DAB Uphold Head Start Termination Following Suspension without Notice
Southern Delaware Center for Children and Families DAB No. 2073 (April 2007)1
By Mary Gribbon, CAPLAW
HHS’s Administration for Children and Families was justified in
suspending Head Start funding to a grantee without first providing
the grantee with notice or an opportunity to correct and in then
terminating the grant, the DAB ruled earlier this year. In this case,
ACF indefinitely suspended funding to the Southern Delaware Center
for Children and Families because the grantee ran out of Head Start
funds two months before the end of its grant year and failed to file
several required financial reports on time. Shortly afterward, ACF
terminated Southern Delaware’s Head Start grant due to the grantee’s
failure to correct deficiencies identified in ACF reviews.
Important Conclusions
• In some cases, ACF can suspend Head Start funding without first
giving the grantee notice of the suspension and an opportunity to
correct the violations that are the basis for the suspension.
• Proper financial management and reporting is critical, as
overspending grant funds and failure to submit timely financial
reports can result in suspension or termination.
• The Head Start regulations’ requirement that ACF promptly notify
a grantee of review results applies only to notice of deficiencies
and areas of noncompliance identified in the initial review and not
to findings of a follow-up review conducted after the grantee has
already had the opportunity to correct deficiencies.
• An employee’s willful violation of Head Start regulations does not
absolve the grantee from responsibility for the violation. Grantees
must not only train staff on compliance with Head Start
regulations, but must also hire and continue to employ only
responsible people who can comply with critical standards of
conduct, supervise employees to be sure they comply with those
standards, and dismiss employees who cannot or do not comply.
• Correcting a deficiency means addressing the root cause of the
problems identified, not simply correcting the individual examples
of the deficiency noted by ACF.
Factual and Procedural Background
In March 2004, ACF conducted an on-site PRISM(2) review of
Southern Delaware’s Head Start program. In May 2004, ACF sent
Southern Delaware a letter noting deficiencies, as well as areas of
noncompliance that would become deficiencies if not corrected
within 120 days. Southern Delaware submitted and ACF approved
a Quality Improvement Plan (QIP) addressing the deficiencies and
specifying the time frame in which they would be corrected. In
October 2004, ACF notified Southern Delaware that several areas of
noncompliance had become deficiencies because Southern Delaware
had not corrected them within 120 days. ACF conducted a followup
review in May 2005.
At the end of October 2005, ACF notified Southern Delaware that
it was indefinitely suspending the organization’s Head Start funding
because Southern Delaware had overspent its Head Start funds,
leaving it without enough funds to run its Head Start program for the
rest of the grant year, and had failed to file required financial reports
on time. In November 2005, ACF sent Southern Delaware its followup
review report along with a notice of termination for failure to
correct a number of deficiencies identified in the 2004 review.
Southern Delaware appealed the suspension and termination.
Southern Delaware requested a hearing on the termination. In
response, ACF filed a motion for summary affirmance – i.e., asking
the DAB to uphold the suspension and termination based on
documentary evidence only and without holding a hearing or taking
testimony. After reviewing documentary evidence, the DAB
concluded that Southern Delaware had failed to raise a genuine
dispute of material fact concerning three of the deficiencies that ACF
cited as grounds for termination. Therefore, it granted ACF’s motion
and upheld the suspension and termination.
Suspension Due to Funding Shortfall, Late Financial
Reports
ACF suspended Southern Delaware’s Head Start grant because the
organization ran out of Head Start funds two months before the end of
the grant year and because it failed to submit required financial status
reports on time in violation of Head Start regulations and its Head
Start grant agreement.(3) Southern Delaware provided no evidence to
contradict these findings. Instead, it offered several defenses.
First, Southern Delaware argued that ACF could not suspend its
funding because it had failed to provide Southern Delaware with prior
notice of the basis of the suspension and an opportunity to correct
those violations. The DAB concluded that, under the Head Start Act
and regulations,(4) ACF was not required to provide Southern Delaware
with notice and an opportunity to correct before suspending the grant.
Instead, the opportunity to correct occurred after the suspension.(5) The
DAB further noted that a suspension is an “immediate, temporary
remedy” that can be based on a variety of problems in addition to those
that provide the grounds for termination.(6)
Second, Southern Delaware argued that ACF contributed to the funding shortfall by failing to provide the grantee with the results of
its May 2005 follow-up review “promptly” as required by Head Start
regulations(7) and within 45 days after the review, as specified in the
PRISM guide for that year. Southern Delaware contended that this
failure caused it to lose its chance to receive a state early childhood
assistance grant that could have remedied the funding shortfall. The
DAB rejected this argument. According to the DAB, regardless of
whether Southern Delaware was able to obtain the state grant or
other replacement funds, it had still mismanaged its Head Start funds.
