Gab Decision 144
January 29, 1981 University of Tennessee College of Pharmacy Docket No.
77-18 Garrett. Donald; Teitz, Alexander Settle, Norval Panel Chairman
Grantee, University of Tennessee College of Pharmacy, has appealed to
the Deapartmental Grant Appeals Board the decision of the Public Health
Service Regional Grant Appeals Board to uphold the disallowances, made
by the Region IV Office of the Public Health Service, of certain
expenditures made by the Grantee.
An analysis of the arguments presented by the parties was set forth
in an Order to Show Cause, and the parties were provided an opportunity
to respond. Inasmuch as the agency's response raised no additional
substantive arguments, and the Grantee has stated that it has no
objection to the disposition recommended in the Order to Show Cause, the
Board has adopted a decision based on the Order to Show Cause.
Background
On June 16, 1975 the Grantee was informed of the approval of its
application for a Health Professions Special Project Grant upon the
condition that the budget be revised so that the total requested federal
award for the year July 1, 1975 -- June 30, 1976 would be cut in half to
$48,710. On July 22, 1975 the Grantee submitted a revised budget to the
Public Health Service, and on November 20, 1975 the revised budget was
accepted.
The Health Professions Special Project Grant is authorized by Section
772 of the Public Health Service Act, (Section 42 USC 295f-2). The
purpose of the Health Professions Special Project Grant is to assist
health professions schools to increase enrollment and to enable schools
to experiment with programs designed to increase the quality of
personnel.
On January 25, 1977, the Grantee submitted its Report of Expenditures
totalling $36,991 (less than the total approved budget) for the grant
period mentioned above. On May 18, 1977, the Public Health Service
announced that only $20,241 of the amount claimed would be allowed.
That figure was corrected to $20,961 by the Public Health Service
when it was found that allowed expenditures for supplies, originally
stated as $1,191, were actually $1,911. Below is a chart showing the
budget figure, actual expenditures, and the amount allowed by the agency
for each budget category:
Approved Report of Amount Category
Budget Expenditures Allowed Personnel
$43,943 $14,711 $14,710 Equipment 1,547
2,956 1,547 Consultants 500 1,001
323 Supplies 500 13,893 1,911
Travel 1,000 4,430 1,250 Other
Expenses 1,220 1,220 TOTAL
$48,710 $36,991 $20,961
Two items in the chart need explanation. In the personnel category,
the report of expenditures showed $14,711 in federal funds claimed. The
amount allowed is shown to be $14,710. This discrepancy is due to round
off error.
Thus the disallowance should be decreased by $1 because the
$14,710.77 claimed should have been allowed as $14,711 by the agency
instead of $14,710.
In the "other expenses" category, the Grantee has not claimed any
expenditures. The Public Health Service has nevertheless allowed $1,220
for certain items which were budgeted as other expenses, although
claimed as supplies.
On June 10, 1977, the Grantee appealed the disallowances to the
Public Health Service Regional Grant Appeals Board. On August 24, 1977,
that Board upheld the disallowances.
The Public Health Service maintained that the amounts disallowed were
budget line overages which constitute deviations from the approved
budget, that prior approval had not been sought for these deviations,
and that these expenditures were disallowed because of a lack of
demonstrated relationship with the objectives of the grant and because
there was not adequate substantiation that the expenditures were within
the scope of the approved program.
The Grantee asserted that the disallowed expenditures should be
allowed on grounds that the University provided far more support than
originally committed, and that the additional support caused more rapid
growth of the program and required the rebudgeting of grant funds to
meet University commitments. The Grantee further asserted that all
expenditures were reasonable, carried out in good faith, and related to
the development of the program which it considered very broad in scope.
45 CFR 74 Subpart L governs budget revision procedures for state and
local governments and did so during the period in question. The Public
Health Service, under the authority given to it by 45 CFR 74.4(a)(2),
made Subpart L applicable to all grantees. See Public Health Service
Grants Policy Statement.
Basically, grantees must seek prior approval for certain types of
expenditures either at the budgeting time or at the time at which a
deviation from the budget is sought. All expenditures, whether or not
prior approval is sought, must be reasonable, necessary and within the
scope of the approved grant program, and must be for items that are
otherwise allowable. (See 45 CFR Part 74 Appendix D, Part I, C and J.)
Discussion of this case can best be facilitated by separating the
disallowances into three parts -- (1) Domestic Travel, (2) Consultants,
and (3) Equipment, Supplies, and all Other Expenses.
