Coeur D'Alene Tribe of Idaho, DAB No. 1456 (1994)


  Department of Health and Human Services

        DEPARTMENTAL APPEALS BOARD

     Appellate Division


SUBJECT:        Coeur d'Alene Tribe    DATE:  January 21, 1994 of Idaho
   Docket No. A-93-156 Audit Control No.
   A-10-92-06777 Decision No. 1456

   DECISION

The Coeur D'Alene Tribe of Idaho (Grantee) appealed a disallowance of
$14,349 taken by the Administration for Children, Youth and Families, a
division of the Administration for Children and Families (ACF).  The
disallowance was based on an Office of Inspector General (OIG) audit
review which concluded that:  (1) the Grantee  failed to provide
adequate documentation to show that it had provided adequate match for
two ACF-administered grants; and (2) the Grantee had overcharged one of
the grants for indirect costs by using an incorrect indirect cost rate.

The record in this appeal contains briefs from both parties, documents
and written answers from the parties provided in response to questions
posed by the Board, a tape of a telephone conference where both parties
responded to further questions by the Board that had been supplied in
advance, and a post-conference submission by the Grantee, to which ACF
declined to reply.  Notwithstanding this extensive record development,
the calculation of components of this disallowance remains unclear,
since ACF was unable to answer satisfactorily questions posed by the
Grantee and the Board. 1/  As  discussed below, we find the following:

 


o  The record supports the disallowance of $1,129 for failure to provide
adequate match for grant no. 90CK2057/01, entitled "Runaway Youth
Substance Abuse Prevention" (the "Runaway Grant").

o  The record does not support the disallowance of $3,033 as excess
indirect costs for grant no. 90CJ0953/01, entitled "Improving Shelter
Staff Capacity to Deal with Problems of Alcohol Abuse Among Runaway and
Homeless Youth" (the "Child Welfare Grant"), and we overturn that part
of the disallowance.

o  We agree with ACF that the Grantee's documentation of matching costs
for the Child Welfare Grant was inadequate.  However, we agree with the
Grantee that ACF's calculation of the amount of this component ($10,187)
of the disallowance was overstated.  Consequently, we recalculate that
part of the disallowance using ACF's own methodology, i.e., the
methodology indicated by the Notice of Grant Award.  To the total
allowable costs for the audit period -- the figure shown in the
independent audit report -- we add the additional allowable indirect
costs in the amount of $3,033, and apply the matching rate for this
grant.  The net result of this recalculation is to reduce the
disallowance related to the Child Welfare Grant from $13,220 to $7,475.

Accordingly, the overall amount of the disallowance is reduced from
$14,349 to $8,604.

Background

The Grantee is a federally-recognized Indian tribal government that
successfully applied for two ACF-administered grants during 1989.  The
Runaway Grant was to be spent over a project period beginning September
30, 1989 and ending September 29, 1990.  The grant award stated that the
Grantee was to match 25.6 percent of the total grant costs.  The Child
Welfare Grant was to cover a project period from May 1, 1989 to April
30, 1990. 2/  The terms of that grant award required the Grantee to
supply match in the amount of 26.1 percent of total grant costs.

As required by Office of Management and Budget Circular A-128, the
Grantee obtained an independent audit of its operations during fiscal
year 1990 (10/1/89-9/30/90), which it submitted to the United States
Department of the Interior, the cognizant federal audit agency.  That
agency certified that the audit report met federal requirements, and it
forwarded findings relating to programs administered by the Department
of Health and Human Services to the OIG.  In a letter to the Grantee
dated September 9, 1992, the OIG provided its computation of the amounts
associated with questioned costs and sought the Grantee's comments.  The
Grantee submitted a response, which the OIG found did not resolve the
questioned costs, and ACF subsequently issued the disallowance.

With regard to the Runaway Grant, the OIG found a shortfall of $1,129 in
the Grantee's matching share.  For the Child Welfare Grant, the OIG
determined that the Grantee's use of an incorrect indirect cost rate
resulted in its claiming $3,033 in excess federal funds.  For that same
grant, the OIG concluded that the Grantee had failed to document $10,187
in matching costs.

We shall discuss each of these issues in turn.

Analysis

A.  Matching shortfall for Runaway Grant

The OIG calculated the Grantee's total audited costs  and determined
that the amount charged to federal funds exceeded the appropriate
federal share by $1,129.

