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How the Economic Stimulus Affects CAAs and Their Clients By R. Allison Ma’luf, Esq., CAPLAW
Following are brief summaries of how the American Recovery and Reinvestment Act of 2009 (ARRA) impacts a range of federal programs from which CAAs may receive funding and the benefits that clients of CAAs may receive.
For more detailed information about each of the summaries below, please visit CAPLAW’s Stimulus Package Legal News webpage at http://www.caplaw.org/StimulusPackageLegalNews.html.
Potential Benefits for CAAs
Community Services Block Grant
The Community Services Block Grant (CSBG) program has received $1 billion in funding to be used for CSBG programs as described in the CSBG Act. Recent guidance from the federal Office of Community Services (OCS) emphasizes that, in addition to using funds to provide services and activities addressing employment, education, better use of available income, housing, nutrition, emergency services and/or health to combat the central causes of poverty, eligible entities will be encouraged by states, in recognition of the intent behind ARRA, to support employment-related services and activities that create and sustain economic growth.
Of the $1 billion, $985 million has been allocated for block grants through the Department of Health and Human Services (HHS) to states, territories and tribes and tribal organizations. The ARRA funds are to be obligated by the states, and services are to be provided by September 30, 2010. The funds will be provided in one lump sum allotment to states that submitted plans for FY 2009.
Each state is required to allocate 99% of the funding received to CSBG eligible entities. The funds must be allocated by the states in accordance with the CSBG Act, i.e., the state may not terminate funding or reduce the proportion of total state CSBG funding an eligible entity receives from the proportion received by the entity the prior year without first establishing cause and following the process required by the CSBG Act. States may not use ARRA funds for either administrative expenses or to conduct statewide discretionary activities. CSBG eligible entities may use a portion of ARRA funds for administrative costs associated with the delivery of new community services and activities paid for with ARRA funds, but are strongly encouraged by OCS to minimize such expenditures. The remaining 1% of the $985 million must be used by the states for benefits enrollment coordination activities relating to the identification and enrollment of eligible individuals and families in federal, state, and local benefit programs (not limited to CSBG programs).
ARRA authorizes states to revise the income limit for eligibility from 125% to 200% of the federal poverty level for CSBG services furnished during fiscal years 2009 and 2010, including services furnished with the state’s regular CSBG appropriations during those years.
States that receive ARRA funds are required to submit to OCS by May 29, 2009 an amendment to their FY 2009 CSBG state plan addressing use of ARRA funds, in accordance with the CSBG requirement for the submission of revised plans. HHS will make funds immediately available to states with the caveat that states that fail to submit timely plans for ARRA funds may have funding placed on hold. States will be able to draw down their ARRA funds within two to three days after awards are made. States will receive ARRA funds under the same formula used for allocating regular CSBG annual appropriations. Unobligated or unexpended ARRA funds must be reported on the Federal Financial Status Report form, SF- 269 and states must return the remaining balance of these funds to HHS at the end of the grant period.
The remaining $15 million is to be retained by HHS for federal training, technical assistance, planning, evaluation, investigations, assistance to states in carrying out corrective action, monitoring, reporting and data collection, and development of performance measurement systems.
Head Start
Funding for Head Start will be increased by $1 billion to be awarded to existing grantees and by $1.1 billion for Early Head Start for expansion funds that will be awarded competitively. Up to 10% of the Early Head Start supplemental funds will be available for training and technical assistance and up to 3% of the Early Head Start supplemental funds will be available for monitoring. The federal Office of Head Start has issued guidance on this funding, which is available on CAPLAW’s stimulus legal news web page.
Weatherization Assistance Program (WAP)
WAP will receive an additional $5 billion. ARRA includes the following permanent changes to the WAP legislation: (1) household income eligibility for WAP assistance is raised such that states may not deny an applicant solely on the basis of income if the applicant has income at or below the 200% federal poverty guideline level; (2) the statewide per unit average cap on WAP expenditures for labor, weatherization materials and related matters is increased from $2,500 to $6,500; (3) the number of dwelling units that may receive additional weatherization services after having received partial weatherization assistance has been expanded; and (4) the cap on the amount of appropriated WAP funds the U.S. Department of Energy may spend on training and technical assistance, including developing and implementing weatherization-related technology, is increased from 10% to 20%. CAPLAW’s stimulus web page contains detailed analysis of legal issues affecting stimulus funding.
Food Assistance
• Women, Infants, and Children (WIC): The WIC program will receive $500 million, with $400 million reserved for anticipated increases in the caseload, and $100 million to establish management information systems for the program. • Emergency Food Assistance Program (TEFAP): TEFAP will receive $150 million for the USDA to purchase food commodities to distribute to local agencies. • Emergency Food and Shelter Program: The Emergency Food and Shelter Program will receive $100 million in stimulus funds. • Senior Nutrition Programs: Senior nutrition programs will receive $100 million, of which $65 million is for congregate nutrition services, $32 million is for home-delivered nutrition services (Meals on Wheels) and $3 million is for nutrition services for Native Americans.
Health Care
• Community Health Centers: The stimulus act includes: (1) $1.5 billion for grants for construction, renovation and equipment for community health centers and for the acquisition of health information technology systems by community health centers; and (2) $500 million for grants to health centers. • Prevention and Wellness Fund: This fund will receive $1 billion to be administered by HHS, $650 million of which is for carrying out evidence-based clinical and community-based prevention and wellness strategies.
Child Care
• Child Care and Development Block Grant: States will receive $2 billion to supplement child care assistance for low-income families and are to use a certain designated portion of the funds for activities designed to: (1) provide comprehensive consumer education for parents and the public; (2) increase parental choices in child care; (3) improve the quality of child care and (4) improve the quality of infant and toddler care.
Housing and Rural Communities
• Homelessness Prevention Fund: This fund will receive $1.5 billion to be administered by HUD to provide assistance to homeless or at-risk individuals and families. • Community Development Block Grant (CDBG): The Community Development Fund will receive $1 billion to carry out the CDBG program. • Neighborhood Stabilization Program (NSP): This HUD program will receive $2 billion to redevelop foreclosed and abandoned homes. • HOME Investment Partnerships Program: HUD’s HOME program will receive $2.25 billion for capital investments in low-income housing tax credit projects • Rural Community Facilities Program Account: This account will receive $130 million for direct loans and grants for developing rural community facilities development.
Employment and Community Service • Workforce Investment Act Training and Employment Services: Training and Employment Services will receive $3.95 billion to be allocated to states for adult employment and training activities; youth activities; dislocated worker employment and training activities; dislocated workers assistance national reserve; Youth Build activities; and for a program of competitive grants for worker training and placement in high-growth and emerging industry sectors. • Senior Community Service Employment Program (SCSEP): This program will receive $120 million to help older Americans obtain community service employment. • Corporation for National and Community Service (CNCS): This program will receive $160 million for operating expenses to provide grants to national, state, and local governments as well as nonprofits for performing volunteer programs.
Potential Benefits for CAA Clients
• Food Stamps At a minimum, each eligible household will receive an increase in Food Stamp benefits of about 13%. • Seniors and Disabled A one-time payment of $250 will be made to retirees, disabled individuals and Social Security Income recipients receiving benefits from the Social Security Administration, Railroad Retirement beneficiaries, and disabled veterans receiving benefits from the U.S. Department of Veterans Affairs. • Working Individuals For 2009 and 2010, working individuals may receive a refundable tax credit of up to $400 and married taxpayers filing joint returns may receive up to $800. This will not come in a lump sum. Rather, it will be paid out over time in employees’ paychecks.
Unemployed Individuals
• Unemployment Benefits: The stimulus act extends the Emergency Unemployment Compensation program through December 31, 2009. This program provides up to 33 weeks of extended unemployment benefits to workers exhausting their regular benefits. • Health Benefits: To help people maintain health insurance coverage, a 65% percent subsidy for COBRA continuation premiums will be provided for up to nine months for eligible workers who have been involuntarily terminated, and for their families. • Tax on Benefits: Starting in the 2009 tax year, the stimulus act will temporarily suspend federal income tax on the first $2,400 of unemployment benefits per recipient.
Child Tax Credit (CTC)
For 2009 and 2010, families with earned income of at least $3,000 (down from $8,500 in 2008) can receive a tax credit of 15% for every dollar earned up to a maximum of $1,000 for each child in the family.
