85-240 and 85-241
Audit Control Nos. 06-45135 and 06-55181
Decision No. 789
DATE: September 22, 1986
DECISION
The Tulsa Community Action Agency (TCAA) appealed two decisions by
the
Office of Human Development Services (OHDS) disallowing $34,400
and
$51,488 under TCAA's Head Start grants for its 1981 and 1984
program
years respectively. OHDS based its disallowances on independent
audits
of TCAA's operation of its Head Start program. For reasons
discussed
below, we affirm the 1981 disallowance. We affirm in part and
remand in
part the 1984 disallowance.
I. The 1981 Program Year
Based on an audit by the firm of Underwood and Beaubien, OHDS
disallowed
$34,400 for TCAA's 1981 program year:
-- $28,287 for direct costs in excess of
amounts authorized under
the grant, and
-- $6,113 representing a prior period adjustment to
TCAA's
fund balance.
The $28,287 overexpenditure
TCAA disputed OHDS' finding that the $28,287 represented
an
overexpenditure. Rather, TCAA contended that the $28,287 represented
an
accounts receivable item stemming from TCAA's operation of a day
care
center in addition to its Head Start activities. TCAA claimed that
it
had not collected all the reimbursement due from parents and
the
Oklahoma Department of Human Services for the day care operation.
TCAA
asserted that Underwood and Beaubien erroneously treated
these
receivables as overexpenditures for 1981.
TCAA explained in great detail its problems with Underwood and
Beaubien
and contended that there was reason to doubt the accuracy of the
final
audit product. TCAA pointed out that the 1981 audit was unique in
not
listing any accounts.- 2 -
receivable, as such receivables were recognized in the 1980, 1982,
and
1983 audits of TCAA performed by other auditing firms.
In response OHDS argued that TCAA did not question the findings
of
Underwood and Beaubien when the final version of the audit report
was
issued in 1984. OHDS disputed TCAA's assertion that the 1981 audit
was
unique in not disclosing accounts receivable. OHDS contended that
only
one audit of TCAA in the period 1978 to 1983 showed accounts
receivable.
OHDS declared that TCAA had not provided any evidence that the
$28,287
represented accounts receivable.
The only argument TCAA has offered the Board to support its claim for
the
$28,287 is what can be termed a negative inference: because TCAA had
accounts
receivable in 1980, 1982, and 1983, it must have also had one
in 1981 that
the audit erroneously termed an overexpenditure. OHDS has
questioned
that assertion and TCAA has not submitted evidence to rebut
OHDS'
objection. In response to repeated Board requests, TCAA was
unable to
provide the Board with any evidence to support its claim. A
fundamental
principle of grants management is the requirement to
document costs, and a
grantee has the obligation to provide
documentation to support its
claim. See, e.g., New York State
Department of Social Services,
Decision No. 204, August 7, 1981. Since
TCAA has been unable to
document that the $28,287 was an accounts
receivable and not an
overexpenditure, we find that OHDS' disallowance
of the $28,287 was
proper.
The $6,113 prior period adjustment
OHDS disallowed TCAA's claim of $6,113 for a prior period
adjustment
because of the lateness of TCAA's claim. OHDS, in its
disallowance
notification, referred to a September 1981 Grants Management
Policy
statement:1/
When the Grantee detects an overcharge on a
previously submitted
report of expenditures, a
revision must be submitted to the Grants
1/ The disallowance pertained to the 1981 program year, which was
the
calendar year. TCAA was notified of the one-year limitation in
February
1981, even though the requirement was not formally stated
until
September 1981. Although notice to TCAA was not given until the
program
year had begun, TCAA could not possibly be prejudiced, since
this
requirement could not apply until the report of expenditures
was
submitted after the end of the program year. - 3 -
Management Officer no matter how long the lapse of
time. When a
revised report of adjustment to
previous audit information
representing additional
claims by the grantee is necessary, it
should be
submitted with appropriate explanation to the GMO as
promptly as possible but no later than one year from the due
date
of the original report or audit. GMO will
not accept revised
reports or audit adjustments when
these reports are received more
than one year after
the due date of the original report. (emphasis
in original)
TCAA submitted its claim for an adjustment to its 1981 program year
in
April 1984. TCAA explained that the lateness of the
submitted
adjustment was directly due to difficulties it experienced
with
Underwood and Beaubien in completing an acceptable audit. On
February
22, 1982, TCAA contracted with Underwood and Beaubien to perform
an
audit of the 1981 program year. OHDS had informed its grantees
that
audits were due 120 days after the end of the budget period. OHDS
Ex.
