GAB Decision 323
June 30, 1982 Community Relations - Social Development Commission;
Docket No. 81-61 Garrett, Donald; Teitz, Alexander Settle, Norval
Background.
This case deals with the continuation of a dispute first presented to
the Board in connection with Board Decision No. 108, July 3, 1980.
There, the Board upheld a decision of the Office of Human Development
Services to disallow $159,093 based on the appellant's alleged failure
to document or show the allowability of a number of different cost
items. The Board's decision essentially was that the appellant, despite
the passage of eighteen months' time after request for clarification,
had failed to adequately document its claim.
In November 1980, appellant, newly represented by counsel, asked the
Board to reconsider its decision, based on (a) the alleged technical
failing of the Board, under then-current procedures, to have notified
appellant of, and given appellant an opportunity to comment on, the
Board's determination that a "hearing" (i.e., an oral presentation)
was
not warranted; and (b) the allegation essentially that certain proof
had been inadequately presented to, and addressed by, the Board.
The Board denied the motion for reconsideration, ruling, inter alia,
that the record indicated that appellant had already had a full
opportunity to present its case to the Board, and that the motion for
reconsideration was not submitted timely. Appellant then sought relief
in the U.S. District Court for the District of Columbia. Based on a
motion to remand filed by the Department, the Court, in April 1981,
ordered the Board to permit appellant to submit argument in support of
its position that an oral presentation was necessary, ordered the Board
to issue a determination on that issue and, to the extent the Board
found no oral testimony necessary, to reconsider the case based on the
written record or by written briefs in conjunction with an informal
conference.
Pursuant to the Court's order, the Board ordered appellant to show
cause why the Board should hold a hearing. Based on appellant's
presentation, and the respondent's acknowledgment that the appellant was
making new factual allegations (although the respondent (2) continued to
object to a hearing), the Board, in August 1981, determined it would
hold a hearing.
As a result of a prehearing conference, and subsequent negotiations
between the parties, the issues in the case were narrowed, so that only
the following issues remain in dispute: the allowability of $59,000
claimed as indirect costs; whether appellant can show that it met its
cost-sharing requirement here; and whether $21,432 allegedly paid by
appellant to three alternative schools was an allowable cost item. See,
Board letters to the parties dated December 28, 1981, and March 8, 1982.
Based on the record established by the parties, the Board determined
(and advised the parties) that an oral presentation remained appropriate
for the issue concerning alternative schools. See, Board letters to the
parties dated March 8, 1982 (p. 2) and April 1, 1982, and the Transcript
of Hearing (Tr.), p. 3. The Board held the hearing on April 28, 1982.
Both parties have had ample opportunity--which both have used--to submit
documentation and argument to the Board on the three issues. Our
analysis and determination on each issue follows.
1. Alternative schools.
Appellant had contracts with three schools, under which appellant
paid the Schools, from grant funds, for educational services provided to
certain eligible children in each school. An example of one of the
contracts (with Trans Center for Youth, Inc. which operated the Shalom
School) is attached to appellant's witness list of April 15, 1982. No
one disputed that all three contracts were similar in all pertinent
respects to this one /1/ (Tr., p. 111), and the parties' detailed
presentation of their cases dealt with the Shalom School contract.
Appellant reimbursed the schools by means of a per-pupil rate of $94.
The Agency argued that the reimbursement for the three schools should be
disallowed, on the basis that the contracts were "cost-reimbursement"
contracts and not "fixed cost" contracts, and that use of a per-pupil
rate constituted a "fixed cost" approach in violation of the contract.
Respondent, in motions, a presentation at the hearing, and in its
post-trial brief, argued that the contract was unambiguous and that
therefore the appellant should not be allowed to present parol evidence
concerning alternative interpretations. The Presiding (3) Board Member
withheld ruling on the parol evidence question pending review of
evidence presented at the hearing concerning whether the contract was
ambiguous. Although the appellant appeared in its reply brief to have
acquiesced substantially in the respondent's characterization of the
contract as a cost-reimbursement agreement, /2/ we are not persuaded
that that characterization necessarily controls the result here. We
find that there is sufficient ambiguity on the face of the contract to
suggest that we should look beyond the mere words of the contract to the
context in which it arose and operated.
There is no provision in the contract which explicitly describes the
nature of the contract. The respondent's case rests on implications of
certain provisions. One such provision is Paragraph 4, captioned
"schedule of payment," which says, among other things, "CR-SDC
agrees to
reimburse the Delegate (i.e., the school) for authorized expenditures."
