Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Dallas-Selma Community
DATE: June 29, 1990
Action Agency Docket No. 90-62
Audit No. A-04-89-06334
Decision No. 1171
DECISION
The Dallas-Selma Community Action Agency (Grantee) appealed a
disallowance by the Office of Human Development Services (OHDS) of
$6,947 charged to Head Start Grant No. 04CH4032/17. OHDS disallowed a
portion of an insurance premium, paid by the Grantee for insurance which
was subsequently cancelled, on the basis that this cost item was not
allowable under the cost principles applicable to nonprofit
organizations.
For the reasons discussed below, we determine that the amount in
question was not properly charged to federal grant funds and uphold the
disallowance.
Background
The notice of appeal reflects that in October 1987, the Grantee entered
into an agreement with the Associates Insurance Agency of Selma, Alabama
(AIA) to purchase vehicle insurance. The policy covered the period from
October 26, 1987 to October 26, 1988, at a premium of $22,406.80. AIA
was supposed to obtain the insurance policy from Southern Cross Agency
of Birmingham, Alabama (Southern Cross). However, Southern Cross did
not receive the necessary premium payment from AIA and cancelled the
Grantee's insurance in May 1988 for nonpayment. The Grantee then
purchased from another company substitute insurance coverage for the
remainder of the insurance term.
A criminal investigation was later initiated to determine whether the
Grantee's previous director, along with an AIA agent, had conspired to
defraud the Grantee with respect to the insurance monies.
The Grantee's audit for the year ending May 31, 1988 reported an
accounts receivable amount from AIA in the amount of $9,638 arising out
of the cancellation of the insurance. Of this amount, $6,947 was
attributable to the Grantee's Head Start program. The auditors
expressed doubt that the accounts receivable would be collected by
Grantee. Agency Exhibit C, p. 9.
Discussion
The Grantee is a nonprofit organization so that its expenditures are
governed by the cost principles set forth in Office of Management and
Budget (OMB) Circular A-122, made applicable by 45 C.F.R. 74.174(a).
Bad debts, including losses arising from uncollectible accounts and
other claims, are not allowable costs under these principles. OMB
Circular A-122, Attachment B, Paragraph 2. OHDS argued that the
allegedly stolen premiums were unallowable bad debts. OHDS relied on
Oglala Sioux Early Childhood Component, DAB No. 680 (1985), where we
upheld the Agency's determination that monies misappropriated by a
playground-equipment salesperson were unallowable as a bad debt.
There is no dispute that the accounts receivable is a bad debt not
properly charged to grant funds. However, the Grantee requested that
the Board grant a waiver or forbearance of repayment during the criminal
investigation of the Grantee's former director.
The Grantee asserted that this disallowance will be a financial hardship
to its program, and argued that the disallowance should be collected
from the person responsible for the debt, the former director.
Grantee, as the recipient of the federal grant funds, is responsible to
OHDS for insuring that the funds are expended only for allowable
purposes. We conclude that the disputed amount is properly disallowed.
Moreover, this determination is the limit of our authority. Although the
circumstances presented may be unfortunate, the Board does not have the
authority to waive or postpone repayment of the premium amount for the
cancelled insurance. See Guam Dept. of Public Health and Social
Services, DAB No. 1050 (1989); Nisqually Indian Tribe, DAB No. 994
(1988); Office of Human Concern, DAB No. 590 (1984). 1/
Conclusion
Accordingly, we uphold the disallowance in the amount of $6,947.
___________________________ Judith A.
Ballard
___________________________ Norval D.
(John) Settle
___________________________ Cecilia Sparks
Ford Presiding Board Member
1. We held a telephone conference in this case in accordance with the
Board's expedited procedures at 45 C.F.R. 16.12. As we discussed during
the call, there may be some flexibility in the OHDS collection process
in accordance with the Federal Claims Collection Standards at 4 C.F.R.
Parts 101-105. (These regulations provide for installment payments (4
C.F.R. 102.11) as well as set standards for compromising, suspending, or
terminating collection of the government's claims.) The Grantee may
seek further coordination with OHDS in this