Also, according to the DAB, Southern Delaware did not submit
evidence that it would have received the state grant had ACF
submitted its report earlier. Finally, the DAB noted that the Head
Start regulations’ requirement for prompt notification of review
results applies only to deficiencies that must be corrected immediately
or pursuant to a QIP and not to notice of findings of follow-up
reviews conducted after a grantee has already been given the chance
to correct deficiencies.(8)
Third, Southern Delaware alleged that an ACF representative
interfered with its efforts to obtain bank financing to make up for the
shortfall and called a business to discourage it from loaning money to
Southern Delaware for the same purpose. The DAB rejected this
argument because ACF presented evidence, which Southern
Delaware did not dispute, that a bank representative said, in a
conference call with Southern Delaware staff and an ACF employee,
that the loan being discussed could only be used for construction. In
addition, the DAB noted that Southern Delaware did not provide any
details on ACF’s alleged call to the potential lender or show that, but
for the call, the business would have loaned Southern Delaware the
funds it needed to run its Head Start program for the rest of the year.
The DAB concluded that ACF was justified in suspending Southern
Delaware’s funds because the organization violated HHS financial
management and reporting regulations and the terms and conditions of
its Head Start grant, which required that the Head Start program be
carried out according to the application approved by ACF.
Termination for Failure to Correct Deficiencies
ACF terminated Southern Delaware’s Head Start grant because the
organization failed to correct a number of deficiencies identified in
ACF’s 2004 on-site review.
Southern Delaware argued that ACF was indirectly responsible for
the deficiencies because an ACF program specialist had pressured the
organization into hiring an incompetent executive director, whom
Southern Delaware blamed for the deficiencies and for its failure to
correct them in a timely way. The DAB rejected this argument, citing
Southern Delaware’s failure to show how the deficiencies and its
inability to correct them were connected to ACF’s actions and why
the organization could not have corrected the deficiencies after the
executive director left in November 2004. The DAB noted that,
notwithstanding any alleged undue influence from ACF, Southern
Delaware’s board of directors had a duty to oversee the executive
director and could have acted sooner to remove her once it realized
she was responsible for the organization’s failure to meet Head Start
requirements. According to the DAB, Southern Delaware’s board of
directors had a fiduciary duty to avoid succumbing to any undue
influence in hiring an executive director and should have filed a
complaint with ACF rather than succumbing to that influence.
Southern Delaware also argued that ACF’s delay in providing it
with the report from the May 2005 follow-up review should have
excused the deficiencies at issue. However, the DAB noted that the
45-day deadline specified in the PRISM guide was not based on Head
Start suspension or termination regulations and that the PRISM guide
did not specify any sanctions against ACF in the termination process
for failure to meet the 45-day deadline. Moreover, the DAB observed
that the grantee became aware of some findings from the follow-up
review during the review itself and did not need formal notice of the
review findings in order to correct the deficiencies from the initial
review within the period specified in the QIP.
Uncorrected Deficiencies
Noting that only one uncorrected deficiency is required to support
termination,(9) the DAB narrowed its focus to three of the deficiencies
cited by ACF and concluded that, because Southern Delaware failed
to raise any dispute of material fact with respect to those deficiencies,
ACF was justified in its decision to terminate.
First, ACF found in its 2004 review that Southern Delaware had
failed to generate accurate reports as required by Head Start
regulations(10) and had failed to use information in reports that it did
generate. Problems included a report that erroneously resulted in a
carryover balance of approximately $55,000, staff meeting minutes
with little information about observations of inadequate facilities and
classroom materials, and reports that often did not adequately inform
administrative staff about unmet performance targets and problems
in service delivery. ACF noted that even when reports identified
problems, management staff often addressed them only with an
“immediate quick fix response.” ACF found in its follow-up review
that Southern Delaware had not corrected this deficiency. Among the
problems ACF noted was Southern Delaware’s failure to provide its
board and policy council with fiscal reports from December 2004
through March 2005 and the fact that board and policy council
members said that fiscal reports were too complicated for them to
understand and lacked narrative summaries that would have been
useful. As a result, according to ACF, the board lacked timely fiscal
data and could not determine how funds were spent, what the current
fiscal status of the program was, and whether cost principles were
being followed.
Southern Delaware did not dispute that it had not provided its
board and policy council with financial reports for the period at
issue. In defense, it noted that its fiscal officer had left in November
2004. However, the DAB pointed to evidence showing that Southern
Delaware retained two fiscal staff – including its fiscal officer –
through April 2005, after which it hired a fiscal consultant. The DAB
observed that even if Southern Delaware did not have a fiscal staff, it
still had the responsibility to generate accurate financial reports and
should have hired temporary staff to enable it to fulfill this
responsibility.