Earned Income Tax Credit (EITC)
EITC amounts will be increased for families with three or more children. Additional marriage penalty relief will also be provided.
Aid to College/Post-Secondary Students
• Tax Credit: Financial assistance is increasing for those seeking a college education. Families with qualifying college/postsecondary students can claim a tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year for the 2009 and 2010 tax years. • Pell Grant: College students qualifying for Pell grants will receive an increase of $490 for a total of $5,350 in assistance during award year 2009-2010 and an increase of $690 for a total of $5,550 in assistance during award year 2010-2011. |
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CAPLAW Founder Steps Down as President; Winston Ross Elected as New President Longtime CAPLAW Board member and former CAPLAW Vice President Winston A. Ross was recently elected as the new President of Community Action Program Legal Services, Inc. (CAPLAW). Mr. Ross has succeeded Robert M. Coard, the President and CEO of Action for Boston Community Development, who served as the President of CAPLAW since the organization was founded in 1989 and will continue to serve as a CAPLAW Board member. “It is due to Mr. Coard’s foresight that CAPLAW was established,” said fellow CAPLAW board member and newly-elected Vice President Patricia Steiger, commenting on Robert Coard’s tenure as CAPLAW President. “He did that because he understood the diversity and uniqueness of community action. He understood that we needed to have a go-to place for expert legal advice and counsel.” “It has been an honor to serve as CAPLAW’s President since its founding, and I am confident that CAPLAW will continue to grow in its role as a legal support organization for community action under the leadership of Winston Ross,” said Mr. Coard. A longtime community action leader and advocate, Winston Ross has served as the Executive Director of the Westchester Community Opportunity Program in Elmsford, New York, since 1984. He has also served as the past President of the Yonkers Branch NAACP, and the past First Vice President of the National Association of Community Action Agencies, among many other highprofile positions in the community action network. “At this time, it’s critical to ensure that our community action agencies function properly and legally and have available the best technical and legal advice to support the community action mission,” said Mr. Ross. |
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What’s New at CAPLAW By Sol Israel, CAPLAW Stimulus Package Legal News Web Page Launched The Obama Administration’s stimulus package has brought new opportunities for Community Action Agencies across the country. In response, CAPLAW has launched a new Stimulus Package Legal News web page to help keep Community Action professionals up-to-date on the funding and legal changes that may affect their organizations. Presently, the Stimulus Package Legal News page includes information about the allocation of Community Services Block Grant (CSBG) stimulus funds and the increase in income eligibility for CSBG programs, increased Head Start funding, and an in-depth explanation of Weatherization funding. CAPLAW’s stimulus web page also includes detailed information about how the stimulus package affects other sources of current or potential CAA funding, stimulus act changes to employee benefits affecting CAAs, stimulus package benefits for CAA clients, and links to other useful stimulus resources on the Internet. The Stimulus Package Legal News page is a free resource, and can be accessed at www.caplaw.org/StimulusPackageLegalNews.html. CAPLAW’s 2009 National Training Conference to Feature Expert Training, Stimulus Information Register now for CAPLAW’s 2009 National Training Conference, which will take place from June 23-25 in Seattle, Washington. CAPLAW has assembled an impressive team of attorneys, financial professionals, government officials and Community Action experts to help guide Community Action management staff through a diverse range of topics in the fiscal management, governance, and human resources fields. In addition to an opening panel discussion on the economic stimulus package and a closing session on Weatherization Assistance Program stimulus issues, other conference events include a pre-conference tour highlighting Seattle’s fight against poverty and racism, a networking reception and topical breakfast roundtables. Among the conference’s 24 workshops will be sessions on: Introduction to Community Action; Developing and Managing Community Partnerships; Leadership Transition Strategies; Effective Board Procedures; OMB Circular Overview; Constructing an Agency-Wide Budget; Proficiency in Procurement; Ensuring Equal Opportunity in the Workplace; an ADA and FMLA Update; Health and Welfare Plan Check-Up; and a Head Start Update. CEU, CLE and CPE credit are available for the conference. To register, make hotel reservations, and for more information, including a detailed schedule with workshop descriptions, please visit www.caplaw.org/conferences.html. The deadline for conference registration and hotel reservations is June 1. CAPLAW Welcomes Financial Consultant CAPLAW welcomes Kay Sohl as a moderator of CAPLAW’s CAA Financial Network e-Forum, a presenter of upcoming CAPLAW audio conferences, and as a speaker at CAPLAW’s annual conference June 23-25 in Seattle. Kay is a nonprofit financial management consultant with extensive experience, ranging from training and consultation to authorship and teaching. She is the co-founder and former Executive Director of Technical Assistance for Community Services (TACS), the Northwest’s largest resource for capacity building assistance, and co-author of the Oregon Nonprofit Corporation Handbook. You can learn more about Kay at www.kaysohlconsulting.net. Redesigned Head Start Web Page Features New Resources, New Look CAPLAW’s Head Start Reauthorization page has been redesigned for easier navigation, and remains one of CAPLAW’s most popular online resources. In addition to a wide range of information about the 2007 Head Start Reauthorization, the webpage features new, downloadable sample policies intended for CAAs and other Head Start grantees. The web page also includes a clear and organized list of relevant Head Start Information Memoranda, Program Instructions, and Policy Clarifications issued by the U.S. Department of Health and Human Services. Additionally, CAPLAW’s series of Governance Case Studies continue to be offered for free download on our Online Toolkit webpage. The Governance Case Studies are designed as an educational resource for board members and nonprofit managers, and feature real-life examples and suggestions for best practices. Also available is a digital recording of our CAPLAW Case Studies Audio Conference, featuring Jack Siegel, Esq., CPA, the author of the Case Studies. All of these files are available at www.caplaw.org/OTGovernance.htm. |
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OMB Issues Guidance on Use of Stimulus Funds By R. Allison Ma’luf, Esq., CAPLAW
The federal Office of Management and Budget (OMB) has issued Initial and Updated Implementing Guidance (OMB Guidance) for the American Recovery and Reinvestment Act of 2009 (ARRA). The purpose of this guidance is to establish an unprecedented level of transparency and financial accountability for stimulus tax dollars. The guidance (which is available online at http://www.whitehouse.gov/omb/recovery_default/) includes provisions that require federal agencies to take steps beyond standard practice, including reporting, information collection, budget execution, risk management, and specific actions related to award type. Reporting Requirements The OMB Guidance reporting requirements apply to both federal agencies responsible for allocating the ARRA funds and prime recipients (including states and other entities, but not individuals) that receive ARRA funds directly from the federal government. If they make subawards of stimulus funds, prime recipients must report to the federal government on the use of subaward funds by subrecipients (such as Community Action Agencies (CAAs) receiving federal Community Services Block Grant (CSBG) or Weatherization Assistance Program (WAP) funding from their states). The OMB Guidance does not address the subrecipients’ duty to report to prime recipients on the use of stimulus funds. A prime recipient (for example, a Community Action Agency receiving federal Head Start funding or a state receiving CSBG, WAP or another type of “pass-through” funding from the federal government) will need to report on a quarterly calendar year basis to the federal agency from which it receives ARRA funds the following information: • The total amount of ARRA funds received from that federal agency; • The amount of ARRA funds received that were obligated and expended to projects or activities; • A detailed list of all projects or activities for which ARRA funds were expended or obligated; • Information regarding jobs created using ARRA funds; and • Detailed information on any subcontracts or subgrants awarded by the recipient, including the data elements required to comply with the Federal Funding Accountability and Transparency Act of 2006 (the Transparency Act). A 2008 amendment to the Transparency Act added a requirement to collect compensation information on certain chief executive officers of recipient and sub-recipient entities. The OMB Guidance permits federal agencies to require additional information for