DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Camden County Council on Economic Opportunity
Docket No. 86-205
Decision No. 881
DATE: July 13, 1987
DECISION
The Camden County Council on Economic Opportunity (Grantee) appealed
a
determination by the Office of Human Development Services
(OHDS)
disallowing $33,509 charged by the Grantee to a Head Start program
grant
during the fiscal year ending January 31, 1986. The disallowance
was
based on a finding that the Grantee used funds from its Head
Start
program account to repay the New Jersey Department of Education
(New
Jersey) for claims disallowed under the New Jersey Child Care
Food
Program for the period of January 1985 through June 1985, and that
this
resulted in the Grantee using OHDS funds to cover costs which
should
have been allocated to the Child Care Food Program. During the
course
of these proceedings, OHDS reduced the disallowance to $33,273. For
the
reasons described below, we uphold the disallowance in the amount
of
$33,273.
Background
The Head Start program, administered by the Administration for
Children,
Youth and Families of OHDS, provides grants for comprehensive
health,
educational, nutritional, social and other services to
economically
disadvantaged preschool children and their families. 42
U.S.C. 9831 et
seq. The federal Child Care Food Program, administered
by the United
States Department of Agriculture (USDA), provides grants to
assist
states to initiate, maintain, and expand non-profit food
service
programs for children in public and private institutions providing
child
care, including Head Start centers. 42 U.S.C. 1766(a). USDA
grants
provide a set payment per meal, regardless of actual costs, and must
be
used for food service purposes. The New Jersey Child Care Food
Program
(CCFP) is the state agency which distributes USDA funds to Head
Start
centers including the Grantee.. In October 1980, OHDS and USDA
entered
into a joint agreement which clarified their roles in providing
funds
for nutritional services. This agreement, communicated to Head
Start
grant recipients in ACYF-PI-82-2, issued on January 1, 1982, stated
that
USDA was to be the "prime provider of funds for food services in
Head
Start, and that Head Start [OHDS] funds are to be used only
to
supplement those costs not covered by USDA." Appellant's Exhibit
(App.
Ex.) 18, p. 1.
The Grantee claimed a total of $106,561 from the New Jersey CCFP
program
for food services costs. New Jersey advanced USDA grant funds
in the
amount claimed and the Grantee deposited the funds in its Head
Start
account, commingling the USDA funds with OHDS funds.
Subsequently, New
Jersey disallowed $33,273 in claims for USDA funds, based
on a
determination that the Grantee had not provided enough information
to
justify the payment rate claimed. 1/ New Jersey found that the
Grantee
had not established eligibility for certain students by providing
the
social security numbers of adult members of their households, and
that
meals for those students should be shifted to the "paid"
category.
Since a lower rate of reimbursement was available for meals in the
paid
category, New Jersey recalculated the payment of USDA grant funds
and
determined that an overpayment had been made. The Grantee repaid
New
Jersey for the excess advances of USDA funds with a check drawn on
its
Head Start account.
OHDS disallowed $33,509 (later reduced to $33,273) in OHDS funds,
stating
that OHDS funds in the commingled Head Start account could not
be used either
to repay the USDA disallowance or to pay the underlying
food-related
costs. App. Ex. 1. OHDS explained that the Grantee had
repaid New
Jersey from the Head Start account, which contained OHDS and
USDA
funds. OHDS reasoned that, since food-related costs exceeded
the
original USDA payment, repayment of the disallowed funds was made
either
with OHDS funds in the account, or that OHDS funds had been used
to
cover food-related costs which USDA had determined not to cover.
OHDS
disallowed the money because repayment of New Jersey was not
an
allowable cost under the Head Start program, and because
the
food-related costs which would have been reimbursed by USDA were
not
properly allocable to OHDS.