Domestic Travel
In the revised budget accepted by the Public Health Service, the
Grantee budgeted $1,000 in grant funds for travel. The Public Health
Service found that besides the $4,430 claimed for travel, $447, claimed
as supplies for the use of a University motor vehicle, should have been
claimed as travel. The agency disallowed $1,586 as bearing a doubtful
relationship with the purposes of the grant. The remaining amount was
over the budgeted amount of $1,000 and, pursuant to 45 CFR 74, only 125%
of the amount originally budgeted ($1,250) was allowed.
45 CFR 74 Appendix D Part I J.44 f. states that "(expenditures) for
domestic travel may not exceed $500, or 125 percent of the amount
allotted for such travel by the sponsoring agency, whichever is greater,
except with approval." Applying this regulation the maximum allowable
expenditure for domestic travel, in this case, would be $1,250.
The regulation appears clear with respect to expenditures for
domestic travel. The Public Health Service Grants Policy Statement on
pages 57-58 provides for a system of institutional prior approval for
expenditures in domestic travel over 125% of budget. This system
requires that the Grantee have in operation a system of institutional
prior approval which conforms to the conditions set forth in th Policy
Statement. Further, a formal request for the transfer of funds has to
be made and granted. The Grantee maintained that a request was
submitted within its organization for reallocation of $3,200 in
personnel funds to cover travel. Nevertheless, the Grantee has provided
no documentation to establish that the institutional prior approval
system was functioning and that a formal request was made and granted.
Accordingly, the Board concludes that the agency was acting within its
authority in disallowing claims for domestic travel over $1,250.
Consultants
The approved budget allowed for $500 to be expended for consultants,
and Grantee claimed $1,001. The Public Health Service allowed $323 as
being for bona fide consultant expenses and disallowed the remaining
$678 (stated as $677 in the agency's response to the appeal) as being
expenditures for student activities rather than consultant fees because
the services extended were performed by medical and pharmacy students.
The Grantee asserted tht the full $1,001 claimed should be allowed
bacuse the students provided service to the project. The Grantee later
modified its position by stating that $678 originally claimed as
exenditures for consultant services were actually spent for clerical
services provided by graduate students at the University and should have
been claimed as personnel.
The agency has stated that grant funds are not available for payments
to students. The agency has not provided any justification for this
position and the statute and regulations do not indicate such a
prohibition on payments to students. A document identified by the
agency as program guidelines indicates that grant funds may not be used
for financial assistance to students. The payments to the students were
not financial assistance, but payments for work performed. Moreover,
these were not payments to students in their status as students, but
payments to clerical workers who happened also to be students at the
time. Accordingly, the University is entitled to an additional $678 for
personnel expenses.
Thus the disallowance should be decreased by $678 for personnel.
Equipment, Supplies and All Other Expenses
The reason these items are grouped together is because grantee moved
items from one category to another when moving from the budget to the
claim for expenditures. This is a summary of Grantee's actions:
(1) Video tapes and video tape mailing cases were originally budgeted
for $1547 as equipment. Video tapes were claimed as an expenditure for
supplies. The total for the tapes was $7,651.
(2) Office equipment, which had not been budgeted at all, was claimed
in the amount of $825 as equipment.
(3) Printing and office supplies budgeted at $500 as supplies were
claimed in the amount of $1,846 as supplies.
(4) Graphics ($150), telephone postage and mailing ($100), computer
and photocopying ($500) and library and drug information ($470) were
budgeted as all other expenses totaling $1,220. These items were
claimed as expenditures for supplies and totalled $3,221.
(5) Small equipment supplies ($65), rentals ($160), use of a
university motor vehicle ($447) maintenance ($100) and books,
subscriptions, and audio tapes ($402) were not mentioned in the budget
but were claimed in the above-mentioned amounts as supplies.
(6) A video replay monitor mentioned in the budget as being available
from sources other than grant funds was claimed as an expenditure for
equipment in the amount of $830.
(7) Audiovisual player equipment listed as recorder playback unit and
video monitor, not mentioned in the budget, was claimed as equipment in
the amount of $1027. The budget does, however, include a video cassette
player and indicates that it was available from other sources.
(8) A pager, not mentioned in the budget, was claimed as an
expenditure for equipment in the amount of $274.
45 CFR 74 Appendix D Part I J.13 contains the definition of permanent
equipment and the approval mechanism necessary for the acquisition of
equipment with grant funds by educational institutions with respect to
grants funded by the Department of Health, Education, and Welfare.
