Northwest Iowa Mental Health Center, DAB No. 3151 (2024)

DECISION

Northwest Iowa Mental Health Center (Center) appeals a decision by the Administration for Children & Families (ACF) of the Department of Health and Human Services (HHS) disallowing $383,885 in costs charged to a five-year targeted grant, No. 90CU0057 (Grant), which ACF awarded to the Center in 2012.  ACF disallowed certain costs for the period from July 1, 2015 through June 30, 2016 based upon an independent audit of the Center in 2016.  For the reasons discussed below, the Departmental Appeals Board (Board) sustains the disallowance in its entirety.

Legal Background

Title IV-B of the Social Security Act (Act) authorizes federal funding to support, among other things, programs for preventing child abuse and neglect and for providing family support and reunification services. See Act § 421, 42 U.S.C. § 621, et seq.; Idaho Dep’t of Health & Welfare, DAB No. 3110, at 1 (2023).

Recipients of ACF grants under Title IV-B must comply with federal cost principles.  The Office of Management and Budget (OMB) issues policy guidelines, “normally in the form of circulars,” to federal agencies “to promote efficiency and uniformity in Government activities.”  5 C.F.R. § 1310.1.  At the time of the initial Grant award in 2012, OMB Circular A-122 set forth cost principles for non-profit organizations and was codified in the Appendices to 2 C.F.R. Part 230; additional, HHS-specific cost principles for awards to nonprofit organizations (among others) were codified at 45 C.F.R. Part 74.  See Cost Principles for Non-Profit Organizations (OMB Circular A-122), 70 Fed. Reg. 51,927 (Aug. 31, 2005); see also 45 C.F.R § 74.1.  Effective December 26, 2013, OMB consolidated several circulars, including Circular A-122, into a streamlined set of uniform administrative requirements, cost principles, and audit requirements for federal awards, published in 2 C.F.R. Part 200.  Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 78 Fed. Reg. 78,590 (Dec. 26, 2013).  Effective December 26, 2014, HHS codified the text of 2 C.F.R. Part 200, with HHS-specific amendments, in 45 C.F.R. Part 75, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards,” which superseded 45 C.F.R.

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Part 74. Federal Awarding Agency Regulatory Implementation of OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 79 Fed. Reg. 75,871, 75,875-876, 75,889 (Dec. 19, 2014).  In adopting the Part 75 regulations, HHS stated their provisions “already exist[ed] in codified regulations” including 45 C.F.R. Part 74, so HHS grantees “should already be in compliance with these provisions.”  79 Fed. Reg. at 75,875.  The Part 75 regulations are “applicable to title IV-B programs” that receive federal funding through ACF grants, including the Grant at issue here.  45 C.F.R. § 1355.30(i).¹

To be allowable under the cost principles, a cost must be reasonable for the performance of the award, allocable to the award, and adequately documented.  2 C.F.R. Part 230, App. A, ¶¶ A.2.(a), A.2.(g) (2012, 2013); 2 C.F.R. § 200.403(a), (g) (2015, 2016). A cost is adequately documented only if the grantee’s financial management systems provide supporting documentation that meets detailed requirements.  45 C.F.R. § 74.21(b) (2012, 2013, 2014); 45 C.F.R. § 75.302(b)(3) (2015, 2016).

Under the Single Audit Act, 31 U.S.C. §§ 7501-7506, a not-for-profit grantee whose expenditures of federal grant funds in any fiscal year exceeds a certain threshold must undergo a single, comprehensive financial and compliance audit for that year.  31 U.S.C. § 7502(a)(1)(A); 2 C.F.R. §§ 200.100, 200.501(a).The audit’s purpose is to determine, among other things, whether the entity has complied with the applicable cost principles and other laws.  See 31 U.S.C. § 7502(a)(1)(A), (e)(4); see also 2 C.F.R. §§ 200.100(a), 200.501(g); 45 C.F.R. Part 75, subpart F (“Audit Requirements”).

If a grantee fails to comply with federal statutes, regulations, or the terms and conditions of a federal award, ACF may “[d]isallow (that is, deny both use of funds and any applicable matching credit for) all or part of the cost of the activity or action not in compliance.”  45 C.F.R. § 75.371(b).  The affected grantee has rights to appeal ACF’s disallowance determination to the Board.  45 C.F.R. Part 16, Appendix A.

Case Background

A. The Grant, the audit, and ACF’s first disallowance notice

The Center, “a non-profit corporation established to provide a comprehensive community mental health program,” offers psychiatric and psychological services in several Iowa

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counties.  ACF Ex. 3, at 14.² On or about September 25, 2012, the Center received the five-year Grant award from ACF.³  The award was a competitive, discretionary grant, funded annually for $500,000 per budget period and a total award amount of $2,500,000, under a program titled “Targeted Grants to Address Needs of Families Affected by Meth and Other Substance Abuse.”  ACF Ex. 4, at 3, ¶ 8.