This provision, which is the closest thing in the contract to a specific
reference to the nature of the agreement, is certainly broad enough to
encompass reimbursement based on a reasonably-determined per-pupil
basis. Another provision the respondent cited was Paragraph 3,
captioned "budget," which incorporated the "approved budget"
/3/ and,
arguably the respondent's strongest point, also says that CR-SDC would
not approve personnel costs exceeding a specified figure and
non-personnel costs exceeding another specified figure. It is important
to note at this point that respondent did not go so far as to suggest
that there were any improper expenditures for personnel or other costs;
indeed, the respondent specifically affirmed that there were no such
claims. Tr., p. 115. Thus, the sole reason respondent pointed to this
language was to support its characterization of the agreement;
respondent argued essentially that the language of (4) Paragraph 3
implies that there must be an accounting on a cost-specific basis in
order to meet the condition, which in turn means the contract must be a
cost-reimbursement contract. Tr., pp. 72-74, 103-104, 109; post-trial
brief, pp. 7, 9. But Paragraph 3 relates to an interaction between the
appellant and its contractor; the limitations in the paragraph were set
by the appellant and the appellant's interpretation and means of
implementing the provision are entitled to some weight. Here, the
appellant chose to implement the provision by developing a per-pupil
fee. The appellant presented evidence that it had overseen performance
by on-site reviews and other means, that its per-pupil rate was based in
part on historical expense data, that the rate reflected the budget (and
therefore impliedly its constraints), and that the appellant was
satisfied that expenditures were proper and met the contract. Tr., pp.
38-41, 61-65, 110. There is no allegation that the $94 per-pupil rate
was an unreasonable means of measuring actual costs in accordance with
contract limitations. Tr., pp. 97-99. There was no regulation or
guidance that specified how these costs had to be claimed. In short,
Paragraph 3 is not unambiguous and, in context, reasonably can be
interpreted--as the appellant, whose contract it was, would have it be
interpreted--to permit the use of a per-pupil fee as a surrogate measure
of actual costs (and related limitations on costs).
Respondent also argued that Paragraph 4's statement that appellant
would pay only for "authorized expenditures" was an "indication"
that
appellant would limit expenses the contractor could incur, and that a
provision in the contract requiring return of unexpended funds at the
end of the program implied some accounting. Tr., pp. 73-74. Neither of
these arguments is persuasive, as a reasonable per-pupil rate could
coexist with both provisions.
Part of the problem in this case is that the respondent seemed overly
concerned with labeling the contracts as fixed-price or
cost-reimbursement. Those terms are quite precisely defined in federal
procurement, where regulatory requirements and consequences attending
the use of each type of contract are substantial. Here, however, there
were no such requirements, and the contract was not one to which the
respondent was a party. Thus, respondent's position to some extent
seems to unreasonably value form over substance in the context of the
facts here. In any event, the contract was not as unambiguous as
respondent would have it be. There was no showing, or even allegation,
that the $94 per-pupil rate was not reasonably developed and applied.
The respondent even acknowledged that the use of the per-pupil rate
would have been quite acceptable had the appellant chosen to specify it
in the contract. Tr., pp. 98-102. Given that the contract is not so
clear as the respondent argued, the argument of the appellant that the
rate did reflect actual costs, and the concessions of the respondent
concerning the legitimacy of the per-pupil rate otherwise, we find the
respondent's position unpersuasive.
(5) We note that the foregoing analysis did not require us to depend
on the parol evidence presented by appellant. Our own reading of the
contract itself, and evidence about development and application of the
per-pupil rate, were sufficient to persuade us that appellant should
prevail on this issue. But there is additional support in the testimony
for appellant's case, and since we have found the contract ambiguous, we
make brief mention of one thing in the record.
The respondent correctly pointed out that much of appellant's
witnesses' testimony was not definitive on the type of contract; the
testimony mainly simply confirmed that these witnesses had assumed they
could use a per-pupil rate. However, both witnesses did testify that
they personally and separately heard a Departmental representative
(apparently having responsibility for the program in question) advise
that payment should be sought on the basis of a per-pupil cost. Tr.,
pp. 22, 33-34, 49-50, 61. The record also contains an affidavit of a
witness which states the same thing. The respondent never specifically
or substantially rebutted this. While the Board is not claiming this
evidence rises to the status of a basis for estoppel, the unrebutted
evidence does buttress our conclusion that the contract can reasonably
and fairly be interpreted to permit the use of a per-pupil rate.
Respondent says it finds "disturbing" the idea that the Board might
review this dispute purely from the equitable perspective that the
respondent would have not have entered this disallowance but for the
absence of explicit reference to the per-pupil rate in the contract.
