DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: National Health Plan, Inc.
Docket No. 86-160
Audit Control No. 03-50350
Decision No. 871
DATE: May 27, 1987
DECISION
National Health Plan, Inc., (NHP) appealed the decision by the Ad
Hoc
Review Committee of the Health Resources and Services
Administration
(HRSA) to disallow certain costs charged to grants awarded to
NHP, under
section 330 of the Public Health Service Act, for the operation of
two
community health centers. The Department of Health and Human
Services
Office of the Inspector General, Office of Audit (OIGOA), audited
NHP's
accounting systems and internal controls and determined that
NHP
frequently disbursed grant funds without proper authorization
or
documentary support. OIGOA also found that NHP had made
disbursements
in violation of its own written policies and by-laws.
OIGOA identified
$278,762 in expenditures that were made improperly or
without adequate
support.
As provided for in 42 CFR 50.401 through 50.406, NHP appealed
OIGOA's
findings to HRSA's Ad Hoc Review Committee. As explained in
greater
detail below in the section on calculations and in the appendix to
this
decision: (1) in reviewing the Ad Hoc Committee's decision we
determined
that $98,807 of the expenditures were allowable, and (2) the
parties
disagreed on how much of the questioned $278,762 NHP appealed to the
Ad
Hoc Committee and how much of the disallowance is properly before
this
Board.
The Board's review of this appeal was complicated by calculation
errors
and HRSA's relying, for the most part, on findings made by OIGOA and
the
Ad Hoc Committee rather than replying substantively to the arguments
NHP
presented to the Board. The Board therefore undertook a
thorough
examination of the underlying record and based its conclusions on
an
independent analysis of the record and relevant regulations.
We have determined that $120,931 in disputed costs are properly
before
this Board. This amount represents payments for the following
items:
executive functions performed by NHP's board chairman, unused
vacation
time, excessive audit fees, management services and special studies,
and
plant consultant fees. Other disallowed costs totalling $50,524 are
not
properly before this Board because NHP failed to raise these items
in
its Request for Review before the Ad Hoc Committee. Board
regulations
at 45 CFR 16.3 require an appellant to have exhausted any
preliminary
appeal process required by regulation before appealing to the
Board.
Furthermore, 42 CFR 50.403 requires that all informal
appeals
procedures, such as the Ad Hoc Committee, must be exhausted before
a
formal appeal to the Board is allowed. NHP's failure to challenge
these
items at the Ad Hoc Committee appeal stage precludes the Board
from
considering them here.
For the reasons set forth below, of the $120,931 at issue here, we
sustain
the disallowance of $116,561, and we reverse the disallowance of
$4,370.
Calculation Issues
The OIGOA review questioned $278,762 in NHP expenditures as
either
improper or without adequate support. As noted above, there are
some
questioned costs where the parties disagree on the amount NHP
appealed
to the Ad Hoc Review Committee and on the amount now properly
appealed
to this Board. Our review of the record revealed both
possible
calculation errors and other differences between the parties'
statements
of the amounts in dispute. Consequently, the Board issued an
Order to
Develop the Record which addressed many of these calculation matters
in
order to evaluate NHP's arguments and determine the correct
amounts.
Below is a summary statement of our analysis. The appendix to
this
decision gives a more detailed analysis with explanations of the
reasons
for our conclusions.
Summary statement of Board's analysis of the calculation issues
$ 278,762 Costs questioned by OIGOA
<8,500>
Amount by which disallowance of full amount of
questioned costs
was overstated ___________ 270,262
Adjusted disallowed costs
<50,524>
Disallowed costs not appealed to the Ad Hoc
Committee and thus not
appealable in this proceeding
___________
219,738
Disallowed costs covered by Ad Hoc
Committee Determination
<98,807>
Questioned costs allowable under Ad Hoc
Committee Determination
$
120,931
Disallowed costs properly appealed to this
Board
Payment to Former NHP Board Chairman for Executive Functions ($19,860)
HRSA disallowed $19,860 paid by NHP to its board chairman.
