[Federal Register Volume 62, Number 168 (Friday, August 29, 1997)]
[Proposed Rules]
[Pages 45778-45783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23039]
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LEGAL SERVICES CORPORATION
45 CFR Part 1630
Cost standards and procedures
AGENCY: Legal Services Corporation.
ACTION: Proposed rule.
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SUMMARY: This rule proposes substantial revisions to the Legal Services
Corporation's rule concerning the Corporation's cost standards and
procedures. The proposed revisions are intended to conform the rule to
applicable provisions of the Inspector General Act, the Corporation's
appropriation's act and relevant OMB Circulars.
DATES: Comments should be received on or before October 29, 1997.
ADDRESSES: Comments should be submitted to the Office of the General
Counsel, Legal Services Corporation, 750 First St. NE., 11th Floor,
Washington, DC 20002-4250.
FOR FURTHER INFORMATION CONTACT: Office of the General Counsel, (202)
336-8817.
SUPPLEMENTARY INFORMATION: This rule proposes substantial revisions to
the Legal Services Corporation's (``LSC'' or ``Corporation'') rule on
cost standards and procedures to conform the rule to applicable
provisions of Sec. 509 of Public Law 104-134; the Inspector General
(``IG'') Act, 5 U.S.C. App. 3, as amended; the Audit Guide for LSC
Recipients and Auditors (``Audit Guide''); OMB Circular A-50, Audit
Followup (September 29, 1982); and OMB Circular A-133, Audits of
Institutions of Higher Education and Other Non-Profit Institutions
(June 24, 1997) (this circular is applicable to LSC recipients through
Section I-2 of the Audit Guide). In addition, the rule borrows from
other relevant OMB circulars as appropriate; see OMB Circular A-110,
Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals, and Other Non-profit
Organizations (November 19, 1993); OMB Circular A-122, Cost Principles
for Nonprofit Organizations (May 8, 1997). The Corporation's Operations
and Regulations Committee (``Committee'') of the LSC Board of Directors
(``Board'') held public hearings on a draft proposed rule in Los
Angeles, California, on July 13, 1997 and, after making revisions to
the draft, adopted a proposed rule for publication in the Federal
Register for public notice and comment.
Generally, this rule sets out proposed uniform standards for
determining the allowability of costs and provides a proposed process
for resolving questioned costs. A section-by-section analysis is
provided below.
Section 1630.1 Purpose
The purpose of this proposed rule is to provide uniform standards
for determining the allowability of costs and to provide a process for
the resolution of questioned costs. This rule proposes deleting
language in the current rule which explains that the Corporation has
considered the standardized policies developed under Federal experience
and has adopted or adapted many Federal policies as appropriate for the
legal services system. Such language is better placed in the rule's
preamble.
Section 1630.2 Definitions
Paragraph (a) defines allowed cost as a cost that is determined in
a management decision to be eligible for payment with LSC funds.
Paragraph (b) defines corrective action as action taken by a
recipient that corrects deficiencies or makes improvements. It also
includes a demonstration by the recipient that the audit or other
findings do not warrant corrective action.
Paragraph (c) defines derivative income. This definition replaces
the current Sec. 1630.4(e) which defines program income, a term used
within the Federal government for derivative income. Derivative income
is used in this rule instead of program income because it is more
familiar to the legal services community. Even though the current rule
defines program income, the term is not used anywhere in the rule. This
proposed rule devotes a section to derivative income, see Sec. 1630.12.
Derivative income is defined as income earned from LSC-funded
activities during the term of an LSC grant or contract. It would
include interest earned on an LSC grant, fees for services or income
for sales or rentals of real or personal property.
Paragraph (d) defines disallowed cost as a cost that should not be
charged to LSC funds. It does not include reference to derivative
income as does the current definition in Sec. 1630.2(c). Instead, the
rule addresses the recovery of derivative income in Secs. 1630.7(b) and
1630.8.
Paragraph (e) defines final action as the completion of all
corrective actions called for in a management decision. When no
corrective action is required by Corporation management, the management
decision is the final action. This term is not found in the current
rule.