oversight and instructs them to rely on existing authorities in doing so. Prime recipients are also required to separately identify the expenditure of ARRA funds in their OMB Circular A-133 Single Audits and to require subrecipients to do the same in their Single Audits. The funding notices issued by federal agencies for ARRA funds should explain all prime recipient reporting requirements. The first prime recipient reporting deadline is currently scheduled for July 10, 2009. OMB has stated that it will work with federal agencies to determine the most appropriate method for collecting information from prime recipients for this reporting deadline. Detailed reporting instructions for the second reporting deadline, October 10, 2009, will be made available on www.FederalReporting.gov at least 45 days before that deadline. OMB also intends to oversee the development of a central collection system for the information required to be reported by prime recipients. Although neither the federal agency nor the prime recipient reporting requirements directly apply to subrecipients, the reporting requirements such as posting on the Internet information regarding use of ARRA funds, clearly distinguishing ARRA funds from non- ARRA funds, following accountability standards, etc. may indirectly affect subrecipients who are in turn required by states or other prime recipients to provide information to enable prime recipients to meet their own reporting requirements. The funding notices or subaward agreements issued by prime recipients for ARRA funds should specify the special reporting, tracking and other requirements that apply to subrecipients. Buy American Requirement The OMB Guidance includes the ARRA “Buy American” provision which requires that all of the iron, steel, and manufactured goods used for an ARRA-funded project for the construction, alteration, maintenance, or repair of a public building or public work (i.e., buildings or works of governmental entities) be produced in the United States. A waiver of the requirement may be obtained in the following circumstance: (1) iron, steel, or relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; (2) inclusion of iron, steel, or manufactured goods produced in the United States will increase the cost of the overall project by more than 25%; or (3) applying the domestic preference would be inconsistent with the public interest. Before ARRA funds are awarded by the federal agency or obligated by the recipient for an applicable construction, alteration, maintenance, or repair project, a recipient may request from the award official a determination concerning the inapplicability of the Buy-American provision for specifically identified items. Davis-Bacon Act Requirements The OMB Guidance reiterates ARRA’s requirement that all laborers and mechanics employed by contractors and subcontractors on stimulus-funded projects be paid at local prevailing wage rates as determined by the U.S. Department of Labor (DOL) under the Davis- Bacon Act. The guidance directs federal agencies to ensure that the standard Davis-Bacon contract clauses available at http://www.dol.gov/dol/allcfr/esa/title_29/Part_5/29CFR5.5.htm are incorporated in all contracts or subcontracts of more than $2,000 for construction, alteration or repair (including painting and decorating) funded in whole in part with grants, loans or cooperative agreements under ARRA. |
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Stimulus Act Reduces COBRA Premiums Owed by Laid-Off Workers By Eleanor A. Evans, Esq., CAPLAW
The American Recovery and Reinvestment Act of 2009 reduces the amount that certain laid-off workers and their family members have to pay for continued health care benefits under COBRA and provides additional opportunities for these individuals to elect COBRA continuation coverage. Premium Reduction
Individuals who are eligible for COBRA continuation coverage because of their own or a family member’s involuntary termination from employment that occurred from September 1, 2008 through December 31, 2009 and who elect COBRA may be eligible to pay a reduced premium for up to nine months. To be eligible for the premium reduction, both the involuntary termination and the loss of coverage resulting in COBRA eligibility must occur during the period from September 1, 2008 through December 31, 2009. How Does the Premium Reduction Work?
With the premium reduction, eligible individuals pay only 35% of their full COBRA premiums for up to nine months. The employer is required to pay the other 65% and may recover that amount by taking it as a credit on its IRS Form 941 quarterly employment tax return. If the credit amount is greater than the taxes due, the U.S. government will directly reimburse the employer for the excess. How Long Does the Premium Reduction Last? The premium reduction applies to periods of health coverage beginning on or after February 17, 2009. A period of coverage is a month or shorter period for which the plan charges a COBRA premium. There is no premium reduction for premiums paid for periods of coverage before February 17, 2009. An individual’s premium reduction ends upon his or her eligibility for other group coverage (or Medicare), after nine months of the reduction, when his or her maximum period of COBRA coverage ends, or upon failure to make COBRA premium payments, whichever occurs first. Individuals paying reduced COBRA premiums must notify their existing plans if they become eligible for coverage under another group health plan or Medicare (even if they do not enroll in that coverage). Failure to do so may result in a federal tax penalty of 110% of the premium reduction improperly received. However, an employer that continues to subsidize an individual’s premiums and claims a credit against its payroll taxes for the subsidy because of the individual’s failure to provide the required notice is not required to pay the credit back to the IRS, unless the employer otherwise knew that the individual was eligible for other coverage. What Is an “Involuntary Termination”?
IRS Notice 2009-27, which provides guidance on the COBRA premium reduction, defines the term “involuntary termination” to mean: “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” The notice also specifies that an involuntary termination can be initiated by an employee when the employer takes material adverse actions that give the employee good reason to terminate employment. The notice, which is available at http://www.irs.gov/pub/irs-drop/n-09-27.pdf, provides useful examples illustrating the meaning of the term “involuntary termination.” Of note to Community Action Agencies running Head Start programs is the fact that the IRS considers an involuntary reduction to zero hours, such as a lay-off, a temporary lay-off, a furlough, or other suspension of employment, resulting in a loss of health coverage to be an involuntary termination for purposes of the premium reduction. Some CAAs lay off their Head Start employees during the summer months and, due to the lay-off, those employees lose their regular health care coverage and qualify for COBRA continuation coverage. Employees in this situation will qualify for the premium reduction for the period this summer during which they qualify for COBRA coverage. (Other CAAs have their Head Start employees pay their health insurance premiums for the summer months, when they do not work, over the course of the year while they are working. Employees in this situation would not qualify for the COBRA premium reduction because they will not lose their health care coverage.) What If Someone Pays the Full Premium Rather than the Reduced Amount?
If an eligible individual has paid 100 percent of the premium in March or April for coverage in those months, the employer can apply the overpayment as a credit toward subsequent premiums as long as the overpayment can be used within 180 days. Otherwise, the employer must reimburse the overpayment to the individual within 60 days of receipt. What Plans Are Required to Apply the Premium Reduction?
COBRA generally applies only to plans sponsored by employers with 20 or more employees; these plans must apply the premium reduction. The premium reduction also applies to continuation health coverage under state programs that provide for coverage comparable to COBRA continuation coverage. Many states have requirements for small plans providing benefits through an insurance company. For these plans, the insurance company (rather than the employer) is responsible for paying the other 65% of the premium. Extended Election Period
If an individual was offered federal COBRA continuation coverage as a result of an involuntary termination of employment that occurred at any time from September 1, 2008 through February 16, 2009, and that individual declined to take COBRA at that time, or elected COBRA and later discontinued it, s/he may have another opportunity to elect COBRA coverage and pay a reduced premium. Employers were required to provide individuals eligible for the extended COBRA election period with a notice of this opportunity by April 18, 2009; the individuals then have 60 days after receiving the notice to elect COBRA. COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009. This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee’s involuntary termination). Model Notices
The U.S. Department of Labor (DOL) has issued four model notices for employers to use in administering the COBRA subsidy. For more information on the model notices and to download them, visit http://www.dol.gov/ebsa/COBRAmodelnotice.html.