Respondent's post-trial brief, p. 7. But we are not doing that; we
have found that the contract on its face, and in the context of the
record here, does not prohibit the use of a per-pupil rate.
2. Indirect costs.
This issue has evolved during the course of this long dispute, but
the record has grown, if anything, less clear. Because of the
unclarified impact of intervening events since the Board's original
decision, the Board has determined that it must remand this issue to the
respondent.
a. 1975 costs.
The 1977 audit specified $24,000 in indirect costs for fiscal year
1975 which were disallowed on the basis that there was at that time no
indirect cost rate (appellant apparently had been negotiating a rate but
did not have one at the time of the audit).In its submission to the
Board dated June 17, 1981, appellant indicated that it had been awarded
an indirect rate, and that "using the final rate awarded, CR-SDC
calculates that it is owed nearly (6) all of the $59,000 disallowed." p.
1. (The amount referred to includes 1973 and 1974 costs as well.)
Respondent admitted that it now had established a rate for 1975, but
alleged that appellant failed to submit a properly documented claim.
Response of March 23, 1982, p. 3. Respondent indicated its willingness
to review a properly documented claim. Id., p. 4. In the appellant's
response of April 14, 1982, the appellant said that it was premature for
the respondent to suggest documentation was inadequate until proper
"closeout" of the 1975 grant led to such a determination, at which
time
it would be appealable. p. 3. Respondent argued in its post-trial
brief essentially that a new determination was not needed because of the
close interaction with the old case; respondent also argued that
appellant "has failed to provide... a base against which Respondent can
apply the final rate or propose an alternative means...." p. 13.
The Board has concluded that the record developed by the parties is
insufficient for resolution of this part of the dispute, and that
resolution in any event would be premature. Therefore, we remand this
part of the dispute to the respondent, with instructions to (a) advise
appellant precisely and simply what it must submit in order to receive
the benefit of the new rate and why it must submit it; (b) give the
appellant a reasonable time to respond (we suggest 30 days); and (c)
issue a revised determination based on (a) and (b). Appellant may
return to the Board to dispute the determination within 30 days
thereafter. We urge respondent, if it cannot resolve this part of the
dispute, to develop a revised determination which can stand on its own
without ambiguous and convoluted cross-reference to the lengthy and
confusing record in this case.
b. 1973 and 1974 costs.
By way of introduction to this part of the dispute, we note that the
record concerning the 1975 indirect costs may be termed crystaline in
comparison to the record concerning the 1973 and 1974 costs.
The 1977 audit actually disallowed $35,377 for three direct cost
items: $21,109 for certain personnel costs of persons whose efforts
were found to benefit a number of the appellant's programs and for whom
there was inadequate documentation to support a proper allocation of a
share of costs to the grants involved here; and $7,494 and $6,774
charged to two grants for ambiguous "administrative costs" for which
the
auditors found the appellant had maintained no supporting records.
During the course of the dispute, the parties began rounding off the
total amount to $35,000. See, e.g., letter from appellant to the Board
dated February 4, 1980 (p. 1).
(7) In a February 4, 1980, submission to the Board in the earlier
case, the appellant noted that it had indirect cost rates recommended
for acceptance by the auditor, and requested that a rate be applied to
the amounts disallowed to produce an allowable cost (e.g., appellant
requested $6,500 of the $21,000 for personnel costs based on a 6.7%
rate). p. 1.
In an April 9, 1980 memorandum from the Regional Audit Director,
respondent noted that no indirect cost rates had yet been approved for
the years in question, although rates were under development for those
years. p. 2. In a May 5, 1980, submission to the Board in the earlier
case, the respondent "reaffirmed" its disallowance decisions on these
costs items, based on the continued lack of documentation and the April
9 memorandum from the Regional Audit Director.
Thus, appellant appeared early in the case to have responded to the
disallowance by seeking to have the disallowed costs treated as indirect
costs. Putting aside the documentation issue, this was not an
unreasonable approach, given the nature of the costs as described above.
Administrative and personnel costs of this type might well be indirect
costs, and the appellant may merely have been naive in not having sought
them on that basis from the beginning. The cost principles define an
indirect cost as one "which, because of its incurrence for common or
joint objectives, is not readily subject to treatment as a direct
cost...." 45 CFR Part 74, Appendix F, D.1 (1974). It is precisely
because it is impracticable to document adequately the distribution of
such costs that allocation through an indirect cost rate, rather than on
the preferred basis of documented direct costs, is permitted by the
Department's cost principles. /4/
Respondent argued that "indirect costs are only available for years
in which an indirect cost award has been granted" (a proposition that
this Board agrees with and the appellant does not dispute), and that "an
indirect cost award has never been requested by appellant for FY 1973
and 1974," a proposition that is misleading. Post-trial brief, p. 14.