HRSA
referred to NHP's own bylaws and 42 CFR 51c.107 as grounds
for
disallowing this item. Article VI, Section 9, of NHP's bylaws
states:
Compensation. Directors as such shall not
receive any stated
compensation for their services
but by resolution of the Board may
be reimbursed for
their expenses of attendance at meetings of the
Board. Such compensation, if any, shall be limited to
reasonable
and actual expenses incurred by any said
Director.
Section 51c.107 of 42 CFR (1982) provides that project funds awarded
under
section 330 of the Public Health Service Act may be used for
the
reimbursement of a grantee's governing board for only
reasonable
expenses actually incurred by reason of their participation in
board
activities.
In June 1982 NHP's president, at the request of the board
chairman,
redeemed a certificate of deposit and gave the board chairman a
check,
in the amount of $19,860.98, made out to NHP. The board
chairman
deposited the check in the NHP account. One week later the
board
chairman directed a NHP board member to draw a check payable in
the
amount of $19,860.98 to the board chairman.
In January 1983, the NHP board's Executive Committee requested
the
chairman to justify his receipt of the $19,860. The
chairman's
subsequent inability or refusal to supply documentation supporting
his
claim that the money was due him as "partial payment for
professional
services and expenses accrued while performing executive
functions in
his capacity as acting executive director for NHP's
predecessor
organization" (Appeal File, Ex. 16) ultimately led to the
chairman's
resignation from NHP on March 30, 1983. After the
resignation NHP
continued to seek information from its former chairman, but
he never
provided the requested material. Ultimately NHP initiated
legal
proceedings against the chairman to recover this payment.
Appellant's
Brief, p. 1.
In its arguments before this Board NHP stressed that the chairman did,
in
fact, perform "executive functions" for NHP's board that exceeded
his
responsibilities as board chairman. NHP argued that in addition
to
fulfilling the responsibilities of a board director as listed in
the
Bureau of Health Care Delivery and Assistance's Governing
Board
Handbook, the chairman carried out such executive functions as
the
negotiation of an agreement with the District of Columbia Department
of
Human Resources, the hiring of medical directors, making
personnel
evaluations, the preparation of NHP's budget, and the mediation of
a
claim against NHP. NHP concluded that as a result of all
these
"executive functions" which were beyond the scope of his duties as
a
board director, the chairman was entitled to the $19,860.
We find little merit in NHP's contentions. While we acknowledge
NHP's
somewhat contradictory position in that it has initiated legal action
to
recover the $19,860 from the former chairman yet defended the
chairman's
receipt of the funds before this Board, we cannot overlook the
fact
that, even before HRSA sought to disallow the funds, NHP
itself
questioned the chairman's receipt of the funds, and, when no
supporting
documentation was presented by him, requested his
resignation. It is
apparent that those members of NHP Board of
Directors most familiar with
the daily operations of NHP saw no justification
for the chairman's
receipt of these funds.
NHP's claims that the chairman deserved the funds for
"executive
functions" beyond the scope of duties listed in Governing Board
Handbook
are not convincing. First, there is sparse documentation other
than the
recorded minutes of NHP Board of Directors meetings to support the
claim
that the former chairman performed such functions. We find
these
recorded minutes to be inadequate, as they are unaccompanied by
any
independent verification by date, time, or place of the
chairman's
participation in such activities. Nor has there been any
documentation
produced for any negotiated fee or payment to the chairman for
each of
the services he allegedly performed. The Board has repeatedly
held that
a grantee has the obligation to provide documentation to support
all its
claims. See, e.g., New York State Department of Social
Services,
Decision No. 204, August 7, 1981.
Even if NHP were able to produce additional documentation supporting
the
chairman's participation in these activities, however, the
record
contains no support for the conclusion that these alleged
"executive
functions" were beyond the normal purview of the duties of a
chairman of
the community health organization. Moreover, there is no
evidence to
show that the chairman had been hired by NHP to perform these
functions.
Notwithstanding the Governing Board Handbook, we find such actions
as
hiring, personnel evaluations, budget preparation, and the like to
be
presumably within the ambit of the chairman's responsibilities
unless
there is concrete evidence to the contrary.
Accordingly, we sustain the disallowance of the $19,860 paid to
NHP's
former chairman.
