Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Fort Belknap
DATE: May 30, 1990
Community Council Docket No. 89-262
Audit Control No. CIN-A-08-89-06524
Decision No. 1160
DECISION
The Fort Belknap Community Council (Council) appealed a determination of
the Administration for Children, Youth and Families (ACYF) disallowing
$35,409 of the Council's Head Start grant for the program year ending
September 30, 1987. The disallowance was based on a determination that
the Council's Head Start program had served more children from
non-low-income families than regulations allowed. Subsequently, ACYF
reduced the disallowance to $26,074, based on a further review of
documentation during this appeal.
For the reasons discussed below, we uphold the disallowance in part and
reverse it in part. Our calculations indicate that the amount of the
disallowance which we uphold is $21,567.
Background, applicable requirements
HHS was authorized by 42 U.S.C. 9840(a)(1) to set eligibility criteria
for Head Start, including participation "to a reasonable extent" of
over-income children. ACYF is the HHS component which administers Head
Start. The regulation implementing section 9840(a)(1) is found at 45
C.F.R. 1305.4, in effect since 1978, which states that "at least 90
percent of the children who are enrolled in each Head Start program
shall be from low-income families." Part 1305 of 45 C.F.R. contains
definitions and details on how to verify income.
Where ACYF finds a violation of the income requirement, ACYF disallows
an amount of federal funds proportionate to the excess of ineligibles
over the ten percent limit.
Here, ACYF originally found 29 over-income children among 138 enrollees
served by the program (21 percent). The Council provided information on
some of the 29 based on which ACYF later found four of the children
eligible; this reduced the ineligibles (25) to 18.1 percent. Less the 10
percent tolerated under the regulation as reasonable, this left 8.1
percent. Applying this 8.1 percent to the grant funds awarded for the
year in question ($321,901) produced the disallowance of $26,074.
This is the third recent case involving the Council, each involving
similar issues for a different program year. In the other two, ACYF also
imposed disallowances for serving too many ineligible children. See DAB
No. 1153 (1990) (program year ending September 30, 1988), and DAB No.
1045 (1989) (program year ending September 30, 1986).
As we indicate below, part of the Council's position here essentially
was a repeat of arguments made earlier, and in response we have
incorporated our earlier analyses. We have, of course, analyzed afresh
the facts and arguments concerning the disputed ineligibility findings
for the particular children involved in this case.
The Council challenged ACYF on three bases. It argued that it should be
held accountable only in relation to 118 children envisioned when the
grant was awarded, not the 138 actually enrolled. Also, it argued that
all its services, in any event, met the purposes of the Head Start
program and should be funded. And it continued to dispute ACYF's
eligibility determinations for eleven of the children (ACYF agreed in
four cases, so seven remained in issue and are discussed below).
Accountability for all children enrolled
While the Council did not challenge per se ACYF's finding that 138
children were enrolled under Head Start, the Council maintained that it
had "contracted" to serve only 118 children for the amount of grant
funds provided and that no additional OHDS funds were received for
additional children enrolled. The Council complained that it believed
it was encouraged to overenroll, and that it had a considerable
investment of non-federal funds. Thus, the Council argued that
calculations of numbers of over-income children and the disallowance
amount should use the 118 figure. Council Brief, pp. 5-8.
The Council made essentially the same arguments before, which we
rejected. We concluded that it was clear from regulations and program
guidelines that the 90 percent requirement applied to all children
enrolled in the Head Start program. We incorporate here our analysis in
DAB No. 1045 (1989), pp. 4, 6-8, and other cases cited therein.
Furthermore, it is a misnomer to say there was a "contract" to serve
only 118 children; the Financial Assistance Award does no more than show
that the "client population" was 118 at award. Council Exhibit A.
Additionally, it appears, as ACYF argued, that the Council's position is
inconsistent with the uncontested fact that it requested and received a
partial waiver of required non-federal matching funds. ACYF Brief, p.
8; ACYF Exhibit 4; Council Exhibit A.
Consistency with program purposes as a basis for funding
The Council also argued essentially that the services provided to
over-income enrollees were within the purpose and policy of the Head
Start program and therefore should be funded. Council Brief, pp. 9-10.
The Council also made this argument before, and we rejected it. We
concluded that the 90 percent require- ment is clear and without
exception, and that we are bound by it. We incorporate here our
analysis in DAB No. 1045 (1989), pp. 8-10, and other cases cited
therein.
Eligibility of particular enrollees
We now consider the reasonableness of ACYF's disputed individual
eligibility determinations.