A.
Underwood and Beaubien, however, did not complete the audit until
August
1982. The OHDS Regional Audit Director began a review of the
audit
working papers and, on March 11, 1983, found Underwood and
Beaubien's
audit unacceptable. After Underwood and Beaubien did not act
to correct
the rejected audit, TCAA contacted the Oklahoma State Board
of
Accountancy for assistance. Underwood and Beaubien then began
to
re-work the audit. Ultimately, Underwood and Beaubien produced an
audit
acceptable to OHDS in March 1984, more than two years later than
the
date of the contract. One month later TCAA submitted its claim for
an
adjustment of its 1981 program year costs.
TCAA thus argued that events beyond its control prevented it
from
submitting its adjusted claim any earlier. TCAA contended that
the
adjustment could not have been submitted until an acceptable audit
was
finalized. According to TCAA, OHDS' rigid adherence to the
one-year
limit for any adjustment is patently unfair in light of the
particular
facts of this case.
OHDS did not dispute the difficulties TCAA had with the audit firm,
but
argued that those problems should not be considered mitigating
factors
so as to permit a late adjustment. OHDS maintained that all
grantees,
including TCAA, had been instructed on the time frames for
the
submission of audits and adjustments. These instructions
specifically
stated that audits from Head Start grantees were due 120 days
after the
end of the budget period, and
- 4 -
that any proposed adjustment should be submitted no later than one
year
after the due date of the original audit. Thus, according to
OHDS,
TCAA's adjustment to its 1981 program year budget should have
been
submitted no later than May 1983 for it to have been considered.
OHDS
contended that the ultimate responsibility for accurate and
current
record-keeping lies with the grantee, not the audit firm. 45
CFR
74.61(a) (1981). According to OHDS, if TCAA had been monitoring
its
accounts as required by regulation, the need for any adjustments
would
have been recognized in sufficient time to meet OHDS
requirements. OHDS
added that, in any event, the prior year fund
balance had been assigned
to a subsequent year and was no longer available
for any adjustment.
The Board asked OHDS whether, if the audit had been timely performed
and
TCAA had then submitted an adjustment of $6,113 within one year,
it
would have accepted that adjustment. OHDS replied that it
probably
would have been accepted because funds were then available, but now
the
funds had been reassigned to a subsequent year. OHDS May 16,
1986
response, p. 3.
Without the benefit of a reliable audit, we agree with TCAA that it
would
have been extremely difficult for TCAA to request an accurate
prior year
adjustment within the time constraints imposed by OHDS.
While it is true that
TCAA itself selected Underwood and Beaubien as its
auditors, it is clear to
us that TCAA could not have reasonably foreseen
the difficulties it would
experience in getting an acceptable audit.
Further, OHDS admitted that TCAA's
request would in all probability have
been granted if it had been timely
submitted.
In holding TCAA to a one-year deadline, OHDS has not cited any
statutory
or regulatory authority for such a time limitation. Rather,
OHDS has
referred to a February 1981 letter sent by its Regional Office to
all
grantees within that jurisdiction, the contents of which were made
a
Grants Management Policy Statement in September 1981. The
one-year
limitation, therefore, appears to have a lesser status than a
binding
law or regulation. In light of the particular circumstances of
this
case, the rigid application of such an administrative requirement
might
be considered arbitrary. We believe that, if a grantee can make
out a
prima facie case that the one-year filing requirement could not be
met,
OHDS should be required at a minimum to justify its application of
the
filing deadline, rather than merely rigidly applying it.