In 2016, independent auditor Eide Bailey LLP, CPAs (Auditor) performed a single audit of the Center for its Fiscal Year (FY) 2016, which spanned from July 1, 2015 through June 30, 2016.  ACF Ex. 2, at 1; ACF Ex. 3, at 24, 30, 32.  The Auditor found and reported several instances during that period of noncompliance by the Center with federal regulations governing the Grant terms.  ACF Ex. 3, at 26-27, 37-44; ACF Ex. 4, at 3, ¶ 9.  ACF reviewed the audit and concurred with its findings.  ACF Ex. 4, at 3, ¶ 9.

A December 28, 2018 letter from ACF to the Center (Initial Disallowance Notice) disallowed $383,885 based on the audit.  ACF Ex. 1, at 1-7.  ACF disallowed $376,561 in undocumented and inadequately supported charges for salaries, fringe benefits, and administrative costs, and also disallowed $2,512 in costs “relating to the match expenditures which were not properly supported or were double counted” due to lack of internal controls and managerial oversight.  Id. at 4-6.  ACF also referenced an additional disallowance of $4,812, id. at 1, but without discussing findings that supported it.  ACF further listed other findings concerning the Center’s financial statement preparation, segregation of duties, verification that vendors were not suspended or debarred, and financial and progress reporting errors.  Id. at 1-4, 6-7.  The Initial Disallowance Notice advised the Center of its appeal rights.  Id. at 8-9.

B. The Center’s appeal from the Initial Disallowance Notice (No. A-19-46)

On January 18, 2019, the Center appealed the disallowance, objecting that it “would create an undue hardship on our agency.”  Not. of Appeal at 1.  The Center separately addressed each disallowance category and attached three periodic progress reports (specifically, two consecutive RPG2 Grantee Semi-Annual ACF Performance Progress Reports covering the period from April 1, 2015 through March 31, 2016, and a Semi-Annual Progress Report for April 2016).  See id.  As to the primary disallowance of $376,561, the Center admitted it “did not have detailed staff timesheets available for the auditors,” but relied on alternative documents and contended its “oversight” was unintentional and immediately rectified.  Id. at 1-2.  Concerning the $4,812 disallowance for insufficiently documented expenses, the Center argued that hotel charges in the

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amount of $1,152.26 were adequately supported.  Id. at 2.  Regarding the $2,512 disallowance for unsupported or double-counted match expenditures, the Center asserted that “[m]atch expenditures were not paid for through the federal grant,” and therefore asked “that this amount not have to be repaid.”  Id.  The Board docketed the appeal as No. A-19-46.   

On February 19, 2019, the Center filed its appeal brief with two exhibits.  Center Br. (dated Feb. 18, 2019); Center Exs. A (progress reports previously attached to Center’s notice of appeal), B (four pages of hotel charge documentation).

C. ACF’s Revised Disallowance Notice

On March 6, 2019, ACF issued a second disallowance letter (Revised Disallowance Notice), ACF Ex. 2, which explained that ACF was “rescinding” its Initial Disallowance Notice because it had not included the finding supporting the $4,812 portion of the total disallowance.  Id. at 1.  ACF stated that it was “now re-issuing its decision to include” that finding but the “total repayment amount remains the same.” Id.

The Revised Disallowance Notice listed seven audit findings, three of which resulted in disallowances.  Id. at 1-9.  Under Audit Finding 2016-01, ACF again disallowed $376,561 in inadequately documented personnel and administrative costs.⁴  Id. at 4-5.  The stated basis was that “costs for salaries and wages” must meet “documentation requirements at 45 C.F.R. § 75.430(i),” and grant recipients’ “financial management systems must allow for effective control over and accountability for all funds” per 45 C.F.R. § 75.302(b).  Id. at 5.  Under Audit Finding 2016-02, ACF newly explained that it was disallowing $4,812 in expenditures that were unapproved, unsupported, double-counted, for which “no benefit was received,” or by which “promotional items were purchased,” all contrary to 45 C.F.R. §§ 75.302(b) and 75.421(e)(3).  Id. at 5-6.  Under Audit Finding 2016-03, ACF again disallowed $2,512 “relating to the match expenditures which were not properly supported or were double counted,” citing 45 C.F.R. § 75.302(b).  Id. at 6-7.  The Revised Disallowance Notice’s other listed Audit Findings (2016-A, 2016-B, 2016-04, and 2016-05) again concerned the Center’s financial statement preparation, segregation of duties, verification that vendors were not suspended or debarred, and financial and progress reporting.  Id. at 1-3, 8-9.  The Revised Disallowance Notice again advised the Center of its appeal rights.  Id. at 10.

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D. ACF’s Response in No. A-19-46

On April 22, 2019, ACF filed its brief, witness list, exhibit list, and five exhibits.⁵ ACF’s exhibits were the Initial and Revised Disallowance Notices (ACF Exhibits 1 and 2), Auditor’s report (ACF Exhibit 3), and written Declaration and resume of ACF’s sole witness, an ACF Supervisory Grants Management Specialist (ACF Exhibits 4 and 5).