Paragraph (f) defines management decision as a written response by
management to findings and recommendations in an audit or other report
and a recipient's response to such findings and recommendations. A
management decision includes any corrective actions necessary to
address any findings and recommendations. This term is not found in the
current rule.
Paragraph (g) defines questioned cost as a cost charged to LSC
funds that is
[[Page 45779]]
questioned in a audit or other finding because (1) there may have been
a violation of applicable law, (2) the costs are unsupported by
adequate documentation, or (3) the costs appear to be unnecessary or
unreasonable. The proposed definition expands the current definition to
incorporate current law, which contemplates that, in addition to
Corporation management, the Office of Inspector General (``OIG''), the
General Accounting Office (``GAO''), or a duly authorized independent
auditor or audit organization may question a cost.
Paragraph (h) defines recipient for the purposes of this part. No
change has been made from the current definition.
Section 1630.3 Burden of Proof
This section provides that the burden of proof is on the recipient.
A statement in the current rule that the recipient has the burden of
showing that funds expended are not subject to a restriction is deleted
in this rule as redundant and unnecessary.
Section 1630.4 Standards Governing Allowability of Costs Under
Corporation Grants or Contracts
Paragraph (a) of this section sets out the nine standards that
determine whether an expenditure will be allowed under a recipient's
grant or contract. The standards are generally the same as those in the
current rule. However, several changes are proposed. First, the
proposed rule modifies subparagraph (a)(1) of the current rule to
permit, in limited circumstances, costs incurred immediately prior to
or immediately after the term of the grant, provided the costs are
necessary to the performance of the grant and the Corporation has
approved them pursuant to Sec. 1630.5(b)(1) of the proposed rule. These
costs are not allowed under the current rule. Allowing such costs is
consistent with Federal practice and the Corporation's new competitive
grant process and will enable new recipients to incur necessary start-
up costs immediately prior to the onset of the grant term and will
permit current recipients who are terminating their relationship with
LSC to incur necessary close-out costs that occur immediately after the
conclusion of the grant. Second, subparagraph (a)(2) of the current
rule has been modified and is based on OMB Circular A-122. Third,
reference to the Audit Guide has been deleted in subparagraph (a)(4),
because the latter does not set forth any rules or guidelines governing
the allowability of costs. Fourth, subparagraph (a)(6) has added the
words ``over time'' to the current language to clarify that it
addresses consistency over time, as opposed to subparagraph (a)(5),
which addresses consistency among funding sources. Finally,
subparagraph (a)(9) has added language to require recipients to provide
access to business records to the OIG, the GAO, and other federally
funded auditors as required by section 509(h) of Pub. L. 104-134.
One of the standards in paragraph (a) is that the cost be
reasonable and necessary for the performance of the grant or contract.
Paragraph (b) sets out the factors that determine whether a cost is
reasonable. Generally, a prudent person standard is established. This
paragraph clarifies that if a cost is disallowed solely because it is
excessive, only the amount above that which is reasonable will be
disallowed. Although this paragraph is generally the same as the
current rule, hortatory language in the current rule that urges careful
scrutiny of costs has been deleted because it has no practical effect
and provides no additional clarity about what constitutes a reasonable
cost.
Another standard in paragraph (a) is whether a cost may be
allocated to the grant or contract. Paragraph (c) clarifies when a cost
may be allocated to a grant or contract and includes new language that
provides that costs may be charged to an LSC grant or contract directly
or indirectly. The new language is adapted from OMB Circular A-122. The
Committee has deleted language in the current rule that prohibits
recipients from shifting costs from non-LSC to LSC grants or from one
LSC grant to another LSC grant, to overcome funding deficiencies, or to
avoid restrictions on the use of funds. It is already clear in other
LSC regulations that certain recipient funds may not be allocated to
prohibited or restricted activities, and the Committee proposes to
delete the provision as redundant and unnecessary. However, the
Committee seeks comment on the deletion of the current
Sec. 1630.4(c)(2), which provides:
Any cost allocable to a particular grant or contract or other
cost objective under these principles may not be shifted to other
Corporation grants or contracts to overcome funding deficiencies, or
to avoid restrictions imposed by law or by the terms or conditions
of the grant or contract.