A. The standards, and how we reviewed the cases
Section 1305.4 of 45 C.F.R. requires at least 90 percent of children in
a Head Start program to be from "low-income families," defined as
families receiving public assistance or families whose pre-tax income is
no more than the official U.S. poverty line. 45 C.F.R. 1305.2(b)(1),
(2).
Regulations require verification of income (through review of documents
such as tax returns and pay stubs) "before determining that a child is
eligible to participate in the program." 45 C.F.R. 1305.7(a), (b). An
employee of the Head Start agency must sign a statement affirming
verification and describing what documents were examined. 45 C.F.R.
1305.7(c).
Before this Board, the Council challenged ACYF's particular findings of
ineligibility in the cases of eleven enrollees. Based on further review
while this appeal was pending, ACYF agreed with the Council on four,
leaving seven in dispute. In each of these cases, the sole focus of the
parties was on whether income (in relation to family size) was under the
poverty line; the Council did not argue that any of the enrollees
qualified on the basis of receiving public assistance.
In another recent case, the Council also disputed ACYF's determinations
on enrollee eligibility. DAB No. 1153 (1990). As in that case, we must
examine the facts in the record to determine whether ACYF's
determination was correct for each child. This we do below. Based on
our review, we find that ACYF reasonably determined that five enrollees
were ineligible but that ACYF erred in two cases.
For privacy, our analysis identifies each child by his or her initials,
and we discuss each in the order listed in the Council Brief, pp. 2-5.
We have accepted at face value (since the parties did not challenge each
other on this) the various poverty income levels used by the parties.
We note a context factor that affects the weight we give some of the
evidence presented by the Council. The regulations specifically require
the Head Start agency to maintain a record of an advance written
determination of income eligibility, with an explicit list of the
documents that verify eligibility. 45 C.F.R. 1305.7. The auditors in
this case (a private firm of certified public accountants) made the
original determinations of ineligibility based on information provided
by Head Start employees from students' individual files, presumably
maintained as required by the regulations. ACYF Exhibit 5, p. 1.
Later, the Council twice submitted additional documentation, first to
ACYF and then to this Board. ACYF has been reasonable in accepting and
reviewing the information, and has not used the disallowance mechanism
to challenge the Council on the adequacy of the original verification
required (there was an audit recommendation to improve verification; see
ACYF Exhibit 1, p. 44). Nevertheless, when there is a discrepancy
between original findings and the Council's after-the-fact information
and allegations, we afford the latter somewhat less weight because
otherwise the regulation requiring advance, documented verification of
income would be rendered meaningless.
It also should be noted that the Council elected not to submit a reply
brief in response to the ACYF brief. See Note to file dated May 22,
1990.
B. Review of the seven disputed cases
VO The record indicates that the auditors found that VO's family
income was $19,595.56 (apparently, from context, this amount should
be $19,594.56), based on a U.S. Department of Agriculture (USDA)
food stamp form used by the Council. ACYF Exhibit 5, p. 2. The
Council said its additional information showed that VO's family
income was $16,575 for 1986, just under the poverty level of
$16,640 for this family of seven. Council Brief, p. 3; Exhibit
B-2. Our review of the Council's evidence suggests an unresolved
question about its being 1985 data 1/ and, in any event, indicates
that the data does not at all impeach the auditors' findings.
Council Exhibit B-2, p. 1, is a confidential USDA Child Care Food
Program Family Size and Income Information form. This form
contains blank lines to be filled in with seven types of monthly
income (wages, unemployment, etc.) and a blank line for the total.
Only two of these lines were filled out -- the top one ("wages,
salary") and the bottom one ("total monthly income"). Total
monthly income is shown as $1,632.88, which, when multiplied by 12,
equals $19,594.56 annually -- well in excess of the applicable
poverty guideline of $16,640 for this family, as the auditors
found. However, in what appears to be different handwriting, an
entry for "wages, salary" shows $16,575, with a marginal note
saying "annual - read p. 2." In context, this reference to "Page
2" appears to refer to page 2 in the numbering system for this and
other exhibits, and suggests that the marginal note was added to
the evidence by whoever prepared the exhibit for presentation to
ACYF and this Board. See also ACYF Exhibit 3. Page 2 (and page 3)
are an employer's Leave and Earnings Statements which both show a
mid-1985, annual salary for a person (apparently a family member)
of $16,575. However, what the Council has failed to do is offer
any reconciliation between this figure and the explicit notation on
the USDA form that total family income was higher. This was a
family of seven, and the Council has offered evidence only that one
family member earned less income from wages than the total income
shown for the whole family. The different handwriting for the
figures and manner of notation do not enhance the credibility of
the Council's argument. Therefore, on the basis of the record
before us, we find that ACYF had a reasonable basis for continuing
to find that VO was ineligible.
