GAB Decision 020
June 23, 1976 Southern Mutual Help Assoc., Inc.; Docket No. 30
Bernstein, Bernice; DeGeorge, Francis Yourman, Edwin
STATEMENT OF THE CASE
As a result of an HEW audit for the period July 1, 1971 through
September 30, 1973 (Control #06-40122) a number of Southern Mutual Help
Associations (SMHA) expenditures under a migrant health service program
grant were disallowed. Of these, disallowances for motion picture
production and travel expenditures were appealed:
Motion Picture Production. An amount of $7,000 expended for the
production of a motion picture film was disallowed on the grounds that
it was intended for public information purposes rather than training
(pages 14 and 15 of the audit report). We hold that the disallowance
was proper because the film was produced for viewing by the "general
public" within the meaning of applicable policy and expenditures for
such production required advance approval of the operating agency which
was not obtained.
Travel Expenditures. Travel expenditures were disallowed for
disbursements in excess of the approved budget, $728; forfeiture of
room deposits which could have been avoided, $200; difference between
first class and a lower fare, $131; duplicate charge, $120; clerical
error, $6, and unsupported expenditures charged to travel, $200. The
total of these items is $1,385. (Pages 15 and 16 of the audit report.)
We hold that the audit report states adequate reasons for the
disallowances and the grantee has not refuted these reasons.
Reimbursement. The grantee raised a third issue concerning the
agency's request that the grantee make cash repayment of these
disallowances and of other amounts which were not appealed, rather than
offsetting them against future allowable indirect cost. Since the audit
was for a period ending September 30, 1973, the parties were advised
that this issue would be considered moot by the passage of time unless
they advised the Board otherwise. No contrary representation was made
to the Board, so it takes no further note of this issue.
Absence of Factual Dispute. On January 28, 1976, the chairman of the
panel wrote to the grantee to clarify the issues, invite the submittal
of further information and arguments, and to inquire whether the grantee
believes there are further facts in dispute which require a hearing or
conference for proper resolution. The grantee responded with certain
facts and arguments which are discussed below and noted the
impossibility at the time of determining which facts are in dispute. It
stated: "If the facts which are contained herein are disputed after HEW
response, SMHA may wish to request a hearing, representation by counsel,
and cross examination of witnesses." The agency made no response to the
grantee's further submittal and the panel has determined that there is
no dispute as to a material fact, the resolution of which would be
materially assisted by oral testimony. The panel has also determined
that an informal conference with the parties is unnecessary. The matter
is now ripe for decision.
DECISION
The basis for disallowance of the motion picture production costs
cited on page 14 of the audit report is from Item F 2 under Section V
"Administrative and Fiscal Policies" of a "Policy Statement "entitled
Project Grants for Health Services to Agricultural Migrants (May 1,
1970) which reads:
Films -- allowable for purchase or rent. Funds may be used to
produce a film if it will be used only for teaching purposes in
connection with the grant supported activity.
Not allowed (except by prior approval) when intended for public
showing.
This policy also was relied on by the operating agency in upholding
this disallowance but we believe the controlling policy is that stated
in HEW Grants Administration Manual Chapter 1-450 dated June 15, 1969.
Before describing that policy and its application in this case, we must
explain why we have come to the conclusion that it is applicable.
Unfortunately, to do so we must retrace a complicated course by which
the policy was implemented with respect to the grant involved here.
The policy statement of Chapter 1-450 of the HEW Grants
Administration Manuel, standing alone was not a direct requirement on
grantees; rather it instructed operating agencies to take steps to make
the policy it specified on the production of motion picture films,
applicable to their grantees. This implementation was accomplished
through development of an HSM Grants Administration Manual by the
constituent agency. The format described in an issuance entitled "Plan
of the Manual" was that it would follow the numbering of the HEW Grants
Administration Manual and explain provisions of the latter. All
provisions of the HEW Grants Administration Manual would be applicable
to grants of the agency except as the HSM Grants Administration Manual
might provide to the contrary. Omission of explanation for a unit of
the HEW Manual "will mean that the Department's statement needs no
further HSMA explanation." The earliest copy of this issuance which we
have is dated March 31, 1970. /1/
Also under date of March 31, 1970 the HSM Manual Chapter 1-450-50B
was released to establish "HSMHA procedure for requesting exceptions
from the HEW policy regarding the use of grant funds for the production
of motion picture films." It did not describe the policy but it was
obvious from the issuance that HEW had a policy which imposed a
restriction on use of grant funds for production of motion pictures in
the absence of an exception being obtained. Without the HEW Grants
Administration Manual one would not be aware of the nature of that
restriction but he would know that some type of restriction existed.
