GAB Decision 351
September 30, 1982 United Cerebral Palsy of Illinois, Inc.; Docket No.
82-4 Garrett, Donald; Settle, Norval Ford, Cecilia
United Cerebral Palsy of Illinois, Inc. (UCP) appealed the
disallowance by the Office of Human Development Services (Agency) of
$30,799 in federal financial participation (FFP) claimed under Community
Mental Retardation Initial Staffing Grants awarded in accordance with
Title I, Part D of P.L. 88-164, as amended. The disallowance was based
on an audit report (Audit Control No. 05-61483) which concluded that
various types of unallowable costs had been claimed for FFP.
The Agency withdrew the disallowance for $16,560 so that $14,239
remains at issue. There is no dispute concerning material facts; this
decision is based on the written record.
For reasons set forth below, the disallowance is sustained in part
and reversed in part.
Statement of the Case
In 1976 the auditors reviewed $170,062 in FFP claimed under five
initial staffing grants awarded to four area affiliates of UCP by the
Division of Mental Retardation in the Social and Rehabilitation Service.
/1/ The audit report identified these grants as follows:
Grant No. Grantee Grant Period 53-P-70320-5
United Cerebral Palsy of 7/1/69 - 9/30/73 Northwestern Illinois
53-P-70333-5 United Cerebral Palsy of 7/1/70 - 9/30/74 Northeastern
Illinois
(2)
Grant No. Grantee Grant Period 53-P-70335-5
United Cerebral Palsy of 7/1/70 - 9/30/74 Land of Lincoln
53-P-70334-5 United Cerebral Palsy of 7/1/70 - 1/1/73 Southern
Illinois 53-P-70338-5 United Cerebral Palsy of 7/1/70
- 1/1/73 Southern Illinois
UCP and the area affiliates are each separately incorporated as
non-profit corporations. UCP is a largely volunteer organization that
was formed to further "research, public education, the diagnosis and
treatment of cerebral palsy, and cooperation with agencies concerned
with the welfare and employment of persons with cerebral palsy." (Audit
Report, p. 1) The staffing grants were awarded for 51 month project
periods to provide funds for area mobile teams which provided "lifetime
follow-along-service, including home visits, for the multiple
handicapped". (Audit Report, p. 2) The grants provided for decreasing
percentages of FFP over successive budget periods.
Two of the five grants were terminated by the grantee during the
third program year; the other grants continued for the full 51 month
project period. Beginning with the continuation grants effective on
July 1, 1972, all the grants were centrally administered by UCP. Both
UCP and the audit report stated that UCP was renamed as grantee. (Audit
Report, p. 2) UCP stated:
... U.C.P. of Illinois is a relatively small agency and these grants
were the first the agency applied for or received. The applications
were prepared by volunteers and until July 1, 1972, all vouchering and
books were handled by volunteers (Area Affiliate Board Members). The
resultant inconsistent patterns of administration and accounting, in
some instances bordering on chaos, resulted in the amendment, strongly
recommended by Region V HEW, Social and Rehabilitation Services staff,
which renamed the grantee as U.C.P. of Illinois.
(Appeal File, UCP's 1982 Revision of its Response to Audit Report, p.
1)
The notices of grant award in the record for the continuation grants
awarded on and after July 1, 1972 name the area affiliates as the
grantee organization but name the executive director of UCP as program
director and a representative of UCP as payee.
In additing the FFP claimed by UCP and the area affiliates, the
auditors applied an "Information Statement" for "Community Mental
(3)
Retardation Facilities Staffing Grants" dated October 1971. The
auditors questioned:
... (i) salaries and related costs ($7,045) for personnel who did not
provide "direct services to the mentally retarded," (ii) costs financed
from other Federal grants ($8,000); (iii) fees for services rendered by
clinics, physicians and therapists ($32,026) not in the employ of the
UCP; (iv) travel expenses and other costs ineligible for FFP ($38,580).
The FFP claimed in the above costs amounts to $30,799.... (Audit Report,
p.3)
The audit report schedule listed the amount of each type of
questioned cost by affiliate by budget period. UCP responded to the
audit report that it "believed at all times and were counseled to
understand that we were operating according to the rules." (Appeal File,
UCP's 1982 Revision of its Response to Audit Report, p. 1)
Although the audit report was issued in 1976, the agency took no
action to formally resolve the recommended financial adjustments until
1981 when the Agency wrote informing UCP that it was sustaining the
audit exceptions and requesting to "hear from you as to what action your
organization plans to take in this regard." (Disallowance Letter, August
18, 1981) Later, upon being informed of its appeal rights, UCP filed
this appeal; letters from the affected area affiliates demonstrate
support for UCP. (Appeal File, Affiliate Appeals)
The Agency withdrew the disallowance of $16,560 in FFP for the
$32,026 of medical consultant costs, thereby reducing the disallowance
to $14,239. (Respondent's August 4, 1982 letter)
The record shows that both parties were hampered by the length of
time between the issuance of the audit and the Agency's action in 1981
to sustain the audit findings. /2/ The Agency's records are in (4) the
archives. (Agency Brief, p. 7) UCP indicated that it has had difficulty
locating its records since files were transferred to the affiliates when
they again began to administer the mobile teams. UCP also has
experienced turnover in its professional and volunteer staff. /3/
(Appeal File, UCP's Response to Board's Question 1)
Applicable Provisions
These grants were awarded under Title I, Part D of P.L. 88-164, as
amended. /4/ Section 141 of Part D provided for:
... grants to meet, for the temporary periods specified in this
section, a portion of the costs... of compensation of professional and
technical personnel for... new services in facilities for the mentally
retarded.