Expedited Appeals Individuals who are denied eligibility for the premium reduction may request an expedited review of the denial. The DOL will handle appeals related to private sector employer plans. The U.S. Department of Health and Human Services will handle appeals for federal, state, and local governmental employees, as well as appeals related to group health insurance coverage provided under state continuation coverage laws. A determination must be made within 15 business days of receipt of a completed request for review. Appeals to the DOL must be submitted on a DOL application form, which is to be made available at www.dol.gov/COBRA and which can be completed online or mailed or faxed as indicated in the instructions. Additional Information
More detailed information on the COBRA premium reduction and the extended election period is available at the following websites: • IRS Notice 2009-27: http://www.irs.gov/pub/irs-drop/n-09-27.pdf • IRS information on the COBRA premium reduction (including questions and answers for employers): http://www.irs.gov/newsroom/article/0,,id=204505,00.html • U.S. Department of Labor information on the COBRA premium reduction (including a fact sheet, model notices, FAQs, and compliance webcasts): http://www.dol.gov/ebsa/cobra.html
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Are You in Compliance with the New FMLA Regulations and ADA Amendments? By R. Allison Ma’luf, Esq., CAPLAW
With the new Family and Medical Leave Act (FMLA) regulations, effective January 16, 2009, and the 2008 amendments to the Americans with Disabilities Act (ADA), effective January 1, 2009, the face of employment law has drastically changed. Understanding and adjusting to these changes is not necessarily an easy task. This article is intended to help Community Action Agencies (CAAs) cope with these changes by highlighting their more relevant and significant aspects and setting forth action steps for addressing them. The New FMLA Regulations
Generally, the FMLA requires employers to grant unpaid, job-protected leave if an employee has worked for his or her employer for at least one year and, during the previous 12-month period, has worked at least 1,250 hours at a location where 50 or more employees work or within 75 miles of that location. The new regulations from the United States Department of Labor (DOL) do not affect these eligibility requirements but do clarify and more clearly direct the application of many other provisions of the FMLA in the following ways: Qualifying Reasons for Leave
The qualifying reasons entitling an eligible employee to take FMLA leave have been expanded to include two new military family leave entitlements referred to as (1) qualifying exigency leave and (2) military caregiver leave. Congress created these two new qualifying reasons for leave in January 2008, but they were not implemented until 2009 when the new FMLA regulations became effective. The other qualifying reasons for leave have remained the same except that some of the six categories that define a serious health condition have been clarified. Qualifying Exigency Leave (29 C.F.R. § 825.126)
Qualifying exigency leave helps employees who have an immediate family member on active duty or on call to active duty status handle various non-medical exigencies arising out of these circumstances. Eligible employees may take up to 12 weeks of FMLA leave for any qualifying exigency arising out of the fact that the spouse, son, daughter or parent of the employee is on active duty or has been notified of an impending call to active duty status in support of a contingency operation. A military operation qualifies as a contingency operation if it is designated by the Secretary of Defense as an operation in which members of the armed forces are or may become involved in military actions, operations, or hostilities against an enemy of the United States or against an opposing military force. Alternatively, a military operation can be a contingency operation if it results in the call or order to, or retention on, active duty of members of the uniformed services (other than active regular Armed Forces), during a war or during a national emergency. Qualifying exigency leave applies to members of the National Guard, members of the reserve components, and certain retired members of the regular Armed Forces and retired reserve who are the spouse, son, daughter or parent of the eligible employee. Qualifying exigencies include: short notice deployment; military events and related activities; childcare and school activities; financial and legal arrangements; counseling; rest and recuperation; post-deployment activities; and any other event that the employee and employer agree is a qualifying exigency. The basic eligibility requirements for this leave are the same as for FMLA leave taken for any other qualifying reason (the employee must have worked for the employer for at least one year etc.). Caregiver Leave (29 C.F.R. § 825.127)
Caregiver leave enables eligible employees to take up to 26 weeks of FMLA leave during a single 12-month period to care for a covered service member with a serious injury or illness incurred in the line of duty while on active duty that may render the service member medically unfit to perform the duties of his or her military position. The eligible employee must be the spouse, son, daughter, parent or next of kin of the covered service member, but need not be the only individual, or even the only family member, available to provide care to the family member. Again, the eligibility requirements for this leave are the same as for leave for any other FMLA-qualifying reason. This leave is applied on a per-covered-service member, per-injury basis, which means that an eligible employee may be entitled to take more than one period of 26 weeks of leave during separate single 12- month periods if the leave is to care for different covered service members or to care for the same service member with a subsequent serious injury or illness. Unlike all other qualifying reasons for leave where the employer establishes the 12-month period in which an eligible employee may take leave, for this leave, a single 12-month period begins on the date an employee first takes leave to care for a covered service member. A covered service member must be a current member of the Armed Forces, including a member of the National Guard or reserves, who has a serious injury or illness for which he or she is (1) undergoing medical treatment, recuperation or therapy; (2) in outpatient status or (3) on the temporary disability retired list. “Next of kin” is defined as the nearest blood relative of the service member, other than the service member’s spouse, parent, son, or daughter. An employer who wants proof of an individual’s status as a covered service member’s next of kin may seek reasonable documentation of the familial relationship from the employee. This documentation may take the form of a simple statement from the service member indicating that the employee has been designated as the service member’s next of kin. If leave qualifies as both military caregiver leave and leave to care for a family member with a serious health condition, the employer must designate the leave as military caregiver leave. An employer may retroactively designate leave as military caregiver leave in appropriate circumstances, but is not required to do so. Serious Health Condition (29 C.F.R. § 825.115 (a), (c))
The new regulations clarify the following two qualifying reasons for FMLA leave: (1) an employee’s need to care for a spouse, child or parent who has a serious health condition and (2) an employee’s own serious health condition rendering the employee unable to perform his/her job. The new regulations revise two of the six categories that make up the definition of a serious health condition: “chronic conditions” and “incapacity and continuing treatment.” The definition of “chronic conditions” has been changed to specify that “periodic visits for treatment” for incapacity due to a chronic serious health condition must occur at least twice a year. The regulations also clarify the meaning of “incapacity and continuing treatment.” Previously, a serious health condition was considered to exist if, in connection with a period of incapacity of more than three consecutive calendar days, the employee or family member was treated two or more times by a health care provider. This “two visit” requirement was open-ended. Now, the new regulations clarify that the two visits must take place within 30 days of the first day of incapacity unless extenuating circumstances exist (i.e., circumstances beyond the employee’s control that prevent the follow-up visit from occurring as planned by the health care provider). The new regulations also clarify that the period of incapacity must be more than three consecutive “full” calendar days, and that the first of the two or more required treatments must occur within seven days of the first day of incapacity and be in-person visits with a health care provider for examination, evaluation or specific treatment. A phone call, letter, email, or text message will not qualify as treatment. To address concerns by employers that employees may schedule follow-up appointments simply to meet the test of a second visit, the regulations require that the health care provider, and not the employee or the patient, make the determination as to whether a second visit during the 30-day period is needed. Calculation of Leave (29 C.F.R. § 825.205 (b) (3), (c))
The new regulations clarify how to calculate an employee’s leave entitlement when an employee works a schedule that varies so much from week-to-week that no “normal” schedule or pattern can be discerned. The employer is now required to calculate a weekly average over the 12 months prior to the leave period (rather than just the prior 12 weeks as previously required) to obtain a truer picture of the employee’s actual average workweek. The new regulations also clarify that where an employee would normally be required to work overtime, but cannot do so because of a FMLA-qualifying condition, the employee may be charged FMLA leave for the hours not worked. The rationale behind charging overtime as FMLA leave is that overtime is factored into the FMLA entitlement because both the entitlement and the leave usage rate are based on the employee’s required (i.e., scheduled) hours of work. The DOL believes it is fair, therefore, that overtime not worked be counted against the FMLA entitlement when the employee would have been required to work the overtime hours but for the use of FMLA leave. Reduced/Intermittent Leave (29 C.F.R. § 825.205 (a), (b))
Employees who take intermittent leave for planned medical treatment when medically necessary now have an obligation to make a “reasonable effort” to schedule this treatment so as not to disrupt unduly the employer’s operations. The new regulations clarify that the employer must account for intermittent or reduced-schedule leave under the FMLA using the same policies it uses to account for the use of other forms of leave. While employers may choose to use a smaller increment to account for FMLA leave than they use to account for other forms of leave, they may not use a larger increment for FMLA leave. Employers must use an increment equal to or less than the smallest increment used for other forms of leave, as long as the smallest increment is no greater than one hour. If an employer uses different increments to account for different types of leave (for example, accounting for sick leave in 30-minute increments and vacation leave in one-hour increments), the employer must account for FMLA leave using an increment equal to or less than the smallest increment used to account for any other type of leave (i.e., 30 minutes in the example above). Substitution of Leave (29 C.F.R. § 825.207 (a), (d), (e), (f))