E. The Center’s second appeal (No. A-19-80)

On May 8, 2019, the Center filed a two-page letter, which the Board treated as a new appeal with a new docket number (A-19-80) but subsequently consolidated into the Center’s prior appeal (A-19-46).  No. A-19-80, Docket ## 1-2.  The Board allowed the Center until August 13, 2019, to file additional legal arguments and evidence.  No. A-19-20, Docket # 2, at 4; Extension of Time (June 13, 2019); Extension of Time (July 9, 2019).

F. The Center’s additional evidence and ACF’s sur-reply

On August 13, 2019, the Center submitted affidavits from 13 employees, with tables attached to nine of the affidavits showing “compilation[s]” of hours allegedly spent working on the Grant.  Docket ## 18-30.  ACF filed an unopposed motion for leave to file a proffered sur-reply brief.  Docket ## 31, 31a.  ACF’s proffered sur-reply brief argues that the Center’s “retrospective time tracking sheets are invalid for four reasons”:  they are untimely filed without good cause, do not include supportive “underlying documents,” are unverified and unauthenticated, and support an invalid equitable defense.  ACF’s Sur-Reply Br. at 2.  The record is now closed.

The Board admits into the administrative record both ACF’s sur-reply and the Center’s additional evidence filed on August 13, 2019.  We construe the arguments in ACF’s sur-reply as concerning only the weight and not the admissibility of the Center’s affidavits and attached time compilations, which we admit into evidence and consider pursuant to our authority to take such steps as we determine appropriate to develop a sound decision.  See 45 C.F.R. § 16.9; Pennsylvania Dep’t of Hum. Servs., DAB No. 2883, at 13 (2018) (explaining, in admitting supplemental evidence submitted on appeal, that “[o]ur role in cases conducted under 45 C.F.R. part 16 provides us sufficient discretion and authority to ensure that we have before us the information needed to reach a sound decision”).

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Standard of Review

The Board reviews disallowance determinations de novo. Los Angeles County Dep’t of Pub. Health, DAB No. 2842, at 6-7 (2018) (citing decisions).

Analysis

I. We uphold ACF’s disallowance in its entirety because the Center has not met its burden of proving the allowability of the disallowed costs.

“In an appeal challenging the disallowance of costs charged to a federal award, the HHS awarding agency has the initial burden to provide sufficient information about the basis for the disallowance to enable the grantee to respond.”  Maryland Disability Law Ctr., DAB No. 2843, at 5 (2018).  The Board has described that burden as “minimal.”  Massachusetts Exec. Off. of Health & Hum. Servs., DAB No. 2218, at 11 (2008), aff’d, 701 F. Supp. 2d 182 (D. Mass. 2010).  We also have “consistently held that a federal agency may amend or clarify its legal justification for a disallowance so long as the recipient is given adequate notice and opportunity to respond.”  Children’s Center, Inc., DAB No. 2506, at 9 (2013) (citing cases).

If the agency carries its burden – and there is no claim that ACF did not carry it here – then “the grantee must demonstrate, with appropriate documentation, that disputed costs charged to the award were actually incurred and allowable under the award’s terms and conditions.”  Maryland Disability at 5; see also Northstar Youth Servs., Inc., DAB No. 1884, at 5 (2003) (“Once a cost is questioned as lacking documentation, the grantee bears the burden to document, with records supported by source documentation, that the costs were actually incurred and represent allowable costs, allocable to the grant.”). “When a disallowance is supported by audit findings, the grantee typically has the burden of showing that those findings are legally or factually unjustified.” Massachusetts at 11. “Thus, as we have often stated, it is a basic principle of grants law that the grantee has the burden of documenting expenditures and their allowability.” New Jersey Dep’t of Hum. Servs., DAB No. 899, at 4 (1987).

For reasons discussed below, we hold that ACF provided sufficient detail about the basis for its determination to enable the Center to respond, and the Center has not met its burden of establishing the allowability of the disallowed costs.

A. We uphold ACF’s disallowance of $376,561 under Finding 2016-01.

Concerning Finding 2016-01, we first hold (and the Center does not dispute) that ACF sufficiently stated its basis for the $376,561 disallowance to enable the Center to respond.  The Revised Disallowance Notice and the underlying Auditor’s report (with which ACF concurred) explained the factual basis. ACF 2, at 4-5; ACF Ex. 3, at 40-41; ACF Ex. 4,

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at 3, ¶ 9 (declaring ACF’s concurrence with audit findings).  Specifically, the Auditor found the Center “could not provide documentation for personnel time charged to the grant and used as match” that met federal cost principles “and a budgeted amount for administrative costs was used for interim periods with no true-up of costs.”  ACF Ex. 3 at 40.  The Revised Disallowance Notice and the underlying Auditor’s report also stated the legal basis for the disallowance.  ACF Ex. 2, at 4-5 (citing OMB Circular A-122 and 45 C.F.R. §§ 75.302(b) and 75.430(i)); ACF Ex. 3, at 40 (Auditor’s report, citing OMB Circular A-122).  ACF’s briefing further explains the Center’s failures properly to document personnel time and perform “true-up” of administrative costs (with “true-up” meaning “to verify or make sure the total for each line item matches the corresponding debit/credit account”).  ACF Am. Br. at 5 n.4, 6.

