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Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Appellate Division |
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DATE: April 7, 2006 |
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Docket No. A-05-40,
A-05-45 Decision No. 2024 |
| DECISION | |
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DECISION Marie Detty Youth and Family Services Center, Inc. (Marie Detty), a Head Start grantee in Lawton, Oklahoma, appeals two determinations by the Administration for Children and Families (ACF) disallowing a total of $338,471.04 awarded to Marie Detty under the Head Start program. ACF disallowed these funds on the ground that during 2002 through April 2004, Marie Detty spent them on costs that are not allowable charges to Head Start funds under the applicable cost principles, statutes, and regulations. The costs were for construction, Christmas bonuses, consulting and management services, vehicle usage, medical services, unpaid retirement contributions, and office furniture. Marie Detty concedes that some of the costs were not allowable charges to Head Start funds and argues that others were. However, Marie Detty's principal overarching argument is that it added to the Head Start program enough non-federal funds to account for any federal funds that it spent on unallowable costs. Marie Detty received these non-federal funds under collaboration agreements to provide Head Start services to children from Oklahoma school districts. As explained below, we reject Marie Detty's arguments about the collaboration funds because Marie Detty failed to document that it used those funds in any manner that would provide a basis to reduce the disallowance. As to the disallowed costs, we decide as follows:
Applicable law, regulations, and policies Head Start is a national program providing comprehensive developmental services, including health, nutritional, educational, social and other services, to economically disadvantaged preschool children and their families. See 42 U.S.C. § 9831. The Department of Health and Human Services (HHS), through ACF, provides funds to grantees to serve as Head Start agencies within designated communities and periodically reviews their performance in meeting program and fiscal requirements. See generally 42 U.S.C. § 9836. The Head Start statute provides specific requirements for grantees that seek to use Head Start funds for construction and major renovation of Head Start facilities, requiring, among other things, that Head Start grantees obtain advance approval to use Head Start funds for those purposes. 42 U.S.C. § 9839(g). Those requirements are implemented by regulations at 45 C.F.R. Part 1309. Nonprofit organizations that receive Head Start funds are subject to the cost principles set forth in Office of Management and Budget Circular A-122 (OMB A-122), made applicable to HHS grants by federal regulations at 45 C.F.R. § 74.27(a). OMB A-122 provides a uniform set of cost principles for determining allowable costs of grants, contracts, and other agreements and is designed to promote efficiency and understanding between nonprofit grantees and the federal government. Home Education Livelihood Program, Inc., DAB No. 1598, at 5-6 (1996). It provides guidance on allowable direct costs and allocable indirect costs, as well as guidance on specific cost items. Id. [Page 3] OMB A-122 requires that allowable costs be reasonable for the performance of the grant award and allocable thereto. OMB A-122, Attachment (Att.) A, ¶ A.2.a. A cost is reasonable if it is the type generally recognized as ordinary and necessary for the operation of the organization or performance of the award, and allocable to the award in accordance with the relative benefits received. Id. at ¶¶ A.3.a, A.4. To be allocable, a cost must be incurred specifically for the award. Id. at ¶ A.4.a. In assessing reasonableness, the circular requires that a cost must not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. Id. at ¶ A.3. Costs claimed under an award must also be adequately documented. Id. at ¶ A.2.g. Appendix B of OMB A-122 contains requirements applicable to specific types of costs. We cite those requirements in succeeding sections of our decision where they are relevant to our analysis. The current version of OMB A-122 was published on May 10, 2004. 69 Fed. Reg. 25,970 (2004). Because Marie Detty incurred the disallowed costs here prior to that time, its expenditures are governed by the prior version, which was published in 1998. 63 Fed. Reg. 29,794 (1998). There are no material substantive differences in the principles we address here, although some of the citations are different. In those cases, we provide citations to both versions. In addition to the cost principles of OMB A-122 and the provisions of 42 U.S.C. § 9839(g) and 45 C.F.R. Part 1309 governing construction and major renovation of Head Start facilities, Head Start grantees are subject to 45 C.F.R. Part 74, "Uniform Administrative Requirements for Awards and Subawards to Institutions of Higher Education, Hospitals, Other Nonprofit Organizations, and Commercial Organizations." The Board has consistently held that it is a fundamental principle of grants management that a grantee is required to document its costs, and bears the burden of demonstrating the allowability and allocability of costs for which it received federal funding. See, e.g., Council of the Southern Mountains, DAB No. 1861, at 3 (2003); Texas Migrant Council, Inc., DAB No. 1743, at 4 (2000) and decisions cited in both. That requirement is significant here, as we find that Marie Detty failed to document its costs and its assertions that they were allowable. Discussion ACF based the disallowance on an on-site review of Marie Detty's Head Start program conducted May 17-24, 2004, which identified [Page 4] and questioned all of the costs that ACF subsequently disallowed. Marie Detty ACF Document (Doc.) 1. When ACF issued its report of the on-site review on June 29, 2004, it provided Marie Detty an opportunity to submit comments and materials in support of the questioned costs. The parties continued to correspond, with ACF raising additional questions and Marie Detty submitting further responses and documents. ACF disallowed the costs at issue, except for the construction costs, in a letter dated December 10, 2004. Marie Detty ACF Doc. 4. ACF disallowed the construction costs in a letter dated January 24, 2005. Marie Detty ACF Doc. 5. With its appeals, Marie Detty submitted copies of the correspondence with ACF and the documentation Marie Detty provided prior to the disallowances. These documents, along with the parties' briefs and some additional documents, constitute the record on which we base our decision. We first address Marie Detty's arguments about the collaboration funds and explain why they provide no basis to reduce any of the disallowance. We then address the individual costs that ACF disallowed.
Marie Detty's principal, overarching argument is that the disallowance should be reduced or eliminated because Marie Detty placed into the Head Start program enough non-federal funds to make up for any of the unallowable expenditures. Marie Detty reports receiving these funds from Oklahoma school districts under collaboration agreements that called for Marie Detty to provide Head Start services to school district pre-kindergarten children, some of whom were not Head Start-eligible. Marie Detty asserts that during fiscal years (FYs) 2003 and 2004 (the years ending June 30, 2003 and 2004) it placed approximately $200,000 a year in collaboration funds into its Head Start program or program account, and that it had enough collaboration funds left over to pay for the disallowed expenditures. Marie Detty Reply Br. at 6-7. We conclude that Marie Detty failed to demonstrate that it used the collaboration funds in any way that could reduce the disallowance. Marie Detty did not establish that it charged the disallowed costs to non-federal funds or that it used the collaboration funds to pay for unclaimed but allowable Head Start expenses that might offset the disallowance. [Page 5] In making its arguments about the collaboration funds, Marie Detty fails to meet its obligation to demonstrate that it is entitled to all federal funds it received and seeks to improperly shift that burden to ACF. As explained below, this is due in part to Marie Detty's admitted commingling of collaboration funds and federal Head Start funds. Moreover, the record casts doubt on Marie Detty's claim that it had sufficient collaboration funds available to cover the unallowable costs or that it was free to spend the collaboration funds on unallowable charges. Marie Detty had collaboration agreements with at least five school districts to provide Head Start or Head Start-type services to school district children. These agreements typically require Marie Detty to provide Head Start services, including supplies, and provide that the children served be eligible for Head Start or enrolled in the Head Start program. However, at least one agreement contains language indicating that some non-eligible children would be served, and Marie Detty reported providing Head Start services to children who were not eligible. Agreements with three school districts require Marie Detty to provide facilities such as classrooms, although agreements with two other school districts, one of which became effective in August 2004, call for the school districts to provide at least some facilities. The agreements call for the school districts to pay Marie Detty set rates per child per year, ranging from $500 to $3,253.90. Marie Detty reports receiving $337,077.59 in collaboration funds for FY 2003 and $479,382.60 for FY 2004, and asserts that it gave approximately $200,000 to the Head Start program each year. The remainder, Marie Detty states, was for Marie Detty to use for non-Head Start expenditures. According to Marie Detty, "[t]hese are the excess collaboration funds that Marie Detty makes reference to in its initial brief, which were available to pay non-Head Start allowable expenses." (1) Marie Detty Reply Br. at 6-7, citing Marie Detty Att. 3, at 1; Marie Detty Att. 3, Exhibit (Ex.) 2. Marie Detty reports that it commingled at least some of the collaboration funds with its federal Head Start funds, "so [that] it is difficult to know which funds were which." Marie Detty Br. at 7; Marie Detty Att. 2, at 1. Marie Detty reports using some of the collaboration funds to supplement and expand its Head Start program, including [Page 6] increasing enrollment and extending the Head Start program to a full day program. Marie Detty used some of the funds, as well as Head Start funds, to provide services to children who were not eligible for Head Start services; Marie Detty describes these children as being "on the fringe of Head Start eligibility," ineligible because their working-poor parents had not applied for food stamps or child care because they did not want welfare. Marie Detty Br. at 9-10. Marie Detty reports that it increased "approved enrollment" from 391 to 520 children "through Head Start and collaboration services." Marie Detty Att. 3, at 2. (2)