Paragraphs (d), (e) and (f) define direct and indirect costs and
specify methods for allocating costs. Some indirect costs will carry
specific allocation requirements. For example, section 509(c) of Pub.
L. 104-134 requires a pro rata distribution of audit costs among a
recipient's funding sources.
Paragraph (g) adapts language from the Corporation's Accounting
Guide for LSC Recipients and governs situations where another funding
source will not allow the charging of indirect costs to that funding
source. In such a situation, paragraph (g) provides an exception to
allow recipients to use a cost allocation method that charges the LSC
grant with a proportional share of the other funding source's share of
indirect costs.
Paragraph (h), which is unchanged from the current rule, defines
and explains how to allocate applicable credits. Applicable credits are
defined as receipts or reductions of expenditures which operate to
offset or reduce expenses.
Paragraph (i) provides that OMB Circulars shall provide guidance
for allowable costs unless the guidance is inconsistent with other law
applicable to the Corporation.
Section 1630.5 Costs Requiring Corporation Prior Approval
Paragraph (a) explains that recipients may seek advance
understandings from the Corporation on the reasonableness and
allocability of a particular cost before it is incurred.
Paragraph (b) requires prior approval from the Corporation before
certain costs may be charged to Corporation funds. Several changes have
been made from the current rule. The requirement for prior approval of
consultant contracts has been deleted to be consistent with OMB
Circulars A-122 and A-110. In addition, provisions requiring prior
approval for pre-award and post-award costs and capital expenditures
exceeding $10,000 to improve real property have been added. The
reference to ``combined purchase price'' has been deleted as confusing
and unnecessary. It is only the purchase price of individual items that
is considered for the purposes of prior approval. The combined purchase
requirement in the current rule penalized programs that made
independent purchases of equipment over a period of time and then
belatedly discovered that they had exceeded the current rule's $10,000
threshold. The elimination of the combined purchase provision does not
alter the accounting rules which determine when to treat property
purchases as capital expenditures. For example, the Accounting Guide
for LSC Recipients requires that purchases of property items costing in
excess of $1,000 be treated as capital expenditures.
Paragraph (c) clarifies that the Corporation's approval or advance
understanding is valid for one year only or for a greater time if
specified by the Corporation in its approval or understanding. This
provision is highlighted in a single paragraph in this
[[Page 45780]]
proposed rule. Its placement in the current rule has often caused it to
be missed by recipients. Situations where approval may be given for a
period greater than a year usually involve multiple-year leases for
equipment such as photocopiers.
Section 1630.6 Effect of Absence of Prior Approval
This section sets out the procedures for granting or denying prior
approval and the effects of the absence of prior approval. The proposed
rule modifies the structure of the current section to provide greater
clarity, but does not substantively change the content of the section.
Paragraph (a) explains that approval will be granted for a cost if
the recipient has provided sufficient information to show that the cost
is consistent with this part. When the Corporation denies a request,
this paragraph requires that the recipient be provided a written
explanation of the grounds for denial.
Paragraph (b) provides a time limit of sixty days for the
Corporation to respond to a request for prior approval. If the
Corporation fails to meet the deadline, the Corporation may not assert
the absence of prior approval as grounds to disallow the cost.
Paragraph (c) allows the Corporation to seek additional information
from the recipient to make its determination on the request for prior
approval. Paragraph (d) sets out the Corporation's deadline for
responding to a request for prior approval when the Corporation has
requested additional information from the recipient.
Section 1630.7 Review and Appeal of Questioned Costs
This section sets out the process for reviewing and appealing
questioned costs. The proposed rule retains the overall process
contained in the current rule, but makes several changes to be
consistent with the IG Act, Section 504 of Public Law 104-134, and OMB
Circular A-133.
Paragraph (a) expands the current rule to include additional
parties who are authorized by current law to question costs. The
current rule recognizes only the authority of Corporation management to
question costs. This proposed rule also recognizes the authority of the
Inspector General, the GAO, and authorized independent auditors or
audit organizations to question costs. This paragraph provides that the
Corporation shall follow up on any referred or identified questioned
costs to determine whether there is a legal or factual basis for taking
any additional action.