Prior to the new regulations, employers were prohibited from imposing any limits on the substitution of paid vacation or personal leave and could only restrict the substitution of paid sick or medical leave under the FMLA to situations in which they would otherwise have provided such paid leave. The new regulations now require employees who seek to substitute accrued paid leave of any kind for unpaid FMLA leave to comply with the terms and conditions of the employer’s normal leave policy. Employers are required to notify employees of any additional requirements for the use of paid leave in the rights and responsibilities notice (e.g., paid leave only being available in full-day increments), and if employees do not or cannot meet those requirements, they remain entitled to unpaid FMLA leave. For example, an employer is not obligated to allow an employee to substitute paid sick leave for unpaid FMLA leave in order to care for a child with a serious health condition if the employer’s normal sick leave rules allow such leave only for the employee’s own illness. The new regulations clarify that the substitution of paid leave does not apply where the employee is receiving paid disability leave or worker’s compensation, but the employee and employer may agree, where state law permits, to supplement the disability plan benefits or worker’s compensation benefits with paid leave. Additionally, paid disability leave and worker’s compensation due to an FMLA-qualifying serious health condition is counted against an employee’s FMLA leave entitlement, regardless of whether the employee is using accrued paid leave to supplement the disability or worker’s compensation benefits. The new regulations also permit compensatory time accrued by public agency employees under the Fair Labor Standards Act to be substituted for unpaid FMLA leave. Bonuses and Attendance Awards (29 C.F.R. § 825.215 (c) (2))
The new regulations clarify that an employer is permitted to disqualify an employee from a bonus or other payment based on the achievement of a specified goal such as hours worked, products sold, or perfect attendance, where the employee has not met the goal due to FMLA leave, unless the bonus would otherwise be paid to employees on an equivalent leave status for a reason that does not qualify as FMLA leave. Light Duty Assignment and Restoration Rights (29 C.F.R. § 825.220 (d))
Employees may voluntarily agree to perform modified or light duty work in lieu of taking FMLA leave; however employers may not require employees to agree to such arrangements. The new regulations clarify that when an employee voluntarily accepts a light duty assignment, the period of the light duty assignment does not count as FMLA leave and, at the end of the light duty assignment, the employee has the right to be restored to the same or equivalent position she or he held before accepting the light duty assignment, provided s/he is able to perform the essential functions of that position. In order to address the administrative difficulties that an open-ended restoration right would present for employers, the regulations provide that an employee’s right to restoration while on a light duty assignment expires at the end of the 12-month leave-year period that the employer uses to calculate FMLA leave. Employer Notice Requirements (29 C.F.R. § 825.300)
The new regulations restructure and add to an employer’s notice requirements. Employers are required to provide four different types of notices: (1) a general notice; (2) an eligibility notice; (3) a rights and responsibilities notice; and (4) a designation notice. The new regulations provide that failure to follow the notice requirements may result in employer liability for compensation and benefits lost by an employee due to the failure and/or for other actual monetary losses sustained by an employee as a direct result of the failure. In addition, the employer may be required to provide other appropriate relief to the affected employee, such as employment, reinstatement, or promotion. General Notice (29 C.F.R. § 825.300 (a)) The new regulations clarify the posting and distribution requirements of the general notice, a prototype of which is available on the Internet at http://www.dol.gov/esa/whd/regs/compliance/posters/fmlaen.pdf. Every employer covered by the FMLA is required to post and keep posted a notice on its premises, in conspicuous places in fully legible text where it can be readily seen not only by employees but also now by applicants for employment. The new regulations permit electronic posting if all the posting requirements are met. However, to ensure that applicants receive the notice, non-electronic distribution may be required. If an employer provides forms to applicants electronically, it should include the notice with the other forms. Covered employers must post this general notice even if no employees are eligible for FMLA leave. If an FMLA-covered employer has any eligible employees, the employer is required by the new regulations to provide the general notice to each employee by including the notice in employee handbooks or other written guidance regarding employee leave or benefit rights, if such written materials exist, or by distributing a copy of the notice to each new employee upon hiring. This requirement may also be met using electronic means. Eligibility Notice and Rights and Responsibilities Notice (29 C.F.R. § 825.300 (b), (c))
The eligibility notice is new and has been combined with the rights and responsibilities notice, a prototype of which is available on the Internet at http://www.dol.gov/esa/whd/forms/WH-381.pdf. When an employee requests FMLA leave, or when the employer acquires knowledge that an employee’s leave may be for an FMLA-qualifying reason, the employer must now notify the employee of the employee’s eligibility to take FMLA leave within five business days, absent extenuating circumstances, and if the employee is not eligible, the employer must state one reason why. Employee eligibility is determined (and notice must be provided) at the beginning of the first instance of leave for each FMLA-qualifying reason in the applicable 12-month period. Notification of eligibility may be oral or in writing. As to the rights and responsibilities notice, employers now must provide written notice detailing the specific expectations and obligations of the employee and explaining any consequences of a failure to meet these obligations. This notice must be provided to the employee each time the eligibility notice is provided and will most likely be accompanied by a certification form. Designation Notice (29 C.F.R. § 825.300 (d))
The regulations revise some of the requirements of the designation notice, a prototype of which is available on the Internet at http://www.dol.gov/esa/whd/forms/WH-382.pdf. This notice now must include any requirement for the substitution of paid leave and for a fitness-for-duty certification, including a list of the essential functions of the employee’s position if the employer wants the certification to address the employee’s ability to perform such functions upon return from FMLA leave. When the employer has enough information to determine whether the leave is being taken for an FMLA-qualifying reason (e.g., after receiving a certification), the employer is now required to notify the employee whether the leave will be designated and will be counted as FMLA leave within five business days, absent extenuating circumstances. If leave is not FMLA-qualifying, the employer is only required to provide a “simple written statement” to that effect. The employer must also notify the employee of the amount of leave that will be counted against the employee’s FMLA leave entitlement. If this is not possible, the employer must provide the required information upon request but no more often than once in a 30-day period in which leave is taken. This notice may be oral or in writing, and oral notice must be confirmed in writing no later than the following payday. The written notice may be in any form, including a notation on the employee’s pay stub. Employee Notice Requirements (29 C.F.R. §§ 825.302; 825.303)
Under the new regulations, if it is not practicable for an employee to give 30 days’ advance notice, the employee must give notice of unforeseeable leave as soon as practicable (as is the case with foreseesable leave); however, “as soon as practicable” is no longer defined as requiring the employee to give notice “within one or two business days of when the need for leave becomes known to the employee.” Now the determination of when an employee could practicably provide notice for either foreseeable or unforeseeable leave will take into account the individual facts and circumstances of the employee’s situation. Additionally, when an employee provides less than 30 days’ notice of foreseeable leave, the employee must, upon his or her employer’s request, explain the reason why it was not practicable to give 30 days’ notice. Failure to respond to reasonable employer inquiries regarding the leave request may result in denial of FMLA protection if the employer is unable to determine whether the leave is FMLA-qualifying. An employer may also require an employee to comply with the employer’s usual and customary notice and procedural requirements for requesting leave, absent unusual circumstances. Certifications (29 C.F.R. §§ 825.305 (b), (c), (d); 825.307 (a); 825.308)
Certification for a Serious Health Condition
The employer now has five days (up from two) from the day that the employee gives notice of the need for leave to request that the employee furnish a medical certification for the employee’s own serious health condition or the serious health condition of the employee’s covered family member. The employee must then provide the requested certification to the employer within 15 calendar days after the employer’s request, unless it is not practicable under the particular circumstances to do so despite the employee’s diligent, good faith efforts or unless the employer provides more than 15 calendar days to return the requested certification. If an employer believes that a certification is incomplete or insufficient for the employer to make a determination as to the employee’s eligibility for FMLA leave, the employer must notify the employee in writing and specifically identify the missing or insufficient information. The employee then has seven days to provide the requested information. At the time the employer requests certification, the employer must also advise the employee of the anticipated consequences of the employee’s failure to provide adequate certification. If the employee fails to provide the employer with a complete and sufficient certification, after having been given an opportunity to provide any missing information, or fails to provide any certification, the employer may deny the taking of FMLA leave. The employer is not required to provide notice to employees who fail to provide a certification. Optional medical certification forms for an employee’s own serious health condition or the serious health condition of a family member are available from the DOL at http://www.dol.gov/esa/whd/forms/WH-380-E.pdf and http://www.dol.gov/esa/whd/forms/WH-380-F.pdf. The new regulations also allow an employer to contact an employee’s health care provider directly to authenticate or to obtain clarification of information required by a certification. However, because of privacy concerns, an employee’s direct supervisor is prohibited from making these inquiries. Rather, a health care provider, a human resources professional, a leave administrator (including third-party administrators), or a management official are the individuals permitted to make these inquiries. The regulations recognize that health care providers will require signed HIPAA authorizations in order to release employees’ health information to their employers and specify that an employer may deny an employee’s request for FMLA leave if the employee fails or refuses to complete the HIPAA authorization or to consent to the release of the health care information required to complete the certification. Under the new regulations, an employer may request medical recertification no more often than every 30 days and only in connection with an employee’s absence. If the medical certification indicates that the minimum duration of the condition is more than 30 days, an employer must wait until that minimum duration expires before requesting a recertification. In all cases, however, an employer may request a recertification of a medical condition every six months in connection with an employee’s absence. Certification for Military Leave (29 C.F.R. §§ 825.302; 825.309; 825,310)
The first time an employee requests qualifying exigency leave, an employer may require the employee to provide a copy of the covered military member’s active duty orders or other documentation issued by the military which indicates that the covered military member is on active duty or on call to active duty status in support of a contingency operation, and the dates of the covered military member’s active duty service. Optional certification forms for qualifying exigency leave are available from the DOL at http://www.dol.gov/esa/whd/forms/WH-384.pdf.