Appellant's argument concerning what it wants is not entirely clear.
Concerning the two administrative (8) cost items, appellant says "it is
not seeking to turn the receipt of administrative costs in 1973 and 1974
into indirect costs," but that "there were administrative costs budgeted
generically" and the indirect cost rate "is indicative of the amount
that should be allocated as 'administration' for the individual grants."
Reply brief, pp. 8-9. Concerning the personnel costs, the appellant's
argument is essentially collateral; appellant appears to try to term
its five-year failure to adequately justify or document the allocation
of the costs involved into a "failure of HHS so far to document the full
$21,109" (appellant's responsibility), and into an "entirely factual"
issue on which a hearing is now "necessary." Id. pp. 9-10.
We conclude that a Board decision is premature on the 1973 and 1974
"indirect" costs. We note that the record contains an Indirect Cost
Negotiation Agreement dated May 12, 1980, which was sent to the Board by
the appellant under cover of a letter dated July 23, 1980 (after the
Board's original decision). The Agreement appears to specify an
indirect cost rate of 6.7% for the years in question. The Agreement,
however, also contains a limitation stating that the rates are subject
to, among other things, the condition that "the same costs that have
been treated as indirect costs have not been claimed as direct costs."
p. 2. It is unclear how the Agreement applies to this part of the
dispute and how the condition applies (or, indeed, if it applies),
particularly in the context of the cost principles and the type of costs
involved. It also appears that respondent took the position that
appellant has not asked to have the rate applied, and that respondent
has not carefully examined whether it may or should apply an indirect
rate to the costs here. We therefore remand this portion of the dispute
to the respondent, with instructions to:
treat appellant as having made a request for application of the 6.7%
indirect cost rate to the 1973 and 1974 costs in question here.
determine whether the rate will or will not be applied. We urge
respondent to do more than merely rely on the condition stated in the
Agreement of July 23, 1980, and to be mindful of the nature of the costs
involved in relation to the cost principles, as discussed above.
advise the appellant and the Board in writing, if the respondent
determines the rate is applicable, of the amount the respondent now
calculates is allowable.
advise the appellant and the Board in writing, if the respondent
determines that it must deny appellant's "request." Such a determination
should contain a complete explanation of the basis of the determination.
As with (9) the 1975 portion of this dispute, we urge respondent to
develop a determination which can stand on its own.
Appellant may return to the Board to dispute the determination within
30 days thereafter.
Because of the long time that has already passed in this case, the
Board will provide accelerated review of any further contested
determination on the indirect cost issues. Further, the Board, by
separate letter, will arrange a meeting to facilitate the determination.
3. Cost sharing.
The 1977 audit concluded that appellant had not met its cost-sharing
requirements to the extent of $160,213. The appellant maintained from
an early point in the dispute that the situation arose because "sources
of contributed services were not informed that the value of their
activities would be used for that purpose. Consequently, they did not
maintain documentation in support of time devoted to the grants." Audit,
"Highlights of Audit Results", p. 3; see, also, "Findings and
Recommendations", pp. 7-12.
A letter dated March 7, 1979 to the Board from the appellant
requested an extension (which was granted) because it was "currently in
the process of obtaining signed statements from the people who donated
their time." Letters of April 26, 1979 and June 15, 1979 also requested
further extensions, which were granted. Respondent requested and was
given additional time to review submissions of the appellant. In a
telegram sent January 10, 1980, appellant asked for an extension to
April 9, 1980, based, among other things, on the fact that "we have a
new controller, he has not had sufficient time to assimilate the status
on this appeal...." The Board granted a shorter period. By letter dated
February 4, 1980, appellant claimed that it should be allowed to claim
$83,100 related to an "Athletes for Youth" (AFY) program, a community
program in which appellant's beneficiaries apparently participated. The
same general claim had been made much earlier in response to the audit;
/5/ what (10) was new was appellant's documentation: a budget for the
AFY program, which purported to show the value of coaches' contributed
time and other items. Appellant took the total budget of $553,643,
figured a cost per participant, and, based on the number of participants
apparently related to the grant-supported program, prorated the cost per
such participant to reach a total of $83,100. In an April 9, 1980 audit
memorandum, respondent rejected the claim on numerous bases, including
the following: costs developed four years after grant termination were
of questionable validity; the number of project youth participants used
as a figure for allocation of the total budget amount was highly
questionable (appellant claimed 2000 participants of whom 300 were
involved in the program, figures which were rather too coincidentally
round); the appellant's proposal was replete with computational errors
which had the effect of inflating the claim (see details in the cited
letter, pp. 7-8); and the proposal included $49,012 of budgeted costs
which, because they were not shown to have been actual expenditures,
could not be used. The record does not indicate that appellant ever
rebutted these findings.