Closely following the above was the "Policy Statement" for Project
Grants for Health Services to Agricultural Migrants which is cited by
the auditors in making the disallowance and which we have quoted above.
That policy is similar but not identical to the policy under the HEW
Grants Administration Manual. We have no explanation as to why the
operating agency issued a policy which did not follow the wording of
that in the HEW Grants Administration Manual.
The May 1, 1970 "Policy Statement" also contains a heading "V".
"Administrative and fiscal policies", Subheading B-1 of which states:
"The applicant, when applying for a project grant, agrees to
administer any grant awarded in accordance with the governing HSMHA
policies in effect at the time of the award."
We have no indication as to whether the grantee did in fact have a
copy of HEW Grant Administration policy at the time the initial grant
was approved on June 24, 1971. /2/
The clear implication is that such a manual was available to grantees
but we do not know in what manner. We conclude from the foregoing,
however, that regardless of whether the grantee was in possession of the
HEW Grants Administration Manual the information actually sent to it did
provide sufficient notice prior to June 24, 1971, to put it on inquiry
about restrictions applicable to use of grant funds for the production
of motion pictures. /3/
Even assuming that 5 USC 552(a)(1) required Federal Register
publication of the material as rules or policies of general
applicability, the failure to publish is not a defect under the statute
to the extent that a person has actual and timely notice of the terms
thereof. . .". Rodriguez v. Swank (ND, ED, Ill. 1970) 318 F. Supp.
289; Aff'd 403 US 901 (1971). We have found no definitive holding as
to what constitutes "actual. . . notice of the terms thereof," but
believe such notice was given when the grantee was informed that a
policy placed limits on use of grants for motion picture production and
told how the grantee could apply for an exception or obtain further
information. A person can have "actual notice" without having been
furnished the complete text of material. U.S. v. Floyd, supra note 3.
This brings us to the substantive question of whether the policy in
fact required prior approval for the type of expenditure disallowed.
The policy specified that grantees may use funds to produce motion
pictures "intended for viewing by restricted audiences" but not to
"produce motion picture film for viewing by the general public."
Paragraph 1-450-30 B and C. The reason for the policy is stated in
Paragraph 1-450-10 as follows:
Motion pictures have a unique impact when contrasted with other
communications media. Their potential capability to educate, to
persuade, and to inform make it imperative to be particularly sensitive
to the implications of Federal sponsorship. When the general public is
to be the primary or secondary audience of a film produced with HEW
grant funds, it is necessary to introduce safeguards which will insure
that the film content does not become a source of embarrassment to the
Department or a detriment to the attainment of its objectives. The
Office of Public Information, Office of The Secretary, has primary
responsibility for such films. Its responsibility extends to such
factors as quality, economy, effectiveness, adherence to policy, and
content.
The facts to which we must apply this policy are that without prior
HEW approval of the specific item the grantee contracted with a motion
picture production firm, Photographic Illustration, Inc., in March 1973,
for the production of a film of fifteen to twenty minutes edited legtht,
"featuring SMHA Health Clinic for educational purposes." /4/
On page 14 of the audit report the auditor asserts that during July
and August 1973, the film was shown a minimum of four times to. . . (1)
clinic advisory board and Abbeville citizens in Abbeville. . . (2) LSU
students and faculty. . . (3) Board members of SMHA and guests. . . and
(1) A group of Women Religious in Washington, D.C."
Page 15 of the audit report states:
After viewing the film ourselves, and based on the viewing audiences
above, we believe that the film was made for public information purposes
rather than for teaching purposes and is therefore not an allowable
cost. This opinion was supported by the project director, who stated
that they hoped to raise funds by showing the film; however, she stated
that they would not show the film anymore because it tends to alienate
the community from the program by showing conditions in the area.
Page 21 of the audit report notes that the grantee's officials stated
the project director was incorrect in claiming the purpose of the film
was to raise money. /5/ They stated it was made to educate the
individuals needing and delivering health services; however, the
auditor states that "they agreed it was not made for teaching purposes
in the regulation sense."
