GAB Decision 783
August 28, 1986
Northern Michigal Health Services;
Docket No. 86-95;
Audit Control No. 05-45251
Stratton, Charles E.; Teitz, Alexander G. Ballard, Judith A.
(1) The Northern Michigan Health Services, Inc. (grantee or
appellant) appealed the decision of the Public Health Service (PHS or
respondent) disallowing $10,412 in Community Health Center grant funds
paid to a physician already employed full-time in the National Health
Service Corps (Corps) for services performed in the capacity of
grantee's medical director. PHS based its decision on grounds that the
salary arrangement violated the terms of the applicable PHS Grants
Policy Statement (GPS) provision specifying conditions under which
salary payments by a grantee to a federal employee are allowable.
We uphold the PHS decision because grantee did not establish that
there
was no possibility of dual compensation, as required by the
GPS
provision. This decision is based on the written record,
including
documents submitted in an earlier appeal.
Background
This Board had previously remanded to PHS an earlier
disallowance
involving this same matter; the present appeal arose out
of the PHS
decision on remand. In the earlier case, PHS had asked the
Board to
rule on a single question which PHS contended was dispositive of
the
case: whether the undisputed fact that grantee did not obtain
PHS'
approval prior to making the salary payments from grant
funds
established that grantee had failed to comply with the applicable
GPS
provision. That provision reads as follows:
Federal (U.S. Government) employees. -- The following rules
apply to
payments made from a grant to Federal employees:
* * *
(2) 3. Salaries and travel: Allowable when the employee is:
a. Working under a grant to a Federal institution.
b. During nonduty hours, in leave-without-pay status, or
on detail
to a State or local government, provided (1) reimbursement is
in
accordance with terms mutually acceptable to the grantee institution
and
PHS, and (2) all parties concerned are assured that there is
no
possibility of dual compensation or a resulting conflict of
interest.
(1976) /1/
The Board ruled that the provision did not, as PHS had alleged,
preclude
PHS from granting approval retroactively. On remand, PHS
considered the
matter and issued a second decision. That decision again
disallowed the
salary payment, but this time on grounds that the salary
payment
violated specific GPS conditions. (See Respondent's April 18,
1986
decision letter.)
Arguments
PHS argued that item 3b of the applicable GPS provision contains
three
separate conditions, all of which must be met for the salary payment
to
be allowable:
1. The employee must be performing the work during nonduty
hours, or
on leave-without-pay status, or be on detail to a State or
local
government; and
2. Reimbursement must be in accordance with terms
mutually
acceptable to the grantee institution and PHS; and
(3) 3. All parties concerned must be assured that there is
no
possibility of dual compensation or a resulting conflict of
interest.
/2/
PHS concluded that it could not now approve the salary payment because
the
payment did not meet conditions two and three. PHS noted that,
although
the evidence was insufficient to determine whether the medical
director
duties were performed during nonduty hours (which would satisfy
condition
one), failure to meet any one of the conditions was a
sufficient basis for
the disallowance. /3/
With regard to condition two, PHS concluded that it did not consider
the
salary arrangement to be "acceptable." PHS cited two reasons for
this
conclusion. First, PHS argued that the salary arrangement
contravened
the PHS policy consideration that scarce Community Health Center
grant
funds be used for the program, rather than as a salary supplement to
a
federal employee who was already being paid a full salary. Second,
PHS
argued that the salary arrangement violated: (1) a federal
statute
prohibiting dual compensation (18 U.S.C. Sec. 209); (2) the Standards
of
Conduct for federal employees, which specifies that employees may
not
engage in any "outside activities" for an organization with
which
their(4) official duties are directly related (45 CFR
73.735.704); (3)
the Corps policy prohibiting "moonlighting"; and (4) a
contract between
the physician and grantee (referred to as "Principles of
Practice"), in
which the physician allegedly agreed not to contract privately
with
grantee until after completion of his Corps assignment.
PHS
acknowledged that the physician, not the grantee, violated
these
provisions. PHS emphasized that it was neither applying the
legal
remedies available under these provisions against the grantee
nor
concluding that the grantee violated these provisions. PHS stated
that
it was merely considering the provisions so as to determine whether
the
salary arrangement was acceptable. PHS concluded that it could
not
consider the arrangement acceptable since acceptance would condone
the
violations.
