GAB Decision 033
March 3, 1977 Lane County Community Mental Health Center; Docket No. 26
Grant No. 16-H00011 t No. 26 DeGeorge, Francis; Dukes, David Yourman,
Edwin
Statement of Issues
This is a review of expenditure disallowances under the Community
Mental Health Centers (CMHC) Staffing Grants Program, as a result of an
audit for the period from February 1, 1969 through January 31, 1973.
The disallowances under review are:
(1) Fringe benefits for employees of the hospital affiliated with the
Center were claimed at the rate of 10% of salaries. The auditor
disallowed $9,478 as being in excess of the actual cost of the fringe
benefits to the hospital.
(2) Part-time clerical staff at the affiliated hospital was supported
through a payment of $391. This amount was disallowed on the basis that
a staffing grant may be used only so support technical positions held by
individuals who had received requisite training for the work involved.
(3) Staffing payments of $38,960 to nine affiliated agencies were
disallowed on the grounds that the Regional Office had not given
approval and the documentation failed to show compliance with
requirements for such payments.
Discussion
Fringe Benefits. The Center recognizes that page 4-12 of the CMHC
Policy and Standards Manual dated September 1, 1971 authorizes fringe
benefits as costs chargeable to the grant only to the extent that the
benefits are itemized and a cost is actually incurred. It relies
however upon the hospital's assertion that written and oral
communications from HEW prior to the issuance of this policy indicated
that the flat 10% amount would be acceptable.
The Center does not describe the oral communications it relies on and
the only written communication it submits is that contained in a letter
dated July 30, 1968 from the Associate Regional Health Director for
Mental Health of HEW Region IX. That letter discusses a proposed
revision of the initial grant application and suggests an increase in
salaries requested "with the corresponding application of the 10% fringe
benefits factor." The detailed budget for that application shows
"related fringe benefits -- previously approved rate 10%." The only
other application in the file, that for the program year ending January
31, 1972, shows related fringe benefits of 10% of total salaries
although the term "previously approved rate" is not used.
The Center fails to recognize that an approved budget and an approved
rate for a budget do not automatically entitle the grantee to the amount
so set. Instead they express the maximum for which the grantee may
receive credit by making expenditures in compliance with the budget.
The situation presented here is no different than one where a position
might be filled at a salary which is less then the amount budgeted.
Obviously, the inclusion in the approved budget of a salary allowance
would not enable the grantee to claim more than the amount actually paid
the employee. In fact, the regulation which was promulgated long before
the grant was made permits "remuneration" for various types of fringe
benefits as a part of the "allowable compensation" for which a staffing
grant may be used. 42 CFR 54.303( b), issued March 1, 1966.
The Center adopts the further contention of the hospital that the
grant funds covered only a portion of actual expenses related to the
salaries of the employed individuals, as a result of which the amount
disallowed was utilized for other purposes for which grant support was
proper. Assuming that to be the case, it still would not justify the
award of a grant as "fringe benefits" in excess of the amount actually
expended for that purpose. If the hospital made other expenditures
which justify the allowance of the $9,478 involved here, a claim should
have been based on the actual use to which such expenditures were put.
Such a claim is not before us and the record contains nothing to justify
an allowance.
Part-time Clerical (Non-Technical) Staff. The Center through its
hospital affiliate contends that the disallowance under this item was
improper because the personnel involved were "aides or clerks" and
it
questions the propriety of the HEW requirement of "psychiatric training"
for such personnel. It asserts that the personnel were qualified to
provide the services they performed but because only $391 is involved
the hospital did not plan to provide further information or argument.
The Center did not withdraw its appeal of this item and we are
obliged to consider it regardless of the small amount involved. The
applicable regulation issued March 1, 1966, 42 CFR 54.303 provides that
the personnel whose salaries may be covered "shall be those persons who
participate in the provision of an element or elements of service. . .
and who are found by the Surgeon General to be appropriately qualified
under the circumstances to occupy positions which require professional
or special mental health training or experience." It is clear from the
statement of the hospital that the personnel involved were not of that
nature.
Staffing Payments to Affiliates. The Center paid a total of $38,960
for staffing purposes to nine affiliated agencies. Of that amount
$17,369 was paid in the program year ending January 31, 1971 and $21,591
was paid in the year ending January 31, 1972.
The grounds for the disallowance are:
1. The Center's grant applications did not provide for these
particular staffing payments and the Center did not obtain Regional
Office approval for them.
2. The Center failed to document that the payments supported
identifiable positions which would enable affiliated agencies to provide
new or increased services.
3. The Center did not show that it had an approved affiliation
agreement with each of the agencies which, among other things, would
assure proper accountability for use of grant funds.
