GAB Decision 133
October 31, 1980
Florida Health Care Plan, Inc.; Docket No. 80-23
Coster, Clarence; Minow, Nell Settle, Norval
By letter dated January 21, 1980, Florida Health Care Plan, Inc.
(Grantee) appealed from a decision of the Public Health Service (PHS)
Grant appeals Board dated December 20, 1979, directing Grantee to return
$37,316 of a $567,906 PHS grant for the development of a health
maintenance organization. Grantee is appealing items which were
disallowed for alleged lack of adequate (or any) supporting
documentation totalling, by Grantee's calculation, $31,432. /1/
After an exchange of correspondence with the parties to clarify the
issues as well as the amounts in dispute, on August 15, 1980, this Board
issued an Order to Show Cause tentatively indicating that Grantee had
provided adequate documentation for $7,000 in legal costs; but not for
$15,412 in salaries and wages, $1,420 in travel costs, and separate
other cost items of $4,297 and $7,278. In its response dated September
3, 1980, PHS declared itself "in basic agreement" with the proposed
disposition of the case. Grantee argued, in letters dated August 15,
1980, and September 3, 1980, that the documents in the PHS board's
appeals file furnished by PHS on July 10, 1980, provided additional
support for Grantee's claims to $15,412 in salaries and wages and $7,000
in legal costs. Concerning the disallowance related to travel costs, it
set out to whom and for what purpose six checks totalling $1,420 were
written, and acknowledged that $7,278 in unsupported charges "still
remains a questionable item." Grantee did not comment on the $4,297
disallowance.
Background
A total of $567,906 was awarded to Grantee in a series of four
consecutive grants covering the period from July 1, 1971, to June 30,
1975. No Grantee participation was required for the Year 02 and Year 03
grants, but the grant award notice for the Year 01 grant listed $17,000
"grantee support" and the notice for the Year 04 grant identified
$18,500 as "required grantee participation."
The (then) Health, Education, and Welfare Audit Agency (HEWAA)
conducted an audit including an on site review from May 24 through
August 27, 1976. An audit report issued February 16, 1979, criticized
Grantee for the lack of adequate management controls and statistical
gathering procedures, which it found resulted in "untimely, inaccurate,
and unreliable financial and statistical information, and in some
instances, loss of funds." The report also noted Grantee had claimed
$57,771 in unallowable costs and that an additional $54,366 of its
claimed expenditures was not supported by adequate documentation.
Grantee was invited to comment, and did.
In a letter to Grantee dated August 9, 1979, the Office of Health
Maintenance Organizations (OHMO), PHS, announced the results of its
review of (1) the audit report, (2) Grantee's comments contained in the
report and subsequent thereto, and (3) a site visit by OHMO. Grantee
was directed to refund $55,393.
Grantee appealed some of the OHMO disallowance to the PHS Grant
Appeals Board which affirmed most of the items and reversed one. In its
decision the PHS Board also recalculated the remaining amount to be
refunded as $37,316, including the items not appealed. Our decision
further reduces that amount to $29,906.
Discussion
Grantee has met its burden of documenting costs in two disputed areas
-- legal services and travel. It has not met that burden with respect
to the other items at issue in this appeal.
Legal Costs
In its Order to Show Cause the Board tentatively indicated it would
find that $7,000 in expenditures for legal services claimed under the
Year 04 grant was adequately supported. PHS in its response to the
Order accepted this finding. /2/
This being a Year 04 grant claim, the percentage of the federal share
is 88 percent (calculated as indicated in the Order), or $6,160. The
$37,316 disallowed is accordingly reduced by $6,160.
Travel Costs
A total of $1,420 claimed as travel costs under Year 04 grant was
disallowed because Grantee allegedly did not document the costs as
grant-related. Grantee asserted in its appeal to the PHS Board that it
had not been given sufficient information to identify the $1,420. OHMO
represented in its October 23, 1979, letter commenting on Grantee's
appeal that "the audit work papers indicate that this cost was the face
amount of a single check and that this information and the check number
were provided to FHC at the audit exit conference."
Grantee denied this, and at this Board's request PHS furnished the
stub numbers and amounts of six checks totalling $1,419.76. Grantee
explained that one was for a consultant's visit to Grantee; the others
were related to two trips to Washinton, D. C., by Grantee officials.
Grantee stated unequivocally that all three trips were made in
connection with grant activities. PHS did not contradict or even
comment on Grantee's explanation, although specifically invited to do so
in a telephone conversation between PHS and Board staff on September 2,
1980.
We believe that Grantee has now sustained its burden of documenting
this travel cost as appropriately charged to the grant, particularly in
the absence of any contrary argument by PHS after being offered an
opportunity to comment. This, too, is a Year 04 grant claim, the
federal share of which was calculated at the 88 percent rate, or $1,250.
The amount to be refunded is thus further reduced by $1,250, to $29,906.