If the qualifying exigency leave involves the employee meeting with a third party, the employer may contact the individual or entity for purposes of verifying a meeting or appointment schedule and the nature of the meeting. The employer may also contact the appropriate unit of the Department of Defense (DOD) to request verification that a covered military member is on active duty or on call to active duty status. The employee’s permission is not required for either third-party contacts or contacts with the DOD. An employer may require an employee seeking military caregiver leave to provide certification completed by an authorized health care provider. Optional military caregiver leave forms for employers are available from the DOL at http://www.dol.gov/esa/whd/forms/WH- 385.pdf. Some documents known as “invitational travel orders” (ITOs) or “invitational travel authorizations” (ITAs) must be accepted as sufficient certification in lieu of the employer’s own certification. ITOs and ITAs are issued to a family member to join an injured or ill service member at his or her bedside. Unlike other types of FMLA leave related to serious health conditions, an employer is not permitted to require second and third opinions or to require recertification. An employer may seek authentication and/or clarification of any type of certification issued for military caregiver leave. Fitness-for-Duty Certification
As a condition of restoring an employee whose FMLA leave was triggered by the employee’s own serious health condition that made the employee unable to perform his or her job, an employer may have a uniformly applied policy or practice that requires all similarly situated employees who take leave for such conditions to obtain and present certification from the employee’s health care provider that the employee is able to resume work. The new regulations require that, in order for the employer to require that the certification specifically address the employee’s ability to perform the essential functions of the employee’s job, an employer must provide an employee with a list of the essential functions of the employee’s job no later than with the designation notice, and must indicate in that notice that the certification must address the employee’s ability to perform those essential functions. The employer may contact the employee’s health care provider for purposes of clarifying and authenticating the fitness-for-duty certification. No second or third opinions on a fitness-for-duty certification may be required. The cost of the certification is to be borne by the employee, and the employee is not entitled to be paid for the time or travel costs spent in acquiring the certification. Changes to the ADA
Congress passed the ADA in 1991 in order to provide a clear and comprehensive national mandate to end discrimination against individuals with disabilities and to bring persons with disabilities into the economic and social mainstream of American life. Since then, courts have mostly interpreted the ADA narrowly in favor of employers. However, in 2008 Congress amended the ADA to enforce what it believed to be the original intent of the act; these amendments became effective January 1, 2009. See Public Law 100-325 available at www.ada.gov/pubs/ada.htm. The significant changes are outlined below: The definition of the term “disability” is now to be construed more broadly. The amended ADA specifically instructs employers and courts that the definition of disability “shall be construed in favor of broad coverage of individuals” and “to the maximum extent permitted” by the statute. The ADA specifies that an individual with a disability is someone who: (1) has a physical or mental impairment that substantially limits one or more of the individual’s major life activities; (2) has a record of such impairment; or (3) is regarded as having such impairment. Previously, the ADA was silent as to what constituted a major life activity. The ADA amendments add a thorough and exhaustive list of major life activities which include, but are not limited to: caring for oneself; performing manual tasks; seeing; hearing; eating; sleeping; walking; standing; lifting; bending; speaking; breathing; learning; reading; concentrating; thinking; communicating; and working. A major life activity is now defined to include the operation of a major bodily function, including but not limited to, functions of the immune system, normal cell growth, and digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions. The new amendments require that the determination of whether an impairment substantially limits a major life activity must be made without regard to whether the individual has taken any steps to reduce the effects of his or her disability, such as medication, medical supplies, equipment, or appliances, low-vision devices (which do not include ordinary eyeglasses or contact lenses), prosthetics, hearing aids or other implantable hearing devices, mobility devices or learned adaptations. Under the ADA amendments, an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active. So now employers will need to determine whether such impairments could rise to the level of disability and treat employees accordingly. Additionally, if the employee is wrongly regarded as having a disability, she or he may be covered by the ADA. This provision is intended to prevent discrimination against those individuals having a condition that may not substantially limit a major life activity, but who could be discriminated against on the basis of negative attitudes, such as those often directed toward HIV-positive individuals. Following the ADA amendments, an employee need only show that his or her employer perceived him/her as having a mental or physical impairment to prove that the employer wrongly “regarded” the employee as disabled. The ADA amendments clarify that nothing in the ADA provides the basis for a “reverse discrimination” claim by an employee without a disability who claims that he or she was subject to discrimination because of the his or her lack of disability. Employer Action Steps
CAPLAW recommends the following action steps for employers to ensure compliance with the new FMLA regulations and ADA amendments: • Update polices, including employee handbooks, which are now required to include the FMLA general notice, along with procedures to reflect the new or changed requirements, obligations and options under the FMLA regulations. The updated policies should address any relevant state laws and rules that offer employees greater protections than the new FMLA regulations. • Update FMLA notice and certification forms and procedures. • Communicate the FMLA policy to employees and supervisors. • Institute a tracking system to ensure that staff are working within the time frames designated by the FMLA regulations. • Plan ahead for staffing to cover for those on FMLA leave to minimize disruption. • Train front-line supervisors and management, who are often the first to learn about a potential serious health condition or a military leave request, about their general duties under FMLA. Supervisors need to be able to spot FMLA red flags in order to ensure compliance and minimize the risk of legal liability. • Consider whether employees are entitled under the Americans with Disabilities Act to additional leave after FMLA leave has been exhausted or before an employee is FMLA-eligible. • Update interactive ADA process polices to capture a wider range of information about an employee’s ability to perform their job. The interactive ADA process typically involves a questionnaire used to assess an employee who requests an accommodation for a disability. In most cases, the employee is responsible for requesting an accommodation; however, an employer should start the interactive process when they learn of the disability and the need for an accommodation. • Be prepared to offer ADA accommodations to a wider percentage of the workforce. |
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DAB Decisions Stress Importance of Obtaining Prior Approval for Grant-Related Changes By Martin Delosangeles and R. Allison Ma’luf, Esq. CAPLAW
Two recent decisions from the United States Department of Health and Human Services (HHS) emphasize the importance of obtaining prior approval for certain actions relating to grant awards. The first decision involves the disallowance of grant funds based on the grantee’s failure to obtain approval from the Administration of Children and Families (ACF) prior to transferring the funds to a different project. The second decision involves the termination of two grant awards based on the grantee’s failure to obtain prior approval for post-award organizational changes. On appeal, the HHS Departmental Appeals Board (DAB) upheld both disallowances. Florence Villa Community Development Corporation, DAB No. 2198 (Sept. 2008) [1]
Background
In May 2004, Florence Villa Community Development Corporation (FVCDC) applied for a competitive Community Economic Development (CED) grant authorized by the Community Services Block Grant Act. The program announcement for the CED grant stated that the grants were to be awarded “to encourage rural and community development corporations to create projects intended to provide employment and business development opportunities for low-income people through business or commercial development.” In September 2004, FVCDC was awarded a grant in the amount of $700,000, $500,000 of which was to be used as a loan to facilitate the expansion of Cypress Gardens Adventure Park, LLC (Cypress Gardens). FVCDC reported in its semi-annual program progress report for the period July 1, 2006 through December 30, 2006 that Cypress Gardens had filed for bankruptcy; however, FVCDD did not mention having received loan repayments from Cypress Gardens before the bankruptcy filing. In August 2007, a Florida congressman contacted the director of the federal Office of Community Services (OCS) in response to an email from a constituent (a former FVCDC executive director) about FVCDC’s expenditure of federal funds, particularly in connection with its launch of a plant nursery and its project to create jobs at Cypress Gardens, which had declared bankruptcy. Upon investigation, OCS learned that FVCDC had recovered $200,000 in loan repayments from Cypress Gardens before Cypress Gardens declared bankruptcy and used the repaid funds as working capital to support the growth of its plant nursery project. According to FVCDC, the nursery project, like the Cypress Gardens project, was designed to provide employment for low-income residents in the area served by FVCDC. FVCDC alleged that its staff had contacted its ACF program specialist about reprogramming the loan repayments and that she had informed FVCDC that “so long as the loan repayment funds were utilized to further the ‘economic development activities’ of the organization, no regulatory requirements precluded FVCDC from utilizing the repaid funds in said manner.” In March 2008, OCS disallowed the $200,000 because FVCDC had not obtained prior written approval from the ACF Office of Grants Management to transfer the recovered loan funds to a different project. Prior Written Approval Requirement