DA The Council said that the auditors' original determination was made
based on a "wage stub" and that after the audit, the parent turned
in a 1040 tax form showing "actual income" of $7,475, below the
$11,000 poverty guideline for this family of four. Council Brief,
pp. 3-4; Exhibit B-3. ACYF had the auditors rereview the materials
when a duplicate submission was made in this appeal, and with its
brief, ACYF submitted the auditors' response. The auditors said
the materials showed that while wages and salaries indeed totaled
only $7,475, the Form 1040 also showed $2,177 in net farm income,
$9,690 in other income from "council fees," and $2,394 reported as
income from unemployment compensation (total: $21,736). ACYF
Brief, pp. 4-5; Exhibit 5, p. 2. Our review of the Form 1040
indicates that it shows, as the auditors said, income of $12,046
(salaries, farm income, and unemployment compensation). Also, an
additional amount of $9,690 is clearly shown as "other income,"
although a handwritten entry on the same line suggests that the
taxpayer sought to offset this income against an unexplained "NOL"
of $15,589 for a net negative figure of $5,899. Not being tax
experts, we cannot decipher this. The Council offered no
explanation, and chose to submit no reply brief to challenge the
auditors' analysis; furthermore, if the mysterious "NOL" offset was
valid, it presumably also would adjust total income (including the
$7,475 salaries and wages which the Council said was the parent's
income) -- and the Council did not argue this. Also, there is no
explanation of the inconsistency with the data the Council
originally provided for the auditors' review -- data which
presumably was from the contemporaneous verification required by 45
C.F.R. 1305.7, as the later data apparently was not. In short, we
have the auditors' original finding of ineligibility based on
verification data provided by the Council consistent with
regulations; their continued, and not unreasonable, finding of
ineligibility from the Council's later submission; and the
Council's after-the-fact data itself which, even when read most
generously for the Council, raises more questions than it answers.
Therefore, on the basis of the record before us, we find that ACYF
had a reasonable basis for continuing to maintain that DA was
ineligible.
IW The auditors apparently originally found IW ineligible based on a
family size of five in relation to income. What primarily is in
dispute is not income 2/ but the number of family members: the
Council contends there were actually seven family members, rather
than the five the Council admitted were shown on the USDA form
originally provided for review (if there were seven instead of
five, the poverty guideline would be higher and the family income
apparently would qualify). Council Brief, p. 4; Exhibit B-4, p. 1.
The Council's evidence on this issue consists of a Head Start
enrollment form which does, indeed, state that there were seven
family members. Council Exhibit B-4, p. 3. The auditors rejected
this on rereview because, in their view, the inconsistent evidence
did not support a finding of eligibility. ACYF Exhibit 5, pp. 2-3.
Our review of the evidence indicates two things. First, comparing
the two forms shows that an 18-year-old daughter, the eldest child,
was not listed as a family member on the USDA form (p. 1), but was
on the Head Start form (p. 3); however, this is not necessarily
inconsistent. While the USDA form is quite specific about listing
persons "who live in your household and share living expenses or
meals," the Head Start form merely has a group of blanks for names
of brothers and sisters, a not unreasonable interpretation being
that one should list siblings whether they lived in the enrollee's
household or not. Thus, in the absence of anything which showed
that the 18-year-old actually lived with IW's family, the USDA form
is persuasive evidence that she did not. Second, it is clear that
the USDA form omitted listing the name of the father, while the
Head Start form has a box checked indicating specifically that
"child lives with" both mother and father. These, then, are
inconsistent, and it becomes a matter of judgment whether or not to
treat the father as a member of the household. We conclude that
ACYF has not been unreasonable in refusing to do so (which in any
event would have raised the total of family members to six, not
seven, given our finding on the daughter above), for the following
reasons: the Food Stamp form affirmatively required listing names
of persons who shared expenses and meals with the family (and
omitted the father, as it had the 18-year-old sister), while the
Head Start form did not require this information; the only
indication of the father's alleged presence was a single check in a
box on the Head Start form; the Head Start form, as we found with
regard to the daughter, was ambiguous concerning who was a family
member vis-a-vis which family members actually shared the home; the
mother's income was the same as the amount the Council said was the
family's entire income (see Council Brief, p. 4; Exhibit B-4, p.
2); and the Head Start enrollment form, as evidence of an income
eligibility determination, is a derivative document and does not
appear to have the quality or content required by 45 C.F.R.
1305.7(b) and (c). Therefore, on the basis of the record before
us, we find that ACYF had a reasonable basis for continuing to
maintain that IW was ineligible.