In its motion for reconsideration, appellant stated "SDC has claimed
all along and alleges now that it can prove that the $65,289 in
discounted non-federal share was assignable to the youths for whom
non-federal matching was claimed." p. 8.
In its submission of June 17, 1981, appellant altered its approach,
stating as follows:
D. Cost Sharing
CR-SDC was the fiscal agent for a CETA youth employment/training
program which included both CETA and about $75,000 of local non-federal
funds. Through an error, only $9,000 of the $75,000 available as
non-federal share actually was charged against the HHS grant as
non-federal; $65,000 was charged to CETA and thus could not be used for
non-federal share. CR-SDC is prepared to show that the $65,000 was and
is available to cover the non-federal share obligation.
The parties spent some time negotiating over the acceptability of the
$65,000 amount. By memorandum dated December 3, 1981, respondent
stated:
Presently, what is necessary is that the Grantee show the Agency that
the $65,000 non-Federal share it alleges to be available can justifiable
be used as a match for the Juvenile Delinquency Diversion Project. This
money cannot be (or have been) otherwise obligated i.e., a matching of
(11) cost sharing requirement may not be financed by other Federal funds
or by non-Federal funds that are applied to match other Federal funds,
except as may be specifically authorized by Federal legislation. 45
C.F.R. Sec. 74.53(a) and OHD Grants Administration Manual, Chapter 2,
Part (A)(3)(b). If the Grantee can establish to the satisfaction of the
Agency, that it met these criteria all or part of the $65,000 may be
acceptable as meeting the Grantee's non-Federal share.
In a telephone conference held by the Board on December 21, 1981,
appellant's counsel agreed to produce an affidavit by January 31, 1982,
of a responsible official of appellant describing the composition of the
sum. Board letter of December 28, 1981. The record does not indicate
it was submitted. By letter dated March 8, 1982, the Board ordered
appellant to submit, within 15 days, "evidence which would show that the
funds would meet the Agency's requirement." On March 23, 1982, appellant
asked for an extension (which was granted) because appellant's
"Comptroller last week left his job and has only just been replaced by
a
new official, totally unfamiliar with the facts necessary to comply with
the Board's order." In its response to the Board's order of April 14,
1982, appellant stated, "Counsel spoke with the former comptroller last
week and he assured counsel that CR-SDC has evidence which counsel
believes would substantiate the existence of $65,000 in available
non-Federal funds.... We intend to furnish the evidence as quickly as
possible." p. 6. In a letter to the parties dated April 21, 1982, the
Board stated, among other things:
2. On April 14, 1982, the Grantee requested a second extension of
time in which to submit documentation on the issue of the $65,000 in
non-federal funds available to offset part of the disallowance. The
extension of time has been granted. The Board is cognizant of the fact,
however, that the Grantee has been alleging the existence of this
evidence without producing it since June 17, 1981. The Grantee's
evidence, therefore, should be submitted no later than April 28, 1982
(the date that had been set for the hearing). If it is not submitted by
that time, the Board may proceed to decision based on the record as of
April 28, 1982 as supplemented by the hearing transcript and any
post-hearing briefs.
The Agency has asked if, given the Grantee's delay in submitting the
documentation pertaining to the $65,000 it can postpone its submission
on this issue as well as its reply to the Grantee's arguments on the
issue of indirect costs until shortly after the hearing (incorporating,
if allowed, any post-hearing briefing). This request has been granted.
Post-hearing submissions will be discussed in more detail at the close
of the hearing.
(12) At the hearing, appellant's counsel presented a "Submission of
Documentation" dated April 27, 1982. It related to the alleged
availability of $56,705.00 for cost sharing. As explained in the
following paragraphs, part of the submission was merely duplicative of
material submitted and found insubstantial years before, part was simply
irrelevant, and the rest, to th extent it might be deemed remotely
relevant, is clearly insufficient to show that appellant met the
cost-sharing requirements under regulations.