If the Corporation determines there is a basis for taking
additional action, paragraph (b) requires the Corporation to provide
the recipient with a notice of its intent to disallow a cost. This
paragraph describes what information must be in the notice and also
authorizes the Corporation to recover any derivative funds resulting
from the activity to which the questioned cost is attributable.
Finally, this paragraph states that the Corporation must take action
within three years of the time the cost was incurred by the recipient.
The current rule allows the Corporation to take action up to six years
after a cost has been incurred. The Committee decided that six years is
too long, even considering the time needed for the development of an
audit or other report and implementation of the Corporation's
questioned cost procedures. The Committee especially seeks comments on
the proposed change to three years.
The rest of this section describes the due process rights of
recipients, which include a right to appeal a management decision to
the President for questioned costs that exceed $2,500. The $2,500
threshold is new. This section also clarifies when management decisions
on questioned costs are final and makes it clear that final decisions
shall include whatever action the recipient is required to take to
repay the questioned costs and to prevent any recurrence of the
circumstances causing the disallowed costs.
Section 1630.8 Recovery of Disallowed Costs and Other Corrective Action
This section sets out the requirements for and process by which the
Corporation collects disallowed costs and ensures that a recipient take
applicable corrective action. It also clarifies that final action
occurs when the recipient has repaid all disallowed costs and has taken
all required corrective action.
Section 1630.9 Other Remedies; Effect on Other Parts
Paragraph (a) has been updated and it clarifies the relationship of
this part to parts 1606, 1623, 1625, and 1640 of the Corporation's
regulations. Paragraph (b) clarifies that a recovery of disallowed
costs under this part does not constitute a termination (part 1606),
suspension of funding (part 1623) or a denial of refunding (part 1625).
Section 1630.10 Applicability to Subgrants
This section clarifies that this part applies to expenditures under
subgrants.
Section 1630.11 Applicability to Non-LSC Funds
Paragraph (a) has been updated and it clarifies that costs for
certain activities may not be charged to various types of a recipient's
non-LSC funds. This paragraph uses the terms found in 45 CFR part 1610
which, sets out the various prohibitions applicable to recipients on
their use of non-LSC funds for certain activities.
Paragraph (b) allows the Corporation to recover from a recipient's
LSC funds any disallowed costs charged to a recipient's non-LSC funds.
Section 1630.12 Applicability to Derivative Income
This is a new section intended to clarify the applicability of this
part to derivative income. Paragraph (a) sets out the allocation
requirements for derivative income. Paragraph (b) clarifies that
expenditures of LSC derivative income are subject to the same
requirements that govern expenditures of LSC grant funds, including the
cost allowability requirements of this part.
Section 1630.13 Time
This section describes how time will be computed for the purposes
of this part and provides for an extension of time requirements for
good cause.
List of Subjects in 45 CFR Part 1630
Accounting; Government contracts; Grant programs; Legal services;
Questioned costs.
For reasons set forth in the preamble, LSC proposes to revise 45
CFR part 1630 to read as follows:
PART 1630--COST STANDARDS AND PROCEDURES
Sec.
1630.1 Purpose.
1630.2 Definitions.
1630.3 Burden of proof.
1630.4 Standards governing allowability of costs under Corporation
grants or contracts.
1630.5 Costs requiring Corporation prior approval.
1630.6 Effect of absence of prior approval.
1630.7 Review and appeal of questioned costs.
1630.8 Recovery of disallowed costs and other corrective action.
1630.9 Other remedies; effect on other parts.
1630.10 Applicability to subgrants.
1630.11 Applicability to non-LSC funds.
1630.12 Applicability to derivative income.
1630.13 Time.
Authority: 42 U.S.C. 2996e, 2996f, 2996g, 2996h(c)(1), and
2996i(c).
[[Page 45781]]
Sec. 1630.1 Purpose.
This part is intended to provide uniform standards for allowability
of costs and to provide a comprehensive, fair, timely, and flexible
process for the resolution of questioned costs.
Sec. 1630.2 Definitions.
(a) Allowed cost means a cost that the Corporation, in a management
decision, has determined to be eligible for payment from a recipient's
Corporation funds.
(b) Corrective action means action taken by a recipient that:
(1) corrects identified deficiencies
(2) produces recommended improvements; or
(3) demonstrates that audit or other findings are either invalid or
do not warrant recipient action.