AT The Council argued that AT's family size should have been seven
rather than the five originally documented, and that the family's
income was lower than the poverty guideline for such a family. As
with IW, the auditors found this information inconsistent with
evidence originally reviewed. Our review of the record shows the
following. ACYF's evidence in the record consists entirely of a
brief statement of the auditors on rereview, in which they indicate
that some evidence -- not identified -- which they reviewed
originally showed family size to be five. ACYF Exhibit 5, p. 3.
But the record contains a September, 1987, USDA-Montana Child Care
Food Program form -- similar to forms ACYF itself relied on in
other cases discussed here -- which might even have been the form
the auditors originally saw. It has five names under PART B, item
2 ("ALL household members") so that one might, if one read the form
narrowly, say that the family had only five members. However,
under PART B, item 1 ("NAME OF CHILD ENROLLED") there are two
additional family members not listed under item 2, and there also
is a circled "7" at the bottom under "total number in household
. .
. ." Council Exhibit B-5, p. 1. Thus, the form reasonably can be
interpreted to show a family of seven. Given that ACYF has
presented no other evidence, that the Council's evidence consists
of what appears to be a contemporaneous form of a type otherwise
relied on by ACYF, and that this evidence is not otherwise
impeached, we find that the Council has shown that ACYF was wrong
and that AT's family size was seven.
The remaining issue concerns whether the family's income exceeded
the poverty guideline for seven. There is some inconsistency in the
record which would support various figures for total annual income,
but we do not need to sort all this out because the highest
possible figure from the record would be a computation from gross
biweekly wage figures in August, 1986 of $13,800 (the USDA form,
signed in September, 1987, shows $12,499). Council Exhibit B-5,
pp. 1, 2. It was undisputed that the poverty guideline for a
family of seven was $16,640. See, e.g., ACYF Exhibit 5, p. 2;
Council Brief, pp. 3, 4. Thus, based on the record before us, we
find that ACYF erred in its determination that AT was ineligible.
RL The auditors' original review found that this family of seven had
an income of $17,306, in excess of the $16,640 poverty guideline.
The Council alleged that the family income was only $14,880 (before
us, the Council said $16,120, without explaining the difference;
the figure is still under the poverty guideline and appears to
derive from a marginal notation, not otherwise explained, on one of
the documents in evidence). The auditors responded essentially that
they had not been shown the underlying data (e.g., pay stubs).
Council Brief, p. 4; Council Exhibit B-6, p. 1; ACYF Exhibit 5, p.
3. Our review of the record shows the following. There is a
November, 1985, "certificate of verification" signed by a Head
Start employee in which the employee certifies that she had
examined pay stubs showing total annual income of $14,880. On the
right side, this form also shows a calculation producing the figure
16,120, which the Council may or may not have referred to in error
in its brief instead of $14,880. Council Exhibit B-6, p. 1. A
USDA form shows total family monthly income in September, 1985,
including $620 in wages for the mother, as $1,240 (annual:
$14,880). Council Exhibit B-6, p. 2. ACYF supplied no evidence or
explanation to support the auditors' statement that the family's
income was $17,306, and supplied no explanation of the difference
between the figure of $14,880 (or $16,120) and $17,306. Under 45
C.F.R. 1305.7, the Head Start agency must verify family income and
maintain a signed statement of the verification, which it appears
the Council has done. While ACYF apparently would have the right
to -- and presumably still can -- go behind the certification to
examine data on which the verification was based, the source data
per se was not required by the regulations to be submitted
routinely to ACYF to support an eligibility determination. We
conclude that ACYF has not, on the record before us, made a case to
support disqualifying RL. ACYF supplied nothing more than a bare
statement of an original finding of family income of $17,306; once
the Council came forward with two items of evidence supporting a
lesser figure, not otherwise impeached by ACYF, the burden shifted
to ACYF to at least develop its original finding. Since ACYF
offered nothing on this, there is no reasonable basis to uphold
ACYF's finding on RL.
JS The issue here was whether the family income (for a family of five)
was under the eligibility limit of $12,880. The auditors found JS
ineligible on income grounds, although there is no explanation in
the record of exactly what they found. The Council submitted
materials on appeal to show lesser income, but the auditors
responded that they had received "no additional information." ACYF
Exhibit 5, p. 3; Council Brief, p. 5; Council Exhibit B-7. Our
review shows the following. There is an October, 1986,
"certificate of verification" showing total annual income of
$10,490, said to have been based on pay stubs, and an October,
1987, Montana Child Care Food Program form showing total annual
income of $10,836. Council Exhibit B-7, pp. 1 and 2. However, the
Council also submitted a copy of a wage statement for JS's mother
which conflicts with, and on balance impeaches, the Council's
position. This statement shows base pay (on what is obviously at
least a monthly basis) to be $l,183.22; multiplied by twelve, this
would be $14,198.64. Council Exhibit B-7, p. 3. Just as
important, the wage statement -- for the period ending December 15,
1986, but bearing a date stamp showing it to have been received at
the Council's office in October, 1987 -- shows "year to date" gross
pay as $10,836, which is simply too much of a coincidence; it is
reasonable to infer that the October, 1987, Montana form adopted
this amount from the pay stub. Thus, while it is not clear what
the family income of JS actually was, on balance the evidence is
such that ACYF had a reasonable basis for questioning eligibility
and demanding better evidence, which was not provided.