With regard to condition three, PHS argued, in effect, that it was
not
satisfied that there were adequate assurances that the
salary
arrangement did not result in dual compensation. PHS argued that
this
condition contained a very strict standard, insofar as even
a
possibility of dual compensation would be a violation. PHS argued
that
there was at least a possibility of dual compensation
under
circumstances such as those in this case, where the physician was
paid
for separate services rendered to the same organization and there
were
no time records showing when he performed which service. PHS
argued
further that if the medical director services were performed during
duty
hours there would be dual compensation since a doctor in the Corps
can
be required to spend up to 20% of his work hours, for which he is
fully
compensated by the Corps, on medical director duties.
Grantee argued that the salary payments were for "extra" hours worked
in
addition to the doctor's regular clinical duty hours and, thus,
there
was no dual compensation. Grantee also argued that PHS had
approved the
salary payment by approving the overall budget, which included
the
medical director salary as part of total expenditures in the
personnel
category. Grantee argued further that the disallowance was
senseless
since grantee was entirely dependent on federal funds, so making
grantee
repay any money would necessarily reduce its services, thereby
injuring
the medically underserved people the program was designed to
help.
Finally, grantee argued that PHS should recover the funds from
the
physician since, otherwise, grantee would have to pay twice for the
same
services.
Analysis
To comply with the requirements of item 3b, all three of its
conditions
must be met. Respondent's description (page 3 above) of
three necessary
conditions for compliance are consistent with (5) the Board's
reading of
the requirement. Moreover, grantee has not proposed an
alternate
reading (and there does not appear to be any reasonable one).
While we do not agree entirely with how PHS evaluated the conditions
in
this case, we conclude that the overall result was not unwarranted
under
the circumstances here. On one hand, PHS read certain
provisions
applicable to the physician in an overly narrow fashion, as though
they
established that there was, in fact, dual compensation or conflict
of
interest here. Moreover, in our view, there is some question
about
whether these provisions were intended to apply to the facts
here. On
the other hand, grantee had a burden to show that paying the
physician a
medical director salary, in addition to his salary from the
Corps, did
not constitute dual compensation. The GPS provision, as well
as general
principles intended to ensure that grant funds are expended
properly,
require this. (See, e.g., OMB Circular A-122, Att. A,
Sections 2.a. and
3.a., and Att. B., Section 6 (June 27, 1980).)
Grantee's primary substantive argument to show that there was no
dual
compensation was that the medical director salary was for extra
work
beyond the normal clinical duties of the other Corps physicians
working
for the same facility. In effect, grantee argued that its
assertion
proved that there was no dual compensation and, therefore, it would
be
unreasonable for PHS to withhold approval of the salary payment.
We do not agree. The mere unsupported assertion by grantee that
the
physician worked extra hours is insufficient to establish that, in
fact,
he did.
When the Board, in proceedings in the appeal of the first
disallowance,
requested additional information which might establish whether
or not
there was dual compensation, grantee's submissions were
inconclusive.
Grantee submitted the following:
(1) an agenda, minutes, and handouts from a January 12, 1982
meeting
of grantee's Board of Directors, showing that grantee was at that
time
negotiating with the doctor for a private contract under which he
would
be paid separate salaries for the medical director and clinical
duties
but would spend 80% on clinical duties and 20% on medical
director
duties;
(2) a May 20, 1982 letter from grantee's Project Director to
PHS,
requesting an extension of grantee's Corps assignment;
(6) (3) minutes from an August 10, 1982 Board of Director's
meeting,
stating that the Board would give the doctor a choice of
receiving
$10,000 as medical director or spending 20% of his time in
that
capacity; and
(4) minutes from an August 26, 1983 Board meeting, showing that
the
subsequent medical director of grantee organization was paid
$10,000
salary for that service.
(Board Docket No. 85-93, Att. to Appellant's September 16, 1985 letter)
While these documents give a general idea of the facts surrounding
the
doctor's employment, they do not establish that there was no
dual
compensation. At most, they establish that (1) the doctor was
planning
to leave the Corps and contract privately with grantee to perform
both
clinical and medical director duties; (2) grantee requested and
the
doctor received an extension of his Corps assignment with grantee
before
the contract was final; (3) grantee intended to give the doctor
the
option of spending 20% of his service time on medical director
duties
and receive only his Corps salary or receive an additional $10,000
for
the medical director duties; and (4)n the medical director salary
was
consistent with the amount grantee paid a subsequent medical
director.
That there was no dual compensation does not necessarily
follow.
Indeed, these documents support PHS' assertion that the physician
could
have performed the medical director's duties by devoting only 80% of
his
time to clinical duties -- an arrangement which could have been
required
under his commission with the Corps.
In its decision on remand, PHS indicated the type of evidence
grantee
would need to establish that the medical director services
were
performed in nonduty hours and there was no dual compensation.