Marie Detty makes several arguments about the collaboration funds, with one common theme: that Marie Detty had enough non-federal collaboration funds to pay for all of the unallowable expenses. Marie Detty Att. 2, at 1; Marie Detty Att. 3, at 1. Marie Detty also argues that it used collaboration funds to pay for allowable Head Start costs for which it did not claim federal funding. "We have in excess of $150,000 of Head Start allowable expenses but [for] which we did not use Head Start funds." Marie Detty Att. 2, at 3. Finally, Marie Detty suggests that some of the disallowed costs may have been charged to collaboration funds, noting that "[t]here is nothing stated in these agreements that would preclude Marie Detty from using these funds for any expense associated with the Head Start program, whether or not it would be an allowable expense under Federal Head Start guidelines." Marie Detty Br. at 7-8. None of these assertions warrant reducing the disallowance. First, Marie Detty did not document that any of the disallowed costs were charged to collaboration funds, and not Head Start funds. Marie Detty's commingling of collaboration and Head Start funds in its Head Start account makes such an assertion difficult to verify, as Marie Detty recognized when it admitted that the commingling made it "difficult to know which funds were which." Marie Detty Br. at 7; Marie Detty Att. 2, at 1. The burden of documentation is on Marie Detty, and Marie Detty not only did not meet that burden but, in addition, has effectively admitted that it cannot do so. [Page 7] Second, Marie Detty failed to demonstrate that the disallowance could be offset by its expenditures of collaboration funds. As ACF recognizes in its brief, the Board has held that a grantee may offset a disallowance of unallowable costs by documenting that it used its own funds to pay for allowable, allocable costs for which it did not claim federal funds. Central Piedmont Action Council, Inc., DAB No. 1916, at 7 (2004), citing Campesinos Unidos, Inc., DAB No. 1546 (1995) and Seminole Nation of Oklahoma, DAB No. 1385 (1993); ACF Br. at 7-8. (3) In effect, a grantee may substitute for unallowable costs charged to federal funds allowable and allocable costs for which it did not claim federal funding. Central Piedmont at 7. Marie Detty did not demonstrate that it incurred unclaimed allowable costs that could substitute for the unallowable ones because it did not document that it used collaboration funds to pay for allowable Head Start costs that were not previously charged to federal funds. Marie Detty's failure to make that showing distinguishes this appeal from Central Piedmont, where the Board reduced the disallowance because the grantee documented allowable Head Start expenditures that accounted for all of the federal funds that it drew down during the relevant time period. The grantee did this by, among other things, submitting a 66-page spreadsheet listing its Head Start expenditures, including the date, the payee, the purpose, a check number where applicable, and an account classification number. But see North Central West Virginia Community Action Association, Inc., DAB No. 1604, at 1-2, 9-10 (1996) (sustaining disallowance where the grantee did not document that it incurred enough Head Start expenditures with its own funds to offset the disallowance). For example, Marie Detty, unlike the grantee in Central Piedmont, did not document that it incurred enough allowable and allocable Head Start expenditures to account for all of the federal funds that it drew down. (4) Because Marie Detty commingled Head Start [Page 8] and collaboration funds, it would have to make that showing to establish that any allowable Head Start expense it alleges was paid with collaboration funds, and that might offset the disallowance, was not previously charged to federal funds. Absent that showing, ACF would have to review all of Marie Detty's Head Start expenditures for the relevant period to verify that Marie Detty had not charged to Head Start funds any individual cost that Marie Detty wished to substitute for an unallowable cost. Requiring ACF to conduct such a review would wrongly shift to ACF Marie Detty's burden, as a grantee, to document the existence and allowability of the costs for which it claims federal funding. Marie Detty's assertion that it used collaboration funds to pay for allowable Head Start expenses provides no basis to reduce the disallowance. Marie Detty did not support its assertion with documentation. (5) Because Marie Detty did not demonstrate that it incurred allowable and allocable Head Start expenditures with collaboration funds that could offset the disallowance, its more general argument that the disallowance should be reduced because it placed collaboration funds into its Head Start program account is also unavailing. As noted above, a grantee may effectively substitute for unallowable costs charged to federal funds allowable and allocable costs for which it did not claim federal funding. Central Piedmont at 7. Merely because Marie Detty placed non-federal funds into its Head Start account did not mean that those funds were used to cover allowable Head Start costs. Since Marie Detty did not document that it spent those funds on allowable Head Start costs that could substitute for the unallowable charges, Marie Detty must account to ACF for Head Start funds spent on unallowable costs. [Page 9] Accordingly, we conclude that Marie Detty failed to establish that it used the collaboration funds in any manner that would warrant reducing the disallowance.
Above, we concluded that Marie Detty did not document that it used the collaboration funds in any manner warranting a reduction of the disallowance. In addition, the record does not support Marie Detty's assertions that it could use collaboration funds to pay for unallowable costs and had sufficient "excess" collaboration funds applied to allowable costs to offset the disallowance. Marie Detty reports receiving over $817,000 in collaboration funds for FYs 2003 and 2004 and asserts that it added some $200,000 to the Head Start program each year, leaving the remainder available for non-Head Start expenditures. Marie Detty Reply Br. at 6-7, citing Marie Detty Att. 3, at 1; Att. 3, Ex. 2. The collaboration agreements undermine Marie Detty's assertions, as they require Marie Detty to provide Head Start services at per-child payment rates significantly lower than the per-child costs of Marie Detty's federal Head Start program. As ACF points out in its brief, Marie Detty received $2,786,129 in federal Head Start grant funds during FY 2003 to serve 451 children, for a cost of $6,177 per child. Marie Detty Att. 2, Ex. 1 (notice of grant award). By contrast, the collaboration agreements in effect at the time the disallowed costs were incurred call for yearly payments of $1,301.56 to less than $3,253.90 per child. (6) Marie Detty Att. 3, Ex. 2. It is not credible that Marie Detty could have provided the Head Start services required by the collaboration agreements at payment rates significantly less than [Page 10] the cost of its federally-funded Head Start program and still have had enough funds left over to cover the $338,971 in disallowed costs or add $200,000 each year to its Head Start program. These cost differentials support ACF's concern that Marie Detty's federally-funded Head Start program was subsidizing the services it provided under the collaboration agreements, some of which were provided to children whose eligibility for Head Start has not been established. (7) This suggests that Marie Detty would need to use Head Start funds to provide adequate services to Head Start children in the collaboration programs. This finding is consistent with ACF's argument that the $200,000 that Marie Detty reports adding to its Head Start program each year would not have been sufficient to provide Head Start services to the Head Start-eligible children that Marie Detty reports adding to the program. Marie Detty asserts that it increased "approved enrollment" from 391 to 520 children "through Head Start and collaboration services," an increase of 129 children. Marie Detty Br. at 7; Att. 3, at 2. As ACF argues, these figures result in a payment rate of $1,550 per child, ($200,000/129 children), again significantly less than the cost of Marie Detty's federal Head Start program. In response, Marie Detty asserts that the $200,000 a year in collaboration funds that it used to provide services "to the additional children" was in addition to $696,535 in local matching funds. Marie Detty Reply Br. at 6-7. However, those local matching funds were the 20% non-federal share of total program costs that all Head Start grantees are required to provide. Marie Detty Att. 2, Ex. 1; 45 C.F.R. § 1301.20. The cost principles required that Marie Detty spend those matching funds only on allowable costs of its Head Start program; therefore, it could not use them to cover the disallowed expenses. Moreover, because Marie Detty was required to put its non-federal share into its Head Start program, in addition to its federal Head Start award, it could not use allowable expenditures needed to meet the non-federal share [Page 11] requirement to offset the disallowance by substituting for the disallowed costs. Marie Detty asserts that "[t]here is nothing stated in these agreements that would preclude Marie Detty from using these [collaboration] funds for any expense associated with the Head Start program, whether or not it would be an allowable expense under Federal Head Start guidelines." Marie Detty Br. at 7-8. That assertion is not relevant, since there is no evidence that Marie Detty incurred and paid sufficient allowable costs to establish that it is entitled to the federal funds it drew down. Moreover, the record does not support Marie Detty's assertion. Marie Detty cites language in its collaboration agreement with Independent School District No. 8 of Comanche County stating that funds "may be used at Marie Detty's discretion with no restrictions." Marie Detty Att. 6. However, notwithstanding the language of that agreement, the agreements with all five school districts clearly require Marie Detty to provide Head Start services, effectively precluding use of the funds for expenses for other purposes. For example, the agreement that Marie Detty cites requires Marie Detty to "operate a Head Start program" and to provide supplies, equipment, educational materials "and all other services normally available to Head Start-enrolled children, including health services, parental involvement, social and other services normally offered to Head Start children." Id. The other agreements contain similar language. Marie Detty Att. 3, Ex. 2. Marie Detty's general arguments that the collaboration funds benefitted its Head Start program are unavailing. For example, it argues that under the Lawton agreement, the school district provided facilities and teachers whose value to Head Start far exceeded the $200,000 in collaboration funds that Marie Detty reported adding to the Head Start program each year. However, the Lawton agreement does not contain this information, and instead calls for Marie Detty to supply the facility. Id. While the agreement with Independent School District No. 8 of Comanche County does call for the school to provide some facilities and teachers (and also refers to the children as being enrolled in Lawton public schools), that agreement was not effective any earlier than August 17, 2004, after the on-site review that identified the disallowed costs. (8) Marie Detty Att. 6. Additionally, that agreement was not the source of the [Page 12] collaboration funds Marie Detty reported receiving for FYs 2003 and 2004. Marie Detty Att. 3, Ex. 2. Finally, Marie Detty's arguments that it used collaboration funds to benefit its Head Start program do not carry the equitable weight that Marie Detty asserts. As the Board observed in Council of the Southern Mountains, DAB No. 1861 (2003):
Id. at 11. Accordingly, the record does not support Marie Detty's arguments about the collaboration funds. Instead, the record calls into question Marie Detty's ability to use the collaboration funds in the manner asserted, indicates that Marie Detty would not have had excess collaboration funds in any event, and suggests that Marie Detty may have used federal Head Start funds to subsidize the provision of collaborative Head Start services to children who are not enrolled in its federal Head Start program. We thus conclude that Marie Detty's arguments about the collaboration funds provide no basis to reduce the disallowance. We now turn to the individual costs that ACF disallowed.