JPS In this case, the Council argued essentially that although JPS's
mother had shown her income at a certain (ineligible) level when
applying for JPS's entry to the Head Start program, she did not
hold her job for the whole year and thus actually earned less. As
with JS, the auditors on rereview simply said they had been given
no new information. Council Brief, p. 5; ACYF Exhibit 5, p. 3. The
record shows the following. In October, 1986, a Council employee
verified total annual income as $14,560 based on pay stubs (the
poverty guideline apparently was $11,000 for this family). Council
Exhibit B-8, p. 1. The October, 1986, USDA Food Stamp form, which
the family's mother signed, also showed too much income (but only
$12,768). Id., p. 2. Both of these forms are signed by a Council
official. But an October, 1986, time sheet for one family member
(the mother) shows an hourly pay of $7.00 from the Fort Belknap
Housing Authority, which, annualized for a 40-hour week, would be
$14,560 (the amount verified by the Head Start employee). Id., p.
3; see also p. 1. However, W-2 forms for 1985 and 1986 show this
person's wage income from the housing authority to have been,
respectively, $1,080.00 and $6,014.61. Id., p. 4. Interestingly
enough, in the midst of all these varying figures, the Council's
brief said her income was $7,095 -- a figure which has no basis at
all in the evidence provided. Council Brief, p. 5. This
exemplifies the confusion arising from the Council's evidence.
Furthermore, on its face, the evidence does not compel the
Council's implication that the rate of pay was less at the end of
1986 (which the Council did not in any event specifically argue);
it may well be that the mother had worked less hours in the early
months of 1986 (as she apparently had in 1985), thus producing less
total income for the year than her rate of pay at the end of the
year would produce. Whether or not this is so is not the issue so
much as the fact that the Council presented no information to rebut
this obvious implication. Whatever the case, three of the four
pages of the Council's exhibit -- the two Head Start certification
forms, as well as the pay stub -- show a rate of pay late in 1986
well in excess of the poverty guideline, and no explanation of any
different scenario. Thus, on balance the evidence is such that
ACYF had a reasonable basis for questioning eligibility and
demanding better evidence, which was not provided.
Conclusion
Based on the foregoing analysis, we uphold ACYF's disallowance for
over-income Head Start enrollees, less an amount reflecting a reduction
for the two enrollees who we determined should have been treated as
eligible based on the record here. As we calculate it, this reduces the
percentage of ineligible enrollees to 16.7 percent, and (with the ten
percent tolerance) the disallowance amount to $21,567.
______________________________ Judith A.
Ballard
______________________________ Norval D. (John)
Settle
______________________________ Alexander G.
Teitz Presiding Board Member
1. ACYF has a guideline containing the following question and answer
on this (TN-79.1; see ACYF Exhibit 6, pp. 7-8):
For what period of time is income considered for eligibility --
prior calendar year, prior twelve months, immediate situation?
The answer is, that the time period shall be those for the twelve
months immediately preceding the month in which application or
reapplication for enrollment of a child in a Head Start program is
made, or for the calendar year immediately preceding the calendar
year in which such application or reapplication is made, whichever
more accurately relates to the family's current needs.
Under 45 C.F.R. 1305.6, a child determined eligible during one
enrollment year is also deemed eligible during the immediately
succeeding enrollment year. We do not know when VO was determined
eligible.
2. The Council also claimed that the family's income was lower than
that shown on the USDA form (as with VO, on the basis of an earnings
statement for one member of the family). However, the auditors used the
Council's figure when they rereviewed the Council's data. This is
unexplained, and in context suggests the possibility of an auditors'
typographical error rather than acceptance of the Council's argument.
ACYF Exhibit 5, p. 2. In any event, both parties treated as dispositive
the question of seven versus five family members (id.; Council Brief, p.
4). Furthermore, as with VO, after-the-fact evidence on the wages of
one individual in a family of seven is not the most credible evidence to
contradict contemporaneous program records showing higher total family