The regulation required that an application describe the need for and
kinds and quantities of staff services proposed and the professional
qualifications required of each individual filing such a position. 42
CFR 54.303 (March 1, 1966) It also required a showing that adequate and
effective arrangements would be made to assure maximum coordination
among agencies. The requirement for prior approval, however, was not
absolute. A memorandum dated August 9, 1971 to Center Directors from
the National Institute of Mental Health Grants Management Office and
page 4-9 of NIMH CMHC Policy and Standards Manual of September 1, 1971,
authorized Centers to revise previously approved staffing patterns
without prior HEW Regional Office approval. The Centers were told that
in such a case the revisions would have to be incorporated in the
staffing information in the next continuing grant application and
approvability would be considered by the Regional Office when it acted
on the continuing grant. If the revision was not approved, further
grants for the support of the revised staffing would be denied and funds
previously expended for such unapprovable purposes would be disallowed
on later audit. That policy was in effect at all times material to this
case.
During the grant year which ended January 31, 1971, the Center
decided to make the revision in staffing support which resulted in the
payments in question here and apparently HEW was not notified of these
payments until the Center filed an application for a grant continuation
for the program year ending January 31, 1972. That application
contained the following information about the payments.
Part V, page 3, under a heading "New Positions for which support is
not requested," states:
"Funding was provided for the following outpatient positions: White
Bird Clinic, Family Counseling Service, Eugene Hearing and Speech
Centers, Christian Family Institute, Volunteers Services, Pearl Buck
Center, Lane County Association for Retarded Children, Crisis Center
(University of Oregon) and Buckley House. At the present time,
insufficient data is available to valuate for future funding requests.
Therefore, no support is requested."
Under the heading "Explanations of changes in Part III (positions to
be continued)" the application stated:
"No changes in staffing of approved positions: The lists in Part III
of this application show the professional and technical staff positions
to be funded during the third year of the grant. The positions which
were changed for 02 grant year have reverted to the job descriptions in
the original grant application."
Attached to the January 8, 1971 application was a detailed budget for
the year ending January 31, 1971. It referred to positions funded for
each of the nine affiliates and purported to provide job descriptions
for them. There was nothing, however, to indicate an intent to continue
funding the positions for the forthcoming year. In fact the portions
quoted above provided representations to the contrary.
The first recorded indication of HEW knowledge about the details of
the payments and particularly of their continuation into the third
program year (ending January 31, 1972) is contained in a memorandum
dated September 27, 1971, written by a grants management specialist in
the HEW Regional Office. She reported to the Associate Regional Health
Director for Mental Health on a site visit she had made to the Center on
September 21-22, 1971, stating that the Center allocated funds from
unfilled positions to affiliated agencies equivalent to 59% of total
salary costs and questioned whether the action met legal requirements.
The report alleged other deficiencies in Center operations which are not
relevant here.
As a result of the site visit the Associate Regional Health Director
for Mental Health wrote the Center on October 4, 1971 describing three
alleged major areas of program deficiencies, one of which related to the
payments to affiliated agencies. The letter stated that additions or
significant changes in Center operations must be approved by the
Regional Office based on an agreement between the Center and each
affiliate which assures continuity of care and justifications showing
how the affiliate's program is part of the total Center offering. It
informed the Center that grant funds may be used only for identified
positions with qualifications shown and these must provide for new or
increased services or a new method of delivery of services and
affiliates must maintain records showing how the payments have been
expended. The letter concluded that documents have not adequately
supported disbursements to the new affiliates. It noted that the Center
must soon file its continuing application for the fourth grant year and
stated that a written plan to correct the deficiencies must be submitted
by November 10, 1971 and the corrective steps implemented by January 15,
1972.
The Center responded in a letter dated November 3, 1971 to the
Associate Regional Director for Mental Health. It described steps to
remedy two of the major deficiencies which the Regional Office had
identified and then stated:
Your third major deficiency concerned perceived inadequacies in the
procedures by which we had disbursed monies to affiliate agencies, and
entered into agreements with them. Here we believe that the problem was
not so much with the Center's failure to use adequate procedures, but
rather our failure to communicate adequately to the site visitors what
had been done. Attached to this letter therefore you will find
appropriate documendation. Not all records have been submitted for
purposes of convenience and economy. We can provide further information
if needed.
Also attached to this letter are copies of several memos and letters
that document some of the actions that have been described above. These
include communications from the board to various Center components, as
well as policy statements and various letters of intebnt from components
to the Center Board.
Our record does not contain the actual attachments to the letter but
only a list of them. The only one listed which might bear on payments
to affiliates is described as "Comments re: Disbursement of Monies."
The Regional Office responded on November 29, 1971, stating that the
"plans to correct the major deficiencies . . . (are) satisfactory for
the areas of focus." It noted "favorably, your plans to . . . document
accurately disbursement and financial transactions of monies from the
Center to affiliate agencies."