Unused Vacation Time ($22,837)
HRSA disallowed payments by NHP of $10,694 to its president and $12,143
to
other employees for unused vacation time. HRSA cited NHP's
written
policies and procedures requiring that vacation time must be used
or
lost as the basis for disallowing this item. With regard to
the
president, OIGOA noted that he also received payment for 120 hours
of
unused leave that he did not have coming to him.
NHP responded that the $22,837 for unused vacation time
represented
compensation for employees who were required to work during
their
allotted vacation time. NHP explained that, while there was no
written
policy for unused vacation, NHP's usual policy was that if an
employee
were unable to take a vacation, the employee would be paid for
it. NHP
pointed out that HRSA has approved NHP's paying an employee at
overtime
rates for working beyond normal business hours. It questioned
why HRSA
would then disapprove of NHP's paying other employees at their
regular,
lower base rate for working during their vacations.
NHP's vacation policy, as stated in its Personnel Policies (Appeal
File,
Ex. 3, p. 4), is as follows:
VACATION TIME. All new full time employees who are
eligible
for leave benefits will receive one (1) week of
vacation time
after the first six (6) months of
employment. This vacation
time must be used during the
second six (6) months of
employment. After the first year
of service and on each
anniversary date thereafter, (date one
year following entrance
on duty date) an employee will receive
two (2) weeks of
vacation time to be used for that year.
This time must be
used before the next anniversary date.
Vacation time is
noncumulative and must be used or lost before
each new
anniversary date. If she/he would like his/her
vacation pay
before he/she leaves on vacation, he/she must
inform the
Personnel Office at least two (2) weeks in
advance. (Emphasis
added)
An NHP employee must therefore either use his vacation time or
forfeit
it. No mention is made in the Personnel Policies of paying an
employee
for working during his vacation. NHP has furnished no evidence
of any
necessity or emergency that required an employee to work during
his
allotted vacation time. To allow payment for unused vacation time
would
result in a supplementation of an employee's base salary beyond
the
amount approved by HRSA. Paying employees for unused vacation
time
would therefore result in amounts in excess of what NHP budgeted
for
salaries, an excess which must be taken from resources budgeted
for
other program objectives.
We find no contradiction in HRSA's having approved overtime time for
other
employees. NHP's Personnel Policies specifically provide for time
and a
half for all compensation worked over 40 hours a week. Appeal
File Ex.
3, p. 2. Furthermore, in approving the overtime, HRSA
specifically
noted that "the overtime was a legitimate expense, given
the additional
workload created by the processing of refugees." Ad Hoc
Commission
Decision, p. 3.
As NHP has not provided any justification for allowing its employees
to
increase their salaries by forfeiting their vacations, we sustain
the
disallowance of $22,837 for unused vacation time.
Excessive Payment for Audit Fee ($16,500)
For a 1982 audit of its operations, NHP paid an auditor $33,000.
According
to HRSA, this payment exceeded bids made by two other
qualified accounting
firms by $16,500. HRSA accordingly disallowed the
excess amount.
NHP questioned HRSA's conclusion that the $33,000 fee paid the auditor
was
excessive. While acknowledging that the bids from two other
accounting
firms for the 1982 audit were for $15,000 and $16,500 (Appeal
File, Ex. 7),
NHP contended that those bids included only the costs of
professional
services and not the cost of expenses associated with
performing an
audit. NHP further argued that those bids were only
estimates, with
actual costs possibly rising due to unanticipated delays
or
difficulties. NHP claimed that unanticipated delays in completing
the
audit did in fact occur because manual, rather than automated,
accounting
processes were used by NHP. NHP concluded that, in light of
these
facts, HRSA was unreasonable in asserting that all of the $16,500
represented
an excessive expenditure of program funds. NHP requested
the Board to
remand this issue to HRSA for further determinations as to
what portion, if
any, of the $16,500 was excessive given the
difficulties in completing the
audit.