We next discuss the legal authorities on which ACF relies.  Under Circular A-122, as codified in Title 2 of the C.F.R. during the relevant period, salaries and wages charged to federal grants must be based on documented payrolls supported by personnel activity reports.  2 C.F.R. Part 230, App. B, ¶ 8.m.(1); 2 C.F.R. Part 200, see Economic Opportunity Comm’n of Nassau County, Inc., DAB No. 2731, at 5 (2016), recons. denied, DAB Ruling No. 2017-1 (Jan. 26, 2017).  The personnel activity reports must:  reflect each employee’s actual activity, account for the total activity for which employees are compensated, be signed by each individual employee or a responsible supervisory official with first-hand knowledge of the employee’s performed activities, and be prepared at least monthly.  2 C.F.R. Part 230, App. B, ¶ 8.m.(2).  Under 45 C.F.R. § 75.302(b)(4), a grantee’s financial management system must provide for records that identify adequately the source and application of federal funds and also must provide for effective control and accountability concerning all funds, property, and other assets. Section 75.430(i) imposes numerous standards for documenting personnel expenses, including that they must be based on records that accurately reflect the work performed and provide reasonable assurance that the charges are accurate, allowable, and properly allocated.  Id. § 75.430(i)(1)(i).  These records also must be incorporated into the grantee’s official records and reasonably reflect the total activity for which the grantee compensates the employee.  Id. § 75.430(i)(1)(ii)-(iii).  Budget estimates alone do not qualify as support for charging salaries and wages to federal awards, and using such estimates for interim accounting purposes is only permissible on conditions including that the grantee’s internal controls must include processes for review and after-the-fact adjustment to ensure accuracy, allowability, and proper allocation.  Id. § 75.430(i)(1)(viii).

We next determine whether the Center has met its burden of proving compliance with the applicable standards.  The Center has not shown, or even tried to show, that the Auditor’s underlying findings were “legally or factually unjustified.”  See Massachusetts at 11.  Also, as ACF accurately observes, the Center has “ignored” the audit finding concerning the lack of “true-up” of administrative costs.  See ACF Am. Br. at 7.  Instead, the Center focuses on the finding of deficiently documented personnel costs.

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The Center concedes it “did not have detailed staff timesheets available for the auditors” but relies instead on other “documentation showing hours worked on the grant.”  Center Br. at 1-2; see Docket # 21 (J. Drey Aff.), ¶ 18 (statement by Center’s Vice President of Program Development that “it was brought to my attention after the FY 2016 audit performed by Eide Bailey that we needed to have exempt employees complete timesheets”).⁶ The Center has provided affidavits from 13 staff members “who were involved with the [Grant] from July 2015 – June 2016.”  Docket # 18 (D. Ries Aff.), ¶ 14.  For seven of those employees, who allegedly recorded their time worked “through timesheets” and “punched in and out,” the Center has attached tabulations of the hours they allegedly worked on the Grant – but no contemporaneous time sheets.  See Docket # 20 (T. Boon Aff.), ¶ 13; # 22 (A.J. Gernant Aff.), ¶ 12; # 24 (N. Johnson Aff.), ¶ 14; # 27 (J. Tjaden Aff.), ¶ 14; # 28 (J. Weideman Aff.), ¶ 13; # 29 (T. Wolterstorff Aff.), ¶ 13; # 30 (A. Zevenbergen Aff.), ¶ 12.  The Center also has filed time tabulations for two other employees, a Vice President and a Project Coordinator.  Docket # 21 (J. Drey Aff.); # 23 (S. Heinrichs Aff.).  The Center supplied only an affidavit (with no time tabulation) that states the “scheduled workday” hours and “average” hours worked of a tenth employee, a clinical psychologist, who acknowledges that “I did not document minute by minute on a timesheet the work I performed under” the Grant.  Docket # 26 (N. Sandbulte Aff.), ¶¶ 7, 10, 22.  The Center explains that its staff created the nine “retrospective time tracking sheets for the period of July 2015 – June 2016 based on information obtained in emails,” in “Outlook calendars,” and in “the agency’s electronic health record.”  See Docket # 18 (D. Ries Aff.), ¶ 15; # 25 (J. Low Aff.), ¶ 7 (detailing “email search to indicate work completed for” the Grant).

We conclude that the Center has not met its burden of proof.  Grantees must “maintain contemporaneous documentation of their costs,” including payroll costs, “charged to federal grant funds.”  Depression & Bipolar Support Alliance, DAB No. 2444, at 9 (2012).  The requirements for documentation of personnel costs are “detailed and precise,” and a grantee’s documentation that does not meet them “does not satisfy the applicable federal requirements.”  Economic Opportunity Comm’n at 5.  Affidavits “are not the type of contemporaneous documentation that is required by OMB Circular A‑122.”  Second St. Youth Ctr. Inc., DAB No. 1270, at 4 (1991).  Generally, the Board “will not consider such non-contemporaneous evidence in support of a questioned cost, unless a reasonable explanation of the absence of the required records is provided.”