ACF disallowed $69,028.22 that Marie Detty spent on Christmas bonuses for its employees, on the ground that Marie Detty failed to comply with cost principles specifying the conditions under [Page 13] which incentive compensation may be charged to federal funds. (9) Marie Detty agrees that it did not meet those conditions but argues that the amount of the bonuses actually charged to Head Start funds was significantly less than the amount that ACF disallowed. The cost principles provide as follows:
OMB A-122, Att. B, ¶ 8.j (formerly ¶ 7.i). Marie Detty argues that it paid the bonuses based on merit but does not dispute ACF's determination that Marie Detty did not pay the bonuses pursuant to an agreement with its employees or a consistently-followed, established plan, as required by OMB A-122. Moreover, it appears that bonuses may have been based on position instead of merit. Marie Detty did not dispute ACF's determination in the December 10, 2004 disallowance letter that Marie Detty's executive director and assistant director received [Page 14] bonuses of ten percent and seven percent of their annual salaries, respectively, whereas the majority of Marie Detty's staff received bonuses of one to two percent. The payments were thus unallowable under the rationale in Rural Day Care Association of Northeastern North Carolina, DAB No. 1384, at 3 (1993), and Licking County Economic Action Development Study, DAB No. 1159, at 4 (1990), where the Board sustained factually similar disallowances of bonus payments charged to Head Start funds that were not paid pursuant to established policies and were based on position, not outstanding performance. As in Rural Day Care, Marie Detty has not cited any regulation which would allow the payment of these types of bonuses. Marie Detty thus failed to even raise any genuine dispute as to ACF's determination that the bonuses were not allowable, much less establish that they were. Instead, Marie Detty disputes ACF's determination of the amount of the bonuses charged to federal funds. Marie Detty argues that it charged to federal Head Start funds, and paid to Head Start employees, only $26,619.52 in Christmas bonuses. All other Christmas bonuses, Marie Detty argues, were paid from non-federal non-Head Start funds, such as collaboration funds and state grants for other programs and, therefore, were not subject to disallowance. Marie Detty Att. 1, at 4, 8; Att. 2, at 1-2; Marie Detty Reply Br. at 2-3, citing Marie Detty Att. 3, Ex. 1. In support of this argument, Marie Detty submitted four spreadsheets and related documents concerning payrolls dated November 30 and December 19, 2003, that it said show the amount and funding sources of the bonuses it paid to its employees. Marie Detty Att. 3, Ex. 1. One of the spreadsheets is labeled "November 30, 2003 Christmas Bonuses," one is labeled "Payroll Allocation - Lawton Group Home For the Payroll Dated December 19, 2003 Christmas Bonuses," and the remaining two are labeled "December 19, 2003 Christmas Bonuses." Each spreadsheet lists employee names, the amount of the payment to each employee, and the accounts or programs to which the payments were allocated or charged. (10) These accounts, approximately 30 in all, each labeled with a unique account number, include some that are presumably federally-funded programs, such as Head Start, Early Head Start, and "CDC Head Start," as well as others that might not be federally-funded, such as "Residential Shelter," "Runaway Shelter," "Early Intervention," "Dept. of Corrections," and "DUI [Page 15] Assessment." Id. There is also an account labeled Collaboration, but the spreadsheets record no payments debited to that account. Most of the payments range between $50 and $200, although many employees received no payments, and a few received payments in the thousands of dollars. The executive director, for example, is shown as receiving an $8,000 payment, which is consistent with ACF's statement in the December 10, 2004 disallowance letter that the executive director received $8,000 Christmas bonuses for 2002 and 2003. Each spreadsheet is accompanied by a single "Journal Entry" page listing the total debits to each of the accounts shown on the spreadsheet. In addition to the total bonus payments listed on the spreadsheets, which are recorded on the Journal Entry pages as salaries, the Journal Entry pages also list associated debits to each account for FICA. Three of the spreadsheets are also accompanied by Journal Entry pages listing voided bi-weekly or monthly bonuses to individual employees, showing that some accounts were credited for salary and associated payments. Marie Detty submitted these pages with a one-page analysis of Christmas bonus payments for FY 2004, stating that Marie Detty paid a total of $76,030.39 in Christmas bonuses, of which $27,965.02 was charged to Head Start, Early Head Start, or Collaboration sources funds (instead of the $69,028.22 disallowed by ACF). In a cover letter to ACF forwarding the documentation, Marie Detty reported, without explanation, that the total actually paid to Head Start and Early Head Start employees was $26,954.02, instead of the $27,965.02 listed in Marie Detty's analysis of the spreadsheets. Marie Detty Att. 3, at 1. Marie Detty submitted its documentation to ACF on October 22, 2004, in response to ACF's request that Marie Detty identify the staff who received the bonuses, the amount of the bonuses, and, for non-Head Start employees, the program with which each person works. For Head Start employees, ACF also sought the reason for the bonus. Marie Detty ACF Doc. 3. Yet, ACF did not comment on the payroll records that Marie Detty submitted, either in the December 10, 2004 disallowance letter or in its brief before the Board. Instead, ACF repeated the basis for the disallowance, that Marie Detty did not comply with the requirements in OMB A-122 for the payment of incentive compensation, a point that Marie Detty has not refuted on appeal. As to the submissions, the disallowance letter noted only that Marie Detty had submitted "several documents stating that bonuses were paid on 'merit.'" Before the Board, ACF did not address Marie Detty's argument that not all of the bonuses were charged to federal Head Start funds, except to argue that Marie Detty would likely not have had enough collaboration funds to pay for the full amount of the bonuses and [Page 16] the other disallowed costs, a point with which we concurred in the previous section of this decision. However, that argument does not address Marie Detty's documentation indicating that some of the bonuses were charged to sources other than Head Start, Early Head Start, or collaboration funds. Marie Detty's documentation raises an inference that some of the disallowed bonus payments may not have been charged to Head Start or other federal funding sources and, therefore, would not be subject to disallowance. However, because ACF did not comment on the documentation that Marie Detty provided concerning the Christmas bonuses, the Board cannot determine whether that documentation verifies Marie Detty's claim that it charged to Head Start funds a smaller amount than the amount that ACF disallowed. The Board lacks sufficient information to verify that the various non-Head Start accounts listed in the payroll records are composed of non-federal funds, as Marie Detty asserts. Accordingly, we sustain the disallowance of $26,619.52, the amount of the Christmas bonuses that Marie Detty concedes it charged to Head Start funds, and we remand the remaining disallowance of $42,408.70 for ACF to review the documentation and determine whether it provides a basis to reduce the disallowance. We again note that Marie Detty, as a grantee, bears the burden of documenting the allowability of its charges to federal funds. Marie Detty must supply any additional information or documentation that ACF requires during the remand process. Should ACF conclude that the commingling of Head Start and collaboration funds that Marie Detty has reported makes it impossible to determine whether Head Start funds were charged a smaller amount for bonuses than the amount disallowed, there would be no grounds to reverse any of this portion of the disallowance. After ACF reviews Marie Detty's exhibit it should provide Marie Detty with a written notice stating whether the exhibit (and any additional information ACF receives from Marie Detty) provides any basis for ACF to alter its determination of the amount of the unallowable charge, and, if not, why not. If Marie Detty is not satisfied with ACF's determination, it may appeal that determination to the Board within 30 days after receiving it.