We do not think that a remand is warranted here. We view the facts
of
this issue as clearly supporting a finding that the amount paid to
the
auditor was excessive. NHP, a Washington, D.C.-based program,
rejected
the bids of two reputable local accounting firms. Instead, NHP
chose a
one-man firm from Chicago. We find that HRSA was not
unreasonable in
comparing the cost of his services to the bids made by the
local
accounting firms. Attachment O of Office and Management Budget
Circular
A-110, set forth at 45 CFR Part 74, Appendix H, 3.b., provides,
with
regard to procurement transactions:
Awards shall be made to the bidder/offeror whose
bid/offer is
responsive to the solicitation and is
most advantageous to the
recipient, price and other
factors considered.
While the above is not a requirement that a grantee must always accept
the
lowest bid, it does indicate that price should be considered. Here
NHP
paid a price that was not just marginally greater than the competing
bids,
but a price that was 100% greater. We also note that the NHP
chairman,
who authorized the payment to the auditor, also lived in
Chicago and,
according to NHP, knew the auditor, which suggests that the
choice of an
auditor was not the result of an "open and free
competition" as required by
OMB Circular A-110, Appendix H, 3.b.
As to NHP's contention that the other accounting firms' bids were
mere
estimates and their actual costs might have been much higher,
we
consider this argument pure speculation on NHP's part. While NHP
argued
that out-of-pocket expenses associated with the performance of the
audit
might have driven up the cost of the audit, on the basis of the
record
before us there is no better measure to evaluate the reasonableness
of
the $33,000 expense than the unsuccessful bids. NHP's position in
this
regard is further undermined by the fact that, while it was able
to
supply the Board with the bids of the unsuccessful competitors, it
never
furnished the Board with the auditor's successful bid or NHP's
contract
with the auditor. Without the contract terms to establish the
nature of
the audit services and the basis for the billings resulting in
the
$33,000 payment, there is no basis for concluding other than that
the
payment was excessive by $16,500. We conclude that NHP, in light
of
these omissions in its case, has not proved that a remand is
warranted
and we sustain the disallowance of $16,500 for this item.
Management Services and Special Studies ($56,734)
HRSA disallowed additional payments made by NHP to its auditor
for
"management services" and "special studies." HRSA disallowed the
former
because, although NHP provided a list of the management
services
provided by the auditor, sufficient documentation was not presented
to
ensure that the services were actually performed. HRSA also
maintained
that a local firm could have performed the same services at a
lower
cost. Concerning the "special studies," HRSA stated that NHP
failed to
supply sufficient documentation for these payments, provide a
product to
support the charge, and list or identify the subjects for which
fees
were paid.
NHP disputed HRSA's finding that there was inadequate documentation
to
support the payments to the auditor. NHP attacked HRSA's belief
that
the management services could have been procured locally at a
lower
price as speculation unsupported by any evidence. NHP pointed to
a list
of management services provided by the auditor (Appeal File, Ex. 19,
Tab
F). NHP also questioned whether HRSA was demanding a more
detailed
documentation than is required by 45 CFR 74.61(b) and (g).
These
regulations require a grantee to maintain records which
identify
adequately the source and application of funds for program
activities,
with the records to be supported by source documentation such
as
cancelled checks and paid bills. NHP claimed that it had submitted
such
documentation. Appeal File, Ex. 19, Tabs H, I, and J.
This
documentation, according to NHP, showed that the auditor had
performed
management services and special studies which were reasonable for
the
performance of NHP's grant award.
While it is true that NHP has supplied some documentation in support
of
these items, that documentation is not sufficient to justify the
entire
amount of these payments to the auditor. The documents supplied
by NHP
are for the most part general references which are insufficient
to
justify these costs; the dates, time, billing rates, etc., have not
been
furnished. There has been no showing that this is a common,
acceptable
method of supporting such billings. Moreover, as detailed in
the
summary of checks paid to the auditor (Appeal File, Ex. 19, Tab G,
p.
2), the fees paid in the fiscal year ending May 31, 1982
appear
unreasonably high in comparison to previous periods.
NHP has made no showing that it was a reasonable and necessary expense
for
the program to seek an auditor for these management services and
special
studies. Furthermore, there has been no showing that NHP
contracted by
means of a competitive bidding process for the performance
of these
activities. Once again, there appears to be a suggestion of
less than
arms-length dealing between the board chairman and the
auditor.