(c) Derivative income means income earned by a recipient from
Corporation-supported activities during the term of a Corporation grant
or contract, and includes, but is not limited to, income from fees for
services (including attorney fee awards and reimbursed costs), sales
and rentals of real or personal property, and interest earned on
Corporation grant or contract advances.
(d) Disallowed cost means a questioned cost that the Corporation,
in a management decision, has determined should not be charged to a
recipient's Corporation funds.
(e) Final action means the completion of all actions that
Corporation management, in a management decision, has concluded are
necessary with respect to the findings and recommendations in an audit
or other report. In the event that Corporation management concludes no
corrective action is necessary, final action occurs when a management
decision has been made.
(f) Management decision means the evaluation by Corporation
management of findings and recommendations in an audit or other report
and the recipient's response to the report, and the issuance of a
final, written decision by management concerning its response to such
findings and recommendations, including any corrective actions which
Corporation management has concluded are necessary to address the
findings and recommendations.
(g) Questioned cost means a cost that a recipient has charged to
Corporation funds which Corporation management, the Office of Inspector
General, the General Accounting Office, or an independent auditor or
other audit organization authorized to conduct an audit of a recipient
has questioned because of an audit or other finding that:
(1) There may have been a violation of a provision of a law,
regulation, contract, grant, or other agreement or document governing
the use of Corporation funds;
(2) The costs are not supported by adequate documentation; or
(3) The costs incurred appear unnecessary or unreasonable and do
not reflect the actions a prudent person would take in the
circumstances.
(h) Recipient as used in this part means any grantee or contractor
receiving funds from the Corporation under sections 1006(a)(1) or
1006(a)(3) of the Act.
Sec. 1630.3 Burden of proof.
The recipient shall have the burden of proof under this part.
Sec. 1630.4 Standards governing allowability of costs under
Corporation grants or contracts.
(a) General criteria. Expenditures by a recipient are allowable
under the recipient's grant or contract only if the recipient can
demonstrate that the cost was:
(1) Actually incurred in the performance of the grant or contract
and the recipient was liable for payment;
(2) Reasonable and necessary for the performance of the grant or
contract as approved by the Corporation;
(3) Allocable to the grant or contract;
(4) In compliance with the Act, applicable appropriations law,
Corporation rules, regulations, guidelines, and instructions, the
Accounting Guide for LSC Recipients, the terms and conditions of the
grant or contract, and other applicable law;
(5) Consistent with accounting policies and procedures that apply
uniformly to both Corporation-financed and other activities of the
recipient;
(6) Accorded consistent treatment over time;
(7) Determined in accordance with generally accepted accounting
principles;
(8) Not included as a cost or used to meet cost sharing or matching
requirements of any other federally financed program, unless the agency
whose funds are being matched determines in writing that Corporation
funds may be used for federal matching purposes; and
(9) Adequately and contemporaneously documented in business records
accessible during normal business hours to Corporation management, the
Office of Inspector General, the General Accounting Office, and
independent auditors or other audit organizations authorized to conduct
audits of recipients.
(b) Reasonable costs. A cost is reasonable if, in its nature or
amount, it does 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. If a cost is disallowed solely on the ground
that it is excessive, only the amount that is larger than reasonable
shall be disallowed. In determining the reasonableness of a given cost,
consideration shall be given to:
(1) Whether the cost is of a type generally recognized as ordinary
and necessary for the operation of the recipient or the performance of
the grant or contract;
(2) The restraints or requirements imposed by such factors as
generally accepted sound business practices, arms-length bargaining,
Federal and State laws and regulations, and the terms and conditions of
the grant or contract;
(3) Whether the individuals concerned acted with prudence under the
circumstances, considering their responsibilities to the recipient, its
clients and employees, the public at large, the Corporation, and the
Federal government; and
(4) Significant deviations from the established practices of the
recipient which may unjustifiably increase the grant or contract costs.