ACF disallowed $91,689.69 for two contributions to a retirement plan for Marie Detty employees, $52,483.66 for 2002 and $39,206.03 for 2003. ACF determined that Marie Detty wrote [Page 17] checks for those amounts from its Head Start account but never sent them to the vendor. ACF determined that Marie Detty violated applicable cost principles requiring that pension plan costs assigned to a given fiscal year be funded for all plan participants within six months after the end of that year. OMB A-122, Att. B, ¶ 8.i.1.d (formerly ¶ 7.h.1). ACF's on-site review determined that checks for these amounts represented pension plan contributions for FYs 2002 and 2003 and that Head Start funds were not available to pay for the checks because the grantee had drawn down all funds for those fiscal years. Marie Detty ACF Doc. 1, at 5. Two checks for FY 2002 contributions were issued, voided and reissued as another check which, along with a check issued for a FY 2003 contribution, were held by Marie Detty and remained outstanding. ACF also determined that although the checks were never sent to the vendor, Marie Detty charged the "contributions" to the Head Start general ledger and listed the expenditures on the SF-269. Marie Detty ACF Doc. 1, at 5. Marie Detty does not dispute these findings. Instead, Marie Detty explains that while it wanted to make the retirement contributions at the end of each fiscal year, it had exhausted its Head Start funds, and so issued but did not send the checks to "create the commitment to pay funds to the retirement plan." Marie Detty Att. 3, Ex. 4. One reason Marie Detty did this was that its use of a "pay as you go" accounting system at that time meant that it did not have an accounts payable ledger that could have recorded the commitment, and so used the unmailed checks as the written commitment. Marie Detty Reply Br. at 4. Marie Detty describes the unsent checks as a good-faith effort to fund the plan at a later date. Id. Marie Detty also asserts that it meant to pay for the contributions with non-federal collaboration funds that it manages through its Head Start cost center or program account. In correspondence to ACF prior to the disallowance Marie Detty stated that it subsequently moved the expense to an accounts payable ledger and that it would fulfill its commitment to pay the pension contributions. Marie Detty Att. 3, Ex. 4. We sustain this portion of the disallowance. Marie Detty did not fund its reported retirement contributions within six months after the end of each year as required by OMB A-122, and the reported charges are unallowable since no expenses were ever incurred within the proper time frame. Moreover, Marie Detty failed to meet its burden to document that it spent the funds it [Page 18] drew down for the unpaid retirement contributions on other, allowable costs of its Head Start program. (11)
ACF disallowed a $1,300.16 charge to Head Start funds for medical care provided to the 24-year-old daughter of Marie Detty's executive director, on the ground that the charge violated the requirement of OMB A-122 that a cost, to be allowable, must be reasonable for the performance of the federal award and allocable thereto. OMB A-122, Att. A, ¶ A.2.a. Marie Detty states that it paid the medical expense because the daughter had been erroneously removed from the executive director's family health insurance coverage due to a bookkeeping error, that Marie Detty did not intend to end her coverage, and that it paid this cost because Marie Detty was liable for her medical coverage and wanted to avoid a claim that Marie Detty had not given the daughter proper notice of the cancellation of her coverage that Marie Detty says is required by federal law. Marie Detty argues that 50% of this cost should be allocated to Head Start to reflect allocation of the executive director's salary, and that the remaining 50% "should be offset from the surplus of collaboration funding the agency provided to the Head Start program." Marie Detty Br. at 11. ACF determined that the cost would not be allocable to Head Start, and was unreasonable because the daughter, due to her age, would likely not have been eligible for coverage under the executive director's insurance. ACF determined that Marie Detty, to rectify the error it says ended coverage, should have contacted the insurer "regarding payment due to 'Errors and Omission.'" Marie Detty ACF Doc. 4, at 4-5. OMB A-122 specifically authorizes the payment of employee medical care only to the extent that it permits payment of the costs of employee insurance (when provided in accordance with established written organization policies) and employee first-aid clinics and infirmaries (when incurred in accordance with the non-profit organization's established practice or custom). OMB A-122, Att. B, ¶ 8.g(2) (formerly ¶ 17.f(2)), ¶ 13. Those provisions do not apply to this cost because it was not for the payment of [Page 19] insurance and there is no indication that the medical care in question was provided at an employee clinic or infirmary. In the absence of a provision authorizing this payment, Marie Detty must show that this charge met the general standards for allowability in the circular, that it was reasonable for the performance of Marie Detty's Head Start award and that it was allocable thereto. Marie Detty has not made that showing. In determining whether a cost is reasonable, OMB A-122 requires that consideration be given to whether the cost is of a type generally recognized as ordinary and necessary for the operation of the grantee organization or the performance of the award. A cost is allocable if, among other requirements, it benefits the federal grant award to which it is charged and is necessary to the overall operation of the grantee organization. Id. at Att. A, ¶ A.3, A.4. Marie Detty has not shown how the costs of medical care provided to the adult daughter of its executive director related to the operations of its Head Start program. It has not demonstrated that the cost was reasonable or allocable under these standards. Thus, ACF properly concluded that no part of the $1,300.16 is allocable to Head Start. In our discussion of the collaboration funds, we explained why Marie Detty's argument that it placed non-federal collaboration funds into the Head Start program does not provide a basis to reduce the disallowance. That analysis also refutes its assertion that collaboration funds should offset 50% of this cost. Accordingly, we sustain this portion of the disallowance.
ACF disallowed costs associated with the operation of a motor vehicle that Marie Detty provided for its executive director. The executive director sometimes used the vehicle to commute between work and home. ACF disallowed these costs on the ground that OMB A-122 forbids reimbursement of costs of personal use of grantee vehicles, including transportation to and from work by employees. OMB A-122 states:
OMB A-122, Att. B, ¶ 8.h (formerly ¶ 7.g). ACF disallowed the total fuel costs of the vehicle for the period in question, FY 2003, because Marie Detty did not fulfill ACF's request for information on the mileage attributable to the executive director's commutes between his home and office. ACF had asked Marie Detty to compute the daily round trip mileage between the executive director's home and his office and the number of round trips he made, so that ACF could determine the proportion of total mileage, and thus total vehicle costs, that were attributable to personal use. Marie Detty ACF Docs. 3, 4. Marie Detty argues that all of the vehicle costs were business related and should be allowed, and that some of the disallowed costs were credit card charges for doing background checks on Head Start employees. (12) Marie Detty reports that the executive director used the vehicle for business purposes, such as travel to different Marie Detty sites and locations, including Oklahoma City and Dallas, to attend meetings and conferences. Sometimes, Marie Detty reports, he traveled to these different locations directly from his home prior to coming to the office. Marie Detty asserts that the executive director is on call around the clock and sometimes is in the office on holidays and weekends. Marie Detty argues that because the executive director's responsibilities take him to many different locations, it is more economical for him to maintain the vehicle at his home. Marie Detty Att. 3, Ex. 7. Marie Detty does not deny that the executive director used the vehicle to commute from his home to his job, and the cost of such usage is clearly an unallowable charge under the circular. To the extent that other usage of the vehicle may have been allowable, Marie Detty failed to fulfill its burden to demonstrate the existence and allowability of those costs. Marie Detty did not fulfill ACF's request for information on how much of the mileage was used for commuting, and made no other attempt to separate those costs that would clearly be unallowable under the circular from those that it argues were potentially allowable. Accordingly, Marie Detty has failed to demonstrate [Page 21] that this was an allowable charge to its federal Head Start grant, and we sustain this portion of the disallowance.
ACF disallowed $10,000 that Marie Detty paid for management consulting services under a contract with Paradigm Associates. Paul Smith, who was also Marie Detty's executive director, signed the contract as the "President of Paradigm Associates." Marie Detty ACF Doc. 1. The contract called for payments of $2,000 per month, of which Marie Detty charged 50% to Head Start. The contract was entered into in 2001, and the services were provided during July 2003 through April 2004. Marie Detty Att. 2, at 6; Marie Detty Reply Br. at 9. ACF disallowed the cost on the ground that it did not meet the requirements of OMB A-122 that a cost be allocable to a particular cost objective in accordance with the relative benefits received, which means, among other things, that it must be incurred specifically for the award. Att. A, ¶ A.4.a. ACF determined that the payments did not meet these requirements primarily because the services Marie Detty received under the contract did not appear to benefit the Head Start program, and most of the contractor's activities did not relate to Head Start and would not be chargeable to Marie Detty's Head Start grant. ACF also cited the less-than-arms-length nature of the contract, since Marie Detty's executive director was also the president of Paradigm's Board of Advisors; the lack of competition in selecting the contractor; and, the possibility that federal funds were spent for lobbying under the contract. ACF made these determinations based, in part, on information Marie Detty provided to ACF, including the monthly reports. ACF cites a regulation prohibiting a grantee's employees, officers and agents from participating in the selection, award, or administration of a contract supported by federal funds if a real or apparent conflict of interest would be involved. 45 C.F.R. § 74.42. Marie Detty argues that the contract provided management support services that benefitted Head Start, that ACF mischaracterized the relationship between its executive director and Paradigm, the contractor, and that the relationship did not improperly inform Marie Detty's decision to enter the agreement and should not be a basis for ACF to disallow this expense. Marie Detty asserts that Paradigm was a sole proprietorship owned by Robert Beesley, Ph.D., who performed the consulting services, along with three secondary consultants. Marie Detty Att. 3, Ex. 8. Marie Detty admits that its executive director was president [Page 22] of Paradigm's Board of Advisors, but claims he had no proprietary interest in the company and functioned more as a board member of Paradigm than its president. Marie Detty also argues that there was no conflict of interest in its selection of Paradigm because the executive director made known his relationship with Paradigm and raised the arms length concerns to Marie Detty, and because the executive director had previously done grant writing, training and program development work for Paradigm in other agencies. Marie Detty asserts that before entering into the contract it carefully reviewed the potential conflict of interest and appearance of favoritism, and determined that the conflict was one of form, not substance. Marie Detty Att. 2, at 6; Att. 3, Ex. 8. Marie Detty also argues that it needed the consulting services due to its rapid growth during 1999 and 2000, when it was increasing services and adding programs. Marie Detty reports that its executive director was spending approximately 60 hours per week to accomplish his duties, and that it contracted with Paradigm for "some consultation" and "taking the load off" the executive director. Marie Detty Att. 2, at 6. Marie Detty says that the executive director suggested that Paradigm concentrate on organizational and strategic issues as well as some issues associated with state government. Id. Marie Detty also asserts that its need for the services of persons with specific skills and knowledge of particular programs precluded the use of competitive bidding to select a consultant, and that it selected this contractor because of its experience with Marie Detty and its unique insights into Marie Detty's operations. Marie Detty Att. 3, Ex. 8. Marie Detty argues that the contract cost of $2,000 per month was reasonable when compared to the $3,000 per month plus benefits and expenses that Marie Detty says it would have paid to hire a staff person to perform those tasks. Marie Detty Att. 