We also find, however, that NHP's proffered documentation does support
a
portion of two of the payments. Two invoices from the auditor
(Appeal
File, Ex. 19, Tabs H and I) each list three separate services, with
a
lump sum balance due, $3,784 and $3,500 respectively, and no
individual
cost breakdown for the services. The services listed on one
invoice
are: "Preparation of Audit Report and Management letter from
the Fiscal
Year ended May 31, 1981"; "Preparation of Form 990 Return
of
Organization Exempt from Income Tax for the Fiscal Year ended May
31,
1981"; and Management Services for the month of March 1982." The
other
invoice lists the following services: "Preparation of the Form
990
Return of Organization Exempt from Income Tax for fiscal year ended
May
31, 1980"; "Preparation of Management letter for fiscal year ended
May
31, 1980"; and "Management services for the months of
September,
October, and November 1980."
The Request for Review (Appeal File, Ex. 19, pp. 14-15) pointed out,
and
HRSA did not deny, that OIGOA did not question the legitimacy of
the
first two items on each invoice (Appeal File, Ex. 19, Tab G), yet
the
total payments were disallowed. The Request for Review protested
this
overly inclusive approach, and suggested that if HRSA should decide
to
deny expenditures on the third item on each invoice,
management
services, HRSA should disallow only a certain percentage of the
two
payments. The Request for Review made a formal proposal that, of
the
combined $7,284 payments on the invoices, there be a 40%
disallowance
($2,914) and a 60% allowance ($4,370).
We have found nothing in the record to indicate that HRSA ever
responded
to this proposal. In the absence of an alternate valuation
for the
payment of the recognized services performed by the auditor, we
reverse
the disallowance of $4,370 for these services, but sustain
the
disallowance of the remainder of the fees paid the auditor.
Payment to Maintenance Consultant ($5,000)
In November 1982 NHP issued a check for $5,000 to its former
plant
maintenance consultant. According to OIGOA, this payment was made
on
the specific instructions of NHP's board chairman, even though
the
consultant had already been paid his regular fee up to the date
his
services were terminated. OIGOA found no documentation to support
or
otherwise explain the payment. In disallowing the $5,000,
HRSA
additionally found that NHP had failed to follow recommended
procedures
for contracting for plant maintenance services, and never
provided
evidence that any contractual agreement ever existed for
providing
maintenance services.
NHP responded that the purpose of the $5,000 payment was to resolve
a
claim that the consultant had asserted against NHP for $15,585
pursuant
to his employment contract. NHP provided a note from its
president
(Appeal File, Ex. 19, Tab U) and a statement from the consultant
(Appeal
File, Ex. 19, Tab T) as evidence for its assertion. NHP claimed
that
the payment should be upheld because it resolved the consultant's
claim
prior to the filing of a lawsuit, therefore saving NHP litigation
costs
and attorney fees.
Although HRSA failed to address the Board's question in its Order as
to
whether NHP's proffered documentation adequately supported the
payment,
we find that NHP has simply not justified this payment.
Despite having
submitted a voluminous appeal file to the Board, NHP has not
produced
any substantive documentation concerning its contract with
the
consultant. NHP has not provided the contract, explained how it
was
awarded, or detailed its provisions. Above, we detailed how a
grantee
must be able to document its claims and follow the standards set
forth
in OMB Circular A-110 in awarding contracts. Those guidelines
also
apply here. Not being able to produce the contract itself, a
minimum
showing, calls into question the credibility of NHP's position.
The two
documents furnished by NHP do not establish that any contract
ever
existed. In these circumstances, we must sustain HRSA's
disallowance of
the $5,000 payment.
Conclusion
For the reasons stated above, of the $120,931 in disputed costs
before
this Board, we sustain $116,561 of the disallowed costs, and we
reverse
the disallowance of $4,370.
________________________________ Norval D. (John) Settle
________________________________ Alexander G. Teitz
________________________________ Cecilia Sparks Ford Presiding
Board
Member
Appendix
Costs questioned by federal auditors (Audit Report, p. 3) $278,762
Recognized by auditors as adjusted <2,500> 1
Amount duplicated in questioned costs <6,000> 2
Adjusted disallowed costs $270,262
Disallowed under Not
Appealed Allowed under Ad Hoc
Ad Hoc
Committee to Ad Hoc Committee
Decision
Decision
Committee $80,512
3 $ 19,860 5
$
6,500 7 10,694 5
6,500 7 12,143 5 9,615 7
12,000
4
56,734 6 7,109 7,8 6,295
4
16,500 5
______ _ 5,000 5 20,800 9
$98,807
$120,931
$50,524
Explanatory notes for Appendix
1. $2,500 downward adjustment to the disallowed amount.