During the briefing, ACF contended that indirect costs were not
allowable as matching costs because the indirect cost category was left
blank on the grant award.  We have determined that counsel was mistaken
-- documents submitted by ACF to the Board as a result of an Order to
Develop the Record showed that indirect costs were included in
negotiations that took place prior to grant approval and were included
in the "other costs" category on the grant award.  Compare Financial
Assistance Application Approval/Negotiation Sheet, p. 75 of ACF
Additional Information submission (ACF Add'l Info.) with Financial
Assistance Award for Grant No. 90CK2057/01, p. 61 of ACF Add'l Info.
Moreover, when we examined the figures used by the OIG in calculating
the amount of indirect costs which the Grantee supplied as match, we
found that this amount exactly equalled the applicable indirect cost
rate times the direct costs.  Consequently, we conclude that the OIG
analysis adopted by ACF as the basis for its disallowance did allow as
match all of the allowable indirect costs that the independent auditor
found had been incurred and paid by the Grantee.

The Grantee contended that it stated in its grant application that its
matching share would be provided through its absorption of allowable
indirect costs.  The Grantee had projected at the time of the
application that its indirect cost rate for the grant period would be
24.8 percent.  The Grantee asserted that after the grant period was
over, the actual indirect cost rate which the Grantee negotiated for
fiscal year 1990 turned out to be lower than 24.8 percent, and this
resulted in the $1,129 shortfall in meeting its matching requirement.
The Grantee argued that since ACF knew when it awarded the grant that
the Grantee planned on meeting its matching requirement with indirect
costs, ACF should simply forgive the shortfall that resulted when the
indirect cost rate was lower than anticipated.

The Grantee was incorrect when it stated that the actual indirect cost
rate for fiscal year 1990 was lower than 24.8 percent.  The indirect
cost agreement submitted by the Grantee shows that the final rate for
fiscal year 1990 was 29.7 percent.  See Notice of Appeal, attachment
(att.) 5, at 1 of 3.  We have determined that 29.7 percent was the rate
used by the independent auditor to compute the Grantee's matching
contribution.  Our analysis revealed that the shortfall resulted not
from a lower indirect cost rate than anticipated, but from the fact that
the matching rate of 25.6 percent must be applied to overall allowable
costs, which are the total of allowable direct costs plus allowable
indirect costs.  See Grants Administration Manual section 1-401-50
(incorporated by reference in the Notice of Grant Award).  Based on the
Notice of Grant Award and the negotiated. indirect cost agreement, the
calculations look like this:

Required Match = Matching Rate(Direct Costs + (Indirect Cost Rate x
Direct Costs))

Required Match = .256($32,232 + (.297 x $32,232))

Required Match = .256($32,232 + $9,573) = .256($41,805) = $10,702

Since the indirect costs paid by the Grantee were $9,573, it fell short
by $1,129 of meeting its required match.

The 25.6 percent matching requirement was a condition expressly agreed
to by the Grantee when it accepted the grant.  The shortfall was due to
the Grantee's misconception that using only indirect costs would be
adequate to supply the necessary match.  However, since the matching
percentage of 25.6 percent had to be applied to the sum of direct and
indirect costs, once the direct costs exceeded a certain level (about
$5,000), indirect costs alone, figured at 29.7 percent of direct costs,
would always be insufficient to satisfy the matching requirement.
Moreover, the Grantee did not explain how it expected that an estimated
indirect cost rate of 24.8 percent would generate allowable costs equal
to 25.6 percent of overall expenditures, which was the matching
percentage required by the grant.  In fact, at the time the Grantee was
using the 24.8 percent figure as an estimate, the indirect cost rate in
effect was only 23.1 percent.  (The 29.7 percent rate was not approved
until December 1990, three months after the end of the grant period.)
Consequently, at the time that it accepted the grant, the Grantee knew
it was taking a risk that it might not meet its matching requirement
solely with indirect costs.  The result of ACF's disallowance here is
merely to oblige the Grantee to do what it always should have known it
would have to do -- make up the rest of the matching contribution in
cash or in-kind contributions.  The Grantee did not cite any authority
for shifting the consequences of its miscalculation to ACF.
Accordingly, we uphold this part of the disallowance.