FVCDC argued that it reapplied the funds recovered from Cypress Gardens to its plant nursery project only after its executive director had discussed the plan with the ACF program specialist for the CED grant. FVCDC submitted an affidavit from its executive director attesting that the ACF program specialist “approved, or at least offered no objection to the application of the Cypress Gardens funds to the Nursery project.” The executive director further attested in the affidavit that he believed the use was “in keeping with both the spirit and intent of both the Nursery and Cypress Gardens grants.” The DAB rejected FVCDC’s argument on the ground that the grant award’s terms and conditions, which specified that the grant was subject to HHS’s uniform administrative requirements for grants to nonprofit organizations, [2] placed FVCDC on notice that it could not depend on oral discussions with the program specialist as prior approval for applying the funds to the plant nursery project. Specifically, the grant administrative requirements specify that grantees must obtain prior written approval for any budget revision resulting in a change “in the scope or the objective of the project or program.” [3] The grant administrative requirements also stipulate that approvals “shall not be valid unless they are in writing and signed by at least one” of the identified HHS officials. [4] The DAB found that FVCDC failed to establish that ACF had given prior written approval for FVCDC’s transferring the recovered loan amount to the plant nursery. The DAB further noted that the objective of the plant nursery was not the same as the Cypress Gardens, citing differences in the scope of the two projects. Other Arguments
OCS also contended that FVCDC was also required to obtain prior approval under a provision of HHS’s grant administrative requirements that applies to intangible property (such as trademarks, copyrights, patents and patent applications, stock and lease agreements) and debt instruments (such as loans and notes). That provision specifies that a grantee must obtain prior approval before encumbering intangible property or debt instruments obtained with federal funds and that, when intangible property is no longer needed for its originally authorized purpose, it must be disposed of in accordance with the provisions that apply to the disposition of equipment acquired with federal funds (which require grantees to seek instructions from HHS on the disposition of the property and, if the grantee uses the property for other purposes, to compensate the federal government for its share of the property). [5] FVCDC argued that because these provisions only address equipment, which is defined as “tangible nonexpendable personal property,” [6] they do not apply to the disposition of loan repayment proceeds. The DAB rejected this argument, noting that the reference to disposing of equipment is intended to illustrate the process a grantee should follow when disposing of intangible property or debt instruments. The DAB acknowledged that it was not clear that the loan repayment proceeds qualified as intangible property or a debt instrument, but concluded that it was unnecessary to address this issue since the disallowance was justified on other grounds. FVCDC also argued that the CED award notice explicitly allowed for the “draw down of federal funds” and, since the grant still retained its character as federal funds, then FVCDC’s use of the funds for another HHS program was a proper “draw down” of the funds. The DAB explained that FVCDC misconstrued the meaning of “draw down” which basically sets forth the mechanism by which funds may be transferred consistently with the U.S. Treasury rules for minimizing the time elapsing between the transfer of funds from the U.S. Treasury to the grantee. Abstinence for Singles/Urban Community Action Network, DAB No. 2217 (Dec. 2008) [7]
Background
In March and June 2006, Abstinence for Singles (AFS), a for-profit business in the process of reorganizing as a nonprofit, applied to ACF for a Community Based Abstinence Education (CBAE) grant and a Healthy Marriage Demonstration (HMD) grant. In September 2006, AFS obtained nonprofit status and received federal funding for its proposed CBAE and HMD projects. In January 2007, ACF conducted a site visit of AFS and noted numerous problems related to governance, board oversight, lack of legal counsel, absence of financial stability and lack of operating plans. In May 2007, the executive director of AFS dissolved AFS and incorporated Urban Community Action Network (UCAN) to (1) implement ACF’s recommendation that the name of the organization should better reflect both CBAE and HMD programs and (2) address ongoing problems with the incorporator of AFS who was threatening to dissolve the organization. AFS/UCAN failed to notify ACF of these changes, which ACF discovered on its second visit to AFS/UCAN in October 2007. The second site visit report stated that “upon completion of the site visit, an [ACF program specialist] communicated to UCAN that, due to the seriousness of the organizational and programmatic issues, continued CBAE funding for UCAN’s program was in question.” Also, ACF provided AFS/UCAN with a memorandum detailing 29 findings and recommendations, including lack of board approval for the dissolution, missing documentation showing the proper transfer of assets and liabilities from AFS to UCAN, and the failure of AFS/UCAN to notify the appropriate ACF offices of the dissolution of AFS and incorporation of UCAN, which immediately assumed responsibility for AFS’ ACF grant funds and operations. In November 2007 a third site visit occurred during which ACF questioned AFS/UCAN about internal controls, and grantee documents and visited a grant program presentation. In April 2008, ACF terminated AFS/UCAN’s CBAE and HMD grants, citing information and evidence obtained during its three site visits and AFS/UCAN’s failure to obtain the required pre-approval for the May 2007 organizational changes. Prior Written Approval Requirement
HHS administrative requirements for grants to nonprofit organizations, which were included as part of the terms and conditions of both grant awards, require grantees to “obtain prior approval from the HHS awarding agency for the subaward, transfer, or contracting out of any work under an award.” [8] DAB found that AFS/UCAN violated the transfer provision by (1) effectively transferring work under the CBAE and HMD awards from one legal entity to another when it dissolved AFS and incorporated UCAN and (2) failing to obtain ACF’s prior approval for these organizational changes. Conceding that ACF had not been given prior notification of these changes, ACF/UCAN argued that it had reorganized to prevent the incorporator from dissolving the organization and further contended that ACF had directed AFS to change the organization’s name, which, according to ACF/UCAN, was all that occurred. The DAB rejected this argument on the basis that ACF only recommended that AFS consider renaming the organization to more accurately reflect its objectives. Moreover, the DAB observed that a name change did not occur under state law, which required a name change to be effectuated by an authorized amendment to the organization’s articles of incorporation. The DAB also found that regardless of the underlying motive or intent of the organizational change, the dissolution of AFS, incorporation of UCAN, and assumption of grant project operations by UCAN effectively transferred the work of the CBAE and HMD grant projects from one legal entity to another. ACF had no assurance that the remaining new entity would, without proper authorization or formal transfer, undertake and be answerable for the operating responsibilities of the grantee or maintain “effective control over and accountability for all funds.” [9] In fact, ACF was not informed of, but rather discovered during the second site visit, the fact that the necessary steps for a proper organizational change and transfer of grant work had not occurred, which consequently put federal funds at risk of misuse. Grantor Notification
AFS/UCAN also argued that if ACF considered the organizational change to be one requiring prior approval, ACF should have notified AFS/UCAN of this fact at its second and third site visits and given AFS/UCAN a chance to take corrective actions. The DAB explained that it is well settled by recent DAB decisions that ACF was not required to give AFS/UCAN an opportunity to correct noncompliance before imposing termination and that ACF was also not “precluded from terminating the award at a later date on the same basis on which it could have previously terminated the award.” The DAB found that ACF acted reasonably by undertaking a comprehensive evaluation of the information obtained during the three site visits and from the IRS, reviewing the grant applications, and conducting a conference call with AFS/UCAN before taking any formal action. Successful Program
Lastly, based on the information ACF obtained during its three site visits detailing AFS/UCAN’s problems and AFS/UCAN’s failure to notify ACF of its organizational changes, the DAB dismissed AFS/UCAN’s argument that ACF’s actions were unjustified in light of the success AFS/UCAN believed it had attained in delivering the grant programs. Lessons Learned
Grantees may glean the following lessons from these two DAB decisions: • Develop a working knowledge of the grant terms and conditions, especially the federal awarding agency’s uniform administrative requirements for nonprofits [10] (or, if applicable, its uniform administrative requirements for state and local governments) included as part of a grant award. • Seek prior approval for any major actions affecting a grant award, such as organizational restructuring or transfer of grant funds to a different project. • If in doubt as to whether an action requires prior approval, never guess, consult the terms and conditions, etc. included as part of the grant award or contact the funding source. • Ask that comments and directives from the funding source be placed in writing, especially conversations on which the grantee is basing its actions.