The Grantee asserted no OHDS funds were used to repay New Jersey for
the
USDA disallowance. The Grantee submitted a report from its
independent
auditor which accounted separately for OHDS and USDA funds, and
which
indicated that the repayment was made from the USDA funds advanced
to
the Grantee. App. Ex. 16. The Grantee also submitted a
statement from
its auditor concerning the timing of USDA payments to the
Grantee. App.
Ex. 8.
OHDS did not pursue the allegation that specific OHDS funds had been
used
to repay New Jersey, but continued to assert that the Grantee had
claimed
OHDS funds to cover food-related costs which should have been
covered by USDA
funds.
In response to this point, the Grantee argued that OHDS had an
independent
obligation to provide funding for food-related costs not
covered by USDA, and
that USDA's disallowance merely served to shift the
food-related costs to the
category of such costs not covered by USDA.
Furthermore, the Grantee argued
that the USDA disallowance had been
arbitrary and was not merely a result of
the Grantee's improper claiming
techniques. The Grantee pointed out
that a request for reconsideration
of the disallowance was still pending on
the state level.
On March 25, 1987, the New Jersey hearing officer reversed
the
disallowance of claims for USDA funds, and on April 8, 1987, New
Jersey
sought funds from USDA to pay the claims. The Grantee agreed to
deposit
those funds, when received, in the Head Start account. But OHDS
argued
that, because the Grantee had improperly used OHDS funds, the
Grantee
has a current debt to OHDS and OHDS should not be required to wait
until
the Grantee receives USDA payments for the return of OHDS funds
advanced
to the Grantee. OHDS also argued that the Grantee can not
repay the
OHDS disallowance by depositing the funds in the Head Start
program
account, but must submit a check for the funds to the United
States
Treasury.
Discussion
1. Were OHDS funds
improperly used to cover costs which
should
have been allocated to USDA grant funds?
OHDS argued that the Grantee improperly used OHDS funds to pay for
$33,273
in food-related costs which should have been allocated to USDA
grant
funds. OHDS asserted that the Grantee could have received the
full
amount of USDA grant funds claimed and advanced, but for the
Grantee's
failure to comply with USDA documentation requirements. 2/
OHDS
reasoned that the Grantee could not, after having had its claims
rejected by
USDA, then allocate to OHDS the costs which would have been
covered by USDA
grant funds. Thus, OHDS disallowed the costs which
would have been
covered by USDA grant funds.
OHDS relied on ACYF-PI-82-2, which states that OHDS Head Start funds
are
to be used only for costs not covered by USDA funding. OHDS also
relied
on Office of Management and Budget (OMB) Circular A-122, Attachment
A,
para. A(4)(b), made applicable to OHDS grant programs by 45 CFR
74.174,
which states that a cost allocable to a particular federal grant
award
may not be shifted to another federal grant award to avoid
restrictions
imposed by law or by the terms of the particular award.
OHDS concluded
that the Grantee sought to shift to OHDS costs which should be
allocated
to a USDA grant award, for the impermissible reason that the
Grantee
sought to evade USDA documentation requirements.
The Grantee argued that it had merely allocated to OHDS those costs
which
were not covered by USDA grant funds after the Grantee had
properly claimed
those funds. The Grantee asserted that the USDA
disallowance had been
taken in error, and that the Grantee had submitted
sufficient documentation
to support its claims to USDA. The Grantee
stated that it had complied
with all valid USDA requirements and
indicated that it had appealed the USDA
disallowance. The Grantee
expected that the USDA disallowance would be
reversed on the merits
(which actually occurred). Thus, the Grantee
argued that it had not
sought to shift costs to evade requirements under the
terms of the USDA
grant. The Grantee concluded that any debt which it
might owe would not
arise until it received funds from USDA.
Although much of the Grantee's argument was directed at the merits of
the
USDA disallowance and subsequent reversal, we have no authority to
make
determinations with respect to requirements of the USDA grant
program.
We must defer to the determinations of New Jersey, the
administrator of the
USDA program for the Grantee, and we accept those
determinations at face
value.
