GAB Decision 341
September 3, 1982 Health Systems Agency of Central Georgia, Inc.; Docket
No. 82-64 Ford, Cecilia; Teitz, Alexander Settle, Norval
Health Systems Agency of Central Georgia, Inc. appealed the decision
of the Health Resources Administraton (HRA, Agency) Ad Hoc Grant Appeals
Review Committee (Committee) to sustain the decision by the Director,
Division of Grants and Procurement Management, to disallow the
expenditure of $1,000 in grant funds paid to the American Health
Planning Association.
This decision is based on the written record which includes
transcripts from the telephone conference calls held between the parties
and the Board. /1/ For reasons discussed below, we sustain the
disallowance.
Background
In March of 1981, the appellant sent $1,000, which was charged to its
HRA grant, to the American Health Planning Association (AHPA) in
response to a letter dated March 3, 1981 from AHPA to its membership.
That letter stated: (2) . . . it was urged by those present at the
meeting that all planning agencies be asked to make a contribution over
and above their 1981 membership dues, and that is the purpose of this
letter. Please examine your finances carefully and send as large a
contribution to AHPA as you possibly can.Many agency executives have
pledged contributions of up to $2,000, . . .
Emphasis added.
Subsequently, the Agency conducted a limited audit of the appellant
to determine whether the appellant had contributed federal funds to AHPA
in excess of normal membership dues. Audit Report, Audit Control Number
(ACN) 04-11455, p. 1. In the course of the audit, it was found that
appellant, by check dated November 9, 1979, had paid its normal
membership dues of $2,229 to AHPA for the calendar years 1980 and 1981
and that the appellant had characterized its payment of $1,000 to AHPA
in March, 1981 as "supplemental membership dues." In return for the
payment of $1,000, AHPA sent the appellant a Certificate of Sustaining
Membership for 1981. Audit Report, p. 2. The auditors' findings were
that the $1,000 payment to AHPA by the appellant was an unallowable cost
to the grant because the "sustaining membership" was a contribution,
and
the cost was not necessary to accomplish project objectives inasmuch as
the appellant was entitled to full membership benefits in AHPA whether
or not it became a "sustaining member." By letter dated November 25,
1981, the Director, Division of Grants and Procurement Management,
disallowed the amount of $1,000 charged to the grant, stating that:
. . . we have determined that the amount questioned by the auditors
is, in fact, a contribution to AHPA, and not a cost of membership. Such
contributions are unallowable in accordance with OMB Circular A-122,
Attachment B, Item 8.
Discussion
1. Issue presented and summary of parties' positions.
The basic issue before this Board is whether the $1,000 payment to
AHPA made by the appellant in response to AHPA's March 3, 1981 letter is
an allowable charge to appellant's grant. Appellant's argument was
essentially that the $1,000 payment is a "cost of membership" under
the
provisions of OMB Circular A-122, Attachment B, Item 25.a. and
therefore, allowable. Conversely, the respondent's argument was that
the payment of $1,000 by appellant to AHPA was a contribution (3)
because the payment was in excess of normal dues, not all the members
were required to make a payment, the amount of the payment was not
uniform but left up to the discretion of the individual member, and the
members did not receive any additional benefits and were still entitled
to full membership benefits whether or not they made any additional
payment. For these reasons, respondent argued that the payment in
question was a contribution, which is an unallowable cost under the
provisions of OMB Circular A-122, Attachment B, Item 8. OMB Circular
A-122, Attachment B, Item 8 states that:
contributions and donations by the organization to others are
unallowable.
2. Whether the $1,000 payment is a "cost of membership."
Appellant contended that respondent's position that the $1,000
payment to AHPA is a contribution is an unwarranted limitation on the
allowability of such costs under the provisions of OMB Circular A-122,
Attachment B, Item 25.a. Appellant's Brief, pp. 1 and 2. That provision
states:
Costs of the organization's membership in civic, business, technical,
and professional organiztions are allowable.