B.  Incorrect indirect cost rate for Child Welfare Grant

The independent auditor determined that, although the indirect cost rate
stated on the grant award was 23.4 percent, the Grantee had used an
indirect cost rate of 29.7 percent for this grant, which was the rate
negotiated with the Department of Interior for the fiscal year beginning
October 1, 1989, which began five months after the grant period did.
The auditor recommended that in the future ACF conform its grant awards
to be consistent with the approved indirect cost rate, and the auditor
calculated the amount of excess indirect costs as $3,033.  The OIG
confirmed this figure.  The Grantee stated that it had indeed conformed
its indirect cost rate claim to the negotiated indirect cost rate, and
it provided a copy of its rate agreement dated December 7, 1990.  Notice
of Appeal, attachment 5.

When the Board asked ACF what it considered the correct indirect cost
rate to be for this grant, counsel for ACF stated that the project
period for this grant (May 1, 1989 to April 30, 1990) included parts of
two different fiscal years with two different indirect cost rates.
Thus, according to ACF, for the first five months of the grant (May 1
through September 30, 1989), the applicable indirect cost rate was 23.1
percent, while the rate for the last seven months (October 1, 1989
through April 30, 1990) was at the 29.7 percent level applied by the
Grantee.  See p. 107 of ACF Add'l Info.  ACF apparently contended that
the disallowed $3,033 was the difference between the Grantee's and the
independent auditor's calculations for the indirect cost rate.

There are several problems with this part of the disallowance.  We agree
with ACF that the applicable indirect cost rate for this Grantee was the
one in effect at the time the expenditures to which the indirect cost
rate applied were made.  That is not the method used by the independent
auditor, however; the auditor used the 23.4 percent rate mentioned in
the grant award, although there is no indication that this grant was
somehow excepted from the generally applicable negotiated indirect cost
rate.  Moreover, even assuming the auditor's theory was correct, other
documents submitted by ACF cast serious doubt on the auditor's statement
that the Grantee used the 29.7 percent rate to claim indirect costs
throughout the entire grant period.  ACF provided a May 29, 1990
financial status report filed by the Grantee which covered the entire
grant period and reported that the Grantee claimed an indirect cost rate
of 23.1 percent, for a total of $7,314.02.  ACF Add'l Info., p. 101.
ACF did not provide a corrected financial status report or any
documentation from the independent auditor showing that this financial
status report was incorrect.  Consequently, there is no evidence here
that the Grantee charged an excessive indirect cost rate.

Furthermore, even if the Grantee had later increased its indirect cost
claim by claiming at a rate of 29.7 percent for the entire grant period
(which ACF maintained was appropriate for only seven of the twelve
months of the grant period), that 6.6 percent increase could not result
in the $3,033 excess indirect costs alleged by the auditor, since $3,033
is nearly half the reported indirect cost figure of $7,314.  In
addition, even if we were convinced that the Grantee had used the 29.7
percent rate before it became effective, the quarterly expenditure
reports provided by ACF do not supply sufficient evidence to enable us
to calculate the disallowance for the five months when, according to
ACF, the correct indirect cost rate was 23.1 percent.

Since the documents provided by ACF indicate that the Grantee charged
the grant for indirect costs at a lower rate than ACF now states was
applicable, we are unable to sustain this portion of the disallowance.
As we note below, by reversing this portion of the disallowance, we add
$3,033 to the allowable expenditures for this grant, which changes the
calculation of the amount of match required of the Grantee.

C.  Matching shortfall for Child Welfare Grant

In its September 9, 1992 letter, the OIG stated that the total audited
allowable costs for this grant were $39,032 for the audit period, and
that the Grantee claimed $42,065 in federal funds (including the $3,033
that the OIG recommended disallowing as excess indirect costs).  After
applying a 73.9 percent federal share rate to the allowable costs (the
Grantee's matching share for this grant was 26.1 percent), the OIG came
up with a figure of $28,845 for allowable federal costs.  Then, although
it appears from the placement of the numbers on the page that the OIG
intended to subtract the $28,845 from the $42,065, the OIG listed as
excess federal funds claimed $10,187. (The difference is actually
$13,220.)  ACF contended that $10,187 should be disallowed because the
documentation provided by the Grantee, which consisted of a single-page
narrative of alleged matching costs, was inadequate since it was all
based on estimates without any supporting documents.

The Grantee's single-page document was authored by the former project
manager for this grant and listed as the Grantee's matching contribution
the following:  estimated rental value of a building owned by the
Grantee and used for the program; estimated electricity and heating oil
costs for the building; and an estimate of the value of the time of
child welfare specialists employed by the Grantee who met once monthly
to discuss cases of children being served by the grant project.  The
Grantee also contended that the amount of grant expenditures used by the
OIG to calculate the amount of match required of the Grantee was
incorrect.

