Request By:
Honorable David A. Bratt
Attorney at Law
315 North Broadway
Lexington, Kentucky 40508
Opinion
Opinion By: Steven L. Beshear, Attorney General; John H. Gray, Assistant Attorney General
Thank you for your letter concerning the Federal Omnibus Budget Reconciliation Act of 1981, Subtitle B - Community Services Block Grant (P.L. 97-35) and House Bill 206.
Your letter first asks:
May the Department for Human Resources separately budget an auditing expense so as to avoid the 5 percent maximum administrative expense prescribed by federal and state statute?
A reading of P.L. 97-35 and H.B. 206 leads this office to believe that auditing expenses should either come out of the state's 5 percent allotment for administrative expenses or should be paid for by the state separately.
As your letter mentions Section 675(C)(2XB) of P.L. 97-35 requires that the chief executive officer of the state provide assurances that the state will not expend more than 5 percent of its allotment for administrative expense at the state level. Section 675(C)(9) requires that as part of the annual application for funds the chief executive officer of each state must agree to:
provide that fiscal control and fund accounting procedures will be established as may be necessary to assure the proper disbursal of and accounting for Federal funds paid to the State under this subtitle, including procedures for monitoring the assistance provided under this subtitle, and provide that at least every year each State shall prepare, . . ., an audit of its expenditures of amounts received under this subtitle and amounts transferred to carry out the purposes of this subtitle; . . .
Section 11(1)(C) of H.B. 206 assigns to the state administering agency the responsibility of receiving and reviewing annual independent audits of all funds received by community action agencies. Section 11(10) of H.B. 206 provides that the state administering agency's administrative costs for administering the Federal Act shall not exceed the limit contained in the Federal Act.
It is clear, then, that under P.L. 97-35 and H.B. 206 the state is responsible for administering the Federal Act and that a state may not expend more than 5 percent of its allotment for administrative expense.
The question thus becomes "is the cost of auditing an administrative expense which must come out of the state's 5 percent allotment for such expenses?" This office is of the opinion that performing auditing functions is part of the state's overall administrative responsibility and is thus an administrative expense. This office is of the further opinion that as an administrative expense, the cost of auditing should not be listed as a separate budget item beyond the state's 5 percent allotment for administrative expenses.
Your letter also asks:
May the Department for Human Resources enter into contracts with local agencies as opposed to making grants to local agencies?
As I understand your question, your primary concern is that the state administering agency may attempt to make the availability of federal funds subject to certain contractual conditions and thus dictate to local community agency action groups what services are to be provided with those funds.
Your question, therefore, more properly seems to be "Who is to determine what services are to be provided with the funds made available under P.L. 97-35, local agencies or the state administering agency?"
Under Section 10(4) of H.B. 206 the services to be provided with funds made available under the Federal Act are to be determined and prioritized by each community action agency. This office, therefore, feels that as long as local agencies use the funds made available to them in accordance with the provisions of H.B. 206, local agencies should be allowed to determine what services are to be provided with those funds.
Although local agencies seemingly should be allowed to determine what services are to be provided with funds made available under the Federal Act, this office does not believe that the state administering agency must make outright and unconditional "grants" to local agencies. This office sees nothing in either P.L. 97-35 or H.B. 206 that would prohibit the state administering agency from entering into contracts with local agencies.
It is hoped that I have adequately answered your questions. If not, please feel free to contact me.