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Second St. at 4-5.  When appropriate, the Board has accepted “summary documentation” of personnel costs if supported by “unrefuted sworn testimony that the summaries were based on [contemporaneous] time sheets.”  See California Dep’t of Health Servs., DAB No. 1155, at 23 (1990); accord Philadelphia Parent Child Ctr., Inc., DAB No. 2297, at 6 (2009).  However, “[e]ven when the Board does review such evidence, we must,” and do, “scrutinize it more closely.”  Second St. at 5.  The reason is obvious:  “In general, source documentation created at the time a cost was incurred is more credible than any later reconstructions.”  Southeastern Mich. Health Ass’n, DAB No. 2682, at 9 (2016).

The Center’s documentation does not withstand scrutiny and is not credible for several reasons.  First, even for members of the Center’s staff who allegedly “punched” their time into contemporaneous time sheets, the Center does not provide those contemporaneous records, offer any reasonable explanation for omitting them, or confirm any reliance on them in preparing the non-contemporaneous time compilations.  See, e.g., Docket # 22 (A.J. Gernant Aff.), ¶ 12 (stating, “I recorded my time through timesheets where I punched in and out,” and “[a]ttached to this affidavit is a compilation of the hours I worked,” but not linking the timesheets to the compilation); # 18 (D. Ries Aff.), ¶ 15 (stating the Center created the “retrospective time tracking sheets” from documentation including emails and Outlook calendars, but not contemporaneous time sheets).  “[T]he Board has declined to consider non-contemporaneous records absent a reasonable explanation of why contemporaneous evidence is not available.”  Michigan Dep’t of Health & Hum. Servs., Office of Child Support, DAB No. 2868, at 6 (2018).  The Center’s attempted substitution of other contemporaneous documents (including emails and calendar entries) is not sufficient.  See Second St. at 4 (discussing evidentiary insufficiency of “records of meetings, correspondence, . . . memoranda, telephone records and other related documents submitted . . . as attachments to affidavits” where grantee conceded – without explaining – the unavailability of contemporaneous time cards).

The Center’s affidavits also lack probative value because they lack the support of contemporaneous documentation – such as job descriptions – linking the employees’ job duties to the Grant.  See Philadelphia at 4 (holding grantee failed to prove allowability of salaries by submitting “a ‘personnel allocation’ spreadsheet . . . listing percentages of each employee’s time that were purportedly attributable to” grantee’s programs but which “provide[d] little information indicating how the claimed employee time was allocated” to the federal program); California at 17-18 (rejecting attempted proof in the form of written testimony on a “position’s duties as they existed during the audit period” because the grantee “did not provide any documentation supporting” that testimony and “furnished no contemporaneous records”) (emphasis omitted).  The Board has upheld the disallowance of personnel costs, even when supported by payroll reports, if the grantee “cites to nothing in the payroll reports that documents the amount or the percentage of total time each employee spent on each activity” relating to the grant.  Mental Health Ass’n of Or., DAB No. 2590, at 6 (2014).  “The Board has been particularly reluctant to accept after-the-fact reconstructions of how employees’ work was distributed among cost

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objectives,” and declines to do so in this case. Southeastern Mich. at 11.

We reiterate that the Board is “generally reluctant to find that non-contemporaneous documentation of personnel [costs] meets applicable record keeping requirements, holding that such documentation must be closely scrutinized.”  See Depression & Bipolar at 9 (quoting Suitland Family & Life Dev. Corp., DAB No. 2326, at 10 (2010)).  Accordingly, the Board has held that a grantee’s “filled-in spreadsheet” and unsigned time sheets were insufficient and the grantee “did not adequately document the salary and fringe benefits paid” to the individuals in question.  Id. at 6, 8-9; see Philadelphia at 24 (holding that spreadsheets of volunteer service hours, which “[a]t best . . . appear to summarize and report information derived from other contemporaneous documentation that [the grantee] did not provide,” were “clearly inadequate” to demonstrate allowable costs).  Here, the Center did not provide the Auditor with “detailed support for salaries, fringe benefits and administrative costs,” ACF Ex. 3, at 41, and the Center’s affidavits and time compilations prepared years after the fact are not an acceptable replacement.  When, as here, a grantee submits “no time sheet, invoice, or other documentation of the hours actually worked, or the nature of the work performed, by” an individual, the grantee has “failed to establish that the cost was reasonable or allocable to its . . . grant, as federal cost principles require.”  Maryland Disability at 10.

Even setting aside the cost principles and relevant regulations, the Center’s proffered evidence is deficient from a general evidentiary standpoint.  A “declaration is not itself contemporaneous source documentation supporting any of the costs discussed therein,” but instead is “summary” in nature and “is not an adequate and reliable substitute for underlying source documentation.”  Los Angeles at 13.  Both the Center’s affidavits and time compilations lack “the foundation normally required to demonstrate that a summary exhibit (which is in the nature of secondary evidence) is appropriate and reliable.”  See Pennsylvania, at 12.  That foundation can include, for example, a “showing that the underlying documents or items are so voluminous as to make summary helpful to the Board and that the summary itself is an accurate representation of those underlying exhibits.”  Id.  The Center has made no such showing.