New Jersey disallowed the claims for USDA funds because of a
determination
that the Grantee had provided inadequate documentation of
those claims.
The hearing officer determined that the claims did not
contain social
security numbers of household members required by the
USDA grant program to
verify eligibility. We agree with OHDS that, but
for this lack of
documentation, the Grantee would have received
additional funds from USDA
which would have covered food-related costs.
Because these food-related costs would have been allowable under the
USDA
grant program if properly documented, we must conclude that the
costs were
not within the ambit of costs allowable under the OHDS Head
Start
program. ACYF PI-82-2 states that USDA shall be the "primary
provider"
of food-related costs, and that the Head Start program will
cover only those
"costs not covered by USDA." There is no dispute that
the costs at
issue here are covered by the USDA program. The Grantee's
failure to
file proper claims does not take the costs out of the ambit
of the USDA
program, but does prevent USDA from paying the claim. To
hold otherwise
would be to encourage evasion of USDA claim requirements.
See Mercer County
Department of Human Services, Decision No. 610,
December 14, 1984.
3/
Having failed to meet USDA documentation requirements, a claim for
OHDS
funds to cover the same food-related costs is precisely the type
of
claims which would be prohibited by OMB Circular A- 122, Attachment
A,
para. A(4)(b). That section seeks to prevent grantees from
shifting
costs between grant programs to evade requirements under a
particular
program.
The reversal of the USDA determination confirms the contention that
the
costs were properly allocated to USDA and should not be shifted to
OHDS.
By persevering in its appeal of the USDA disallowance, the
Grantee
attained a ruling in its favor and will be receiving the
reimbursement
it claimed from USDA. Were we to rule that OHDS funding
is available
whenever USDA disallows claims, grantees would have no incentive
to
pursue appeals and correctly allocate costs. While the reversal
may
indicate that failure to obtain USDA funding was not the
Grantee's
fault, it does not justify the Grantee's claim for OHDS funds to
cover
costs which should have been allocated to USDA.
Thus, we uphold the principles expressed in the disallowance, and
conclude
that the Grantee improperly used $33,273 of OHDS funds to cover
costs which
should have been allocated to USDA. 4/
2. Should OHDS delay recovery?
The Grantee requested that the Board stay any order to repay OHDS
until
the receipt of funds from USDA. The Grantee argued that the
OHDS
disallowance will become moot when USDA funds are received, because
the
Grantee has agreed that it will deposit those funds in its Head
Start
account to cover the food-related costs at issue. The Grantee
also
alleged that it would suffer financial strain if obliged to
advance
funds on behalf of USDA. The Grantee argued that OHDS should seek
to
collect the funds from USDA, rather than from the Grantee.
OHDS opposed the request for a stay, stating that there was no reason
why
OHDS should be required to wait for funds due. OHDS submitted a
policy
notice on debt collection procedures issued by OHDS on May 10,
1982. 47
Fed. Reg. 20028. OHDS alleged that this policy requires that
the
Grantee repay the funds with cash or a check, payable to the United
States
Treasury, rather than a deposit into the Head Start account.
Although OHDS
offered to establish a repayment schedule, OHDS stated
that the Grantee would
be required to pay interest on the funds during
the repayment period.
The Grantee is inaccurate when it stated that receipt of USDA funds
will
make the OHDS disallowance moot. The policy notice submitted by
OHDS
makes clear that deposit of funds to a grant account is not
a
satisfactory means of repaying a disallowance based on
unallowable
costs. 47 Fed. Reg. 20028-29. That notice lists two
methods of
repayment: by cash or check payable to the United States Treasury,
or by
offset against future grant payment(s) either in a lump sum or on
a
negotiated payment schedule. Furthermore, there is no certainty as
to
when the USDA funds will be received.