The documentation consists of three exhibits. Exhibit A is an
affidavit and attachments of a CR-SDC employee. The affidavit says that
"a minimum of $500,000" in private funds went to the program during
1973
to 1975, and that "a portion" of such funds were set aside to employ
youth. "As a result of an accounting error, a substantial amount of set
aside funds" were charged to a federally funded CETA Youth Employment
Program. The attachments to the affidavit are as follows:
There are two County resolutions. Resolution 74-523 ambiguously
directs funding for summer jobs for youth; on page 2, there is a
direction to the County's Director of Public Welfare to sign a purchase
agreement in the amount of $315,000 with an organization which we assume
is the appellant for an eight-week summer period "to purchase
paraprofessional social service employment." Neither the affidavit, this
document, nor appellant's argument connects this resolution in any way
with the appellant's cost-sharing requirement. Indeed, unlike a
resolution for the subsequent year, there is no purchase agreement
attached.
Resolution 75-441 provides for a similar transaction in the amount of
$250,000 for a summer employment program in 1975. It suffers the same
fundamental flaws as Resolution 74-525. In addition, a "fiscal note"
at
the bottom states that adoption of the resolution would "require an
appropriation expenditure... and... a transfer of funds from the
Contingent Fund," implying an element of contingency that makes the
document even more questionable.
The next attachment is another copy of the same Resolution 75-441,
but with names written on it and a note summarizing the resolution.
Attached to (or at least following) this resolution is a 9-page
"purchase agreement" dated September 30, 1975, between the Milwaukee
County Department of Public Welfare and appellant, and effective from
October 1 to December 31. The agreement appears to consist entirely of
administrative provisions related to the contract; we infer from
internal references that the scope of work, and even the contract budget
and amounts, were apparently set forth in exhibits described as
"attached" to the contract, but not included in the appellant's
submission. Thus, the document does no more than indicate that
appellant at one point had some kind of contract with the County.
Furthermore, the audit period involved in this dispute (13) ended
October 1, 1975, and this contract began on October 1, 1975. Thus, the
contract is totally irrelevant, except perhaps as a means of raising the
question why a similar contract was not attched to the resolution for
1974.
The foregoing constitutes the entirety of Exhibit A, the affidavit
and attachments. Exhibit B is a copy of a further resolution by the
County Board (in a different, printed format) appropriating $200,000 for
the appellant for the first six months of 1975. The document indicates
that the funding was for a youth employment program. Again, there is
nothing, not even explanation or argument, to bridge the gap grom this
document to the proof required to show appellant met its matching
requirement.
Exhibit C, according to appellant's brief cover memorandum, is "a
breakdown of expenditures for JDDP trainees" (i.e., apparently trainees
under the grant-supported project). Although this document shows a
"total" figure of $56,705.00, it contains no information whatsoever
which shows how the 16 agency/amount items relate to the issue of the
appellant's required matching share. More important, in fact, it is
precisely the same document submitted by appellant to respondent with a
letter from appellant dated January 27, 1977, already in the record.
After appellant submitted the information to respondent at the
hearing, respondent forwarded the information to the audit office
responsible for performing the earlier audit, and that office reviewed
the submission and submitted comments in a memorandum dated May 20,
1982, attached to respondent's Post-Trial Brief. The memorandum stated:
We reviewed the data and determined that the matching contribution of
$56,705 proposed by the Commission is based on the same data that was
presented during our initial audit. (Refer to pages 11 and 12 of our
earlier audit report, Audit Control No. 05-70501 issued on June 14,
1977.) The costs were disallowed at that time because the Commission was
unable to demonstrte that the expenditures were specifically
identifiable and directly beneficial to grant-supported activity. The
appeal does not contain any additional information to document that the
expenditures were incurred for the benefit of the Federal grant project.
As a result, the amount of $56,705 continues to be unallowable for cost
sharing.
Returning to the original audit, when appellant first presented its
"evidence" concerning the $56,705, we note that the auditors concluded,
"our examination disclosed that the Commission was unable to demonstrate
that the costs were incurred on behalf of the youth enrolled in the
project." p. 12.
(14) Appellant, despite the passage of five years and numerous
opportunities, has still been unable to provide any documentation
showing that it met its obligation. The "Conditions Governing Direct
Grants" applicable here (an attachment to appellant's letter of August
25, 1977), p. 3, states, among other things, that "sufficient
documentation to justify the computation of grantee share costs must be
included with budget documents and must be available for audit
purposes." All the evidence submitted by appellant most recently shows
(beyond that submitted and considered years ago already) is that the
county had a funding relationship with the appellant centered around
youth programs. There is no nexus between this ambiguous showing and
what the respondent reasonably asked for here in the way of
documentation. Even read in the most generous light, testimony in the
affidavit establishes nothing more than that appellant may have received
funds or services from other sources. There is no substantial evidence
linking these resources to the projects or periods in question.