Thus, the Center’s evidence does not establish the allowability of any costs that ACF disallowed per Finding 2016-01.  We uphold this portion of the total disallowance.

B. We uphold ACF’s disallowance of $4,812.00 under Finding 2016-02.

Concerning Finding 2016-02, we first hold (and the Center does not dispute) that ACF sufficiently stated its basis for the $4,812 disallowance to enable the Center to respond.  The Revised Disallowance Notice and the underlying Auditor’s report (with which ACF concurred) explained the factual basis.  ACF 2, at 5-6; ACF Ex. 3, at 41-42; ACF Ex. 4, at 3, ¶ 9 (declaring ACF’s concurrence with the audit findings).  Specifically, the Auditor, by sampling the Center’s transactions, found a “[l]ack of internal controls in place” and

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“lack of oversight by management in verifying allowability of expenditures,” which resulted in the Auditor’s questioning of $3,312 in sample expenditures and $1,500 relating to the “true-up” of expenses.  Ex. 3, at 41-42.  Among the questioned expenses were eight instances where expenditures “were not supported by a receipt or a detailed receipt” and three where “promotional items were purchased.”  ACF Ex. 3, at 41.  The Revised Disallowance Notice and the underlying Auditor’s report also stated the legal basis for the disallowance.  ACF Ex. 2, at 6 (citing OMB Circular A-122, 45 C.F.R. §§ 75.302(b) and 75.421(e)(3)); ACF Ex. 3, at 41-42 (citing OMB Circular A-122 and 2 C.F.R. § 200.303(a)).  ACF’s briefing urges the Board to uphold the full $4,812 disallowance because the Center “provided receipts only for three out of eight” unsupported expenditures and those receipts “lacked critical information such as the name of the hotel and the dates of the hotel stays.”  ACF Am. Br. at 7-8.  ACF also argues that the Center does not address other relevant findings including 38 “instances where invoices were not appropriately approved by program management/personnel,” one double-allocated expenditure, one non-beneficial expenditure, and three promotional item purchases.  ACF Am. Br. at 8 (citing ACF Ex. 2, at 5).

We next discuss the legal authorities on which ACF relies.  OMB Circular A-122 requires, among other things, that to be allowable an expenditure must be reasonable for the performance of the award, allocable to the award, and adequately documented.  2 C.F.R. Part 230, App. A, ¶¶ A.2.(a), A.2.(g); 2 C.F.R. § 200.403(a), (g). Under 45 C.F.R. § 75.302(b)(4), as previously stated, a grantee’s financial management system must provide for records that identify adequately the source and application of federal funds and also must provide for effective control and accountability concerning all funds, property, and other assets.  Under section 75.421(e)(3), unallowable advertising and public relations costs include costs of promotional items and memorabilia.  Under 2 C.F.R. § 200.303(a), a grantee must “[e]stablish and maintain effective internal control over” an award, to provide reasonable assurance that the grantee, in managing the award, is complying with its terms and conditions and federal statutes and regulations.

We next determine whether the Center has met its burden of proving compliance with the applicable standards.  The Center acknowledges that certain disallowed expenditures were for “hotel charges” not documented with “the itemized receipt from the hotel,” but argues that the Center gave the Auditor “a receipt from Expedia” that “did show the applicable charges,” which “match the hotel charges on the credit card.”  Center Br. at 2.  The three hotel charges in question allegedly total $1,151.26, so the Center requests reduction of the disallowed expenses “by $1,151.26 to $3,660.74.”  Id.  The Center disputes no other costs disallowed under Finding 2016-02, including costs for promotional items disallowed per 45 C.F.R. § 75.421(e)(3).

We hold that the Center has not met its burden of proving that any of the costs in question are allowable, beginning with the $3,660.74 in disallowed costs that the Center does not dispute. We summarily affirm ACF’s uncontested disallowance of those costs without

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further discussion.  See Depression & Bipolar at 6 n.5 (“Since [grantee] does not dispute the disallowance of [an] amount, we summarily affirm the disallowance … without further discussion.”); Northstar at 10 (upholding disallowance where grantee “presented no argument or evidence regarding these costs”).

We next consider the $1,151.26 in disallowed costs that the Center does challenge.  The Center submits four pages of relevant evidence:  one page of February 8, 2016 emails to and from an Administrative Coordinator at the Center, and the third pages of three separate, unidentified documents with “Feb 2016 training” handwritten in an upper corner.  Ex. B to Center Br. at 63-66.⁷  This evidence does specify a hotel (the Mirage Resort & Casino in Las Vegas), room prices, taxes, and fees totaling $1,474.94 for two employees for specified dates in March 2016.  Id.  An email states that an unspecified itinerary change would cause “a $363.68 refund” by credit card; an unidentified person’s handwriting crosses out that figure and notes, “was 323.68.”  Id. at 65.  The Center thus apparently is attempting to document hotel charges of $1,474.94, which, after a $323.68 refund, would total $1,151.26.