In addition, appellant stated that published guideline materials
distributed by HRA and the Agency clearly showed that respondent
recognized that the phrase "cost of membership" may be understood
to
include costs beyond the payment of membership dues. Appellant's Brief,
pp. 2 and 3. Appellant cited, as one example, HRA, Bureau of Health
Planning, Program Policy Notice (PPN), dated July 23, 1980, which
states:
Membership by health palnning agencies in the AHPA . . . is in
accordance with the statute and regulations and cost of membership fees
and dues to AHPA and similar organizations are allowable.
Emphasis supplied by appellant.
Appellant also contended that the past practices of HRA indicated
that the use of grant funds for membership covered expenditures such as
travel expenses incurred in attending meetings of an organization, and
costs of long distance telephone calls to professional organizations.
Appellant's Brief, pp. 4 and 5. Appellant also stated that over five
and a half years ago, HRA, in response to a request for guidance (4)
from appellant on use of grant funds to pay for membership in a
professional organization such as AHPA, stated, in the later of the two
responses received on this request, that:
We think that the use of grant funds for membership in trade and
professional organizations that enhance an agency's ability to perform
effectively its functions is appropriate. . . .
Appellant's Brief, p. 4.
In response to the appellant's arguments, respondent argued that its
decision to disallow the $1,000 payment to AHPA was not a post-facto
determination. Appellant's Notice of Appeal, dated April 2, 1982, p. 3
and Respondent's Brief, p. 1. Respondent conceded that the Bureau of
Health Planning guidance and OMB Circular A-122 do not provide
definitions of the terms "membership fees," "dues," and
"cost of
membership," but that in analyzing AHPA's procedures and reasons for
requesting the contribution, respondent found no evidence that it
represented a membership fee assessment. Respondent contended that a
fee is customarily prescribed in a uniform amount. Respondent argued
that the fee here for "sustaining membership" in AHPA, which it claimed
was designated as such only after AHPA's March 3, 1981 letter was
issued, would have been the same for all membes if it was a fee.
Respondent stated, however, that the March 3, 1981 letter from AHPA
requested members to make as large a contribution as they possibly could
over and above their membership dues and that the conditions and levels
of sustaining membership status were never presented to the members.
Respondent also stated that only 15 out of over 250 members of AHPA made
a payment with grant funds. Respondent's Brief, p. 1.
In response to appellant's allegation that in a meeting with
appellant on September 15, 1981, HRA officials acknowledged to the
appellant that there is an ambiguity in the regulations and guidances
(Notice of Appeal, p. 3), respondent stated that at the time of that
meeting HRA had performed only a preliminary review of the audit reports
relating to contributions to AHPA. Respondent further stated that HRA
staff had then indicated that the term "costs of membership" was not
specifically defined, and it was for that reason that the payments in
question would have to be reviewed to determine if, in fact, the payment
in question could be considered a "cost of membership." The respondent
contended that further review of AHPA's handling of the contribution
request verified that these payments were not costs of membership, but
were contributions prohibited by OMB Circular A-122, Attachment B, Item
8. Respondent's Brief, p. 2., Transcript of August 9, 1982 Conference
Call, p. 6. (5) During the conference call on August 9, 1982, the
respondent clarified its position on how cost of membership may include
costs beyond the payment of membership dues. Respondent explained that
if one pays a membership fee, one gets something in return for it, i.e.
some benefit. The respondent explained that this analysis also applies
to related expenses. For example, if you attend a meeting of the
organization, the agency will allow costs for travel to and from that
meeting to be charged to the grant on the theory that by attending the
meeting you are receiving a direct benefit. The respondent argued,
however, that with a contribution, nothing is received or given in
return for the contribution. The respondent contends that under the
facts of this dispute appellant did not receive further membership
privileges. The respondent stated that after a site visit to AHPA, the
respondent confirmed that the designation of the payment by AHPA as a
payment for sustaining membership was done after the fact.