In its reply brief, appellant merely argued conclusorily that it had
submitted documentation which it "believes" shows there were funds
"available for meeting CR-SDC's matching requirement," and that funds
"could now be allotted to participants by a mere bookkeeping
correction." p. 11. Appellant said that "HHS has the temerity to
attempt to introduce testimony of a witness through a memorandum",
presumably referring to the audit examination of evidence; but that is
precisely what the process had called for: examination by appropriate
Agency officials of supposedly "new" evidence submitted by appellant.
In summary, after long years and many promises, there is virtually
nothing new, and nothing which shows the auditors were unreasonable in
determining that appellant failed to meet its cost-sharing requirement.
There remains the issue whether appellant should now be given an
opportunity to make an oral presentation on the cost-sharing issue.
Whether appellant should be given a further opportunity to make
presentations on the cost-sharing issue.
Appellant concluded its presentation on the cost-sharing issue by
stating that it "remains concerned" that it had not "had the
chance to
submit documentation via the format of a hearing," and that it would
like the opportunity to present a "full factual case" if the Board
found
the "documentation lacking in any way." Reply Brief, pp. 11-12. The
Board concludes that the appellant has already had every aspect of a
"hearing" on this issue save the opportunity to come before the Board
in
an oral manner. The appellant has had repeated opportunities, over many
years. to submit documents, affidavits and argument. The record
indicates that appellant has (15) had more than ample opportunity to
present its case to the Board on what basically is an issue of
documentation, and clearly has had a "hearing" sufficient to meet
the
fundamental needs of fairness and due process.
A "hearing," in the general sense, means:
... any confrontation, oral or otherwise, between an affected
individual and an agency decisionmaker sufficient to allow the
individual to present his case in a meaningful manner. Hearings may
take many forms, including a "formal," trial-type proceeding, an
"informal (discussion)"... or a "paper hearing," without
any opportunity
for oral exchange.
Gray Panthers v. Schweiker, 652 F.2d 146, 148, n.3 (D.C. Cir., 1980)
/6/
In Gray Panthers, the Court found elderly Medicare beneficiaries
deprived of statutory benefits entitled to greater due process than an
abbreviated notice and "paper hearing" process theretofore provided.
The Court stated,
... we do not hold that oral process is always due in Medicare review
proceedings... the appellants argued before both this and the trial
court that the need for an oral hearing derived in part from
deficiencies in the Secretary's current notice provisions. Our remand
to the district court allows the Secretary to propose changes in this as
in other aspects of the present paper hearing procedures; the district
court may accept these changes as an alternative to oral hearings if it
believes they will cure the deficiencies we have noted in the present
procedures. Id., pp. 48-149.
In the present case, there is no indication of, nor has there been
any allegation of, any inadequacy in the notice to appellant of its
cost-sharing deficiency.
The Court in Gray Panthers noted certain "policy interests" in
support of oral presentations; the Board agrees wholeheartedly (16)
with these interests, and our current regulations are based on them.
The interests, fundamentally, are three: "the desire for accuracy, the
need for accountability, and the necessity for a decisionmaking
procedure which is perceived as 'fair'...." Id., p. 161.
Concerning the first, the Court observed that an oral hearing
"provides a way to ensure accuracy when facts are in dispute,
particularly if credibility is an issue... (and) to eliminate
misunderstandings and focus issues." Id., pp. 161-162. Concerning the
cost-sharing issue, appellant has not shown (nor, indeed, even alleged
in its submission) that there were any probative facts that remain in
dispute. There is no dispute as to credibility, other than perhaps of
the appellant's own submissions. The issue is sharply focused, and
focused on what essentially is an issue of adequacy of documentation;
the record makes it clear that there can be no misunderstanding of the
issue here or what the appellant clearly had to show to support its
case.
Concerning the second interest--accountability--the Court observed
that on oral hearing provides an "institutional check on arbitrary or
impermissible action" since it helps "ensure that decisionmakers
recognize that their decisions affect the lives of human beings...
human nature frequently leads to careless and arbitrary action when the
decisionmaker can retreat behind a screen of paper and anonymity." Id.,
p. 162. Here, however, there is no indication of, nor even an
allegation of, careless or arbitrary action; the appellant's whole case
in the cost-sharing matter has been that it could produce evidence of
the availability of funds. As stated, the issue essentially is a
documentation issue, and appellant repeatedly said it could provide the
documentation. The evidence finally submitted by appellant, after
repeated delays, is so clearly inadequate on its face that the Board has
determined that any further opportunity for explanation would merely
mean more delay.