The Center’s documentation is insufficient to show that the disallowed hotel charges were reasonable for the performance of the award, allocable to the award, or adequately documented, as the cost principles require.  The mere handwritten references to “Feb 2016 training” come nowhere near establishing that attendance at the conference by the Center’s representative(s) was reasonable for the performance of the award or properly allocable to it.  The Board has sustained the disallowance of a grantee’s conference attendance when the federal agency found it did not benefit the relevant program and the grantee’s rebuttal evidence consisted only of “documentation of travel logistics” and a “two-page meeting agenda” – which is more documentation than the Center has provided here. See Maryland Disability at 14.  The Center’s documentation also is inadequate because it shows no hotel charge actually incurred or credit card charges actually paid (or refunded); instead, the pages submitted merely describe a prospective “Limited time offer,” and undetermined additional fees, charges, and surcharges to be paid “at the hotel” and “upon check-out.”  Ex. B to Center Br. at 63-64, 66.  This incomplete and inconclusive documentation does not satisfy the Center’s burden of proof.  See Maryland Disability at 14 (holding grantee did not carry its burden of proving allowability of travel expenses by submitting documentation that was “inconclusive (at best)” because, for instance, the employee’s “name does not appear on a copy of any hotel bill submitted”). 

Thus, the Center’s evidence does not establish the allowability of any costs that ACF disallowed per Finding 2016-02.  We uphold this portion of the total disallowance.

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C. We uphold ACF’s disallowance of $2,512 under Finding 2016-03.

Concerning Finding 2016-03, we first hold (and the Center does not dispute) that ACF sufficiently stated its basis for the $2,512 disallowance to enable the Center to respond. The Revised Disallowance Notice and the underlying Auditor’s report (with which ACF concurred) explained the factual basis.  ACF Ex. 2, at 6-7; ACF Ex. 3, at 42-43; ACF Ex. 4, at 3, ¶ 9 (declaring ACF’s concurrence with the audit findings).  Specifically, the Auditor detected, by sampling, “$2,512 of match expenditures which were not properly supported or were double counted.”  ACF Ex. 3, at 43.  The Revised Disallowance Notice and the Auditor’s report also stated the legal basis for the disallowance.  ACF Ex. 2, at 7 (citing OMB Circular A-122 and 45 C.F.R. § 75.302(b)); ACF Ex. 3, at 42-43 (citing 2 C.F.R. §§ 200.303(a), 200.306, and 200.403(g)).  Through briefing, ACF explains that the Center “fails to address the central lack of internal controls/oversight by management in verifying the allowability of matching expenditures, and failure to retain supporting documents for expenditures issues.” ACF Am. Br.at 9.

We next discuss the legal authorities on which ACF relies.  Under OMB Circular A-122, an expenditure must be adequately documented to be allowable.  2 C.F.R. Part 230, App. A, ¶ A.2.(g); 2 C.F.R. § 200.403(g).  Under 45 C.F.R. § 75.302(b)(4), a grantee’s financial management system must provide for effective control over, and accountability for, all funds, and 2 C.F.R. § 200.303(a) similarly requires a grantee to establish and maintain effective internal control over an award in compliance with federal statutes and regulations.  Under 2 C.F.R. § 200.306(b), matching funds must be verifiable from the grantee’s records and allowable under federal cost principles.   

We conclude that the Center has not met its burden of proving compliance with the applicable standards.  The Center has not shown, or even tried to show, that the Auditor’s underlying findings of double-counted and unsupported match expenditures were “legally or factually unjustified,” see Massachusetts at 11.  On the contrary, the Center was “in agreement” with the auditor’s recommendations “that management implement procedures and control processes to comply with the federal requirements.” ACF Ex. 3, at 43.  The Center now asserts that “[m]atch expenditures were not paid for through the federal grant,” and on that sole basis the Center requests “that this amount not have to be repaid.”  Center Br. at 2.   

ACF correctly argues that the Center’s assertion “is not a valid defense since, by definition, ‘match’ expenditures are not paid through the federal grant, but through non-federal sources.”  ACF Br. at 8-9.  “Cost sharing or matching means the portion of project costs not paid by Federal funds (unless otherwise authorized by Federal statute),” and may include “expenditures by the recipient.”  45 C.F.R. 75.2 (defining “Cost sharing or matching”); see Navajo Nation, DAB No. 2952 (2019), at 2 (“The terms ‘cost-sharing’ and ‘matching’ in this context mean the portion of the costs of a federally supported activity that is not borne by the federal government.”). Accordingly, the Board has

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sustained ACF’s disallowance of an “alleged shortfall” in the grantee’s matching contribution, and “the resulting over-expenditure of federal funds,” when the grantee has “not substantiated the existence and amount” of those costs or that it has “met all the conditions for using” them for matching.  Navajo Nation at 1.  In other words, when the federal agency has used federal funds to match alleged grantee expenditures that in fact were double-counted or inadequately documented, the federal agency has over-expended federal funds and has the right to repayment of them.

Thus, the Center has not demonstrated the allowability of any costs that ACF disallowed per Finding 2016-03.  We uphold this portion of the total disallowance.