Here, however, we believe that a remand for an OHDS review is
unnecessary
in light of OHDS's unrebutted position that,
- 5 -
regardless of the merits of TCAA's position, funds are no longer
available
for a prior period adjustment. The Board specifically asked
OHDS to
inquire further into the possibility of finding funds for the
adjustment, but
OHDS replied again that funds were not available. The
Board cannot
order OHDS to make the adjustment if money is no longer
available for
disbursement. That would be tantamount to the Board
awarding a grant, a
power clearly beyond the Board's authority. See,
e.g., Pinellas
Opportunity Council, Inc., Decision No. 80, February 6,
1980.
Accordingly, we have no alternative but to uphold OHDS's refusal to
accept
TCAA's proposed prior year adjustment solely on the basis of the
lack of
availability of funds. 2/
II. The 1984 Program Year
Based on an audit of TCAA's 1984 program year by the auditing firm of
Kaye
Colyer Wirz, Inc., OHDS originally disallowed $51,488.
The
disallowance, consisting of an adjustment of entries from a prior
period
to uncollectible accounts receivable, was itemized as follows:
Uncollectible receivables from $45,772.20
Varick Day Care
Center
Disallowed graduation
costs
252.86 deemed
to be uncollectible
Funds due to Head Start for
1980 4,645.00
disallowed
costs deemed to be uncollectible
Reimbursement expected
from
(785.00) St.
Patrick's Head Start Center
Not to be reimbursed fees 16.25 expenses
Disallowed costs not written
off 1,546.69
from
previous audit period
Uncollectible Accounts TOTAL $51,448.00
2/ OHDS may wish to consider whether it has any authority to
reduce
the $28,287 overexpenditure sustained above by the $6,113 prior
period
adjustment.
- 6 -
The $785 was credited to TCAA's account and reduced the
disallowance.
During the course of the appeal, TCAA submitted documentation,
accepted
by OHDS, that it had already repaid the disallowed costs of
$1,546.69
not written off from a previous audit period. The amount of
the
disallowance thus amounted to $49,901.31.
TCAA gave no indication that it was appealing the disallowed
graduation
costs ($252.86) or the disallowed fees ($16.25).
Thus, only two disallowed items remain at issue: $4,645
for
uncollectible disallowed costs from 1980 and $45,772.20 in
alleged
uncollectible receivables. 3/
The $4,645 uncollectible disallowed costs
This amount, according to TCAA, relates to funds owed TCAA by the
Tulsa
Public Schools since 1980. TCAA related that it held numerous
meetings
with the Tulsa Public Schools in 1982 in an attempt to collect
the
$4,645. TCAA claimed that it spent $1,000 in auditing fees trying
to
recover the funds. TCAA stated that it did not believe it
would
economically be valid to expend further sums to collect the money,
and
that such an effort could damage the good relationship it had with
the
Tulsa Public Schools, whose in-kind support to the Head Start
Program
TCAA valued at $50,000. Accordingly, TCAA requested that
the
disallowance of $4,645 be forgiven.
As we stated earlier, the Board's authority is limited. It cannot
award
funds to a grantee, nor can it "forgive" an overexpenditure of
grant
funds. The forgiveness of a disallowed item would be tantamount
to the
awarding of a supplemental grant. Sumter County Opportunity,
Inc.,
Decision No. 112, July 16, 1980; GLEAMS Human Resource Commission,
Inc.,
Decision No. 162, April 28, 1981. Accordingly, we sustain
the
disallowance of $4,645.
The $45,772.20 in uncollectible receivables
During the course of these appeals the parties agreed that this
disallowed
item involved the status of 27 children who received services
from
TCAA. The point of dispute between the parties was whether these
27
children were merely the recipients of services at a day care
operation run
by TCAA or were actual Head Start enrollees.