We are not persuaded that the payment here is a "cost of membership"
within the meaning of OMB Circular A-122 and the policy guidelines. /2/
The record indicates that prior to making this payment to AHPA appellant
had already paid its membership dues for the calendar years 1980 and
1981. The record also indicates that the March 3, 1981 letter from AHPA
to its members, quoted in part above, asked those members to make a
"contribution." The fact that appellant characterized this payment
as
"supplemental membership dues" is not sufficient or dispositive evidence
that this payment is a cost of membership in light of the content of the
March 3, 1981 letter from AHPA.
(6) After the payment was made to AHPA, AHPA acknowledged the receipt of
the payment for a "sustaining membership" and sent appellant a
Certificate of Sustaining Membership. However, during the August 9,
1982 conference call, the Presiding Board Member asked the appellant
whether appellant continued to be a member whether or not it paid this
amount. Appellant answered affirmatively. Transcript, August 9, 1982
Conference Call, p. 3. Also the appellant, in response to a second
question from the Presiding Board Member, admitted that the only thing
appellant received for the extra money, other than the obvious indirect
benefit of continued benefits from the support of the organization, was
this certificate. Transcript, p. 3. The record, therefore, supports
the respondent's position that appellant did not receive any additional
membership benefits from its payment to AHPA, notwithstanding the labels
attached to the payment by the appellant and AHPA.
Despite appellant's allegation that HRA officials, in a preliminary
meeting with appellant prior to any disallowance action by respondent,
acknowledged that there was an ambiguity in the regulations and
guidelines, the record indicates that the Agency did not act
arbitrarily. Its investigation was for the purpose of determining
whether the payment could be considered a cost of membership. Under the
circumstances here, where AHPA's March 3, 1981 letter specifically
solicited contributions from its members, the Agency acted reasonably in
looking behind the label of "supplemental membership fee," attached
to
this payment by the appellant, to determine whether the payment was in
fact a cost of membership or a contribution.
Appellant argued that the respondent's disallowance was a post-facto
limitation on the provisions of OMB Circular A-122, Attachment B, Item
25.a. We do not agree. Although respondent conceded that the OMB
Circular A-122 does not provide definitions of the terms "membership
fees," "dues," and "cost of membership," these terms
are not so peculiar
to a particular area of expertise that they would require definition.
They are terms which have common meaning in usage and practice. The
American Heritage Dictionary of the English Language, New College
Edition (1976), defines dues as "a charge or fee for membership, as in
a
club or organiztion." Fee is defined, in that volume, as "a charge
fixed
by an institution or by law." The term "cost of membership" is
not
mystical. In common usage, it means an expenditure for becoming a
member of an organization. In opposition to this, a contribution
commonly means that something is given in common with others with no
expectation of something in return.
The record clearly indicates that the payment made by the appellant
was not a condition of its membership in AHPA. The appellant admitted
that it did not receive any extra benefits from AHPA for its membership,
other than a certificate. The appellant admitted that it would continue
(7) to be a member whether or not it paid this amount to AHPA. AHPA's
March 3, 1981 letter did not require all members to pay a fee; it was
left up to the discretion of each member to decide whether it would make
a payment. Also, the letter indicated that it was up to the individual
members to determine the amount of its payment to AHPA. Clearly,
appellant's payment does not fit within the common definitions of
"membership fees" and "dues."
Also the record does not support, and we cannot conclude, that
appellant's payment can be considered an expenditure related to its
membership in AHPA. The appellant has argued that "cost of membership"
may include costs beyond membership dues. As the respondent points out,
and OMB Circular A-122 Attachment B, Item 25.c. specifies, cost
incidental to, for example, attendance at the organization's meetings,
such as travel expenses, are allowable where the primary purpose of the
meeting is dissemination of technical information. In such cases, the
grant project is receiving a direct benefit from attendance at the
meeting and the allowance of these incidental expenses is directly
related to this benefit. As we noted above, the appellant did not
receive any extra benefit from its payment to AHPA here, nor was this
payment directly related to any specific benefit. Considering these
facts, we can only conclude that the payment by appellant to AHPA was
not a cost of membership within the provisions of OMB Circular A-122,
Attachment B, Item 25.a., but rather a contribution, an unallowable
cost.
