DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Seminole Nation of Oklahoma
Docket No. 87-168
Audit Control No. A-06-87-07047
Decision No. 951
DATE: April 28, 1988
DECISION
The Seminole Nation of Oklahoma (Grantee) appealed a decision by
the
Office of Human Development Services (OHDS, Agency) to disallow
costs
totaling $21,757 claimed under a Head Start grant for the
period
December 1, 1983 through November 30, 1984. The disallowed
amount
represented a $643 indirect cost overrun and $21,114 for two line
items
listed under an "accounts receivable" category on the Grantee's
books.
For reasons discussed below, we uphold the disallowance in full.
Background
An audit of the Grantee's Head Start program was performed by
an
independent auditor. Based on the audit report, the Agency
disallowed
amounts identified as an indirect cost overrun and an
accounts
receivable balance. In regard to the indirect cost overrun,
the auditor
stated:
$643 - The Tribe has overrun the indirect
cost allowed on this
grant for two reasons:
(1) the grant was not properly funded per
approved
indirect cost plans because the initial
grant
application was improperly prepared;
(2) central accounting did not prepare timely
monthly
performance reports for the program director.
Audit Report, Grantee's appeal file,
Ex.1,
p.15.
Further, under the accounts receivable category, the auditor commented
on
both listed items:
$19,114 - The Tribe had a practice of
transferring funds
between
programs to cover funding "short- falls".
This
practice is a direct violation of grant and
agency
regulations and therefore is an unallowed use
of
program funds.
$2,000 - Tribal travel policy
requires an employee to make
an
accounting of all trips within 30 days. If the
employee
fails to comply, the Tribal treasurer is authorized
to
withhold any unaccounted travel funds from
the
employee's pay. The tribe should enforce this
policy
without exception.
Id.
Discussion
The Grantee conceded that it has no documentation whatsoever for
the
disallowance period. Grantee's brief, p. 5. However, the
Grantee made
several arguments that the disallowance should be
reversed. First, the
Grantee maintained, in its brief and in a January
21, 1988 telephone
conference, that the Agency had recovered an
"overadvancement" of
$10,853, in August 1984, and that this amount should be
deducted from
the current disallowance. 1/ Further, the Grantee alleged
that an
unauthorized tribal group had physical control of the records for
the
disallowance period. The Grantee asserted that the documentation
was
missing when the current administration gained control of the
actual
premises and tribal records. Thus, the Grantee concluded that
its
situation is so unique as to give rise to "unusual circumstances,"
which
require supplementation of the record.
Instead of providing additional documentation, however, the Grantee
only
made a conclusory argument that, when the current Principal Chief
took
office, all liabilities to vendors and other programs had been
cleared
or settled. Grantee's brief, p. 4. As support for this
argument, the
Grantee asserted that it has not received any demand for
payment from
third parties in this area under the current
administration.
Therefore, the Grantee maintained that "it can be concluded
that the
obligations of this grant program have been fulfilled where no
demand
for payment has occurred." Id.
The Agency argued that the Grantee had not provided any evidence
to
support its position. The Agency contended that the Grantee's
argument
is merely unsubstantiated speculation. Further, in respect to
the
Grantee's alleged repayment of $10,853, the Agency maintained that
the
repayment is not applicable to the disallowance at issue. The
Agency
explained, in its brief and in the telephone conference, that
the
$10,853 referred to by the Grantee is an issue of program cash
flow
completely irrelevant to the issues before the Board. The
Agency
maintained that the Grantee simply had too much cash on hand, which
was
deducted from the next year's grant. Agency brief, p.4, n.2; tape
of
January 21st telephone conference. Further, the Agency asserted
that
the audit finding that $19,114 in Head Start program funds
was
transferred to other programs in order to cover shortfalls in
those
programs is a direct violation of federal regulations. See 45
C.F.R.
74.170 and 74.171 (1984). 2/ Finally, the Agency argued that
the
Grantee's allowable indirect cost was $16,145. In light of the
actual
indirect cost of $16,788, reflected on page 6 of the audit report,
there
was an overrun of $643. The Agency argued that the lack
of
documentation by the Grantee precludes the Board from giving
any
credence to the Grantee's claim of payment. The Grantee, while
given an
opportunity in the telephone conference to challenge the
Agency's
position, did not comment on the Agency's arguments.
