Gila River Indian Community, DAB No. 937 (1988)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT:  Gila River Indian Community

Docket No. 87-179
Audit Control No. A-09-87-05196
Decision No. 937

DATE: February 19, 1988

DECISION

Gila River Indian Community (appellant) appealed a determination by the
Office of Human Development Services (respondent) disallowing $120,204
with respect to appellant's Headstart program for the year ended August
31, 1985.  The disallowance was based on an audit finding that only
65.22% of the children enrolled in the program were from low-income
families.  Respondent found that appellant was therefore in violation of
45 C.F.R.  1305.4 (1978), which requires that at least 90% of enrollees
be from low-income families.  The disallowance was computed by
multiplying the difference between 90% and 65.22% by $485,083 in federal
funds.*/ For the reasons discussed below, we sustain the disallowance in
full.  We note, however, that respondent has stated that it is willing
to allow additional amounts under the Headstart grant for allowable
costs which appellant did not charge to the grant.

This decision is based on the written record before the Board.  Although
appellant's initial filing was captioned "Notice of Appeal and Request
for Hearing," appellant did not respond to the Board's request--in an
October 29, 1987 letter to the parties---that it identify any material
facts in dispute and/or issues the resolution of which would be aided by
a hearing.  We therefore consider appellant's request for a hearing to
be withdrawn.

Appellant argued on appeal that its costs were largely fixed costs and
that the participation of ineligible children had little impact on these
costs.  Appellant also asserted that grant costs could not be
meaningfully allocated between eligible and ineligible children since
each child did not benefit in the same way from the program.

As noted by respondent, however, this argument was addressed by the
Board in Gila River Indian Community, DGAB No. 264 (1982), which
sustained a disallowance based on the participation of ineligible
children during the program year ended August 31, 1978.  Further, the
Board sustained a similar disallowance for the program year ended August
31, 1980 based on DGAB No. 264.  Gila River Indian Community, DGAB No.
339 (1982).  In DGAB No. 264, the Board concluded that "the fact that
the same [fixed] cost would have been incurred regardless of the number
of children does not mean that all children did not benefit from that
cost." (p. 6) The Board also found no evidence that all of the children
did not benefit "equally in an accounting sense of the word from the
expenses incurred for the program. . . ." (p. 2) Appellant did not offer
any reason why the Board should reach a different conclusion here.

Appellant also argued that the disallowance should be offset by the
amount of its cash and in-kind contributions.  Appellant alleged that it
had a cash contribution of $75,204.80 and that the fair rental value of
building space contributed to the Headstart program was $116,880.  The
issue of an offset for cash or in-kind contributions was addressed
directly in DGAB No. 264, where the Board found that since such
contributions did not reduce the amount of federal funds used by
appellant, they could not be used to offset the disallowance.  Appellant
did not show why a different result should obtain here.  Thus, we find
no basis for reversing the disallowance in this case.

During the proceedings in this case, however, the Board questioned
whether appellant's contributions covered costs which could have been
paid for with federal funds.  Letter from Garrett to Manoff dated
January 26, 1988.  The Board noted that the allowable costs paid under
the grant were less than the amount awarded; specifically, at least
$120,204 in grant funds remains available, since appellant must refund
the amount of the disallowance in question here to OHDS.  Id.
Respondent agreed that appellant is entitled to use these funds for
allowable costs covered by its cash and in-kind contributions to the
extent that the costs were attributable to eligible children.  Letter
from Manoff to Garrett dated February 5, 1988.

Respondent stated that a portion of the $75,204.80 cash contribution
claimed by appellant might have been expended for allowable costs, but
that it would need to determine the amount of allowable costs pursuant
to an audit.  Respondent further stated that the fair rental value of
the building space provided by appellant was not allowable under the
applicable cost principles at OMB Circular A-87, Attachment A, B.ll.
However, the question would still remain whether appellant could claim
depreciation or a use allowance for the space provided, as explicitly
allowed by the same cost principles.

Conclusion

For the foregoing reasons, we sustain the disallowance in the amount of
$120,204.  However, we anticipate that respondent will determine the
extent to which appellant is entitled to additional grant funds for
allowable costs which it did not charge to the grant (possibly including
depreciation or a use allowance for building space which appellant
provided to the Headstart program).  Respondent's determination that any
costs claimed by appellant are not allowable would appear to be a new
disallowance which may be appealed within 30 days pursuant to 45 C.F.R.
Part 16.

 ________________________________ Cecilia Sparks Ford

 ________________________________ Norval D. (John) Settle

 ________________________________ Donald F. Garrett


*/ The disallowance was computed based on grant costs for the eleven
months of the twelve-month grant which were covered bY Audit Control No.
A-09-87-05196.  That audit report pertained to federal fiscal year 1985,
beginning October 1,