Even if we could consider the appellant's payment to AHPA a "cost of
membership" and otherwise allowable, all costs are subject to a rule of
reasonableness. Both OMB Circular A-122, Attachment A, Item 3 and 45
CFR Part 74, Appendix F.B.3 (1980) state that:
In determining the reasonableness of a given cost, consideration
shall be given to:
(a) whether the cost is of a type generally recognized as ordinary
and necesary for the operation of the institution or the performance of
the grant/contract.
Applying these factors above to the appellant's payment, we cannot
find that the payment is reasonable inasmuch as appellant did not
receive any extra benefit from its payment to AHPA and was entitled to
full membership in AHPA whether or not it made the payment. For these
reasons, we conclude that this payment is not a cost which is generally
recognized as ordinary and necessary for the operation of the appellant
institution or the performance of the appellant's grant. (8)$T3.
Whether respondent's action is inconsistent with the provisions of OMB
Circular A-122, Attachment A, Item A.2.b, and the stated purpose of OMB
Circular A-122. (9)$TAppellant stated that under OMB Circular A-122,
Attachment A, Item A.2.b to be allowable, a cost must:
be consistent with policy and procedures that apply uniformly to both
federally financed and other activities of the organization.
Appellant argued that respondent's action, in finding the costs of
membership paid by appellant unallowable, but condoning these payments
if made from non-federal funds, is a violation of this provision
contained in OMB Circular A-122. Appellant's Brief, pp. 5 and 6.
The respondent argued, and we agree, that this provision cited by
appellant is not relevant here. Transcript, August 9, 1982 Conference
Call, p. 5. The provision refers to factors affecting the allowability
of costs. That is to say, even if a cost is determined to be allowable,
in addition, these factors or general criteria must be examined to
determine whether the cost can be charged to the grant. The example the
Agency cited was if a grantee pays its secretaries at the rate of
$10,000 a year that grantee cannot then charge the federal grant $15,000
for a secretary. Transcript, supra. The cost of the worker's salary to
the grant must be treated the same as the cost of the worker's salary to
the non-federally financed activities of the organization. In this
example, the cost of the salary is an otherwise allowable cost, but if
that cost is treated inconsistently that cost may be disallowed. In the
situation that exists here, we have determined that the payment by
appellant was not an allowable cost to the grant. Therefore, this
provision is not applicable. The cost principles merely provide that if
a cost is unallowable it cannot be charged to the federal grant. It
does not prohibit a grantee from paying for those costs out of
non-matching non-federal funds.
Appellant also argued that HRA violated the provision, included in
the statement of purpose of OMB Circular A-122, which states:
the principles do not attempt to prescribe the extent of cost sharing
or matching on grants . . . . However, such cost sharing or matching
shall not be accomplished through arbitrary limitations on individual
cost elements by Federal agencies.
Appellant's Brief, pp. 6 and 7. Appellant explained that it
interpreted this provision as meaning that the Circular does not
authorize the kind of limitation as contained in respondent's
determination, namely that the cost of this payment must be borne
totally by non-federal funds. Transcript, August 9, 1982 Conference
Call, p. 7.
The appellant has taken this provision out of context; simply
stated, this provision is not applicable to unallowable costs. We agree
with respondent that the problem here is not a cost sharing problem or a
limitation on cost sharing by the Agency.
The same OMB provision cited by appellant, supra, also provides:
The principles are designed to provide that the Federal government
bear its fair share of costs except where restricted or prohibited by
law.
Inasmuch as the payment by appellant, which we determined is a
contribution, is an unallowable cost, the federal government is
prohibited by the OMB Circular A-122 from sharin in this cost.
4. Whether the Agency's action in reviewing the financial condition
of AHPA was erroneous.