With respect to the Grantee's argument that it would suffer
financial
strain if required to pay OHDS to cover the food- related costs
prior to
receiving reimbursement from USDA, we note that the Board has
no
independent authority to fix a repayment schedule or determine the
form
of repayment. The Board is bound by all applicable laws, and can
not
invent equitable remedies without a basis in law. See 45 CFR
16.14.
Nor can the Board make a binding determination respecting
the
obligations of USDA.
If the Grantee is unable to pay in a lump sum, the OHDS policy
regarding
debt collection states that the parties may negotiate a
repayment
schedule. Although this policy contains requirements to which
the
Grantee apparently does not wish to agree, such as interest charges,
and
does not contain provisions sensitive to the Grantee's apparent
cash
flow difficulties, OHDS may have some discretion in negotiating
a
repayment schedule. 5/
Given the circumstances of this case, OHDS may wish to
consider
formulating a repayment schedule which would be less onerous for
the
Grantee than immediate full repayment, at least until such time as
the
Grantee receives USDA funds due.
Conclusion
For the reasons stated above, we uphold the disallowance in the amount
of
$33,273, subject to reduction pursuant to the conditions outlined in
the
fourth footnote above.
________________________________ Donald F. Garrett
________________________________ Alexander G. Teitz
________________________________ Norval D. (John) Settle Presiding
Board
Member
1. New Jersey disallowed an additional $235 for
reasons unconnected
to this appeal.
2. The Grantee argued that it could not have used
OHDS funds for
USDA costs in excess of the $10,311 deficit between
USDA-allocated costs
and USDA revenues (after deducting the USDA
disallowance) reflected in
the audit report. App. Ex. 16. But this
audit report had been revised
as of June 12, 1986 and allocated to USDA only
a portion of total
food-related costs. In a letter to OHDS, the
Grantee's auditor admitted
that the total budget for food-related costs
exceeded USDA reimbursement
by over $100,000. Resp. Ex. 2. These
additional food-related costs
could have been allocated to USDA instead of
OHDS.
3. The only exception to the rule that the Head Start
program will
cover only "costs not covered by USDA" is that ACYF-PI-82-2
grants a
limited privilege to grantees to "borrow" Head Start funds budgeted
for
other purposes to cover USDA reimbursable costs until USDA
reimbursement
is provided. App. Ex. 18, p. 2. Under the term of
ACYF PI-82-2,
however, funds may be drawn for this purpose only to the extent
of
"reasonably anticipated" USDA reimbursement, and must be returned
to
the Head Start grant as soon as USDA funding is received.
This
exception is further limited by the statement that, absent approval,
the
funds drawn must be returned to the Head Start account and
obligated
"during the budget period covered by the grant award."
Id.
The Grantee would not qualify for that exception in the fiscal year
the
disallowance was taken. The Grantee could not have
reasonably
anticipated receiving USDA funds within the budget period at issue
after
New Jersey had disallowed the claims for USDA funds, and after
the
Grantee had repaid excess USDA funds advanced.
4. The audit report stated that $10,311 in food-
related costs (the
deficit in the USDA account), should be funded by
non-federal cash
contributions. App. Ex. 16, p. 16. The
Grantee presented no evidence
to show whether non-federal funds had actually
been used to cover these
costs, instead of OHDS funds. Since arguments
in this case focused on
broader repayment issues, we will permit the Grantee
10 days, from the
date the Grantee receives this decision, to submit to OHDS
documentation
showing that non-federal funds were used. If the Grantee
submits such
documentation, OHDS should reduce the disallowance
accordingly. If not,
the disallowance should stand in full.
5. For example, we note in this regard that
ACYF-PI- 82-2 appears to
permit OHDS to advance funds reasonably anticipated
from USDA within the
budget year. Further- more, the record suggests
that the USDA payment
has been delayed, since the reversal of the USDA
disallowance, merely by
ministerial inaction. The Grantee and New
Jersey should be able to
entreat USDA for reasonable expedition in light of
the Grantee's cash
flow