Salaries and Wages
A total of $19,709 disallowed was identified by HEWAA as the
difference between $124,456 in cancelled checks written on a bank
account maintained for the grant and $104,747 shown by Grantee's other
books and records as having been disbursed for Year 04 purposes (Audit
Report, p. 41). Of the amount disallowed for this reason, $15,412 was
identified as the difference between $73,207 claimed by Grantee as
having been expended for salaries and wages and $57,795 shown in the
books and records as having been expended on this item. Grantee's
explanation was that the percentage of time spent by some of its
employees on Year 04-funded development activities (rather than on
non-funded operations activities) was calculated and applied to their
salaries to compute the Year 04 cost for those employees. (Id. at 67).
The auditors found that this was implemented by multiplying the
employee's salary (as determined from the quarterly tax returns) by the
percentage budgeted for the position.
Grantee was obliged as a condition of the Year 04 grant to use grant
funds only for developmental purposes and to maintain an accounting
system to distinguish monies used for developmental purposes and monies
used for operational purposes (See Notice of Grant Award, Year 04). The
HEWAA noted that Grantee had given written assurance that it had
established a separate bank account for grant proceeds, and would
maintain a separate cash disbursements journal and adequate
documentation as to the propriety and classification of claimed
expenditures (Id. at 41).
Grantee does not deny being aware that PHS grant policy requires
either:
(1) Monthly after-the-fact reports of the distribution of effort for
individual professional staff members, or
(2) An adequate appointment and workload distribution system
accompanied by monthly reviews and a reporting of any significant
changes in the workload distribution of each professional staff member,
and
(3) Time and attendance and payroll distribution records for
non-professional employees. PHS Grants Policy Statement (1974), p. 19.
Grantee points out that the Year 04 grant commencing July 1, 1974,
was not awarded until November 11, 1974, and contends that it did not
institute the required time and effort reporting in July because it was
never sure whether a grant would be approved (Letter dated March 10,
1980). The PHS Board found that if Grantee was not able to meet the
requirement for documentation, it could have requested a change in the
budget period. Grantee claims it was not aware that it could make such
a change subsequent to the grant award (Appeal letter dated January 21,
1980).But the Grantee's argument is beside the point. In accepting the
award Grantee bound itself to the documentation requirements cited
above, which it has failed to meet.
Other Unsupported Costs
The balance of the $19,709 disallowed -- $4,297 -- was "not recorded
in the grant account or otherwise identified" (Audit Report, p. 46).
The PHS Board noted in its decision that Grantee had not provided an
explanation for the lack of documentation for this claimed amount.
Grantee argues that it has never been given work papers and other
documentation supporting this holding and thus has no basis for
response. The difficulty with this argument is that Grantee had an
affirmative responsibility to provide data to support the claimed
amount, and the auditors merely pointed out that Grantee had done
nothing to identify the nature or allowability of expenditures
represented by the amount in question. Grantee has not shown how the
auditors' work papers would be relevant, even if they could be released.
Accordingly, the disallowance of this amount should stand.
Years 01-02-03
The auditors found that $7,278 of $443,450 claimed as costs on
expenditure reports submitted for Years 01, 02, and 03 were unsupported
in available books and records. Expenditures supported in the cash
disbursement journal totalled $436,172. Here, too, Grantee asked for
the audit work papers or other information which it claimed was
necessary to identify the expense concerned. In its letter dated March
20, 1980, Grantee explained that because copies of the grant expenditure
reports were not available in its files (implying they were lost during
various audits), it was unable to determine what items were reported on
expenditure reports but not supported in the cash disbursement journal
or check book. As with the Year 04 costs above, we find that Grantee
has failed to document its claim to the $7,278 and we uphold the
disallowance.
In the Order to Show Cause, the Board explained in detail how it
arrived at the rate of 91 percent federal share for the Year 01 grant
and 88 percent for the Year 04 grant. Neither party commented on that
point and the Board's explanation will not be repeated here, although it
is incorporated by reference into this decision.
Conclusion
For the reasons stated above, the appeal is granted in part and
denied in part. The amount of the disallowance is accordingly reduced
to $29,906 ($37,316 minus $6,160 and $1,250). /1/ The exact amount in
dispute in this appeal was unclear. The discrepancies were
discussed in some detail in the Show Cause Order and that discussion
will not be repeated here. Based on the discussion in the Show Cause
Order, the Board used the PHS Board total of $37,316 as a starting
point, minus those amounts derived from issues determined in Grantee's
favor, to arrive at the amount of the disallowance we uphold. /2/
However, PHS characterized the evidence underlying this proposed
finding as "singular, undocumented explanations that are presented
retroactively by grantees." PHS perhaps overlooked the conclusion of the
regional grants management official in September 1978 (cited in the
Order) that all $10,000 of legal fees claimed were "reasonable and
applicable to the grant," as well as OHMO's acceptance of the other
$3,000 in legal costs on the basis of a bill paid "for services
rendered" (also cited in the Order).
OCTOBER 04, 1983