Although the audit report identified $278,762 in improper
or
inadequately supported expenditures (Audit Report,
Appeal File, Ex.
19, Tab B, p. 3), the auditors found that
"the Plan made an
adjustment for the $2,500 duplicate
payment to the plant engineer"
and recommended a further
adjustment for $276,262 ($278,762 -
$2,500) in questioned
costs (Audit Report, p. 11). Although there
is no
dispute as to whether this adjustment was actually made,
the
initial December 20, 1985 disallowance determination,
as well as
other documents in the record, reflect,
erroneously, the higher
questioned costs figure.
2. $6,000 downward adjustment to the disallowed amount.
OIGOA questioned $86,512 in contingency fund expenditures
and a
$12,000 payment made in 1982 to the NHP auditor for
a 1975 audit.
There was a $6,000 duplication between these
questioned expenditures
resulting in an overstatement of
the questioned costs. Audit
Report, p. 3 (noting
that the contingency fund questioned
expenditures included
$6,000 paid to the auditing firm); Appellant's
Brief, pp.
8-10; HRSA Response to the Board's Order to Develop the
Record, Question 3; and Appellant's Reply to HSRA's Response to
the
Board's Order to Develop the Record, pp. 2-3.
3. $80,512 allowed under Ad Hoc Committee Decision.
The NHP Request for Review and the Ad Hoc Committee
Decision both
state the amount of disputed contingency
fund expenditures as
$80,312. Appeal File, Ex. 19,
p. 9, and Appeal File, Ex. 21, p. 1.
The Ad Hoc Committee,
however, determined that NHP "should not be
accountable to
HRSA" for the contingency fund expenditures since the
fund
monies "did not constitute program income." Appeal File,
Ex.
21, p. 1. NHP asserted that it had erroneously
listed $42,200 in
questioned contingency fund payments to
the former NHP president as
$42,000 when it described the
contingency fund expenditures in its
Request for
Review. Although HSRA argued that this misstatement
results in a proper disallowance of the omitted $200 as an
unappealed expenditure, we do not agree. This $200 was not
from
funds for which NHP is accountable to HRSA. The
funds ultimately
disallowed and recovered by HRSA cannot
properly include an amount
inconsistent with HRSA's own
finding on the merits. Consequently,
we have
concluded that the amount of contingency fund expenditures
allowed under the Ad Hoc Committee Decision properly includes
this
$200. Appellant's Brief, pp. 8-10; HRSA's
Response, p. 3; Board's
Order to Develop the Record,
Question 2(a) and HRSA's response and
NHP's reply to that
question.
4. $12,000 and $6,295 allowed under the Ad Hoc
Committee
Decision.
The $12,000 payment in 1982 to the NHP auditor for a 1975
audit and
the $6,295 payment to various NHP employees for
overtime work were
specifically found allowable by the Ad
Hoc Committee. Appeal File,
Ex. 21, pp. 2-3.
5. Amounts disallowed under the Ad Hoc Committee Decision where
there
is no dispute that the amounts are properly appealed to this Board.
$19,860 Payment
to NHP board chairman for
executive functions
$10,694 Payment
to NHP president for
unused vacation time
$12,143 Payment
to employees for unused
vacation time
$16,500 Payment
to auditor alleged
excessive
$ 5,000 Payment
to plant maintenance
consultant
Appeal File, Ex. 21.
6. $56,734 disallowed as improperly paid to the NHP auditor
for
management services and "special studies."
The Ad Hoc Committee decision construed NHP's request for
review as
appealing only $36,534 in payments for
management services and
$11,200 in payments for "special
studies" rather than appealing the
full $56,734.
That decision then disallowed $47,734 ($36,534 +
$11,200)
for improper payments to the NHP auditor. Appeal File,
Ex.