2, at 6. Marie Detty also asserts that the contract saved the executive director an average of 35 hours per month for a cost of $57 per hour based on the contract cost, a rate that Marie Detty asserts is reasonable compared to its two other management contracts, which cost $150 and $62.50 per hour. Marie Detty Att. 3, Ex. 8. In support of the contract, Marie Detty provided ten one-page monthly reports, covering the period July 2003 through April 2004, submitted by the individual whom Marie Detty identified as Paradigm's owner. Marie Detty Att. 2, Ex. 5. Each report contains four sections with the headings contract objectives, monthly objectives, monthly activities, and monthly outcomes. Beneath each heading are several bullet points with brief [Page 23] statements or descriptions, each typically a sentence fragment. The monthly activities category indicates that the contractor met with Marie Detty's executive director a total of 35 times during the ten-month period, anywhere from two to five times a month. We sustain the disallowance of the cost of the consulting contract because of the paucity of evidence showing that Marie Detty's Head Start program received specific services or benefits from the contract; because of the lack of other information showing how this charge would meet the standards for allowability in the applicable cost principles; and, because of the apparent conflict of interest in Marie Detty's selection of the contractor. The monthly activity reports that Marie Detty submitted provide little substantive information about the services that Marie Detty paid for or how those services benefitted Marie Detty's Head Start program. They contain only terse descriptions of what the consultant did. For example, the monthly report for February 2004 states that the consultant met with the executive director on five separate occasions, and that he advised the executive director "on framing of employee feedback," "[w]orked with ODOC on HS state funding admin costs," visited with "OJA, DHS and DOE on state payments for group home teachers," "[w]orked with legislative staff on proposal to add YS agencies to govt tort limitation," and "[r]eviewed front office procedures. Added more insurance work for front desk." Marie Detty Att. 2, Ex. 5. The activity report for September 2003 states that the consultant met with the executive director on three separate occasions and that he continued work on reorganizations, reviewed the need for an early childhood coordinator, reviewed Marie Detty's response to DHS licensing action, and met the "consultant for Community Works who will receive some of the Las Pasadas contract." Id. The monthly reports do not adequately describe services warranting a $1,000 monthly charge to Head Start funds. The descriptions are very brief and insubstantial. Each month's list of activities comprises only a few sentence fragments that offer no insight into the scope of the services performed, how long they took, what specific task they entailed or how any of this relates to or benefits the Head Start program. Many of the activities listed have no apparent connection to Marie Detty's Head Start program, as ACF asserts. This is not to say that some of the costs could not in theory be allowable and allocable to Head Start. However, Marie Detty has the burden of documenting that its costs are allowable and allocable, and Marie Detty has not met that burden. Marie Detty has not shown that the consulting contract was a reasonable cost for the operation of [Page 24] its Head Start program and allocable thereto, as required for all charges to federal grant funds under OMB A-122. Because of the dearth of substantive information about the services that Marie Detty received under the contract, this cost is also unallowable under cost principles that specifically address the allowability of professional services costs such as consulting and contracting. In addition to the requirements that any costs be reasonable for the performance of the federal award and allocable thereto, OMB A-122 also provides, as relevant here, the following standards for determining the allowability of the costs of consultant services:
OMB A-122, Att. B, ¶ 37, "Professional services costs" (formerly ¶ 39). Marie Detty's documentation does not support a determination of allowability under several of the above factors. Marie Detty did not identify the particular profession of the principal consultant, his special skills or his field of study or expertise and did not state what his qualifications were, other than his having a doctorate in an unidentified field. Marie Detty also did not provide information on the customary fees that would be charged by an individual of his qualifications, or by the three individuals identified as secondary consultants. The scant documentation that Marie Detty did provide does not establish its claim that the consultant services saved the executive director 35 hours per month. Nor did Marie Detty demonstrate that the contract adequately described the services to be provided, the estimated time required, the rate of compensation, and any termination provisions. (13) The lack of adequate documentation of the services provided under the contact distinguishes this appeal from Marie Detty's earlier appeal, Marie Detty Youth and Family Services Center, DAB No. [Page 26] 1643 (1998). (14) In that decision, the Board reversed part of the disallowance of payments to a consulting company that developed Marie Detty's manual of policies and procedures and other materials. There, the materials that Marie Detty submitted enabled the Board to determine that they related to Head Start program requirements and benefitted Marie Detty's Head Start program. Here, by contrast, the documentation provides very little information about what the consultants did, what their work product was, or how the services for which Marie Detty paid $10,000 in federal Head Start funds actually benefitted its Head Start program. Finally, selection of a contractor associated with Marie Detty's executive director was inconsistent with the administrative requirements for awards and grants at 45 C.F.R. Part 74. Section 74.42, "Codes of conduct," provides in relevant part that no employee, officer, or agent shall participate in the selection, award, or administration of a contract supported by federal funds if a real or apparent conflict of interest would be involved. Such a conflict would arise, the regulation states, when the employee, officer, or agent has a financial or other interest in the firm selected for an award. While Marie Detty reported that its executive director had no proprietary interest in the contractor, Marie Detty did not assert that, as a Board member of the contractor, its executive director, who recommended that Marie Detty hire the contractor, did not have a financial or other interest in the contractor.
ACF disallowed $8,912.20 for furniture Marie Detty purchased for its administrative building, on the basis that the building is used by Marie Detty programs in addition to its Head Start program, and that Marie Detty failed to establish how much of the cost was properly allocable to Head Start. ACF determined that charging the entire amount to Head Start violated the requirement that a cost, to be allowable, must be allocable to a particular cost objective in accordance with the relative benefits received. OMB A-122, Att. A ¶¶ A.2, A.4. ACF disallowed the entire charge. In its brief before the Board, however, ACF stated that the unallowable amount is $5,941.46. ACF based its determination that only one-third of the charge for furniture was allocable to [Page 27] Head Start on a floor diagram that Marie Detty submitted in support of its initial assertion that 70% of the cost was allocable. Marie Detty Att. 2, Ex. 4. Ten rooms on the diagram are marked with the initials "HS" for Head Start, twelve rooms are marked "S" for shared, and three rooms or areas (including what appear to be two restrooms) are marked "C" for common. Handwritten notations indicate the dimensions of the walls of most of the rooms. Other handwritten notations at the bottom of the sheet show 2,371 square feet as "HS," 1,165 square feet as "S," and also state "70% HS & HS shared" and "30% S and other programs." Id. In its cover letter transmitting the floor diagram, Marie Detty asserted that the furniture was mostly desks and file cabinets for the Head Start program, and that the cost of renting the space was allocated based on its occupancy and use for Head Start, Early Head Start, and administrative activities. Marie Detty Att. 2, at 4-5. Marie Detty concedes that the cost of furniture not used by its Head Start program is not allocable to Head Start and thus not allowable, but disputes ACF's determination of the allocable amount. As noted, Marie Detty initially asserted that the floor diagram - the same diagram that ACF relies on - shows that 70% of the space was used by Head Start, and that the disallowance should be reduced accordingly. (15) Subsequently, Marie Detty asserted that 75% of the cost was allocable to Head Start. Marie Detty based its revised calculation on a two-page exhibit it submitted to ACF prior to the disallowance. Marie Detty Att. 3, Ex. 6. This exhibit, Marie Detty claims, shows the correct allocation to Head Start of floor space and also salaries and administrative costs associated with Marie Detty staff located in the building who perform work for the Head Start program. The exhibit contains three tables or charts, showing percentage allocations to Head Start of salaries of 13 Marie Detty employees, administrative costs associated with those employees, and the space in eleven of the building's shared rooms or areas. Marie Detty Att. 3, Ex. 6. Allocations of staff time range from 40 to 65 percent and are based either on time allocations, transactions, or percent of employees. Space allocations are based on the number of square feet used by different cost centers. Head Start is allocated 100% of the 1,818 square feet [Page 28] described as "Head Start staff;" other allocations of space to Head Start range from 50 to 65% of the space in rooms or areas including Executive Suite, purchasing specialist office, and conference and training rooms. The exhibit states that Head Start occupied 3,019 feet out of 3,984 feet, or 75% of the space, but also states that the facility has 3,527 square feet of space used by Marie Detty programs. ACF did not comment on Marie Detty's two-page exhibit prior to taking the disallowance. And although the disallowance letter states that ACF reviewed all of Marie Detty's letters and attachments, ACF's analysis of the furniture costs indicates that it did not consider the exhibit. The disallowance letter refers to the floor diagram that Marie Detty said showed 70% of the floor space allocable to Head Start. However, when ACF issued the disallowance letter, Marie Detty was asserting that 75% of the furniture cost was properly allocable to Head Start, based on the two-page exhibit. The disallowance letter makes no reference to that exhibit and does not state why it does not support Marie Detty's position. ACF's brief also makes no reference to the exhibit or to Marie Detty's arguments based thereon. Because Marie Detty does not dispute that the cost of furniture not used by Head Start is not an allowable charge to Head Start funds, we sustain in principle the disallowance of the portion of the furniture cost that Marie Detty charged to Head Start funds but which was incurred for furniture not used by Head Start. Because ACF determined that 33% of the cost was allocable to Head Start and accordingly reduced its determination of the unallowable amount from the entire $8,912.20 charge to $5,941.46, we reverse the disallowance of the difference, $2,970.74. And because ACF apparently did not consider the exhibit that Marie Detty submitted to ACF with its letter dated October 22, 2004, we remand the remaining $5,941.46 disallowance for ACF to determine whether Marie Detty's exhibit provides a basis to alter ACF's calculation of the allowable amount. We take this action because we do not have sufficient information to make that determination. For example, Marie Detty did not explain how the rooms or areas listed in the two-page exhibit relate to the rooms and areas shown on the floor diagram it submitted earlier. Marie Detty also did not attempt to explain why the dimensions and room labels shown on the floor diagram appear to support ACF's determination of the amount of floor space allocable to Head Start, rather than Marie Detty's assertions that 70% and then 75% of the floor space was used by Head Start. Marie Detty also did not clarify whether its assertion that 75% of the cost of the furniture was allocable to Head Start was based solely on the table showing that 75% of the floor space was used by the Head [Page 29] Start program, or was based also on the allocations of staff time and associated administrative costs. After ACF reviews Marie Detty's exhibit it should provide Marie Detty with a written notice stating whether the exhibit provides any basis for ACF to alter its determination of the amount of the unallowable charge, and why. If Marie Detty is not satisfied with ACF's determination, it may appeal that determination to the Board within 30 days after receiving it. Marie Detty also asserts that it placed into the Head Start program sufficient non-Head Start collaboration funds to offset the unallowable charge for furniture. We reject that assertion for the reasons stated in our earlier analysis of the collaboration funds.
