GAB Decision 015
April 21, 1976 University of the Pacific; Docket No. 18 Dukes, David;
DeGeorge, Francis Hiller, Manuel
This is an appeal by the University of the Pacific from a decision of
the National Institutes of Health (NIH) to sustain the disallowance of
certain claimed costs charged to Grant # AM 14066-03, a research grant
of the Arthritis Foundation. Disallowance of the sum of $5,699,
identified as salary charges, and $3,525 of indirect cost, based upon an
overhead rate of 61.85%, resulted from an audit of the University
covering fiscal years 1971 and 1972.
The audit report was furnished to appellant on May 15, 1973 and
requested the University's response to each of the recommendations,
within 30 days of the date of the transmittal letter. Following
correspondence and telephone conversations with the University, Mr.
Jacob Seidenberg, Chief, Office of Contracts and Grants, NIH, notified
the University on March 18, 1974 that the data furnished his office was
insufficient to support the claimed salary charges and, consequently,
not adequate to set aside the auditor's finding. University filed its
appeal with the Board on April 11, 1974. In support of its appeal,
University enclosed seven exhibits which purport to document the salary
charges in question.
NIH responded to the positions taken by the University by memoranda
dated May 29, 1974 and September 4, 1974. By letter dated February 13,
1975, the parties were advised that the appeal was ripe for decision and
would be decided on the basis of the documents already filed, together
with any briefs or additional materials the parties submit within 20
days of the date of such notification. Neither party filed additional
documents.
Fact Background
At issue here is the allowability of charges for salaries of three
University employees identified as Graduate Assistants, appointed for a
ten month period September, 1970 through June 1971, who allegedly
performed research services on the grant during such period, and salary
for the Principal Investigator on the grant, Dr. Marvin Malone, for the
months of June and July, 1971. (2) University claims that two of the
three Graduate Assistants, Mr. DeCato and Mr. Trottier, were performing
services to the University in addition to services to the grant and were
paid through the Payroll Office. That Office, at the time, was not
geared to make multiple account distributions so that their combined
salaries were charged to the University's General Fund Account #4693.
The University's Contracts and Grants Office effected a journal entry to
correct the grant's portion. Exhibit 4 and 7, submitted by appellant
with its appeal, represent the adjustment intended.
As stated in its appeal, the Time and Effort Reports supportive of
these salaries and wages are after-the-fact documentation, as noted in
appellant's Exhibit 6. Exhibit 6 consists of Time and Effort Reports
for Trottier and DeCato covering the period December 1970 - February,
1971, for DeCato for the months March 1971 - May 1971, for Omaye, DeCato
and Malone for months June and July 19718 for Omaye and Decato for
August 1971, for DeCato for September 1971 - November 1971. All of the
Time and Effort Reports were signed and certified by Dr. Marvin Malone,
the Principal Investigator. However, these Reports, as stated by
appellant, were not executed contemporaneously with the performance of
the services claimed, or shortly thereafter, but were prepared long
after the fact and in response to a request of Dr. Malone made by Mr.
C. H. Sheng, Contracts and Grants Officer, on March 26, 1974. A
handwritten notation on the bottom of the memo by Dr. Malone indicates
he signed the reports on Marcy 27, 1974, the day following the date of
the request.
Also furnished in support of its appeal are other Exhibits, some of
which were provided to Mr. Seidenberg. More will be said below about
those Exhibits.
Decision
Based upon a review of the audit report, the appeal and exhibits
submitted in support thereof, and the response by NIH to the appeal, it
is the conclusion of this Board that for the reasons set forth below,
the appeal be denied and the disallowance of the salary charges in
question, in the amount of $5,699.00 and applicable overhead of $3,525,
be sustained.
There is no dispute concerning the appellant's failure to comply with
the requirement of OMB Circular A-21; such failure is, in effect,
conceded by the University (See Appeal, dated April 11, 1974, page 2).
In respect to substantiation required by A-21 for costs of professional
services, Paragraph J.7.d. provides: (3) "Direct charges for personal
services under payroll distribution. The direct cost charged to
organized research for the personal services of professorial and
professional staff, exclusive of those whose salaries are stipulated in
the research agreement, will be based on institutional payroll systems.