21, pp. 1-2. Before the Board, HRSA argued that
the $9,000
difference was "unappealable." HRSA
Response to the Board's Order
to Develop the Record,
Question 6. However, NHP asserted that the
audit
workpapers identified actual expenditures for management
services and/or "special studies" totalling only $47,734 so that
the
additional $9,000 should either be allowed or remanded
to the Ad Hoc
Committee since the record stated no basis
for a further
disallowance. NHP Reply to HRSA
Response to the Board's Order to
Develop the Record, pp.
6-7. NHP explained its conclusion this way:
The invoices which list "management
services"
between June 1, 1980 and May
31, 1982, total
$36,534. In
addition, the OIG's initial cost
disallowance of $32,700 for special
studies
included $21,500 that was
included in the $36,534
amount for
management services. This leaves
only
$11,200 attributable to payments
for "special
studies." This
amount, together with the $36,534
for
management services, totals $47,734, or
$9,000
less than the amount claimed for
this expenditure
by the OIG.
Appellant's Brief, pp. 10-11.
Although the Board's Order asked that HRSA explain how it
arrived at
the $56,734 amount, HRSA only restated the
summary figure and
referenced the federal audit
report. NHP has also not provided a
breakdown by
invoice or payment for its figures, apparently relying
instead on the figures and analysis stated in the Request
for
Review. See Appeal File, Ex. 19, pp.
13-17.
The two questions before the Board are (1) whether the
federal audit
workpapers substantiate the full $56,734
diallowance and (2), if so,
whether NHP requested review
only of $47,734.
As we explain below, our review of the audit
workpapers
substantiates questioned costs for management
services and/or
"special studies" of $56,734. Also,
we conclude that while the
Request for Review both
contained some calculation errors and was
apparently
misconstrued by the Ad Hoc Committee, it nonetheless
stated a sufficiently clear request for review of the full
amount
disallowed.
The audit workpapers consist of two pages analyzing
payments to the
NHP auditor. Appeal File, Ex. 19,
Tab G. The first page lists
payments to the auditor
by NHP fiscal year. The payments are
categorized and
total payments calculated for each fiscal year by
category. The categories relevant here are those for
management
services, "special studies," and split (for
both management services
and "special studies"). The
audit workpapers show the following
payments:
Management services Special Studies Split
FYE 5/31/81 $
2,000
$
1,500
$ 3,500
3,000
3,500
_______
2,000
2,500 $
2,000
$
6,500
$ 9,500
FYE
5/31/82
$
2,500
$ 1,200
$ 3,000
3,000
3,000 3,784
2,500
3,250
4,000 3,000
_______
_______
3,000
$12,534
$ 1,200
$18,500
FYE
5/31/83
$ 3,500
$ 3,000 $
3,500
$ 3,000
Totals
$
2,000
$ 6,500
$ 9,500
12,534
1,200
18,500
_______
3,500
3,000
$14,534
$11,200
$31,000
There are dates stated for each item and there is no
apparent
duplication of the payment amounts between the
categories. The
combined total of the questioned
costs for the three fiscal years
is:
$14,534
management services 11,200
special studies
31,000 split $56,734
The second page of the audit workpapers, which contains a
summary
both of all the payments to the auditor and of the
questioned
charges, restates these same totals for each of
the relevant
categories. Thus, the audit workpapers
substantiate the full
disallowance amount.
The Request for Review references the audit report and
states
unequivocally that NHP disagrees with the OIGOA
challenge to
payments to the auditor for management
services and/or special
studies. The record contains
many, although not all, of the
invoices pertaining to the
questioned payments. There is no
indication from the
record of any intent by NHP to exclude any
particular
payment from the Request for Review. The Request for
Review, however, erroneously calculates the disallowed payments
for
management services for the years ending May 31, 1981
and May 31,
1982 as $36,534. (NHP's request also
references documentation
supporting these management
services. Appeal File, Ex. 19, Tab F.)
However, the
payments for those fiscal years for management services
(including those also for special studies) actually totalled
$42,534
($2,000 + $12,534 + $9,500 + $18,500) and the
split payments for
those two years totalled $28,000 (not
$22,000 as the Request for
Review calculated).