Second, during a site visit conducted as part of the 2004 review,
unattended children were observed in various locations, in violation
of Head Start regulations.(11) ACF concluded that Southern Delaware
had not corrected this deficiency by the time of the 2005 follow-up
review because, during that review, a child was left alone on a Head
Start bus after bus staff failed to walk through the bus to ensure that
all children had exited. Southern Delaware argued that it should not
be held accountable for the incident, which it said was caused by the
willful act of an employee who was later discharged. It also noted
that, several times between the initial and follow-up reviews, it had
trained staff on its code of conduct, including the requirement that
children not be left unattended. However, the DAB concluded that
dismissing the employee and training staff were not enough; Southern
Delaware also should have had a system in place for monitoring and
enforcing compliance with its code of conduct, including hiring and
retaining only responsible employees who could comply with critical
standards of conduct and properly supervising them to be sure that
they met those standards and never left children unattended.
Third, by the time of the 2005 follow-up review, Southern Delaware
had not corrected deficiencies relating to its facilities and equipment in
violation of Head Start regulations.(12) In 2004, ACF found that
Southern Delaware had not adequately maintained its indoor and
outdoor equipment, as evidenced by uncovered sandboxes, weeds,
chipped paint in the classrooms, broken toys with sharp edges, hanging
ropes and splintered wooden climbing structures at a playground.
During the 2005 follow-up review, ACF found poorly maintained
bathrooms, protruding nails in the playground area and toxic cleaning
supplies in an unlocked cabinet. Southern Delaware argued that all of
the problems found in the follow-up review were new deficiencies
because they were different problems than those named in the 2004
review. The DAB rejected this argument, stating that correcting a deficiency means more than simply getting rid of
specific problems cited in a review. It means addressing and correcting
the root problem from which the deficiencies stem, which in this case
was lack of proper maintenance.(13)
1 This and other DAB decisions are available online at
www.hhs.gov/dab/search.html.
2 Program Review Instrument for Systems Monitoring.
3 HHS regulations require grantees to establish and maintain financial
management and reporting systems that provide for effective control over
and accountability for all funds, property and other assets and enable
them to generate legally required reports. See 45 CFR §§ 74.21(b)(3)
(HHS grants administration regulation) and 45 CFR 1304.51(h)(2)
(Head Start regulation). The standard terms and conditions of Southern
Delaware’s grant required it to carry out the grant-funded project
according to the application that had been approved by ACF, including
the proposed work program and any amendments.
4 See 42 U.S.C. § 9841(a) and 45 C.F.R. § 1302.5 (providing that Head
Start funds shall not be suspended, except in emergency situations, unless
the grantee has been given an opportunity to show cause why funding
should not be suspended and that funding may not be suspended for
more than 30 days unless the grantee has been given reasonable notice
and an opportunity to be heard). See also 45 C.F.R. § 1303.12(a), which
the DAB did not cite, (permitting ACF to suspend Head Start funding
without prior notice and an opportunity to show cause if it is determined
that immediate suspension is necessary because of a serious risk of
substantial injury to property or loss of project funds or violation of a
federal, state or local criminal statute, or if staff or participants’ health or
safety are at risk). However, the DAB did not address the fact that
where the grounds for suspension are ineffective or improper use of
federal funds, failure to comply with applicable laws, regulations,
policies, instructions, assurances, grant terms and conditions, or loss by
the grantee of legal status or financial viability, ACF must provide notice
and an opportunity to show cause prior to suspending grant funds. See
45 C.F.R. § 1303.11(a).
5 See 45 C.F.R. § 1303.13(e) (permitting ACF to name an interim grantee
to run the program until the suspension is lifted or a new grantee is
selected).
6 See 45 C.F.R. § 1303.13(b).
7 See 45 C.F.R. §§ 1304.60(b) and 1304.61(a) (specifying that ACF will
promptly notify a grantee of deficiencies to be corrected either
immediately or pursuant to a QIP and of areas of noncompliance that do
not constitute deficiencies and of the period for their correction).
8 Id.
9 45 C.F.R. § 1303.14(b)(4).
10 See 45 C.F.R. § 1304.51(h)(1) (requiring grantees and delegate agencies
to establish and maintain efficient and effective reporting systems that
generate periodic reports of financial status and program operations in
order to control program quality, maintain program accountability, and
advise governing bodies, policy groups, and staff of program progress).
11 Head Start grantees and delegate agencies are required to ensure that
staff abide by standards of conduct which require, among other things,
that children not be left alone or unsupervised. 45 C.F.R. §
1304.52(h)(1)(iii).
12 45 C.F.R. § 1304.53(a)(7) (requiring grantees and delegate agencies to
provide for the maintenance, repair, safety, and security of all Head Start
facilities, materials and equipment).
13 See First State Community Action Agency, Inc., DAB No. 1877 (2003)