3/ The ultimate disallowance figure is calculated as
follows:
$45,772.20 + $4,645.00 + $252.86 + $16.25 $785.00 =
$49,901.31. - 7 -
The Wirz audit reviewed and adopted the findings of a prior audit
of
TCAA's 1982 and 1983 program years by the auditing firm of Coopers
&
Lybrand. The Coopers & Lybrand audit classified 27 children
as day care
services recipients, eligible for payments from the Oklahoma
Department
of Human Services (DHS), for which services TCAA was due payment
from
the children's parents. Coopers & Lybrand therefore treated
the costs
of the services provided to the children as an account receivable
not
attributable to the Head Start program.
TCAA argued that the Wirz audit was erroneous because it relied on
the
Coopers & Lybrand audit, which had incorrectly classified the
children
as non-Head Start children. TCAA contended that Coopers &
Lybrand's
erroneous assumption regarding the children was attributable in
part to
the confusion created by the Underwood and Beaubien audit referred
to
above, with Coopers & Lybrand auditing the 1982 and 1983 program
years
while the 1981 audit was still unresolved. TCAA explained that
Coopers
& Lybrand had mistakenly assumed that any child who was eligible
for a
DHS payment was a day care child and not a Head Start child.
TCAA
distinguished day care children from Head Start children as follows:
-- Head Start enrollees are eligible for DHS payments,
but
their parents do not pay any type of co-payment.
-- Day care enrollees are also eligible for DHS payments,
but
their parents must pay the co-payment.
TCAA contended that none of the parents of the 27 children provided
any
payments, and that, therefore, Coopers & Lybrand's conclusion
that
uncollected payments were due TCAA as accounts receivable was
erroneous.
TCAA submitted voluminous documentation, including Head Start
attendance
records, affidavits from parents, and USDA Child Care Feeding
Program
records signed by Head Start employees. In each group of
documents
various names of some, but not all, of the 27 children were
identified.
TCAA also submitted a July 21, 1986 letter from Coopers &
Lybrand
stating that its audit had identified day care children based on
their
receipt of DHS payments.
OHDS admitted, upon review of these documents, that the documents
tended
to support TCAA's contention for some of the children. July 10,
1986
Conference Call. OHDS refused, however, to concede that all
the
children were Head Start enrollees in the absence of more specificity
in
identifying - 8 -
the children who received Head Start services and the years in which
the
services were provided. OHDS stated that the recent Coopers &
Lybrand
letter was not sufficient evidence to reverse the disallowance.
The Board inquired whether a new audit was possible, but TCAA
responded
that the costs of such an audit were prohibitive unless OHDS agreed
to
provide the funds. OHDS replied that it did not believe such
funding
was available.
As stated above, a grantee has the responsibility to document all
claimed
costs. Here, TCAA has submitted material which OHDS has
admitted does
indicate that at least some of the children may have been
Head Start
enrollees. Clearly then, there is a good chance that the
amount of the
disallowance is overstated. TCAA insists that the whole
disallowed
amount for this item be reversed, but OHDS refuses to accede
to that because
of the lack of more specific documentation. The Board
should not pass
on which children did and did not qualify -- this is
OHDS'
responsibility. We are therefore remanding this particular item
for
further review. OHDS should review the documentation submitted by
TCAA
and arrive at a specific dollar amount for a disallowance. If
TCAA
questions the final OHDS decision on this matter, it may then have
the
opportunity to return to the Board, within 30 days of the OHDS
decision.
Conclusion
For the reasons stated above, we affirm the disallowance of $34,400
for
the 1981 program year and the disallowance of $4,645 for the
1984
program year. We remand the $45,772.50 in uncollectible
receivables of
the 1984 disallowance for further consideration.
________________________________ Norval D. (John) Settle
________________________________ Charles E. Stratton
________________________________ Alexander G. Teitz
Presiding
Board