(c) Allocable costs. A cost is allocable to a particular cost
objective, such as a grant, project, service, or other activity, in
accordance with the relative benefits received. Costs may be allocated
to Corporation funds either as direct or indirect costs according to
the provisions of this section. A cost is allocable to a Corporation
grant or contract if it is treated consistently with other costs
incurred for the same purpose in like circumstances and if it:
(1) Is incurred specifically for the grant or contract;
(2) Benefits both the grant or contract and other work and can be
distributed in reasonable proportion to the benefits received; or
(3) Is necessary to the overall operation of the recipient,
although a direct relationship to any particular cost objective cannot
be shown.
(d) Direct costs. Direct costs are those that can be identified
specifically with a particular final cost objective, i.e., a particular
grant award, project, service, or other direct activity of an
organization. Costs identified specifically with grant awards are
direct costs of the awards and are to be assigned directly thereto.
Direct costs include, but are not limited to, the salaries and wages of
recipient staff who are working on cases or matters that are
[[Page 45782]]
identified with specific grants or contracts. Salary and wages charged
directly to Corporation grants and contracts must be supported by time
records.
(e) Indirect costs. Indirect costs are those that have been
incurred for common or joint objectives and cannot be readily
identified with a particular final cost objective. Any direct cost of a
minor amount may be treated as an indirect cost for reasons of
practicality where the accounting treatment for such cost is
consistently applied to all final cost objectives. Indirect costs
include, but are not limited to, the costs of operating and maintaining
facilities, and the costs of general program administration, such as
the salaries and wages of program staff whose time is directly
attributable to a particular grant or contract. Such staff may include,
but are not limited to, executive officers and personnel, accounting,
secretarial and clerical staff.
(f) Allocation of indirect costs. Where a recipient has only one
major function, i.e., the delivery of legal services to low-income
clients, allocation of indirect costs may be by a simplified allocation
method, whereby total allowable indirect costs (net of applicable
credits) are divided by an equitable distribution base and distributed
to individual grant awards accordingly. The distribution base may be
total direct costs, direct salaries and wages, attorney hours, numbers
of cases, numbers of employees, or another base which results in an
equitable distribution of indirect costs among funding sources.
(g) Exception for certain indirect costs. Some funding sources may
refuse to allow the allocation of certain indirect costs to an award.
In such instances, a recipient may allocate a proportional share of
another funding source's share of an indirect cost to Corporation
funds, provided that the activity associated with the indirect cost is
permissible under the LSC Act and regulations.
(h) Applicable credits. Applicable credits are those receipts or
reductions of expenditures which operate to offset or reduce expense
items that are allocable to grant awards as direct or indirect costs.
Applicable credits include, but are not limited to, purchase discounts,
rebates or allowances, recoveries or indemnities on losses, insurance
refunds, and adjustments of overpayments or erroneous charges. To the
extent that such credits relate to allowable costs, they shall be
credited as a cost reduction or cash refund in the same fund to which
the related costs are charged.
(i) Guidance. The Circulars of the Office of Management and Budget
shall provide guidance for all allowable cost questions arising under
this part when relevant policies or criteria therein are not
inconsistent with the provisions of the Act, applicable appropriations
law, this part, the Accounting Guide for LSC Recipients, Corporation
rules, regulations, guidelines, instructions, and other applicable law.
Sec. 1630.5 Costs requiring Corporation prior approval.
(a) Advance understandings. Under any given grant award, the
reasonableness and allocability of certain cost items may be difficult
to determine. In order to avoid subsequent disallowance or dispute
based on unreasonableness or nonallocability, recipients may seek a
written understanding from the Corporation in advance of incurring
special or unusual costs. If a recipient elects not to seek an advance
understanding from the Corporation, the absence of an advance
understanding on any element of a cost does not affect the
reasonableness or allocability of the cost.
(b) Prior approvals. Without prior written approval of the
Corporation, no cost attributable to any of the following may be
charged to Corporation funds:
(1) Costs incurred prior to or after the completion of the term of
the grant or contract;
(2) Purchases and leases of equipment, furniture, or other
personal, non-expendable property, if the current purchase price of any
individual item of property exceeds $10,000;
(3) Purchases of real property; and
(4) Capital expenditures exceeding $10,000 to improve real
property.
(c) Duration. The Corporation's approval or advance understanding
shall be valid for one year, or for a greater period of time which the
Corporation may specify in its approval or understanding.
