The Council on Rural Service Programs, Inc., Claimed Unallowable Head Start Costs

Of the $6.7 million in Head Start costs that we reviewed, the Council on Rural Service Programs, Inc. (the grantee), claimed $1.4 million that was allowable under applicable Federal regulations and the terms of the grants. However, of the remaining $5.4 million, the grantee claimed unallowable costs of $1.1 million, consisting of $945,000 in less-than-arms-length lease payments; $59,000 in classroom rental payments that were improperly allocated to the Head Start program or did not benefit the Head Start program; and $70,000 in other costs that were improperly allocated to the Head Start program, did not benefit the Head Start program, or were not otherwise allowable under Federal regulations and the terms of the grants.

We could not determine the allowability of the remaining $4.3 million in executive and administrative salary and fringe benefit costs that the grantee claimed under its Head Start grants because the grantee did not adequately support, with personnel activity reports, the distribution of salaries and wages.

We recommended that the grantee (1) refund unallowable less-than-arms-length lease payments totaling $945,000; (2) refund unallowable classroom rental payments totaling $59,000;

(3) refund costs totaling $70,000 for gift cards and other costs that did not benefit the Head Start program; (4) either refund $4.3 million to the Federal Government for inadequately supported executive and administrative salary and fringe benefit costs, of which as much as $1 million could have been for non-Head Start costs, or work with OHS to determine what portion of the costs was allowable; and take corrective actions to ensure that it complies with Federal regulations. The grantee generally disagreed with our recommendations.