On January 19, 1972, the Associate Regional Health Director for
Mental Health acknowledged receipt of the Center's application for a
continuation staffing grant and requested specific answers to the
deficiencies noted in his letter of October 4, 1971. The response which
related to payments to affiliates stated:
"All agencies, which were involved with the Center staffing providing
these out-patient and research services, are member agencies of the Lane
County Community Mental Health Center and as such have had written
agreements on file with the Center since the Center became operational,
if not before."
Subsequently, the grant was approved, apparently without further
communication regarding payments to affiliates, nor is there any
indication that the Regional Office indicated that this matter was being
held open for later resolution.
The grantee's appeal letter of September 17, 1974 claims that the
Regional Office was kept fully informed at every step of the way, that
the newly established Region X which took over administration of the
grants from former Region IX used different criteria on approvability,
that the staffing grant applications which ultimately were approved,
adequately informed HEW, and finally, that the action was permitted by
the NIMH Policy Manual.
None of these assertions is supported by the record, although our
Order to Develop Record of April 26, 1976 specifically asked for
material in support of them. In fact, the grant applications stated
that payments had been discontinued and that no further support for such
payments was requested at a time when apparently payments were
continuing. Job descriptions were attached to the grant application for
the third program year, but they apparently related to the payments for
the prior year, which the application stated had been discontinued.
Moreover, the job descriptions do not show that the payments were made
to support particular individuals in specified jobs as required by the
policy.
On this record the Regional Office would have been justified in
notifying the Center that the payments to the affiliated agencies would
be disallowed or that it was being held open until a closer review could
be made on audit. But it did not do so. It received justifications
from the Center which defended the acceptability of the affiliate
payments. The failure of officials in the Regional Office to question
the adequacy of the Center's response seems to us tantamount to an
acceptance of the Center's position on the adequacy of the
documentation.
The policy described by page 4-9 of the NIMH CHMC Policy Manual and
the NIMH Grants Management letter of August 9, 1971 to Center Directors
states that payments for staffing which were not approved in advance are
subject to disallowance on audit if support for such staffing is found
to be unapprovable when the next application for a continuation grant is
acted on. This contemplates a decision of acceptability or
nonacceptability when information about the payments comes to the
attention of the Regional Office. Here the matter came to the attention
of the Regional Office which was in a posiytion to obtain full
information. Despite the misleading nature of the Center's application
for the grant year ending January 31, 1972, the Regional Office had
opportunity to clarify this matter in its subsequent dealing with the
Center. Its failure either to make a decision or specifically to hold
the matter open if it thought further information was needed should thus
be taken as an approval, to the extent of its authority to approve.
The Center was not forthright in providing information to the
Regional Office and its arrangements for making the questioned payments
seem not to comply with the policies issued to implement the law and
regulations. Still, we believe that the law and regulations themselves
did not inherently preclude approvability. Accordingly, despite the
shortcomings in the Center's operations, we cannot ignore the failure of
the Regional Office to notify the Center in 1972, when the matter was
before it, either that the payments would be disallowed or when and how
a decision would be made.
Before issuing our decision, we asked for comment on the reasons the
continuation grant was approved without Regional Office resolution of
the status of the payments to affiliated agencies.The response was that
such a resolution seemed unnecessary because the application for the
continuation indicated that the grantee did not intend to make any
further payments and, with respect to past payments, it claimed that
appropriate agreements had been in effect. The Regional Office,
however, was in possession of the application for the continuation when
it wrote its letter of January 19, 1972 which stated that the
continuation could not be approved until the grantee gave assurances
that acceptable measures would be taken to correct the deficiencies.
Thus, even though it knew then, or should have known, that the
continuation did not provide for further payments it told the grantee
that the deficiencies would have to be cleared up. Also, the Regional
Office knew by then that the Center had taken the position that it was
not deficient in this respect and that long standing cooperative
agreements with the affiliated agencies were sufficient to meet the
requirements. While the Regional Office did not regard such agreements
as meeting the requirements, it appears to have done nothing to
challenge the grantee's view or otherwise clear up the matter and,
without telling the Center, decided to let the matter remain open for
later settlement on audit.
We recognize the Center's lack of candor and also that the Regional
Office might have felt no necessity to decide on approvability since the
Center did discontinue the payments about the middle of 1972. We
believe, however, that the Regional Office had sufficient indication of
deficiencies that it owed a duty to assure full development and a prompt
decision on approvability even though the matter was before it at a time
when no further expenditures of the type questioned were involved. The
Center would have been justified in believing that the Regional Office
had accepted its explanation and that, therefore, it and the affiliates
need not make contingent plans based on the possibility of disallowance.
With considerable reluctance we decide that the $38,960 should be
allowed.
Conclusion
The disallowances of $9,478 for fringe benefits and $391 for clerical
salaries are upheld. The claim of $38,960 for payments to affiliated
agencies should be allowed.
OCTOBER 04, 1983