Sec. 1630.6 Effect of absence of prior approval.
(a) The Corporation shall grant prior approval of a cost if the
recipient has provided sufficient written information to demonstrate
that the cost would be consistent with the standards and policies of
this part. If the Corporation denies a request for approval, it shall
provide to the recipient a written explanation of the grounds for
denying the request.
(b) Except as provided in paragraphs (c) and (d) of this section,
the Corporation may not assert the absence of prior approval as a basis
for disallowing a cost, if the Corporation has not responded to a
written request for approval within sixty (60) days of receiving the
request.
(c) If additional information is necessary to enable the
Corporation to respond to a request for prior approval, the Corporation
may make a written request for additional information within forty-five
(45) days of receiving the request for approval.
(d) If the Corporation has made a written request for additional
information about a cost as provided by paragraph (c) of this section,
and if the Corporation has not responded within thirty (30) days of
receiving in writing all additional, requested information, the
Corporation may not assert the absence of prior approval as a basis for
disallowing the cost.
Sec. 1630.7 Review and appeal of questioned costs.
(a) When the Office of Inspector General, the General Accounting
Office, or an independent auditor or other audit organization
authorized to conduct an audit of a recipient has identified and
referred a questioned cost to the Corporation, Corporation management
shall review the findings of the Office of Inspector General, General
Accounting Office, or independent auditor or other authorized audit
organization, as well as the recipient's written response to the
findings, in order to determine accurately the amount of the questioned
cost, the factual circumstances giving rise to the cost, and the legal
basis for disallowing the cost. Corporation management may also
identify questioned costs in the course of its oversight of recipients.
(b) If Corporation management determines that there is a basis for
disallowing a questioned cost, and if not more than three years have
elapsed since the recipient incurred the cost, Corporation management
shall provide to the recipient written notice of its intent to disallow
the cost. The written notice shall state the amount of the cost and the
factual and legal basis for disallowing it. If the activity to which
the cost is attributable directly resulted in derivative income earned
by the recipient, the written notice shall also state the amount of
derivative income and the factual and legal basis for seeking to
recover it.
(c) Within thirty (30) days of receiving written notice of the
Corporation's intent to disallow the questioned cost, the recipient may
respond with written evidence and argument to show that the cost was
allowable, or that the Corporation, for equitable, practical, or other
reasons, should not recover all or part of the amount, or that the
recovery
[[Page 45783]]
should be made in installments. If the recipient does not respond to
the Corporation's written notice, Corporation management shall issue a
management decision on the basis of information available to it.
(d) Within sixty (60) days of receiving the recipient's written
response to the notice of intent to disallow the questioned cost,
Corporation management shall issue a management decision stating
whether or not the cost has been disallowed, the reasons for the
decision, and the method of appeal as provided in this section. If
Corporation management has determined that the cost should be
disallowed, the management decision shall also describe the expected
recipient action to repay the cost, including the method and schedule
for collection of the amount of the cost. The management decision may
also require the recipient to make financial adjustments or take other
corrective action to prevent a recurrence of the circumstances giving
rise to the disallowed cost.
(e) If the amount of a disallowed cost exceeds $2,500, the
recipient may appeal in writing to the Corporation President within
thirty (30) days of receiving the Corporation's management decision to
disallow the cost. The written appeal should state in detail the
reasons why the Corporation should not disallow part or all of the
questioned cost. If the amount of a disallowed cost does not exceed
$2,500, or if the recipient elects not to appeal the disallowance of a
cost in excess of $2,500, the Corporation's management decision shall
be final.
(f) Within thirty (30) days of receipt of the recipient's appeal of
a disallowed cost in excess of $2,500, the President shall either
adopt, modify, or reverse the Corporation's management decision to
disallow the cost. If the President has had prior involvement in the
consideration of the disallowed cost, the President shall designate
another senior Corporation employee who has not had prior involvement
to review the recipient's appeal. The President shall also have
discretion, in circumstances where the President has not had prior
involvement in the disallowed cost, to designate another senior
Corporation employee to review the recipient's appeal, provided that
the senior Corporation employee has not had prior involvement in the
disallowed cost.