Such institutional payroll systems must be supported by either: (1) an
adequate appointment and workload distribution system accompanied by
monthly reviews performed by responsible officials and a reporting of
any significant changes in workload distribution of each professor or
professional staff member, or (2) a monthly after-the-fact certification
system which will require the individual investigators, deans,
departmental chairman or supervisors having first-hand knowledge of the
services performed on each research agreement to report the distribution
of effort. Reported changes will be incorporated during the accounting
period until the payroll distribution system and into the accounting
records. Direct charges for salaries and wages of non-professionals
will be supported by time and attendance and payroll distribution
records."
Here neither alternative procedure set forth in the quoted paragraph
has been complied with, since neither monthly reviews nor monthly
after-the-fact certifications were made.
If other credible evidence were provided to support the claims for
personnel services, we might be inclined to condone the literal
non-compliance with the mandate of the Circular. However, the
documentation proferred to substantiate the salary charges is neither
reliable nor convincing. The Time and Effort Reports submitted were
prepared long after the services were alleged to have been performed and
signed by Dr. Malone on Marcy 27, 1974. These certifications purport to
reflect services performed between 2 1/2 and 3 1/2 years prior to the
certifications. The mere lapse of time between the rendition of the
services and the making of the certifications call into question the
accuracy of the latter, particularly since they cover part-time services
of the graduate assistants. Moreover, the documentation makes clear
that the certifications belatedly made by Dr. Malone were not initiated
by him, based upon any records he may have maintained nor even on his
own personal recollection. Rather, they were prepared for his signature
by C. H. Sheng, Contracts and Grants Officer on March 26, 1974, after
the audit had been made and the salaries in question disallowed by the
HEW auditors (See appellant's Exhibit 6). No attempt has been made, nor
can we find any suggestion, that Dr. Malone checked any records or
searched his memory to ascertain the accuracy of the reports. (4) To
the contrary, his own notation on the Sheng memo indicating he signed
them the day after the date of the request memorandum suggests that he
did so without substantial effort to assure himself of their accuracy.
While a certification even if made long after the fact but based upon
records or documents made or compiled contemporaneously with the event
may be worthy of reliance, the circumstances surrounding these
certifications refute their reliability. It seems clear that they were
prepared for the explicit purpose of attempting, belatedly, to satisfy
the auditor's complaints.
As argued by NIH, the salaries claimed for the graduate assistants
appear so excessive as to draw into question their validity. The Time
and Effort Reports for them indicate they devoted only 20% of their time
to the grant research. Their rate of claimed compensation would amount
to in excess of $26,000 each for their full time services. Such
salaries are not only disproportionate, but do not jibe with the
compensation ascribed, in terms of tuition and stipend in their
Employees Enrollment and Appointment papers (see Appellant's Exhibits 2
and 3). Additionally, the compensation charged for these assistants,
only 20% of whose time was allocated to the grant effort, would amount
to in excess of $26,000 computed on a full-time basis. As pointed out
in NIH's response, graduate assistants do not command such salaries.
In the effort to justify personnel salaries as chargeable to the
grant, appellant has submitted Exhibit 4 which identifies payroll
distribution. Similarly, Exhibit 5 purports to be a "Corrected Copy"
showing salary distribution. However, Exhibit 4 reflects no allocation
to the grant. Exhibit 5 is dated January 10, 1974 and bears the same
taint as the after-the-fact Time and Effort Reports.
Exhibit 7 is headed "Payroll Analysis" and is submitted in support
of
the contention that payroll adjustment was made to correct the initial
charges for these salaries made against the University general fund.
The document bears no date and, so far as can be ascertained, may have
been prepared, as in the case of the other documents above discuccsed,
more (5) recently and in response to the disallowance by the auditors.
To summarize, Appellant has failed to provide credible, convincing
evidence adequate to refute the findings of the auditors and the
disallowance of the salaries in question and the applicable overhead.
Accordingly, the appeal is denied.
OCTOBER 22, 1983