ACF disallowed $16,971.63 that Marie Detty paid to its former fiscal director under a consulting contract, to perform, on a part-time basis, the same duties he had performed as fiscal director prior to his resignation. As an employee, the fiscal director's rate of compensation had been $28 per hour ($21 salary and $7 benefits, using Marie Detty's fringe benefit ratio of 34%). As a consultant, he received $55 per hour. ACF disallowed the entire payment, on the basis that the rate of compensation violated the requirement of OMB A-122 that a cost be reasonable for the performance of the award, with reasonable defined as follows:
OMB A-122 Att. A, ¶ A.3. In its brief, ACF also notes that in determining the reasonableness of a given cost, the circular calls for consideration to be given to factors including arms length bargaining. ¶ A.3.b. Although ACF disallowed the entire payment, ACF stated in its disallowance letter that it was willing to negotiate a reduction of the disallowance to $8,319, the difference between the [Page 30] consulting fee and the amount the former fiscal director would have received at his previous rate of compensation. On appeal, ACF states that the unreasonable amount of the expense was $8,343.00, the difference in payment for 309 hours between the $55 and $28 per hour rates. For the reasons discussed below, we sustain the disallowance of $8,319. (16) Marie Detty reports that the former fiscal director resigned to take another job in January 2004 and that they had difficulty finding a replacement, especially because of the approaching tax season. The new fiscal director they hired would not begin his employment until mid-April, and the former fiscal director offered to work evenings and weekends. Marie Detty suggested a rate of $55 per hour, and he effectively functioned again as Marie Detty's fiscal director, albeit as a consultant rather than as an employee. Marie Detty Att. 1, at 7; Att. 2, at 4; Att. 3, Ex. 5. Marie Detty argues that this rate was reasonable because it was less than the market rate for local CPA firms, which Marie Detty describes as ranging from $75 to $115 per hour, and comparable to the $50 to $75 per hour that Marie Detty says is charged by staff accountants at firms in its geographic area. Id. Marie Detty argues that the fee was reasonable because the former fiscal director had specific knowledge of Marie Detty's system and the Head Start regulations. Marie Detty Att. 1, at 7. Marie Detty also argues that it would have paid the former fiscal director $19,822 in salary and benefits if he had remained a full-time employee during the four months when he performed the consulting services. We sustain the disallowance of the payments to the former fiscal director to the extent the payments exceeded the rate at which he had been paid while employed by Marie Detty. Marie Detty did not demonstrate that payment at the higher rate was a reasonable charge to Head Start funds. Our decision here is consistent with [Page 31] our decisions in Ohio Valley Opportunities, Inc., DAB No. 1390 (1993) and Health Pro, Inc., DAB No. 574 (1984). In Health Pro, the grantee paid $500 per day for ten days' consulting by its former executive director, whose immediate past salary had been $40,000 per year. The Board held that hiring the former executive director was not unreasonable where the grantee had lost key personnel and the former official was readily available and familiar with the grantee's operation, but that the record did not justify the higher payment rate. The Board rejected the grantee's argument that the fee was consistent with other consulting fees that it had paid and that it was obliged to pay what the consultant charged in order to obtain the services. The Board noted the grantee's admission that it never considered anyone for the consultant position other than the former executive director and its failure to submit any evidence of what similar organizations in its geographic area paid consultants for similar services or what the consultant charged others. The Board found nothing in the record indicating that the services actually had a value in excess of the salary previously paid to the former executive director or that an individual exercising prudent judgment would have paid $500 per day for the consultant services. The Board reached a similar conclusion in Ohio Valley Opportunities, Inc., where the grantee's executive director received $15.22 and $16.18 per hour over two years for full-time, non-Head Start work, and $43.20 and $45.58 per hour for 3.5 hours of work per week on Head Start duties. Again, the Board held that the amounts paid to the executive director for Head Start work were beyond what a reasonably prudent person would have paid under the same circumstances. The Board noted that the hourly wage for the executive director's Head Start activities deviated significantly from the grantee's established practices as evidenced by the hourly wage for her regular, non-Head Start duties, and that the grantee did not show or allege that the duties that the executive director performed for its Head Start division were significantly more difficult than her duties for the non-Head Start division. As in those cases, we conclude that the decision to hire the former fiscal director as a consultant was not unreasonable, since ACF did not dispute that Marie Detty required services that he was able to provide, but that Marie Detty failed to demonstrate that the full amount of the consulting payment it made to its former fiscal director was a reasonable charge to Head Start funds. Marie Detty provided no evidence to support its assertion that the higher wage rate it paid to its former [Page 32] fiscal director was consistent with the fees it would have had to have paid to secure similar services and no evidence of how much it would have cost for it to hire a CPA or other consultant until a new fiscal director could be hired. As in Health Pro, Marie Detty did not submit any evidence of what similar organizations in its geographic area paid consultants for similar services, or what the former fiscal director charged or would have charged others. Marie Detty thus failed to demonstrate that a reasonably prudent person would have paid $55 per hour to secure the consultant services, and failed to meet its burden as a grantee to document the allowability of this charge. The lack of evidence of the value of comparable services from other consultants also makes it impossible to determine the extent to which the former fiscal director's relationship with Marie Detty played a role in his selection. While we recognize, as we did in Health Pro, that a grantee could conceivably demonstrate that it was justified in paying a former employee more for consulting services than it previously paid in salary, Marie Detty's lack of evidence means that it has not made that showing here. (17) Accordingly, we sustain the disallowance of $8,319, representing that portion of the payments to the former fiscal director that exceeded his prior rate of compensation. We reverse the disallowance of the remaining $8,652.63, consistent with ACF's determination that payments at the prior rate of compensation were not unreasonable.
ACF disallowed $139,484.40 that Marie Detty paid as part of the cost of constructing a building in which Marie Detty later leased classroom space for its Early Head Start program. ACF disallowed the costs because Marie Detty failed to seek prior approval to use its Head Start grant funds for this purpose. (18) Marie Detty [Page 33] does not deny that it paid the funds to a contractor who used them for construction of a building that Marie Detty did not own, but argues that the disallowance should not be taken because it paid the contractor at the request of Marie Detty's landlord in return for reduced rent once the building was completed. We conclude that Marie Detty used Head Start grant funds to pay construction costs without obtaining the prior approval required by the Head Start Act and applicable federal cost principles. Accordingly, we sustain this portion of the disallowance. ACF also denied Marie Detty's request for retroactive approval of the construction costs pursuant to an application under the provisions of the Head Start Act and regulations authorizing ACF to make special grant awards for capital expenditures, including construction and major renovation. ACF denied retroactive approval on the ground that it would not have approved the application even if Marie Detty had submitted it in timely fashion. It does not appear that the Board would have jurisdiction to review a decision by ACF not to award funds for capital expenditures under section 644(g) of the Head Start Act, 42 U.S.C. § 9839(g), and the implementing regulations at 45 C.F.R. Part 1309. Here, however, ACF relied on these provisions not to deny a request for an award of new capital expenditure funds but to deny retroactive approval for Marie Detty's expenditure of previously awarded Head Start grant funds. In that context, we conclude that ACF properly denied retroactive approval since Marie Detty's application clearly did not comply with the requirements of Part 1309.
ACF's on-site review found, and Marie Detty does not dispute, that on July 25, 2003, Marie Detty wrote a check for $139,484.40 to CDBL, Inc., "for construction costs associated with the construction of the Children's Chateau Head Start facility" in Lawton, Oklahoma. Marie Detty ACF Doc. 1, at 4, 10. The review report noted that "most of the costs incurred were for masonry and framing costs that were not Head Start specific." Originally these funds had been budgeted and approved for other line items, including minor alterations to three existing Head Start [Page 34] facilities, and Marie Detty did not seek prior approval to spend them instead on construction of the Children's Chateau facility. (19) Id. at 4. In its review report, ACF found these costs questionable under several provisions of Part 74, including 45 C.F.R. § 74.25(b)(5), which requires a grantee to report a budget deviation and seek prior approval for costs needing prior approval in accordance with OMB A-122. In its July 29, 2004 response to the review report, Marie Detty denied that it paid for "renovating" a center or "use[d] funds that were budgeted for other line items." Marie Detty Att. 1, at 5. However, Marie Detty confirmed that it "paid the contractor on behalf of the landlord" (the owner of the building) in order to reduce its long term lease costs for space rented at the facility. Id. In a letter dated August 12, 2004, ACF identified the $139,484.40 as unallowable costs because they represented "[c]onstruction/ renovation costs paid without prior approval." Marie Detty ACF Doc. 2, at 1. ACF informed Marie Detty that it would delay disallowing these costs (and other costs identified as unallowable) for 30 days to give Marie Detty an opportunity to submit any documentation that supported charging these costs to Head Start, such as a budget revision to include the construction costs. Id. In a September 8, 2004 letter, Marie Detty acknowledged "putting in an up-front cost reduction of the building," which it asserts resulted in "reducing our on-going rent . . . ." Marie Detty Att. 2, at 2. With this letter, Marie Detty submitted an exhibit which showed that the funds spent on construction had not been budgeted for that purpose but for "light remodeling" to three existing program sites. Id. at Ex. 1. [Page 35] In a letter dated September 29, 2004, ACF informed Marie Detty that it was required to submit a grant application complying with 45 C.F.R. Part 1309 in connection with the disputed funds because they had been spent on construction or major renovations. Marie Detty ACF Doc. 3, at 1. ACF stated, "[i]t may be possible for us to retroactively approve this expense, but we would need required documentation in order to make the determination." Id. On October 22, 2004, Marie Detty submitted a "revised application" for Head Start grant funds for FY 2004. Marie Detty Att. 3, at 2-3; and Ex. 3. The revised application requested retroactive reduction of the "other" cost center on that budget by $139,484 and retroactive increase of the "construction" cost