The applicable regulations were published at 34 FR 9955, June 27,
1969, and codified at 45 CFR 416.90 through 416.99. /5/
Section 416.91 provided:
Professional and technical staff... include such staff as physicians,
psychologists, social workers, nurses, physical therapists, occupational
therapists, special educators, nutritionists, vocational counselors,
vocational evaluators, recreational specialists, speech and hearing
pathologists, dentists, administrators, aides in professional and
technical fields, and staff in such other positions as the Administrator
may approve.
In large part, the other sections of the regulation set eligibility,
application, assurance, and payment requirements, not relevant to this
dispute. (5) The October 1971 Information Statement is the only
evidence submitted by the Agency of the requirements for these grants.
Although the Information Statement said that it is a part of an
application kit which included the regulations, the Agency provided no
other information concerning program requirements. The Agency merely
stated that:
We are informed that identical or similar Information Statements were
provided to grantees in the grant years 1969 through October, 1971.
(Agency Brief, p. 3)
UCP stated that its executive director "never remembers seeing"
the
Information Statement. (Appeal File, UCP's 1982 Revision of its
Response to Audit Report, p. 1) Nevertheless, the record shows that UCP
gave a copy of the 1971 Information Statement to the auditors in 1976.
Quoting the language in the Information Statement which described it as
containing "information for prospective applicants" and being part
of an
"application kit" (Information Statement, p. 1), the Agency argued
that
"it was the ordinary practice of the Agency to provide the Information
Statement along with the rest of the application kit to all prospective
grantees and we believe it was so provided to this appellant and its
affiliates." (Agency Brief, p. 3)
On balance, we are persuaded that the grantee received copies of
Agency policy statements for each grant award and that all the
continuation grants awarded after October 1971 were subject to the
provisions of the Information Statement submitted as part of the record.
At best, however, we can conclude that prior agency policies were
probably similar to those contained in the 1971 Information Statement.
Administrative Costs
The "Allowable Costs" portion of the Information Statement provided:
Only the cost of salaries and fringe benefits of professional and
technical personnel employed directly by the applicant agency... are
allowable....
... Professional personnel under this program include physicians...
program directors.... Personnel such as clerical, fiscal, maintenance,
custodial and others not providing direct services to the mentally
retarded are not allowable for Federal participation.
Further, the Information Statement limited assistance for "NEW
administrative services" to grants for "NEW services".(Information
Statement, pp. 3 and 4)
The audit report cited this portion of the Information Statement and
questioned $7,045 for salary costs for UCP's executive director and (6)
costs of part-time clerical help. UCP argued that the costs for the
executive director were "new administrative services" since transfer
of
the grants to UCP involved a great deal of the executive director's
time. UCP also noted that costs of clerical help were minimal. The
Agency argued that FFP was not allowable since the personnel involved
did not provide direct services and that the professional staff costs
did not satisfy the requirement in the Information Statement linking FFP
in "NEW administrative services" to "NEW services."
The record shows that most of these costs are salary costs for UCP's
executive director and one of the affiliate program directors. The
Agency admitted that it has no information which would enable it to
identify any of these costs as clerical costs. The Agency further
acknowledged that it regarded UCP's executive director's services as
necessary for the proper administration of the grant and that approved
grant budgets reflected at least a portion of these administrative
costs. (Board's letter of August 3, 1982 summarizing a conference call
with the parties) The Agency submitted, as an example of a grant
application, the application filed for United Cerebral Palsy of Land of
Lincoln for the last budget period. Salary costs for the affiliate's
program director were included in the budget and the grant was awarded
in the amount requested.
The audit report shows that some of these costs were incurred during
grants made after October 1971, the date of the Information Statement.
We conclude, in any event, that the Information Statement does not
preclude FFP in the salary costs for UCP's executive director and an
affiliate program director. Section 416.91 of the regulations lists
"administrators". In addition, the Information Statement itself
specifically included "program directors" as "(professional)
personnel".