(g) The decision of the President or designee shall be final and
shall be based on the written record, consisting of the Corporation's
notice of intent to disallow the questioned cost, the recipient's
response, the management decision, the recipient's written appeal, any
additional response or analysis provided to the President or designee
by Corporation staff, and the relevant findings, if any, of the Office
of Inspector General, General Accounting Office, or other authorized
auditor or audit organization. Upon request, the Corporation shall
provide a copy of the written record to the recipient.
Sec. 1630.8 Recovery of disallowed costs and other corrective action.
(a) The Corporation shall recover from the recipient, within the
time limits and conditions set forth in the Corporation's management
decision, any disallowed costs, plus any derivative income which the
recipient may have earned directly as a result of activity attributable
to the disallowed cost. Recovery of the disallowed cost and derivative
income, if any, may be in the form of a reduction in the amount of
future grant checks or in the form of direct payment from the recipient
to the Corporation.
(b) The Corporation shall ensure that a recipient which has
incurred a disallowed cost takes any additional, necessary corrective
action within the time limits and conditions set forth in the
Corporation's management decision. The recipient shall have taken final
action when the recipient has repaid all disallowed costs and has taken
all corrective action which the Corporation has stated in its
management decision is necessary to prevent the recurrence of
circumstances giving rise to a questioned cost.
Sec. 1630.9 Other remedies; effect on other parts.
(a) In cases of serious financial mismanagement, fraud, or
defalcation of funds, the Corporation may refer the matter to the
Office of Inspector General, and may take appropriate action pursuant
to 45 CFR parts 1606, 1623, 1625, and 1640.
(b) The recovery of a disallowed cost according to the procedures
of this part does not constitute a permanent reduction in the
annualized funding level of the recipient, nor does it constitute a
termination of financial assistance under 45 CFR part 1606, a
suspension of funding under 45 CFR part 1623, or a denial of refunding
under 45 CFR part 1625.
Sec. 1630.10 Applicability to subgrants.
When disallowed costs arise from expenditures incurred under a
subgrant of Corporation funds, the recipient and the subrecipient will
be jointly and severally responsible for the actions of the
subrecipient, as provided by 45 CFR part 1627, and will be subject to
all remedies available under this part. Both the recipient and the
subrecipient shall have access to the review and appeal procedures of
this part.
Sec. 1630.11 Applicability to non-LSC funds.
(a) No cost attributable to a purpose prohibited by the LSC Act, as
defined by 45 CFR 1610.2(a), may be charged to private funds, except
for tribal funds used for the specific purposes for which they were
provided. No cost attributable to an activity prohibited by or
inconsistent with Section 504, as defined by 45 CFR 1610.2(b), may be
charged to non-LSC funds, except for tribal funds used for the specific
purposes for which they were provided.
(b) According to the review and appeal procedures of 45 CFR 1630.7,
the Corporation may recover from a recipient's Corporation funds an
amount not to exceed the amount improperly charged to non-LSC funds,
plus any income which the recipient may have derived as a result of the
activity in question.
Sec. 1630.12 Applicability to derivative income.
(a) Derivative income resulting from an activity supported in whole
or in part with funds provided by the Corporation shall be allocated to
the fund in which the recipient's LSC grant is recorded in the same
proportion that the amount of Corporation funds expended bears to the
total amount expended by the recipient to support the activity.
(b) Derivative income which is attributable to activities supported
in whole or in part by Corporation funds is subject to the requirements
of this part, including the requirement of 45 CFR 1630.4(a)(4) that
expenditures of such funds be in compliance with the Act, applicable
appropriations law, Corporation rules, regulations, guidelines, and
instructions, the Accounting Guide for LSC Recipients, the terms and
conditions of the grant or contract, and other applicable law.
Sec. 1630.13 Time.
(a) Computation. Time limits specified in this part shall be
computed in accordance with Rules 6(a) and 6(e) of the Federal Rules of
Civil Procedure.
(b) Extensions. The Corporation may, on a recipient's written
request for good cause, grant an extension of time and shall so notify
the recipient in writing.
Dated: August 25, 1997.
Victor M. Fortuno,
General Counsel.
[FR Doc. 97-23039 Filed 8-28-97; 8:45 am]
BILLING CODE 7050-01-P