center by the same amount. With the application, Marie Detty submitted a one-page budget narrative in which it stated that "by paying for some of the cost [of the new facility] up-front," it was able to reduce the cost of leasing the facility from a projected $12 per square foot to less than $8 per square foot. Id. at Ex. 3. The narrative also stated that "[i]n making the arrangements for the facility," Marie Detty had looked at over six alternative sites and worked with two realtors who told them "this was the best solution we had for the Early Head Start site in this area." Id. In a December 10, 2004, letter ACF disallowed the other costs at issue in this proceeding and acknowledged receipt of Marie Detty's request for a budget revision and retroactive approval of the construction/renovation project. ACF stated that the application was still under review "because it was incomplete and did not contain information required by Federal regulations for facilities in 45 C.F.R. § 1309." Marie Detty ACF Doc. 4, at 1. On January 24, 2005, ACF notified Marie Detty that it would not approve Marie Detty's application for construction funds retroactively since it would not have approved the application had it been timely submitted and, thus, was disallowing the $139,484.40. Marie Detty ACF Doc. 5, at 1. In further explanation of its determination, ACF noted that the disallowed costs consisted of "payment for construction costs on a building that was not owned by the Head Start grantee or, at that time, occupied by the Head Start program" and cited Marie Detty's "agreement with the prospective leaseholder whereby you would use Head Start grant funds to pay 'up-front' for completion of the construction of his building in return for future 'buy down' of the monthly lease payments." Id. Based on the foregoing, there can be no legitimate dispute that Marie Detty spent $139,484.40 of its Head Start funds awarded for [Page 36] the fiscal year ending June 30, 2003 for other purposes on the cost of constructing a building it did not own. Marie Detty does not dispute that it did not receive prior written approval before spending the funds for this purpose, and the record as a whole supports that conclusion. (20) The federal laws and cost principles in effect at that time clearly prohibited Marie Detty from making that expenditure without obtaining prior written approval. Part 74 requires grantees to "request prior approvals for budget and program plan revisions, in accordance with this section." 45 C.F.R. § 74.25(b). It also requires grantees to seek prior approval to include in their budgets costs that would require prior approval under OMB A-122. 45 C.F.R. § 74.25(c)(5). OMB A-122 states that capital expenditures for buildings and land are unallowable as direct charges, except where approved in advance by the awarding agency. Att. B, ¶ 15.b(1) (substantively similar language was formerly at ¶ 15.c). OMB A-122 also requires prior approval for capital expenditures for improvements that materially increase the value of land or buildings. Att. B, 15.b(3) (formerly ¶ 15.d). Part 74 defines "prior approval" as "written approval by an authorized HHS official evidencing prior consent." 45 C.F.R. § 74.2. The expenditure was subject to disallowance under Part 74 for other reasons as well. As noted in ACF's report of its on-site review, Marie Detty also failed to comply with portions of Part 74 and the cost principles requiring, among other things, that grantees maintain records showing the basis for contractor selection, justification for lack of competition, and the basis for cost or price, and requiring competition in procurement transactions. 45 C.F.R. §§ 74.43, 74.46(a)-(c). These provisions apply to transactions over the simplified acquisition threshold, which is currently $100,000. Id.; 41 U.S.C. § 403(11). Marie Detty concedes that it did not engage in competitive bidding to obtain use of this facility. Marie Detty states by way of attempted justification that it looked for and considered other facilities in downtown Lawton but that those [Page 37] facilities were either insufficient or the owners were unwilling to make needed renovations. However, Marie Detty failed to document this process. Furthermore, Part 74 anticipates that when costs for real property are charged to federal grant funds, the grantee will have an ownership interest in the property, subject to certain federal interests which the grantee is obliged to protect. 45 C.F.R. §§ 74.30-74.32. Marie Detty acquired no ownership interest in the facility that was constructed, in part, with Head Start grant funds and did not protect the federal government's interest in that property. In addition, in 1994, well before the grant award at issue here, Congress enacted section 644(g) of the Head Start Act, 42 U.S.C. § 9839(g), to authorize the Secretary to award Head Start funds for capital expenditures for facilities used to carry out Head Start programs, including the construction of new facilities and major renovation of existing facilities. (21) That statute also requires the Secretary to approve such an expenditure before the grantee can make the expenditure. The statute provides in relevant part:
42 U.S.C. § 9839(g) (emphasis added). The highlighted language indicates that ACF's determination to approve an award of construction funds under this statute must precede construction. In addition, since the grantee must "request approval for such payments" and since ACF can approve such a request only after making the specific determinations required by the statute, the statute anticipates that a grantee will not spend grant funds for this purpose before receiving ACF's approval. This is consistent with the treatment of capital expenditures in program grant awards in Part 74 and OMB A-122. Marie Detty, like other grantees, had an obligation to be aware of the federal laws governing the allowable uses of Head Start funds and to conform its expenditures to those laws. Marie Detty clearly did not do so. Marie Detty argues that its expenditure of the funds to pay part of the construction benefitted the Head Start program by enabling the grantee to pay a reduced rent under its lease with the owner. The record does not include a copy of the alleged lease to verify Marie Detty's assertion regarding the reduced rent. Furthermore, Marie Detty's assertion that the funds went to pay rent is undercut by fact that it actually paid the funds directly to the construction contractor. Marie Detty ACF Doc. 1, at 10. Although Marie Detty says it paid the contractor "on behalf of the landlord," Marie Detty nonetheless paid the contractor, not the landlord (who did not even become the owner/landlord of the building at issue until after it was constructed), and the money, in fact, was used for construction, not for rent. However, even assuming the assertion were true, the Early Head Start services to be provided in the space rented in the facility constructed with Head Start funds from Marie Detty's FY 2003 grant award (July 1, 2002 - June 30, 2003) were not scheduled to start until FY 2004 (July 1, 2003 - June 30, 2004). Marie Detty Att. 2, Ex. 1, at 2. Even where ACF finds costs allowable, as it did not here, those costs are still subject to disallowance if they arose in a program year other than the one covered by the grant award. Central Piedmont at 3-4 (citing earlier Board cases, 45 C.F.R. § 74.28, and OMB A-122, Att. A, ¶¶ A.2.a, A.4.b). Thus, any alleged savings achieved by Marie Detty in FY 2004 or subsequent years cannot be allocated to its grant award for FY 2003.
On May 1, 2003, following notice and comment rulemaking, the Secretary amended Part 1309 of 45 C.F.R., which already provided the rules for purchasing Head Start facilities, (22) in order to implement the construction and major renovation provisions in section 644(g) of the Head Start Act. Part 1309 "prescribes the procedures for applying for Head Start grant funds to purchase, construct, or make major renovations to facilities in which to operate Head Start programs," 45 C.F.R. § 1309.1. The amended rules took effect June 2, 2003. 68 Fed. Reg. 23,220 (2003). (23) Stating that it might have authority to retroactively approve an application for construction funds, ACF asked Marie Detty to submit an application for review under Part 1309 even though Marie Detty had already made the construction expenditure. Marie Detty ACF Doc. 3. Marie Detty submitted an application on October 22, 2004, but ACF determined that this application would not have been approved even if it had been timely submitted. Marie Detty ACF Doc. 5. Assuming arguendo that ACF ever has discretion to grant retroactive approval to an application under Part 1309 for construction or major renovation funds, we find no [Page 40] basis for disturbing ACF's decision not to grant retroactive approval in this case. (24) Explaining why it would not have approved the application even if timely submitted, ACF cited the fact that Marie Detty did not own the building but, rather, leased space there after it was constructed. Marie Detty ACF Document 5 at 1. Marie Detty does not deny that it had no ownership interest in the building. In fact, Marie Detty states that it "paid the contractor on behalf of the landlord" (the owner of the new facility) in order to reduce its long term lease costs for space rented at the facility. Marie Detty Att. 1, at 5. Part 1309 provides that the federal government has an interest in all real property and equipment acquired or upon which major renovations have been undertaken with grant funds and requires the grantee to record that interest and take other steps to protect it. In order to protect this interest, the grantee must provide reasonable assurance that it has or will obtain a fee simple or such other estate or interest in the site of the facility to assure undisturbed use and possession for the purpose of operating a Head Start program. 45 C.F.R. § 1309.21. Where a grantee proposes to acquire (or do major renovations to) a facility that is situated on land not owned by the grantee (presumably the case here), the grantee must show that there is no alternative, feasible way to provide suitable programming and must take other required action to protect the federal interest. 45 C.F.R. § 1309.10(l). Marie Detty's application does not even address these requirements, much less show how it could possibly meet them, and, therefore, clearly gave ACF grounds for declining to approve it. (25) We can find no fault in ACF's decision to not [Page 41] approve an application that does not meet explicit regulatory requirements. Marie Detty asserts that in denying retroactive approval ACF "totally fails to consider what is in the best interest of the children and the families the Early Head Start program is intended to serve." Marie Detty Br. at 5. However, the regulations governing construction of Head Start facilities do serve the best interests of the beneficiaries of the Head Start and Early Head Start programs by guarding against the expenditure of scarce Head Start funds on construction of facilities that might or might not be needed to serve one of the low-income communities for which Congress designed this funding authority. We note, in this regard, that Head Start funds Marie Detty spent on the construction of a fourth facility were funds that had been awarded for renovations to three existing facilities for such purposes as ensuring disability compliance. The application requirements also reflect a concern for protecting the health and welfare of Head Start children when capital expenditure funds are awarded. For example, they include provisions designed to assure that facilities approved for construction are structurally sound and environmentally safe and comply with licensing, code and access requirements. In its application, a grantee must provide assurances that these provisions will be met. Marie Detty's application does not even address them. Marie Detty also protests that the denial of its application fails to consider that Marie Detty spent no federal funds on the construction beyond those initially requested. However, this misses the point. The issue is not how much Marie Detty spent or whether it requested additional funds but that it spent funds appropriated for non-capital expenditures on capital expenditures without seeking prior approval to do so and without submitting an application that complied with the regulations. The Board has repeatedly held that the agency's discretion to deny a request for retroactive approval (assuming the agency has [Page 42] such discretion under the applicable statute and regulations) is considerable, though not completely unbounded. We have upheld ACF's exercise of discretion provided ACF stated the basis for its decision and did not deny retroactive approval based on unsubstantiated conclusions or on bases so insubstantial that the decision fairly can be described as capricious. See Enterprise for Progress in the Community, Inc., DAB No. 1558 (1996), and authorities cited therein. ACF's conclusions and bases for denying retroactive approval here clearly are substantiated by the record and are in no way capricious. For the reasons discussed above, we sustain this portion of the disallowance. Conclusion For the forgoing reasons, we conclude as follows:
After ACF reviews Marie Detty's documentation relating to the portions of the disallowance that we remand, it should provide Marie Detty with a written notice stating whether the documentation provides any basis for ACF to alter its determinations of the amount of the unallowable charges, and why. If Marie Detty is not satisfied with ACF's determinations, it may [Page 43] appeal them to the Board pursuant to 45 C.F.R. Part 16 within 30 days after receiving them. |
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| JUDGE | |
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Judith A. Ballard Donald F. Garrett Sheila
Ann Hegy |
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1. Cash receipts journals that Marie Detty submitted indicate that it received $479,882.60 for FY 2004. Marie Detty Att. 3, Ex. 2. The $500 difference does not affect our analysis. 2. A notice of grant award for FY 2003 specifies a client population of 451, comprising 391 in the Head Start program, and 60 in an Early Head Start program beginning on July 1, 2003. Marie Detty Att. 2, Ex. 1. 3. Additionally, because the Head Start statute requires a Head Start grantee to pay for 20% of its total approved Head Start costs with non-federal funds, a grantee seeking to reduce a disallowance by identifying unclaimed costs would have to establish that the unclaimed costs were distinct from and in addition to the 20% of total approved Head Start costs that grantees are required to pay with non-federal funds. 42 U.S.C. § 9835(b); 45 C.F.R. § 1301.20. 4. In this regard, ACF's report of its on-site review states that Marie Detty drew down all its Head Start funds for FYs 2002 and 2003. Marie Detty ACF Doc. 1, at 5. 5. In a subsequent section of this decision we remand the disallowance of Christmas bonuses because Marie Detty provided financial records indicating that some of the bonuses may have been charged to programs that Marie Detty administers besides Head Start, some of which may not have been federally-funded. However, there is no indication that any of those other programs used collaboration funds. Marie Detty's submission of records regarding the bonuses contrasts with its failure to document that it used collaboration funds to pay for the disallowed costs, or for unclaimed, allowable and allocable Head Start costs that could offset the unallowable costs. 6. The agreement reflecting a payment rate of $3,253.90 per child, with the Lawton public schools for the 2000-2001 school year, states that Oklahoma was to pay Lawton that amount per student, but that Lawton would pay Marie Detty 50% of the "foundation aid payments received from the State of Oklahoma for students enrolled in the head start program to be run by Marie Detty pursuant to this agreement," and that Lawton would keep 20% of the amount payable to Marie Detty until the purchase price in a contract for deed between the parties was paid. Marie Detty Att. 3, Ex. 2. Thus, Marie Detty likely received less than $3,253.90 per child under that agreement. 7. The regulations permit up to ten percent of the children who are enrolled in a grantee's Head Start program to be from families that exceed the low-income guidelines for Head Start eligibility but who meet criteria that the grantee's program has established for selecting such children and who would benefit from Head Start services. 45 C.F.R. § 1305.4(b). Marie Detty did not indicate whether the ineligible children it reported serving qualified for enrollment in its Head Start program under this regulation, or whether they were even officially enrolled in its Head Start program. 8. We note that although the first paragraph of the agreement states that it was effective August 17, 2004, the agreement was not actually signed until October 19, 2004. 9. ACF's submissions do not specify when Marie Detty paid the bonuses, or the budget period to which they were charged. The December 10, 2004 disallowance letter notes that Marie Detty's executive director recommended and received bonuses amounting to 10 percent of his salary for 2002 and 2003. ACF's brief, in addressing Marie Detty's argument about collaboration funds as it applied to the bonuses, cites a notice of grant award for FY 2003, which ACF refers to as the period in question. ACF Br. at 7, citing Marie Detty Att. 2, Ex. 1. The financial records that Marie Detty submitted reflect the payment of bonuses to Marie Detty employees on November 30 and December 19, 2003, and Marie Detty, when it submitted those records, reported that they were for Christmas bonus payments for FY 2004, paid over four pay periods. Marie Detty Att. 3, at 1-2; Marie Detty Att. 3, Ex. 1. ACF does not dispute that those records reflect the bonuses at issue. 10. The two spreadsheets labeled "December 19, 2003 Christmas Bonuses" list distinct groups of employees, and one records payments from only five accounts. 11. That the retirement contributions remained unfunded at the time of the appeal undercuts the credibility of Marie Detty's claim that it had sufficient surplus collaboration funds available to cover its unallowable charges to Head Start funds. 12. Marie Detty did not document the latter assertion, and it is not responsive in any event. 13. We also note that Att. B, ¶ 37 limits consulting contracts to persons "who are not officers or employees of the non-profit organization." Since Marie Detty's executive director served at the same time as president of Paradigm's Board of Advisors, arguably Marie Detty was effectively contracting with one of its own employees. 14. Another important distinguishing factor is that there was no allegation that the consulting company in that case had Marie Detty employees or board members involved in its governance. 15. The Board's preliminary calculations show that rooms labeled "HS" occupy 1,205 square feet, rooms labeled "S" occupy 2,424 square feet and that one room labeled "C" was 297.5 square feet. Proper allocation of the furniture costs to Head Start may depend on how much of the shared or common floor space was used by Marie Detty's Head Start program. 16. The $24 difference in the two figures that ACF reported as unallowable in the disallowance letter and in its brief apparently results from rounding. At the $55 per hour rate that Marie Detty reported paying the former fiscal director as a consultant, the $16,971.63 they paid him would have been compensation for almost 308.58 hours. ACF apparently rounded up to 309 hours which, at $55 per hour, is $16,995, rather than the $16,971.63 that Marie Detty paid its former employee. The Board sustains the disallowance of $8,319 as it is based on the actual amount of the total payments. 17. Because the former fiscal director worked part time as a consultant, Marie Detty's comparison of the total consulting fee to the $19,822 that he would have received in salary and benefits at his prior salary if he had worked full time is not convincing and does not demonstrate that the total consulting fee was reasonable. 18. On page 17 of its brief, ACF also alleges that the owner of the building was the husband of a Marie Detty board member but Marie Detty denies this, and we find no clear evidence in the record to support this allegation. Since ACF did not base the disallowance on the issue of whether this was an arms-length transaction, the lack of support for this allegation is immaterial. 19. The grant award was for the budget period ending June 30, 2003 (FY 2003) and shows that the disputed funds were part of a $566,600 award of start-up costs for 60 Early Head Start children, with Marie Detty to begin providing services July 1, 2003. Marie Detty Att. 2, Ex. 1 at 2. The accompanying "Early Head Start Start-Up Funding Budget Narrative" states that $227,000 budgeted in the "Other" category was to be used to remodel three sites, including installing a commercial kitchen in the grantee's largest center and making improvements to meet program and licensing standards. Marie Detty Att. 2, Ex. 1. The "Construction" category in the budget narrative specifies 0 dollars and states, "[n]o construction other than light remodeling will be necessary." 20. Marie Detty asserts that an employee in ACF's regional office "encouraged" and "endorsed" the concept of a lease buy-down. Marie Detty Br. at 3. Even assuming the assertion is true, it is not an assertion that Marie Detty received the prior written approval from an authorized HHS official required by the regulations before it could spend Head Start funds on construction. In fact, the assertion that an employee endorsed the concept of a lease buy-down is not even a specific assertion that the employee verbally approved the expenditure of grant funds on construction in order to obtain a lease buy-down. 21. The statute was enacted by Public Law No. 103-252, § 110 (May 18, 1994). 22. The statutory authority for purchasing Head Start facilities is in section 644(f) of the Head Start Act, 42 U.S.C. § 9839(f), and the final regulations implementing that authority took effect March 10, 1999. 23. Since the amendments to Part 1309 were not in effect at the time the grant funds at issue in the disallowance (FY 2003 funds) were awarded, we have not relied on those amendments to provide further support for the disallowance of those funds. However, the amendments were in effect when Marie Detty paid the construction contractor and when Marie Detty submitted its application for retroactive approval and revision of its FY 2004 budget. In fact, based on ACF's letter of September 29, 2004, Marie Detty knew that its application needed to be submitted "in accordance with federal regulations in 45 C.F.R. 1309," which, by that time, included the amendments covering construction and major renovation. Marie Detty ACF Doc. 3. Accordingly, we do apply the amendments to the issue of whether ACF properly denied retroactive approval. 24. ACF's letters to Marie Detty state only that it might be possible for it to grant retroactive approval if Marie Detty submitted an application meeting the requirements of Part 1309. ACF never specifically stated in its letters that it would have such authority, and its briefs do not address the issue. Accordingly, that issue is not before us, and we do not decide it. 25. The application, which consists of several pages of budget forms, with certain boxes or numbers filled in, but only one page of narrative, on its face does not address a number of other requirements listed in 45 C.F.R. §§ 1309.10(a) through (q) and 1309.11. See Marie Detty Att. 3, Ex. 3. For example, it does not contain the detailed cost comparison (the cost of constructing a facility versus the cost of purchasing or leasing a suitable alternative facility, or owning, purchasing or leasing a facility that can be made suitable with renovations) required by 45 C.F.R. §§ 1309.10(c) and 1309.11(c)(2). The information required by those regulations is clearly something more than simply stating, as Marie Detty did, that they "looked at over six alternative sites and worked with two realtors" who told them "this was the best solution we had for the Early Head Start site in this area." Marie Detty Att. 3, Ex. 3. | |