Sneak Preview: Texas Organization’s Head Start Funds Disallowed

August 20, 2014 | By Jerry Ashworth | Post a Comment

xgran_bookshot(The following was excerpted from an article in the Federal Grants Management Handbook.) The Department of Health and Human Services Departmental Appeals Board recently upheld an Administration for Children and Families disallowance of almost $1.4 million in federal Head Start and Early Head Start funding from fiscal year 2010 to FY 2012 sought by Texas Neighborhood Services, Inc. The disallowance primarily stemmed from TNS’ failure to show that it reasonably made incentive compensation payments under an established policy.

According to the Office of Management and Budget uniform grant guidance (§200.430(f)), “incentive compensation to employees based on cost reduction, or efficient performance, suggestion awards, safety awards, etc., is allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid or accrued pursuant to an agreement entered into in good faith between the nonfederal entity and the employees before the services were rendered, or pursuant to an established plan followed by the nonfederal entity so consistently as to imply, in effect, an agreement to make such payment.” Head Start regulations require that Head Start grantees implement written personnel policies for staff, including the procedures for conducting staff performance appraisals.

TNS is a nonprofit organization that provides Head Start and Early Head Start services to several counties in Texas. In a February 2013 monitoring review, ACF found that TNS failed to ensure that its incentive compensation payments to employees for FY 2010-2012, totaling about $1.369 million, were reasonable, and that it did not document the basis for the amounts awarded. In September 2013, ACF disallowed these funds, and TNS subsequently appealed the determination.

In its ruling, the appeals board found the ACF properly disallowed the incentive compensation payments because TNS had not shown that the payments were reasonable, did not support them with adequate documentation and did not make them under its established plan. TNS has had a formal incentive compensation policy since August 2007, which allows TNS personnel to receive increases in salary (i.e., incentive awards) for consistent or exemplary job performance, based on a series of specific guidelines. It also had a compensation plan for determining salaries since 2009. TNS argued that its incentive compensation awards should be allowable because it made them pursuant to these policies.

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