During the telephone conference call, the Presiding Board Member
explained to the Grantee that it was likely the Board would find the
documentation which the Grantee had supplied to date to be inadequate to
meet regulatory requirements.  Thus, she explored possible methods for
the Grantee to substantiate these costs -- for example, providing an
affidavit from a real estate expert stating the estimated rental value
for a building of the type furnished by the Grantee and used during the
relevant period.  ACF agreed to review any such documents provided by
the Grantee; however, the Grantee later informed the Board that it would
not be submitting any further documentation.  The Grantee did provide a
further explanation of its position on the amount of matching costs that
it was required to document here.

The provisions of 45 C.F.R. Part 74, which were incorporated by
reference into this grant, contain very specific requirements for
documentation of in-kind contributions.  Section 74.53(d) provides --

 Records.  Costs and third-party in-kind contributions counting
 towards satisfying a cost-sharing or matching requirement must
 be verifiable from the records of recipients or cost-type
 contractors.  These records must show how the value placed on
 third-party in-kind contributions was arrived at.

The documentation furnished by the Grantee simply did not meet this
standard.  Although the Grantee complained that the auditor should have
visited its offices to examine its records for evidence of matching
costs, the Grantee did not allege that source documentation satisfying
this standard had ever actually existed.  Since the Grantee was required
by 45 C.F.R. . 74.21 to retain its grant records for three years
following submission of its last expenditure report, which was
apparently filed May 29, 1990, such records should have still existed at
the time the OIG asked for them in spring 1992.  Moreover, despite being
given an opportunity to supplement the record with non-contemporaneous
documentation, the Grantee was still unable to produce evidence of any
matching costs.  We therefore agree with ACF that the Grantee's
documentation must be rejected.

As noted above, the Grantee also raised a question during the telephone
conference call about the derivation of the $10,187 figure which the OIG
calculated to be the correct amount of unmatched costs.  In a subsequent
submission, the Grantee supplied a page from a "Schedule of Federal
Financial Assistance" (which was apparently a page from the independent
auditor's report) which indicated that total expenditures for this grant
during the audit period (fiscal year 1990) were $25,607.  The Grantee
noted that 26.1 percent of that figure was equal to $6,683.  The Grantee
stated that since its match for the previous fiscal year had not been
questioned by the auditor, it could not understand how the OIG derived
the $10,187 figure.  The Grantee contended that the amount of the
disallowance was overstated.  ACF was given an opportunity to address
this contention, but informed the Board that it would not file a
response.

We have reviewed the Grantee's submission and conclude that its position
has merit.  The OIG's calculations are clearly mathematically incorrect
on their face.  ACF has not explained the origin of the numbers used by
the OIG, which appear to relate to cash withdrawals rather than to
financial status reports or audited expenditures.  See att. to Grantee's
11/26/93 submission.  Consequently, we accept the Grantee's position
that the amount that the OIG should have used in its calculations was
$25,607.  That figure, which was taken from the independent auditor's
report, did not include the $3,033 in indirect costs that we have
concluded above were not properly disallowed.  Thus, the correct amount
of expenditures to use is $28,640.  When we apply the 26.1 matching
rate, this results in undocumented match of $7,475.  We therefore
sustain this part of the disallowance in this amount.  . Conclusion

Based on the analysis above, we uphold the disallowance for the Runaway
Grant in the amount of $1,129.  We  reverse the part of the disallowance
for the Child Welfare Grant that was based on the use of the incorrect
indirect cost rate.  We uphold the disallowance for the Child Welfare
Grant based on the failure to document matching costs, but we find that
the correct amount of this portion of the disallowance is $7,475.

 


       ___________________________
       Judith A.
       Ballard

 


       ___________________________
       Donald F.
       Garrett

 


       ___________________________
       M. Terry Johnson
       Presiding Board
       Member

 

1.     ACF counsel indicated some difficulty in obtaining an explanation
of the disallowance calculations from ACF or the OIG.  See Tape of
Teleconference in Board Docket No. A-93-156.

2.     Both the independent auditors whose review underlies this
disallowance and the Grantee referred to this grant interchangeably as
the "Child Welfare Grant" and the "Youth Shelter Alcohol Program."  At
the November 1, 1993 conference call held in this proceeding, the
Grantee clarified that both names referred to Grant No. 90CJ0953/01,
which we refer to in this decision as the Child Welfare