Analysis
As noted above, the Grantee conceded that it has no records to
document
the disallowed costs. Further, as we discuss later, the
Grantee
confirmed the validity of the audit report. See Grantee's
letter, dated
April 19, 1988. Federal regulations clearly require that
the Grantee
provide records to document its claimed costs.
Specifically, 45 C.F.R.
74.61 (1983) provides:
Grantees and subgrantees shall meet the
following standards for
their grant and
subgrant financial management systems.
. . .
(b)
Accounting records. Records which identify
adequately
the source and application of funds for grant-
or
subgrant-supported activities shall be maintained.
These
records shall contain information pertaining to grant
or
subgrant awards, authorizations, obligations,
unobligated
balances, assets, outlays, income, and, if the recipient
is
a
government, liabilities.
As we said in Ohio Dept. of Human Services, DGAB No. 900 (1987), and
other
prior Board decisions, a grantee has the burden of documenting
the
allowability of its claims.
The Grantee would have the Board accept as evidence, in lieu of
the
federally mandated accounting records, a repayment of $10,583 in
1984,
which has not been documented to be related to the disallowance
at
issue. In addition, the Grantee would have the Board conclude
that,
because it has not "received any demand for payment in this area
under
the current administration," all obligations have been settled.
The
unreasonableness of the Grantee's argument is highlighted by the
types
of costs involved in this disallowance. No demand for payments
would be
made to the Grantee for an overrun of indirect costs or
accounts
receivables, except by the Agency. Indeed, accounts
receivables are due
to the Grantee. It is the Grantee who must make the
demands for
payment. 3/ In New York City Human Resources
Administration, DGAB No.
720 (1986), where we found that New York City had
not shown that its
accounts receivables were eliminated, we said:
... grant funds must be accounted for on
the basis of audited
financial
statements produced by independent auditors.
The
documentation submitted by the City
to substantiate its claims
were internal
memoranda or other statements written by
City
employees without any
substantiating source documentation.
The
documents can not be accepted until
they have been examined and
verified by
independent auditors.
p. 9.
Although the factual situation in New York differed from the
situation
here, the Grantee may be held to a similar source
documentation
requirement. Any allegations by a grantee must be capable
of being
verified. The disallowance was the result of the costs
questioned in
the audit report.
Moreover, while the Grantee was given every opportunity to
provide
additional testimony not already in the record, the Grantee failed to
do
so. Specifically, the Board, after reviewing the audit
report,
questioned the total amount of funds that the Grantee had to
account
for. Based on this review, the Board issued a Request for
Information
to both parties. As a result, OHDS provided uncontradicted
evidence to
show that the disallowance amount should be, at the very least,
the
amount that OHDS disallowed. 4/ While the Grantee was given
two
separate opportunities to comment, the Grantee did not provide any
new
documentation or evidence. In the first opportunity, the Grantee
merely
relied on its previous submissions, maintaining that no
further
reiteration was needed. See Grantee's Response to Board Request
for
Information, p. 1. In the second instance, the Grantee's
attorney
notified the Board, by letter dated April 19, 1988, that the
Grantee
accepts the audit report as valid. However, the Grantee did not
comment
on the information and documentation provided by OHDS in its response
to
the Board's Request for Information. The Grantee simply maintained
once
again that it did not owe OHDS any money.
Finally, the court decisions cited by the Grantee in support of
its
position are not in conflict with the decision reached here. The
Grantee
cited State of Maine v. United States Department of Labor, 669 F. 2d
827
(1st Cir. 1982), for the proposition that it is only required
to
maintain sufficient documentation and evidence for a reasonable
person
to draw an inference. Further, the Grantee argued that its
situation is
in contrast to the factual situation in City of St. Louis,
Missouri v.
United States, 787 F. 2d 342 (8th Cir. 1986), where the City was
held
liable for records lost by its subgrantee. In the present case,
the
Grantee argued that it has been affected by the actions of
an
unauthorized group that had physical control of the records.
