GAB Decision 556
Docket No. 84-73
July 31, 1984
Goshen Medical Center, Inc.;
Garrett, Donald; Ballard, Judith Settle, Norval
The Goshen Medical Center, Inc. (Grantee or Goshen) appealed a Public
Health Service Grant Appeals Board (PHS Board) decision upholding a PHS
decision to disallow a $400 bonus payment Goshen made to its
administrator. For the reasons stated below we uphold the disallowance.
Standard of Review
The Board's procedures provide for a special expedited review for
appeals of $25,000 or less in which there has already been a preliminary
review resulting in a written decision based on a record. 45 CFR
16.12(d). That process applies to this appeal. Under the special
expedited process, the Board generally restricts its review to whether
the decision of the preliminary reviewing authority was clearly
erroneous. 45 CFR 16.12(d)(1). That standard applies here.
Background
In December 1982 Goshen awarded a bonus of 2% of annual salary to
each staff member and an additional 2% ($400) of salary to the
administrator. The minutes of the December 14, 1982 Director's meeting
at which the bonus was discussed stated that the additional $400 was
awarded because the administrator had not received any bonus the
previous year. (See document entitled "Goshen Medical Center Board of
Directors, December 14, 1982," attached to PHS Response of May 10,
1984.) In December 1981, Goshen had given all employees except the
administrator a $200 bonus.
PHS conducted a site visit at Goshen's facility on October 24, 1983.
Based on findings of that visit, the PHS Regional Office disallowed the
$400 bonus as part of a larger decision to disallow $2096 in questioned
costs. The November 14, 1983 disallowance letter indicated that the
bonus disallowance was based on a the PHS Grants Policy Statement
provision that bonuses are:
(allowable) as part of a total compensation package provided that
such payments are reasonable and are made according to a formal policy
of the recipient organization that is consistently applied.
(underlining added)
(2) The disallowance letter stated that, although Goshen had
established a yearly bonus policy, the $400 bonus in question was
unallowable since it was not a consistent application of the bonus
policy. (See November 14, 1983 letter, attached to PHS Response of May
10, 1984.) The disallowance letter also noted that Goshen should develop
a "formal written policy consistently applied" for any future bonuses.
Goshen requested an extension of time to appeal the disallowance to
the PHS Board in order to first comment directly to the Regional Office
regarding the $400 bonus and the other items questioned in the
disallowance letter. In its comments to the Region, Goshen stated that
the $400 bonus in 1982 was justified since the administrator had not
received a bonus in 1981. (January 14, 1984 letter, attached to PHS
Response of May 10, 1984.) Although the Regional Office accepted
Goshen's position on many items, it maintained that the $400 and one
other $100 item were unallowable. The PHS Board subsequently agreed
with Goshen on the $100 item, so that only the bonus is in dispute here.
Goshen appealed to the PHS Grant Appeals Board by letter dated
February 7, 1984. Goshen argued to the PHS Board that there were in
fact two reasons for the additional $400 bonus award to the
administrator: (1) that she had not received the $200 bonus in 1981,
and (2) that the Board of Directors felt the administrator had done an
outstanding job and wanted to reward her to a greater degree than other
employees. Goshen argued that although only the first reason appeared
in the minutes of the Director's meeting, that was a mistake. Goshen
argued further that it had an "established tradition" of awarding
annual
bonuses to its employees and that awarding more to the administrator
than to other employees was not an inconsistent application of
established policy, as the Regional Office had contended. Goshen
presented a page from a 1980 disbursements journal showing a $150 bonus
to the administrator and a $100 bonus to a secretary. Grantee stated
that those bonuses both began the tradition of annual bonuses and
demonstrated that giving more to the administrator in 1982 was
consistent with past policy.
The PHS Board upheld the $400 bonus disallowance. It did so largely
on different grounds than the Region had cited. Rather than the PHS
Grants Policy Statement, the PHS Board cited OMB Circular A-122, B.6.
h., which states:
(incentive) compensation . . . based on . . . efficient performance .
. . are allowable to the extent that the overall compensation is . . .
reasonable and . . . paid . . . pursuant to an agreement entered into .
. . (3) before the services are rendered, or pursuant to an established
plan followed . . . so consistently as to imply, in effect, an agreement
to make such payment. (underlining added)
The PHS Board concluded that while a bonus could be allowable for
"efficient performance," the $400 bonus here was unallowable since
it
was given for purposes of "tradition" or "past practice."
The PHS Board
found that there was no documentation that the administrator's
performance was "outstanding or efficient" during the period September
through December of 1981. (See March 20, 1984 PHS Board decision,
attached to Grantee's Notice of Appeal.) The PHS Board also noted that
an "established tradition" of annual bonuses was not synonymous with
the
"agreement" or "established plan" required under A-122.
/1/
Analysis
As stated, the PHS Board decision made little mention of the PHS
Policy Statement. However, both the PHS Grants Policy Statement and OMB
Circular A-122, B.6.h. apply. The PHS Grants Policy Statement applies
since it was incorporated by reference on the face of the "Notice of
Grant Award" document. OMB Circular A-122 applies through 45 CFR
74.174(a)(1982), and 45 CFR Part 74 was incorporated by reference on the
face of the grant award document. Section 74.174(a) states that the
principles used in determining allowable costs for nonprofit (4)
organizations (with certain exceptions not applicable here) are
contained in OMB Circular A-122. /2/ A bonus payment which failed to
meet the requirements of either the Grants Policy Statement or the OMB
Circular would be properly disallowed.