General purpose equipment is defined as "an item of property which has
an acquisition cost of $200 or more and has an expected service life of
one year or more," which is ". . . usable for activities of the
institution other than research . . . ." All the equipment claimed by
the Grantee is general purpose equipment.45 CFR 74 Appendix D Part I
J.13a provides that "approval must be obtained to acquire with
Government funds any general purpose . . . equipment . . . ."
45 CFR 74 Appendix D Part I J.13 also provides, "Total expenditures
for . . . equipment may not exceed 125 percent of the amount alloted for
the . . . equipment category by the sponsoring agency . . . except with
approval."
The Public Helth Service allowed as a claim for equipment the portion
of the claim for videotapes originally budgeted as equipment ($1,547).
The other expenditures claimed as equipment were disallowed because,
according to the agency, the items were specifically identified by the
Grantee as being available from other sources or not contributing to the
purpose of the grant. Under supplies, the Public Health Service allowed
amounts expended for office supplies, printing and small equipment
supplies, totalling $1,911, despite the fact that only $500 was
originally budgeted for the category. The remainder of the amount
claimed for supplies was either dealt with in another category by the
Public Health Service (e.g. video tapes under equipment; and photocopy
under other expenses) or disallowed under supplies. The approved budget
for "other expenses" amounted to $1,220. For the items originally
budgeted in this category, claims were made for a total of $3,221. The
agency allowed a total of $1,220, disallowing $454 in long distance
phone expenses because it was not related to the purposes of the grant.
The remaining costs disallowed in this category, while project related,
were disallowed because they were not reasonable and necessary.
The Grantee claimed that the added expenditures over the amount
budgeted in these budget categories were the result of extra university
support and a desire to accelerate the growth of the program and that
the expenditures furthered the purposes of the program. The Grantee has
provided explanations of how these items were reasonable and necessary
to the purposes of the grant.
Grantee claimed $7,651 for video tapes as supplies. An examination
of the regulations shows that the video tapes should have been budgeted
as supplies, and that prior approval is not required under the
circumstances present here (i.e. included in original budget and total
budget not exceeded) to transfer funds to supplies. Accordingly, in
addition to the $1,547 already allowed for video tapes as equipment,
$6,104 ($7,651-$1,547) should be allowed for video tapes as supplies.
Thus the disallowance should be decreased by $6,104 for supplies.
With respect to the items claimed as equipment (Items (2), (6), (7)
and (8)), the regulations provide that approval must be obtained. As
with domestic travel, unless the Grantee had an institutional system of
prior approval in effect and such mechanism was utilized for approval of
equipment acquisition, the agency was within its authority when it made
the disallowance for the rest of the expenditures claimed as equipment.
Since the Grantee has made no showing of approval for the equipment, the
agency's disallowance of these items was within its authority.
The use of a University vehicle cannot be claimed as supplies. Nor
can this expenditure be allowed as equipment, its proper category,
unless it was included in the original budget or approval was granted.
The vehicle was claimed as supplies and was not included in the original
budget and there was no approval. Therefore, the agency was within its
authority in disallowing the claim for this expenditure.
The remaining expenditures were claimed as supplies. The
expenditures exceed the amount budgeted for supplies. Under the
regulations, expenditures for supplies and other expenses are allowable
if they are reasonable, necessary and within the scope of the approved
grant program, and are otherwise allowable. Prior approval is not
required unless the expenditures necessitate additional federal funding.
The expenditures for items claimed seem to be of a nature such that they
could be considered as reasonable, necessary and within the scope of the
approved grant program. The Grantee has provided an explanation of how
each item fits this description.
The agency has provided the Board only conclusory characterizations
of the items as either not related to the purposes of the grant or as
unreasonable and unnecessary. Therefore, the Board must find the claims
for these expenditures to be allowable.
Thus, the disallowance should be decreased as follows:
$2,001 ($3,221 - $1,220) for other expenses. Printing and office
supplies $1,846 Small equipment supplies
65 Rentals 160 Maintenance
100 Books subscriptions and audiotapes 402 2,573 Less
previously allowed by agency 1,911 $662for supplies
DECISION
The adjustments to the disallowance can be summarized as follows:
TL 1round off error 678personnel 6,104supplies 2,001other
expenses +2 662supplies $9,446
The sum of $9,446 is the amount by which the disallowance of $16,030
($36,991 - $20,961) should be decreased. The disallowance is therefore
upheld in the amount of $6,584 ($16,030 - $9,446), i.e. the amount
disallowed by the agency less the amount the Board decreased the
disallowance.
OCTOBER 04, 1983