Finally,
the Grantee argued that, as in Board of Education of the City
School
District of the City of Cincinnati v. Department of Health,
Education,
and Welfare, 655 F. Supp. 1505 (S.D. Ohio 1986), it was entitled
to
supplement the record. The Grantee alleged that testimony would
allow
it to confirm payment of liabilities where it is impossible to
provide
further documentation.
Taken in the context of the present case, none of the Grantee's
cited
decisions are at odds with the Board's reasoning and holding.
While the
Grantee has asserted that its "unusual circumstances" entitled it
to
supplement its records, we are not convinced that such
circumstances
exist. However, even if we were to agree that such a
situation does
exist, the Grantee has not met the Board's standard
for
non-contemporaneous documentation. The Board has previously
concluded
that while we may accept non-contemporaneous documentation,
the
sufficiency of the documentation will be carefully scrutinized.
Indiana
Dept. of Public Welfare, DGAB No. 772 (1986). Here, while
given ample
opportunity, the Grantee has provided nothing other than
conclusory
suppositions. We find that the Grantee's position is without
merit. 5/
In light of the foregoing, we find that the Grantee did not provide
any
records or other evidence to document that the disallowance
was
incorrect. Moreover, the Grantee did not even attempt to rebut
the
additional documentation submitted by the Agency. Thus, the record
does
not support a reversal of the disallowance..Conclusion
Based on the reasons noted above, we uphold the Agency's disallowance.
______________________________ Judith
A.
Ballard
______________________________ Alexander
G.
Teitz
______________________________ Norval
D.
(John) Settle Presiding Board Member
1. In the telephone conference, the Presiding Board Member
asked the
Grantee how this over-advance related to the current
disallowance. The
Presiding Board Member reasoned that when an
over-advance occurred and
was later repaid, the advance, in effect, cancelled
itself out.
Further, the Presiding Board Member asked the Grantee if its
argument
was that the over- advance was somehow related to the $19,114 of
program
funds that was transferred to other programs. The Grantee
replied
simply that it was the opinion of the Chief Financial Officer that
the
$10,853 should be applied to the current disallowance. However,
the
Grantee had no explanation of why such a credit should occur.
2. While the Agency asserted this audit finding as a basis for
this
portion of the disallowance, it would appear that if the money
was
repaid to the grant, the Grantee's actions would have been
a
programmatic violation, not a ground for a fiscal disallowance.
However,
the supportable basis for the disallowance, which is better
articulated in
the Agency's general argument, is the fact that the
Grantee has not provided
any evidence to document that this money was
ever repaid to the grant.
3. If the Grantee meant instead that we should infer that it
had
recovered the "accounts receivables" from the other programs and
used
the funds to repay the $10,583 overadvance and to cover outstanding
(but
allowable) program obligations, the Grantee did not make this
clear. In
any event, we would decline to draw such an inference for two
reasons:
(1) the Grantee should have been able to produce some evidence
of
recovery (such as bank records); and (2) OHDS has produced
evidence
which indicates that this would still not account for all the
federal
cash the Grantee has received.
4. In response to the Board's Request for Information, the
Agency
provided copies of two amendments to the Grantee's Notice of
Financial
Assistance Awarded for the period at issue. See Agency's
response to
Request for Information, Exs. 8 and 9. Amendment number 1,
Agency's Ex.
8, lists an unobligated carryover balance of $4045, which is
listed in
the audit report at p. 6. However, amendment number 2,
Agency's Ex. 9,
lists an unobligated carryover balance of $32,765. The
Agency reasoned
that the auditor evidently took into account only the new
funds received
by the Grantee and the original carryover balance of $4,045
but was
apparently not aware of the additional $28,720 in carryover
funds.
Agency response to Request for Information, p. 1, n. 2. As
a result,
the Agency maintained that the disallowance could in no event be
less
than the amount currently disallowed.
5. The decision reached in this case is not contrary to the
decision
reached in Economic Opportunity Council of Suffolk, Inc., DGAB No.
679
(1985), at p. 1, where we concluded that OHDS has the authority
to
require that a grantee account in cash to the Federal Government
for
"accounts receivable" amounts, but only to the extent grant funds
have
been received and not accounted for through allowable costs
actually
paid. In the current case, after several opportunities, and in
the face
of evidence to the contrary, the Grantee has failed to provide
any
evidence of its total allowable