PHS
specifically mentioned time sheets, a written contract,
or
correspondence setting forth when the different services would
be
performed. On appeal to this Board, grantee admitted that it had
no
time sheets to establish that the medical director services
were
performed during additional work hours. (See Grantee's June 17,
1986
submission, p. 2.) Moreover, grantee offered no additional
documentation
whatsoever to support its assertions. Affidavits by the
physician
himself or others with first-hand knowledge of the facts were
certainly
not impossible to obtain. While we do not question the
credibility of
the grantee's present executive director who presented
grantee's case,
he admittedly was not hired until after the period involved
here and had
no first-hand knowledge of the facts. (See Board Docket
No. 85-93,
Respondent's letter of July 11, 1985, Exhibit A.)
(7) Grantee's only other substantive argument was that PHS had
already
approved the salary payment by approving the overall budget.
The
language of grantee's argument makes clear that the salary item
in
question was not specifically identified in the budget. Grantee
stated:
. . . as we are not aware of any regulation requiring approval
of a
specific expenditure in the personnel category . . . a case can be
made
it seems that in fact approval was granted by virtue of approval of
the
overall budget.
(See Appellant's June 17, 1986 submission, p. 1 (emphasis added).)
Moreover, grantee did not cite to any budget document
separately
identifying the salary item, and the budget documents presented in
the
previous appeal reveal no such separate item. Also, grantee stated
that
it had no evidence of specific prior approval.
Grantee's argument has a certain facile logic: approval of a
general
item would appear to also mean approval of a specific item included
in
the general. But the logic does not hold up here, since there is
no
evidence that the specific item (the medical director salary)
was
identified in the general item (the overall budget). Moreover, even
if
it were, there is no evidence that PHS was aware of the fact that
the
salary would be paid to a federal employee.
We conclude that blanket approval of the overall budget does not
establish
PHS approval of the specific salary payment, which the record
here does not
establish to have been separately identified in the budget
and which is
unallowable under other applicable PHS principles.
Grantee's remaining arguments attempt to provide an equitable basis
for
overturning the disallowance even if, technically, all the conditions
of
item 3b were not met. We find the arguments unpersuasive.
The fact that the grantee exists only to operate this federal
project
which is fully federally funded does not provide a basis for
reversing
the disallowance. In accepting federal funds, an organization
runs the
risk that, if those funds are misspent, the grantee may have to
find
another source of funds to repay the federal government. As PHS
noted,
grantee's reasoning on this point is faulty, since it would arguably
be
a basis for excusing any misuse of federal funds in a project of
this
type.
(8) The fact that there may have been alternate remedies against
the
physician does not provide a basis for reversing the
disallowance
either. While certain of the standards of behavior which
influenced PHS
in its decision here apply to the physician and not to the
grantee, the
grantee did have notice through the GPS provision that the
salary
payment would be allowable only if the listed conditions were
met.
Thus, it was incumbent on the grantee to be able to show, among
other
things, that the salary payment did not constitute dual
compensation.
Finally, we note that the record shows that the physician asked
that
payment of the medical director salary be deferred (with interest)
until
after his Corps assignment was completed; this should have
caused
grantee to inquire further. Perhaps grantee then would have
discovered
a basis for questioning the arrangement and have asked PHS for
advice.
Conclusion
Based on the foregoing, we uphold the disallowance. /1/ The parties
did
not dispute the applicability
of this provision. Moreover, as
discussed at page 3 of the Board's decision
remanding the initial PHS
disallowance, the provision was a term of the
grant. (See Northern
Michigan Health Services, Decision No. 705,
November 21, 1985.)
/2/ PHS specifically concluded that item 3a did not apply
because
grantee was not a federal institution (but rather a private
nonprofit
corporation). (See Respondent's April 18, 1986 decision
letter, p. 2.)
Grantee did not dispute this or allege that the payment was
allowable
under the terms of
3a. /3/ The only issue with
regard to
condition one was whether the physician performed the medical
director
services during nonduty hours. Grantee never alleged that the
physician
was in a leave-without-pay status or on detail to a state or
local
government. PHS stated that, even if there had been documentary
evidence
which showed that the medical director duties were performed
during
separate hours from clinical duties, a Corps doctor technically is
on
duty 24 hours a day and, thus, has no nonduty hours. We note,
however,
that the materials which PHS submitted in support of this indicate
only
that Corps doctors are subject to call to duty 24 hours a
day.
Respondent's Ex. C. 394 APRIL 25, 1987