In addition, we do not view the limitation on "(personnel) such as
clerical" who do not provide direct services to preclude reimbursement
of these professional staff costs. Also, since these grants supported a
"NEW" service, the mobile teams, we agree with the grantee and conclude
that the restriction on payment for "NEW administrative services"
only
if associated with "NEW services" does not forbid FFP in these costs.
The policy cited by the Agency does not support the disallowance of FFP
in salary costs for the executive director and program director.
Accordingly, this portion of the disallowance is reversed.
Section 416.91 of the regulation does not list clerical personnel but
does recognize costs of staff in positions approved by the
Administrator. We do specifically conclude, however, that clerical
costs were not allowable under the Information Statement. The record
indicates that claimed clerical costs were minimal, but does not show
during which budget periods they were charged. Accordingly, UCP and the
Agency should agree on what part, if any, of the $7,045 are clerical
costs not properly claimed under these grants.
(7) Costs Financed by Other Federal Funds
The auditors found that during the budget period July 1, 1971 to June
30, 1972, $8,000 in federal funds received under a state grant were used
to pay salaries for four mobile teams. The Information Statement listed
as nonallowable costs,
Costs finances (sic) from other Federal grants or from funds used for
matching other Federal grants....
(Information Statement, p. 4)
The Agency relied on the Information Statement to support its
disallowance. Although UCP initially asserted that costs claimed under
these grants were not paid for with other federal funds, UCP admitted
that "the listing of the $8,000 toward salary expense is a bookkeeping
error of judgment or convenience". (Appeal File, UCP 1982 Revision of
its Response to Audit Report, p. 1) UCP did not argue that Agency policy
permitted FFP in costs paid for by other federal funds and ultimately
conceded that these costs were improperly claimed. (Board's letter of
August 3, 1982 summarizing a conference call with the parties)
Accordingly, the disallowance of FFP in the $8,000 in other federal
funds expended under these grants is sustained.
Travel and Other Non-Personnel Costs
The auditors questioned $38,580 in travel, office expenses, and other
miscellaneous costs that were incurred during all budget periods of
these grants. The Agency again cited the Information Statement, which
specifically stated that such costs are unallowable. (Information
Statement, p. 5)
The above cited statutory and regulatory provisions provide for
reimbursement just for personnel costs. In addition, all the notice of
award in the record show only personnel costs in the "Approved Budget"
block /6/ and, all expenditure reports in the record show only
expenditures for personnel costs.Thus, the fiscal documents in the
record demonstrate that the grantee sought and the agency awarded FFP
for personnel, i.e., "staffing" costs only. Given this, as well as
UCP's concession that these costs were improperly claimed (Board's
letter of August 3, 1982 summarizing a conference call with the
parties), we sustain the disallowance of FFP in these costs.
(8) Conclusion
The disallowance of administrative costs is reversed in part. The
parties may return to the Board for assistance if they cannot agree
about what part, if any, of the administrative costs were improperly
claimed. The disallowance of costs covered by other federal funds and
costs of travel, office expenses, and other miscellaneous items is
sustained. The Agency should calculate the reduction in the $14,239 at
issue caused by our decision that FFP in most of the administrative
costs, $7,045, is allowable. /1/ Because of organizational changes at
the Department of Health and Human Services (formerly Department
of Health, Education, and Welfare), the Administration on Developmental
Disabilities, Office of Human Development Services is now responsible
for these grants. /2/ As will be evident from our discussion, however,
we believe that neither party has been prejudiced with regard to
the presentation of its case on the substantive issues. We also have
considered the evidence in the record concerning reassurances from
Agency personnel "not to worry" about the outstanding audit (Appeal
File, UCP's Response to Board question 2(b) and (d)). We believe that a
positive working relationship with Agency program officials, continued
approval of continuation applications, or statements by regional
officials to the effect that "Washington would surely send the matter
back to the Region for decision, that the Region understood we had not
in any way been trying to cheat the government" (Appeal File, UCP's
Response to Board question 2(d)), in no way affected the Agency's
ability to go forward with the audit recommendations. /3/ UCP
also stated that its Southern and Northeastern affiliates both split
into two affiliates and that the new Northeastern affiliate, which
covered the counties affected by these grants, has disaffiliated.
(Appeal File, UCP's Response to Board's Question 1) /4/ Part D
was added by Section 4 of the Mental Retardation Amendments of 1967.
(P.L. 90-170, December 4, 1967) Part D was codified at 42 USC 2678
through 2678d. These sections were eliminated in a general amendment of
Part D which enacted a new Part D relating to special project grants.
(P.L. 94-103, October 4, 1975) /5/ Revisions to these
regulations, not pertinent here, but made during the time period of
these grants, were published at 37 FR 18425, September 9, 1972, and 38
FR 26322, September 19, 1973. /6/ The record contains most but not all
notices of award for these grants. UCP did not argue that costs
other than personnel costs were approved for any budget period.
SEPTEMBER 22, 1983