1. This DAB decision is available at http://www.hhs.gov/dab/decisions/DAB2198.pdf. 2. See 45 C.F.R. Part 74 (“Uniform Administrative Requirements for Awards and Subawards to Institutions of Higher Education, Hospitals, Other Nonprofit Organizations, and Commercial Organizations,” the HHS version of Office of Management and Budget (OMB) Circular A-110). 3. 45 C.F.R. § 74.25 (c), (1), (j). 4. 45 C.F.R. § 74.25 (k). 5. 45 C.F.R. § 74.36(e). 6. See 45 C.F.R. § 74.2 7. This DAB decision is available at http://www.hhs.gov/dab/decisions/DAB2217.pdf. 8. 45 C.F.R. § 74.25 (c) (7). 9. 45 C.F.R. § 74.21 (b) (3). 10. See, e.g., 45 C.F.R. part 74 (HHS’s uniform administrative requirements for grants to nonprofit organizations) and 45 C.F.R. part 92 (HHS’s Uniform Administrative Requirements for Grants and Cooperative Agreements to State, Local, and Tribal Governments). |
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DAB Confirms that Head Start Funds Can’t Be Used for Cash Assistance but Permits Purchase of Plasma TV By Stephanie Yang and Eleanor A. Evans, Esq., CAPLAW
Northwest Tennessee Economic Development Council, DAB No. 2200 (Sept. 2008) [1]
A recent decision of the U.S. Department of Health and Human Services (HHS) highlights the following principles of grants management: (1) the importance of independently checking that expenses to be charged to a grant are authorized under the law, regulations and cost principles that apply to the grant; (2) the hazards of relying on advice from and actions of government funding sources; and (3) the importance of carefully documenting expenses and how they benefit the grant. In this decision, the HHS Departmental Appeals Board (DAB) upheld the disallowance of two out of three groups of expenses that Northeast Tennessee Economic Development Council (the Council) had charged to its Head Start grant: $88,063 in cash assistance to low-income families in crisis and $2,325 in purchases of Wal-Mart gift cards with employee morale funds. Notably, though, the DAB concluded that the purchase of a $4,521 plasma TV for the Council’s Head Start director’s office was an allowable expense. Background
Under governing cost principles, costs charged to a federal grant must be reasonable for the performance of the grant award. [2] Under this standard, “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.” Consideration must also be given to “whether the cost is a type generally recognized as ordinary and necessary for the operation of the organization.” Cash Assistance to Families in Crisis
Based on these standards, the HHS Administration for Children and Families (ACF) disallowed the Council’s use of Head Start funds for cash assistance, which paid for utilities, rent, and other expenses for Head Start families in crisis. The Council contested the disallowance, noting that in using Head Start funds for this purpose, it relied on a conversation in the mid-1980s with a federal Head Start employee, who allegedly informed the Council that it was acceptable to use grant funds “to address social service needs of parents.” The Council argued that, since then, ACF had approved its grant applications and budgets, which included a line item for “social service funds to meet documented emergency or crisis assistance when no other resources can be found.” Moreover, according to the Council, this budget item had never been questioned by the Council’s independent auditors or federal program reviewers However, the DAB concluded that neither the Head Start statute nor Head Start regulations authorize the use of federal Head Start funds as cash assistance to pay for rent, utilities or other costs of families in crisis. Instead, Head Start grantees are to help Head Start families in crisis to identify and access services and resources to meet their needs. The Head Start statute refers to the provision of “health, educational, nutritional, social and other services that are determined, based on family needs assessments, to be necessary.” [3] The Head Start performance standards state that Head Start grantees and delegate agencies must work with parents “to identify and access, either directly or through referrals, services and resources that are responsive to each family’s interests and goals, including … emergency or crisis assistance in areas such as food, housing, clothing and transportation….” [4] The DAB noted that it did not have the authority to reverse the disallowance on the ground of “equitable estoppel” – in other words, on the ground that the Council had reasonably relied, in good faith and to its detriment, on the statement of a federal government employee that the costs were allowable. The DAB questioned whether an equitable estoppel argument can ever be used successfully against the federal government. It noted that the only case in which such an argument could possibly be used is where there is “affirmative misconduct” by the federal government. The DAB observed that even if the Head Start employee had stated that Head Start funds could be used “to address social service needs of parents,” this statement was not evidence that the employee intentionally misled the Council. In fact, the DAB noted that the statement was not inconsistent with the Head Start Act or regulations, which require Head Start grantees to help families identify and access resources to meet their food, housing and other expenses in times of emergency or crisis. The DAB also explained that ACF’s approval of the Council’s prior Head Start budgets including expenses for cash assistance did not provide a basis to prevent ACF from later disallowing those expenses. The DAB noted that it was not clear whether the Council’s prior budgets explained the line item for social service funds in enough detail for a reviewer to understand that the Council was using Head Start funds to provide cash assistance. According to the DAB, even if the budget documentation had clearly described the social service fund as a source of cash assistance, ACF’s approval of those budgets would not rise to the level of “affirmative misconduct.” Moreover, the DAB concluded that a federal agency’s failure to disallow unallowable costs in a prior period does not prevent it from disallowing similar costs in a later period. Therefore, the DAB disallowed the Council’s cash assistance expenditures. Employee Gift Cards
The DAB also affirmed ACF’s disallowance of expenditures for gift cards. The Council argued that it properly used employee morale funds to purchase 96 Wal-Mart gift cards valued at $25 each, which it distributed to staff from facilities that received or worked toward accreditation from the National Association for the Education of Young Children (NAEYC). The DAB emphasized the fundamental principle that a grantee must document its costs and demonstrate that expenditures are allowable. It observed that the Council had failed to provide any store receipts, cancelled checks, credit card receipts, statements, or other source documentation to show that the gift cards had actually been purchased and no source documentation or other evidence to show that the gift cards had been distributed to the employees. Furthermore, the DAB found that the Council had provided inconsistent evidence as to how many gift cards had been distributed at the different centers. Citing these inconsistencies and the Council’s insufficient recordkeeping, the DAB affirmed the AFC’s decision and disallowed the cost of the gift cards. Plasma Television
The DAB overturned the disallowance of the cost of the plasma TV, ruling that ACF’s decision was based on a flawed factual premise. ACF disallowed the expenditure for the plasma TV on the ground that the plasma TV merely duplicated properties and functions available on another TV located in a training area in the Council’s central office building. In response, the Council provided detailed information on the properties and functions of the new plasma TV and attached equipment, noting that it used the TV as a monitor screen with multiple input devices. The Council also provided source documentation supporting the cost of the TV and attached equipment and a detailed description of how this equipment was used to support its Head Start operations. The Council contended that, although it already had some training equipment and access to training programs, it did not have equipment with all of the properties and functions of its new technology system – specifically, a monitor with multiple input capabilities, including computer, cable, webinars, DVDs and tapes. The Council further asserted that, although the plasma TV and attached equipment were located in the Head Start director’s office rather than in the training room, it used this equipment to provide a wide array of necessary training classes, orientation programs, workshops, meetings, and webinar presentations for management and staff that benefit the Head Start program. Citing the detailed information that the Council had provided and the fact that ACF had not provided a description of the equipment it had observed during its on-site review, refuted the Council’s characterization of the capabilities of the plasma TV or contended that the Council’s existing equipment had the same capabilities, the DAB reversed the disallowance. 1. This DAB decision is available at http://www.hhs.gov/dab/decisions/DAB2200.pdf. 2. See Office of Management and Budget (OMB) Circular A-122 (“Cost Principles for Non-Profit Organizations”), codified at 2 C.F.R. Part 230. The specific requirements referred to here are contained in Appendix A, ¶ A. OMB Circular A-122 (“Cost Principles for State, Local and Indian Tribal Governments”), codified at 2 C.F.R. Part 215, contains similar requirements at Appendix A, C. 3. See 42 U.S.C. § 9831 (emphasis added). 4. 45 C.F.R. § 1304.40(b)(1)(i) (emphasis added).
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