For the fiscal year ending May 31, 1983, there were no
payments for
management services alone. The totals
of special studies payments
and split payments was
$6,500. The special studies payments for the
fiscal
years ending May 31, 1981 and May 31, 1982 totalled
$7,700.
The invoices pertaining to these payments are in
the record and NHP
argued in its Request for Review that
the payments were adequately
documented by the
invoices.
The payments explicitly covered in the NHP Request for
Review
totalled $56,734 ($42,534 + $6,500 + $7,700).
Thus, we conclude
that the Request for Review should be
construed to cover the full
amount disallowed.
Moreover, while the Ad Hoc Committee's decision
reflected
NHP's apparent calculation errors, the reasons stated for
disallowing the payments for management services and
"special
studies" are quite broad and do not single out
specific payments or
invoices for analysis.
Accordingly, we also conclude that the
$56,734 was
disallowed under the Ad Hoc Committee decision and was
properly appealed to and considered by this Board.
7. Amounts disallowed under the Ad Hoc Committee Decision where
there
is no dispute that the amounts have not been appealed to this
Board.
$6,500
Undocumented payments to NHP
chairman from general
account
$6,500
Undocumented payments to auditor
from general account
$9,615
Salary advances and loans to NHP
president
$1,359
$1,359 of the $7,109
for
payments to a
medical director
8. $5,750 of the $7,109 in payments to a medical director
where,
although not reviewed by the Ad Hoc Review Committee, NHP seeks
review
by this Board.
This amount was a salary payment for December 1982 to the
NHP
medical director. NHP asserted that this was an
allowable cost and
urges its consideration by this Board
"[i]n light of the confusion
surrounding the actual amount
of the disallowance." Appellant's
Brief, pp.
12-13. Despite the obvious confusion over disallowed
amounts present in this case, there is no question that there
were
certain expenditures not appealed in the NHP Request
for Review.
The auditors had determined that NHP had hired
this medical director
without the requisite HRSA approval
and questioned this payment.
Appeal File, Ex. 19, Tab B,
p. 6. This payment is not included in
the
substantive arguments made by NHP in its Request for Review
and
is not an expenditure included in NHP's summary of
costs asserted to
be allowable. The disallowance of
this expenditure was clearly not
contested in the Request
for Review and may not be appealed to this
Board.
Appeal File, Ex. 19, pp. 29-30, and 42 CFR 50.403.
9. $20,800 not reviewed by the Ad Hoc Committee but NHP seeks review
by
this Board.
The auditors found this $20,800 payment for painting
contractor
expenses authorized by the NHP president to be
unsupported. This
expenditure was not addressed by
the substantive arguments in the
Request for Review and
not included in the summary of costs asserted
to be
allowable. This payment was not among those
expenditures
appealed in the Request for Review, Appeal
File, Ex. 19, pp. 29-30.
NHP asserted in this proceeding
that the disallowance should be
reduced by this amount
since NHP had made an adjustment prior to the
federal
audit so that this payment was not charged to federal
funds.
Appellant's Brief, pp. 6-7. While it appears
possible that there
was an adjustment to no longer charge
this questioned payment to
federal funds, the record is
inconclusive on this point due to NHP's
own conflicting
audit reports. Appeal File, Ex. 11; NHP Reply to
HRSA Response, pp. 2-3; Appellant's Reply to HRSA's Response to
the
Board's Order to Develop the Record. NHP argued
that:
What is clear is that an adjustment for
$20,800 was
made in FY 1982 so this
amount would not be charged
against
Federal grant funds, and another
adjustment
was made in FY 1983 to charge
this amount to grant
funds.
Because the effect of these adjustments
on
NHP's program fund balance was not
considered by
the Ad Hoc Committee, this
matter should be
remanded to the Ad Hoc
Committee for its
consideration.
Appellant's Reply to
HRSA's
Response to the Board's Order
to
Develop the Record, p. 5.
The OIGOA review makes no reference to an adjustment for
the
questioned $20,800. Moreover, in light of NHP's
failure to raise
this matter in the Request for Review
before the Ad Hoc Committee,
this expenditure is neither
properly considered by this Board or on
remand by the Ad
Hoc Committee. 42 CFR