Appellant stated that the disallowance action was based in part on
the Agency's examination of the financial condition of AHPA.
Appellant's Brief, p. 7. Appellant contended that the cost principles
do not contain a provision that, as a condition of allowability of costs
of membership in an organization, the Agency may consider the financial
condition of that organization.
The record indicates that in a meeting with the Director of AHPA and
HRA officials, the Director indicted that AHPA's March 3, 1981 request
to its membership for additional funds was to relieve the deteriorating
financial position of the association. Record from HRA, letter dated
October 27, 1981 from the Associate Administrator for Operations and
Management, HRA to the Executive Director, AHPA. However, the Director
also contended that the payments represented costs of membership and, as
such, were allowable costs. Letter dated October 27, 1981, supra. At
the meeting, the Director of AHPA agreed to an HRA official visiting
AHPA to evaluate the organizations's financial condition as of the time
period preceding AHPA's request to its members for funds. Letter,
supra. Based on the Agency's limited review, the Agency concluded that
"the additional funds (from AHPA's members) were not required to offset
a critical financial condition." Letter, supra.
As we discussed above, the Agency acted reasonably in investigating
the substance of the transaction here, given the contradiction between
language of the solicitation letter dated March 3, 1981 from AHPA to its
members and the after-the-fact contention of AHPA and some of its
members that the payment was not a contribution but a cost of
membership. The Agency's site visit was performed with the consent of
AHPA. Although the financial condition of an organization arguably is
not relevant to whether a cost is allowable as a cost of membership, it
is relevant to the extent it aided the Agency in determining whether the
payment here was in fact a cost of membership, which is an allowable
cost, or a contribution, which is not.
Under these circumstances, the Agency's investigation was reasonable
in order to determine the substance of the transaction.
Therefore, the financial condition of AHPA was not a factor in
determining the allowability of costs of membership in that
organization; the Agency had determined that the payment was not a cost
of membership. Inasmuch as AHPA consented to the review by HRA, and
given the contradictions involved, we do not find that the Agency's
review of AHPA's financial condition was erroneous or unreasonable.
Even if it were, that would not make an unallowable cost allowable.
Conslusion
For the reasons stated above, we sustain the decision to disallow the
$1,000 payment by appellant to AHPA. /1/ Normally, where the amount in
dispute is $25,000 or less and where there has been a formal
preliminary review process, special expedited procedures are used. 45
CFR 16.12(d). Under these procedures, the Board would review the record
to determine whether the decision of the preliminary review authority
was clearly erroneous. However, in this case, because the appellant
alleged certain procedural errors in the review process below, the
Presiding Board Member determined that the Board would provide a de novo
review. Transcript, August 9, 1982 Conference Call, p. 1. Although
appellant has explained these procedural flaws in detail in its briefing
to this Board, these alleged flaws are irrelevant to our decision-making
here because the Board is reviewing this dispute as if the HRA
preliminary review had never taken place. Therefore, we find it
unnecessary to discuss them in this decision. /2/ Both parties
based their arguments on OMB Circular A-122, which was revised and
published in final form in the Federal Register on July 8, 1980. This
circular contains cost principles for non-profit organizations and was
to supercede the cost principles contained in 45 CFR Part 74, Appendx F.
This circular, however, was not implemented by regulations by HHS until
June 9, 1981. 45 CFR Part 74, Appendix F, G.43.a (1980), which was in
effect until June 9, 1981, is essentially the same as the revised OMB
Circular provision. The Appendix F provision states: (a) Membership.
This category includes costs of memberships in trade, business,
technical, and professional organizations. Such costs are allowable.
Our analysis here, therefore, is pertinent to both the OMB Circular
A-122 provision for membership as well as the 45 CFR Part 74, Appendix F
provision. The provision relating to contributions in OMB Circular
A-122, Attachment B, Item 8 is essentially the same as the provision
contained in 45 CFR Part 74, Appendix F, G.9 (1980).
OCTOBER 22, 1983