Concerning the third interest--the perception of fairness--the Court
observed that it is crucial that citizens "perceive that their rights
and interests are taken seriously and thoughtfully by the officials who
are deciding their claims." Id., p. 163. The lengthy record of
interaction with the appellant on the cost-sharing issue indicates that
the Department, and certainly this Board, have dealt with appellant
fairly, and we have given serious, careful thought to appellant's
claims.
The Board's regulations provide, at section 16.11(a):
If the appellant believes a hearing is appropriate, the appellant
should specifically request one at the earliest possible time... the
Board will approve a request (and may schedule a hearing on its own or
in response to a (17) later request) if it finds there are complex
issues or material facts in dispute the resolution of which would be
significantly aided by a hearing, or if the Board determines that its
decisionmaking otherwise would be enhanced by oral presentations and
arguments in an adversary, evidentiary hearing.
In the Notice of Hearing dated April 1, 1982, the Board advised
appellant that it had determined that only the "alternative schools"
issue required a hearing. /7/ As the background material set forth at
length above indicates, the Board made this determination largely on the
basis that the cost-sharing issue was a relatively simple documentation
issue where the appellant was promising to produce the necessary
evidence. Appellant did not comment in response to the hearing
determination, nor did the appellant comment on the need for a further
hearing on the cost-sharing issue at the hearing held by the Board on
April 28, 1982. Tr., pp. 118-119. Appellant did not renew its request
for a hearing even in the documentation on cost-sharing it finally
submitted on the day of the hearing; appellant waited until its reply
brief, submitted June 21, 1982. These events buttress our view that
only delay would be served by reopening the cost-sharing issue.
Given the nature of the cost-sharing issue, and based on the
presentations in the case by appellant, we conclude that providing a
further opportunity for oral presentation on this issue would produce
nothing more than further delay; this view is in accordance with our
regulations and Gray Panthers.
Summary and conclusion.
Based on the foregoing analysis, the Board:
1. Overturns the disallowance of $21,432 in subcontract costs,
because we have determined that the contract, in the context of the
facts of this case, reasonably should be interpreted to permit the use
of the per-pupil fee by appellant;
(18) 2. sustains the disallowance related to the appellant's
required cost-sharing amount, because the appellant, despite repeated
opportunities, presented no substantial evidence that it met its
cost-sharing requirement; and
3. remands to the respondent for further determination the issues
related to indirect costs, as discussed above. /1/ Appellant used the
term "subgrant" (see, e.g., Reply Brief, p. 1), but the Shalom
agreement is captioned a "contract." The appellant did not indicate
what
difference the label would make. /2/ The appellant directed its effort
primarily to an argument that "the pattern of conduct between
CR-SDC and its alternative schools obviously constitutes a waiver or
modification to CR-SDC's written subagreement." Reply Brief, p. 2. The
contract, however, specifically stated that it could only be modified
"in writing" (Paragraph 9) and appellant's witnesses were not aware
of
any such written modification (Tr., pp. 31, 57). but the appellant
added that "even though the arrangement was a fixed unit cost," the
cost
was an "accurate measure" of costs which could have been reimbursed
through cost reimbursement. Reply Brief, p. 5. Thus, appellant's
position is sufficiently ambiguous that we need not treat its
presentation as containing admissions sufficient to prejudice its case.
/3/ We note that Departmental regulations specify that changes in
budgets by grantees "do not require approval" except with regard to
exceptions not pertinent here. 45 CFR 74.102(c) (1974). /4/ We
therefore think it at least hyperbolic of the respondent to have termed
the appellant's attempt to reclassify these costs as "disingenuous",
"a
desperate attempt to obtain funds to which it has no legal right" and
"more appropriately directed to devotees of Aesop and Grimm than to an
administrative tribunal." Post-trial brief, pp. 14-15. /5/
"Several times during the audit we requested that cost-sharing
information be provided. Between March 26 and April 5 of 1976, we
suspended the audit in order to give the Commission time to document its
cost sharing. At the exit conference, we again requested the Commission
to provide documentation to support their claim for AFY related
cost-sharing. Information provided as a result of these requests was
based on budget figures which did not include any of the items presented
in their proposal." Audit Memorandum of April 9, 1980, p. 6. /6/
Gray Panthers was modified on rehearing on March 18, 1981, but the
reported version cited above, although dated 1980, is the modified
version, as published in the Federal Reporter, 2d Series. /7/ Of
course, given that we have remanded one issue in this case to
the Agency for further proceedings, we will reconsider at a later time,
if the dispute continues, whether a hearing will be needed on that
issue.
SEPTEMBER 22, 1983