The agency agreed with the auditor's conclusion that the film was not
for "teaching purposes." The Acting Chief, Grants and Contracts
Management Branch of the Bureau of Community Health Services, added in a
memorandum of July 2, 1974: "There is little question that it was
probably a useful device to the project, but the procedures for the
prior approval and clearance are specific and must be followed."
The attorney for the grantee contends that the film was educational,
a characterization given it in the procurement contract. According to
the attorney the audit report incorrectly states that the grantee
conceded that it is not made for teaching purposes in the regulation
sense. Instead, she contends officials of the grantee stated the film
"was not made for teaching in the traditional sense."
As an indication that the film was "educational" the attorney states
that the showings were to groups with either a professional or special
social interest in migrant health and to prospective beneficiaries. She
notes that HEW had indicated that the thrust of the rural health
initiative is to encourage the development of rural health care systems,
thus she makes the point that the film "was intended to be used to
educate farm worker families on the development and delivery of health
care systems. This was an especially important goal in lieu (sic) of
HEW's mandate to have farm worker involvement in health care policy." In
support of this a letter written by the grantee's administrator, Rose
Mae Broussard, on February 13, 1974, to Ms. Lorna Bourg describing some
of the January 1974 activities of the grantee states:
Some of the things we will be doing is sponsoring special "weeks"
such as "Hypertension Week," "Heart Week," Obesity Week,"
etc. We will
show films and have special screening procedures set up for the general
public. Patients not within normal screening will be advised to consult
with their own physician.
We agree with the grantee that the context of "general public" in
the
above quotation refers to the potential beneficiaries in the target
area. By the same token, we believe that potential beneficiaries are
the "general public" within the meaning of the restrictions on the
use
of grant funds. It might be that professional, college, or volunteer
groups with a special interest in migrant health would be restricted
audiences" within the meaning of the policy but the intent in producing
the film was broader -- an intent to include viewing availability to
those in the community who might care to see the film. This is an
intent to show to the "general public." Indicative of the grantee's
intent is the following statement by its attorney.
The reason the film was only shown four times is clearly stated in
the audit on page 15:
"She (Ms. Rose Mae Broussard) stated that they (the clinic staff)
would not show the film anymore because it tends to alienate the
community from the program by showing conditions in the area." It is not
surprising that certain elements in the community (especially if they
were responsible for poor health conditions in the first place) would be
upset to hear that farm workers were getting educated in effective
health care delivery to change conditions. At any rate, Chapter 1-450
of the Grants Policy Statement does not specify the number of times a
film must be shown to qualify as allowable. Additionally, after having
replaced Ms. Brousard with a new project director and had SMHA not been
prematurely and unjustly terminated by HEW, undoubtedly the film would
have been shown many more times.
It is not for us to decide the wisdom of the policy or whether this
type of film should have received approval had a request been made. We
are bound by the policy which required that HEW have an opportunity to
consider the "quality, economy, effectiveness, adherence to policy, and
content" of films to be paid for with grant funds, if intended to be
shown beyond "restricted audiences." The fact that after production
showings might have been restricted, does not obviate the need for prior
approval. The test is the use intended at the time of the expenditure.
Admittedly, the policy was far from crystal clear. It stated that
there is no universal rule for determining "whether the intended
audience for a motion picture should be regarded as general or
restricted." One example of what constitutes showing to the general
public is described as "showing to civic associations, schools (except
when used as a teaching tool in a classroom setting), clubs, fraternal
organizations or similar lay groups." Paragraph 1-450-40E.
Certainly the policy was specific enough that the grantee should have
anticipated that the intended use at least raised a question as to which
further inquiry would be prudent. We therefore conclude that at the
time of procurement of the film the intended use by the grantee brought
it within the HEW policy which required prior approval and such approval
was not obtained here.
The grantee asserts that even if prior approval normally would be
required, failure to obtain it in this case was excused because HEW
officials and the grantee's Project Administrator at the time were
responsible for that failure, contrary to the desires of the grantee's
central office official. In support of this contention, the grantee
submits internal documents which it contends show that in late 1972 and
early 1973 its central office offical attempted to have the project
administrator get approval for various budget revisions including an
increase in the amount available for films but the Project Administrator
never made the request to HEW. The grantee feels this discharges it
from further responsibility because of what it feels was the practice of
HEW officials to refuse to deal with any of the grantee's officials
other than the project administrator. In addition, the grantee believes
the HEW officials generally sided with the Project Administrator against
the grantee and protected the Project Administrator even when she
committed improprieties for which HEW should have taken action. /6/
These assertions are wide of the mark because the disallowance for
the production of the film is not based on unavailability of a budgeted
amount for that purpose but rather upon failure to obtain approval of a
film which was intended for showing to the general public. Had the
grantee submitted evidence to the effect that it requested approval in
accordance with the procedures under HSM Manual Chapter 1-450-50B, which
HEW ignored, or that actions of HEW officials prevented it from
following that procedure (or even that the Project Administrator used
her position as the only channel of communication to HEW to frustrate
the order of higher officials to seek such approval) a different problem
might be presented. The grantee was invited by the panel chairman to
submit evidence on these points and it failed to do so.