The PHS Board decision was that the bonus was unallowable because it
was given based on "past practice" rather than "efficient performance."
The December 14, 1983 minutes of the Director's meeting stated that the
additional 2% bonus was awarded because the administrator had not
received a bonus in 1981. Grantee stated this as the only reason for
the bonus in its January 12, 1984 letter to the Regional Office. Not
until the February 7, 1984 appeal to the PHS Board did Grantee state
that another reason for the bonus was that the administrator had done an
outstanding job. The PHS Board considered this additional reason but
was not persuaded. The PHS Board found nothing in the record to support
Goshen's new reason and noted that if the administrator had done an
outstanding job in 1981, that would have been the time to reward her.
The PHS Board's finding was not so unreasonable as to be clearly
erroneous. Thus, this Board has no basis to reverse the PHS Board's
conclusion that the bonus was unallowable under A-122 B.6.h. because it
was not awarded for efficient performance.
Nevertheless, under the provisions of A-122 B.6.h. the bonus would
still be allowable if it were made "pursuant to an established plan
followed . . . so consistently as to imply, in effect, an agreement to
make such payment." It was the PHS Board's conclusion that an
"established tradition" of bonuses was not synonymous with an
"established plan followed . . . so consistently as to imply, in effect,
an agreement to make such payment." Clearly, a tradition or practice of
bonuses is not necessarily the same thing as an established plan. The
record shows bonuses over a period of three years: two bonuses the
first year (1980), bonuses to all staff except the administrator the
second year (1981), and bonuses to all staff plus an additional $400 to
the administrator the third year (1982). The term "established plan"
could (5) reasonably be interpreted as something more formal than this.
Moreover, A-122 B.6.h. requires "consistent" application. The plan
just
described could reasonably be viewed as inconsistent. That was how the
Regional Office viewed it (November 14, 1983 disallowance letter,
attached to PHS Response of May 10, 1984). The page from Goshen's
disbursements journal showing that the administrator had received a
larger bonus than other employees in 1980 as well as in 1982 did not
prove consistency, as Grantee argued. The reaching back to award a
bonus for work performed in a prior year was also inconsistent with
Grantee's past practice. For these reasons, the PHS Board's conclusion
that there was no established plan or agreement under A-122 B.6.h. is
not clearly erroneous.
The Board's regulations require a party appealing the decision of a
preliminary review board, such as the PHS Board, to state why that
decision is clearly erroneous. 45 CFR 16.12(d)(2)(i). The grantee
here, however, stated in its appeal to this Board that its position
"(remained) essentially the same" and merely raised the four points
summarized below "in response to the Regional Office position. . . .":
1. The additional 2% bonus was for work performed for the 16 month
period September 1981 through December 1982, not just the 4 month period
September through December 1981.
2. Bonuses did not have to be paid periodically (e.g. quarterly or
annually). Rather, they could be paid anytime as warranted.
3. The $400 bonus was paid here because the administrator's position
held greater responsibility and deserved greater reward.
4. It was unfair of the federal government to disallow the $400
bonus on grounds that the bonus policy was not consistently applied when
there were many other federal policies which were not consistently
applied.
These four points were presented for the first time in Grantee's
appeal to this Board. After considering the arguments we conclude that
they do not establish that the PHS Board's conclusion was clearly
erroneous.
(6) The problem with the first two points is that they fail to
recognize that the record on its face contains a clear question as to
the reason Goshen awarded the $400 bonus. The PHS Board found after
examining the record that the $400 bonus was given merely because none
had been given the previous year for the four month period from
September through December 1981. Thus, the PHS Board reasonably
concluded that the bonus was for work performed during the four month
period and for work that Grantee could not document as efficient.
Even if point three were true, Grantee failed to document that the
administrator's work warranted the larger bonus here, and, in any event,
the administrator also presumably had the "greater responsibility"
in
1981 (although perhaps for a shorter period). Also, Grantee still
failed to show that it had an "established plan" which allowed for
greater reward to the administrator. Point four presents such a
generalized argument that it is not susceptible of any considered
response. Point four is not directly relevant or material here. In
short, these points do not persuade this Board that the PHS Board
conclusion was clearly erroneous.
Conclusion
Based on the foregoing, we conclude that the PHS decision was not
clearly erroneous, and we uphold that decision. /1/ The exact language
used by the PHS Board was that "an established tradition . . .
is not . . . synonymous with an established plan, formal policy, or
agreement. . . ." (underlining added) The words "formal policy"
do not
appear in A-122 B.6.h. but rather in the Grants Policy Statement. The
PHS Board decision stated that "(although) the PHS Grants Policy
Statement does not define 'bonus payments,' the cost principles (OMB
A-122 B.6.h) allows (sic) payment of incentive compensation. . . ." The
PHS Board then went on to discuss why the bonus was unallowable under
the provisions of A-122 B.6.h. without mentioning the Policy Statement
beyond the oblique reference noted above. /2/ The bonus was
awarded in December 1982. Prior to July 9, 1981 applicable cost
principles were found in 45 CFR Part 74, Appendix F. Thus, Appendix F
applied when the first bonuses were awarded. The provision covering
incentive compensation did not change.
NOVEMBER 14, 1984