#  **It's The Law**

##  Office of the Assistant General Counsel for Finance and Litigation

**Federal Assistance Law Division**

Vol 5 August 31, 1995

The Eligibility of Federal Agencies To Receive Federal Assistance Funds
From Other Agencies

by Rhonda Cook Neuman

One of the most frequently asked questions from program offices is
whether Federal agencies or institutions may receive Federal assistance
funds from other Federal agencies. According to the *Principles of
Federal Appropriations Law, 2^nd^ Ed., Vol.II*, (See the [Red
Book]{.underline}, page 6-155), the General Accounting Office (GAO)
states:

"A federal institution is normally not eligible to receive grant funds
from another federal institution. It is not necessary for the grant
statute to expressly exclude federal institutions as eligible grantees;
the rule will apply based on the augmentation theory unless the grant
statute expressly includes federal institutions." 23 Comp. Gen. 694
(1944); 57 Comp. Gen. 662, 664 (1978).

The above-mentioned cases provide a glimpse into the reasoning behind
GAO's handling of this issue. Further exploration of these cited cases
reveal the following examples:

(1) St. Elizabeths Hospital, a Federal institution, was not allotted
    Federal grant funds for nurse training programs because the hospital
    was receiving appropriations to maintain and operate its nursing
    school. Although Federal institutions were not specifically excluded
    from the statute, the case held: "The program, the provisions of the
    statute, and the prescribed manner of its operation are inconsistent
    with the idea of participation by Federal institutions which
    maintain nursing schools, or train nurses, with funds appropriated
    for that purpose... Obviously, there would be no reason, need or
    sound basis for paying a Federal hospital, operated with
    appropriated moneys, "tuition and fees" for training student nurses.
    In practical effect, an allotment of funds under the act here
    involved to St. Elizabeths hospital would simply amount to an
    augmentation of the appropriation made for maintaining and operating
    the nursing school therein." 23 Comp. Gen. 694 (1944).

(2) The National Commission on Library Information Science was denied a
    transfer of funds (support grant) from the Office of Education. The
    case found the Commissioner of Education had no authority to make an
    exception from the statutory regulation (45 C.F.R. 100.1) which
    defines "public agency" as excluding Federal agencies for purposes
    of grant awards or contracts under section 223 of the Higher
    Education Act of 1965. For the Commission to receive funds from
    another agency to carry out functions for which it receives
    appropriations would be an improper augmen-tation of its
    appropriations. 57 Comp. Gen. 662 (1978).

Basically, the augmentation rule which is derived from several
enactments rather than a specific statute provides that a Federal agency
may not supplement its appropriations from outside sources without
specific statutory authority. The [Red Book]{.underline} notes, "the
objective of the rule against augmentation of appropriations is to
prevent a government agency from undercutting the congressional power of
the purse by circuitously exceeding the amount Congress has appropriated
for that activity." (See page 6-103). In addition, 31 U.S.C. 1301(a)
states appropriations shall be applied only to the objects for which the
appropriations were made except as otherwise provided by law.

The augmentation theory may also arise when Federal assistance funds are
used by a grantee to pay the expenses of Federal employees. For
instance, financial assistance funds awarded by the National Oceanic and
Atmospheric Administration (NOAA) under the Saltonstall-Kennedy Act (15
U.S.C. 713 c-3) can not be used to pay the foreign travel expenses of
NOAA's National Marine Fisheries Service (NMFS) inspectors who are
participating in the grant recipients' programs. Department
Administrative Order (DAO) 203-26 states that "\[r\]ecipients of federal
financial assistance shall be prohibited from expending federal or
non-federal grant funds... for purposes of providing transportation or
other travel expenses for an employee of the awarding organization
unit." (DAO 203-26 6.10d.11).

In addition, these travel expenses were incurred while performing
activities outside the inspectors' regularly conducted inspection
services and were not considered "fees and charges" payable by the
recipient. This type of payment by Saltonstall-Kennedy (S-K) financial
assistance recipients to Federal employees would amount to an
unauthorized expenditure or augmentation of federal funds. There is no
provision in the S-K Act which authorizes financial assistance for
federal use. Consequently, the financial assistance recipient is
prohibited from paying for travel expenses of the awarding
organization's employees. (DAO 203.26, 6.10d.11).

DAO 203.26, 6.10d.11 is supported by a NOAA Administrative Special Award
Condition which provides the following restriction: "The recipient is
prohibited from expending Federal on non-Federal grant funds, or in-kind
goods or services for purposes of providing transportation, travel and
any other expenses for any Federal employee."

Moreover, the augmentation theory receives further substantiation from
the premise that Federal funds. (See GAO [Red Book]{.underline}, page
10-45). The augmentation rule may still apply because the government
retains a property interest in grant funds until they are actually spent
by the grantee for authorized purposes. The interest may be an equitable
lien pertaining to the government's right to ensure that the funds are
used for authorized purposes, or a reversionary interest since funds
that can be longer be used for grant purposes may revert back to the
government. *Henry v. First National Bank of Clarksdale*, 595 F.2d 291
308-09 (5^th^ Cir. 1979), *cert. denied*, 444 U.S. 1074.

The Department of Commerce has also addressed the issue of providing
Federal funds through a subaward and/or contract to a Federal agency.
The Department's Financial Assistance Standard Terms and Conditions,
J.05, provides the following guidance: "The Recipient, subrecipient,
contractor, and/or subcontractor shall not sub-grant or sub-contract any
part of the approved project to any agency of the DOC and/or other
Federal department, agency or instrumentality, without the prior written
approval of the Grants Officer."

Requests for approval of such action must be submitted to the Federal
Program Officer who shall review and make a recommendation to the Grants
Officer. The Grants Officer shall make the final determination with the
concurrence of legal counsel of the DOC agency making the award, and
legal counsel of the other Federal department, agency or instrumentality
receiving the subaward and/or contract. The Grants Officer will notify
that Recipient in writing of the final determination. This condition
provides a checkpoint to ensure that Federal funds are not augmented
when distributed through a subaward and/or contract to another Federal
agency.

Reimbursable transactions between Federal agencies may also trigger the
augmentation theory. For instance, the Comptroller General held that the
Merit Systems Protection Board may not accept reimbursement from other
Federal agencies for travel expenses of hearing officers to hearing
sites away from the Board's regular field offices. The case turned on
the fact that the Board's function is to hold hearings. Therefore, the
Board receives appropriations for that function. 59 Comp. Gen. 515
(1980), *affirmed upon reconsideration*, 61 Comp. Gen. 419 (1982).

Similarly, the Comptroller General has decided other cases which
involved Federal agencies violating the augmentation theory through
reimbursement transactions. The Patient Office is required by law to
furnish services performed in administering the patent and trademark
laws and receives appropriations for them. Therefore, Federal agencies
may not reimburse the Patent Office for services performed in connection
to these duties. 33 Comp. Gen. 27 (1953). In addition, the General
Services Administration may not seek reimbursement for the costs of
storing records for which it receives appropriations. B-211953, December
7, 1984. These cases reveal the augmentation rule applies when a Federal
agency attempts to transact for a service which is within the normal
scope of the agency's mission and for which it receives appropriations.

In conclusion, a Federal agency is normally not eligible to receive
grant funds from another Federal agency unless specifically provided by
statute. The reader must be aware of statutory requirements and
departmental policies which must be met in order to properly transfer
funds between Federal agencies. Moreover, the reader should note from
the research provided that some reimbursable transactions between
Federal agencies may also trigger the augmentation theory. We recommend
that you consult OGC on transactions which may be subject to the
augmentation theory.