II. The Center’s equitable arguments do not present a reviewable issue.

The Board “is not empowered to reverse a disallowance based on equity.”  ChildCareGroup, DAB No. 3010, at 10 (2020); see Mental Health Ass’n of Or., DAB No. 2590, at 9 (2014) (“The Board has no authority to waive a disallowance on the basis of equitable principles.”).  We agree with ACF that the Center disputes the disallowance “based mainly on an argument for equitable relief, which the DAB cannot grant.”  ACF Am. Br. at 1.  The Center’s assertions that it began complying with documentation requirements as soon as the Auditor pointed them out, that the Center’s oversight was not intentional, and that the Center undertook numerous improvements and trainings after the audit, are all equitable in nature.  See Not. of Appeal at 2; Docket # 18 (D. Ries Aff.), ¶¶ 8-10; # 19 (M. Bomgaars Aff.), ¶ 8. So also are the Center’s complaints that the Grant was the “first large federal grant” that the Vice President responsible “had ever dealt with” and that Grant-related meetings and training did not cover how to document staff time properly. See Docket # 18 (D. Ries Aff.), ¶¶ 5-7.  So, too, are the Center’s assertions that it “has experienced significant losses the last 3 fiscal years” and that disallowing $383,885 “would perpetuate our losses” and put the Center “at risk of having to cease operations.”  Docket # 18 (D. Ries Aff.), ¶¶ 11, 13.

However sympathetic we might be to such arguments, “Board review under Part 16 procedures is generally limited to resolving disputes about material facts and deciding whether the appealed decision is consistent with applicable law and regulations.”  Nebraska Dep’t of Health & Hum. Servs., DAB No. 3071, at 9 (2022).  A grantee “may not avoid returning funds it cannot show were spent in accordance with” applicable grant terms, award conditions, and regulations “merely because repayment may be difficult.”  Depression & Bipolar at 13.  The Board may not consider “such circumstances as [the grantee’s] current level of compliance . . . and the community need for its programs.”  Second St. at 7-8; see Mental Health at 9 (stating that Board “may not grant equitable relief on the basis that a grantee has taken corrective action, or that the disallowance may have a significant financial impact” on a grantee).  “The Board therefore must uphold a decision” when, as here, “it is authorized by law” and the non-federal party appealing it has “not disproved the factual basis for the decision.”  Nebraska at 9; see also Central

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Ala. Comprehensive Health, Inc., DAB No. 2625, at 3 (2015) (“[W]here a disallowance is authorized by law and the grantee has not disproved its factual basis, the Board must affirm the disallowance.”).

Conclusion

The Board sustains ACF’s disallowance of $383,885 in its entirety.

Endnotes

¹ Neither party raises any issue concerning which version(s) of the cost principles to apply.  We cite collectively to the cost principles in effect from 2012 (the year the Grant began) through 2016 (the year when the disallowance period ended).  The principles remained consistent throughout this period.  See Loving Arms Learning Ctr., DAB No. 2921, at 1 n.1 (2019) (finding that the consolidation of OMB Circular A-122 and other OMB circulars in December 2013 “made no changes relevant to this case”). We otherwise cite to legal authorities in effect in 2019, when ACF issued the challenged disallowance.

² All citations to the administrative record refer to Docket No. A-19-46 unless we specifically cite to Docket No. A-19-80.

³ The Grant award date is available on the publicly accessible Tracking Accountability in Government Grants System (TAGGS) website, which tracks grant awards by HHS.  See TAGGS (last visited Aug. 28, 2024), https://taggs.hhs.gov/Detail/AwardDetail?arg_AwardNum=90CU0057&arg_ProgOfficeCode=187.

⁴ We refer to the numbered Audit Findings as cited in ACF’s Revised Disallowance Notice (i.e., Audit Findings 2016-01 through 2016-05). The corresponding findings from the original Audit Report included an additional leading zero (i.e., Audit Findings 2016-001 through 2016-005). See, e.g., ACF Ex. 3, at 33.

⁵ The next day, ACF filed an Amended Brief (ACF Am. Br.) to correct a typographical error that misstated the total disallowed amount as $383.885 rather than $383,885. Docket # 10 (email from ACF’s counsel to Board).

⁶ The Center did not follow the Board’s instructions to “assign each exhibit a unique number or letter,” see Docket # 2, at 3, so we cite individual affidavits by docket number and affiant name.  We also note that the affidavits are not made under penalty of perjury or in the format authorized in 28 U.S.C. § 1746.  Instead, the affidavits declare that “to the best of [the affiant’s] knowledge and belief, the information herein [is] true, correct, and complete,” and they are signed, dated, and notary-stamped.  See, e.g., Docket # 21 (J. Drey Aff.) at 3.  Technical defects in affidavits can affect their evidentiary weight.  See, e.g., Council for Econ. Opportunities in Greater Cleveland, DAB No. 1980, at 9 (2005) (“We give only minimal weight to” a written assertion that “was not sworn (or affirmed as true pursuant to 28 U.S.C. § 1746).…”). However, ACF has not objected to the format of the affidavits, so we do not consider it further.

⁷ Exhibits A and B to the Center’s Brief are a 66-page combined PDF document. We cite to the PDF page numbers.