The grantee raises the additional question taken from the legal
action referred to in footnote 2 of this decision, that the grant was
terminated by HEW without affording the grantee the procedural
protections of law and regulations for grant termination. Such a
question is not relevant to the matter now before the Board. It is
sufficient here, as noted above, that the procedure for seeking approval
for the production of films intended for showing to the general public
was issued by HSM 1-450-50B, dated March 31, 1970. The HEW policy was
applicable to all grants awarded after the effective date of agency
implementation. (HEW Grants Administration Manual Chapter 1-450). The
grant here clearly was made after March 31, 1970. /7/
Travel Expenses Disallowances
The grantee objected to the travel expense disallowances because HEW
"has failed to specify what travel cost are being disallowed and why any
specific travel costs are thought to be 'unsupported.'" The panel
chairman directed attention to the grantee to pages 15 and 16 of the
audit reports which do assign reasons and invited the grantee to clarify
its position in light of that. It failed to do so and was thereupon
advised that in the absence of further submission, the only question to
be determined on travel costs would be whether adequate reasons were
given for the disallowance. We have received no such further
submission.
The audit report not only describes the categories of disallowances
as indicated at the outset of this decision but also specifies reasons.
For example, the auditor's narrative on page 15 states that travel costs
in the first grant year exceeded the approved budget line items for
travel by $728 and that he found no evidence that approval for such
excess was requested or given. The auditor cites the policy statement
which precludes exceeding the travel amount in an approved budget
without prior awarding agency approval. In the case of room deposits
the auditor asserts that forfeits resulted from switching hotels at a
training session for the advisory board and for clinic staff members
without cancelling previous reservations and obtaining a refund of the
room deposits. He cites a policy which would seem to provide for the
disallowance of such a case. Descriptive reasons are given under the
other category of disallowances and policies are cited.
The Board is of the opinion that the audit report does assign
adequate reasons to support the travel disallowances. The grantee has
failed to show any inaccuracies in the reasons assigned in the audit
report for disallowance of the travel items or that the cited policies
were not properly applied. Accordingly, the disallowances of $1,385.00
for travel should be upheld. /1/ Our copy of the March 31, 1970,
issuance indicates that it supersedes HSMHA; 0-2 which we have
not obtained since earlier issuance would have no bearing on this case.
/2/ This date is given for initial approval in a memorandum filed by the
grantee in support of a motion for summary judgment in its action
against the Secretary in the U.S. District Court for the District of
Columbia (C.A. 74-1293). The grantee submitted a copy of the
memorandum to us for our information. /3/ U.S. v. Floyd, (10th
cir. 1973) 477 F.2d 217; cert. den. 414 U.S. 1044 1973) /4/ The
contract specifies payment of $6,000. The audit report does not refer
to this amount but states $7,000 was expended. Since the grantee has
not challenged the amount we assume $7,000 was expended, rather than the
amount specified in the original contract. /5/ It would have
been helpful had the auditor clarified from the then project director
(administrator) the manner in which she thought the grantee expected
that the film would raise funds. We see no indication that there would
have been a market for sale or rental of the film. Did she mean that
there was a plan to use the film in connection with fund solicitation?
/6/ These allegations are the basis for litigation in the U.S. District
Court action referred to in footnote 2 of this decision. We do not know
the current status of that litigation. /7/ The first award for
this project was made on June 24, 1971. Subsequent budgets were approved
in 1972-1973. In the litigation described in footnote 2 of this
decision the grantee asserts that the first award provided a right to a
hearing upon refusal to approve funding for a later period. HEW
contends that refusal to approve a budget for a new period is tantamount
to the refusal to award a grant and thus does not give rise to the right
to hearing for a grant termination. The distinction would be relevant
in the matter before us only if the policy had been issued after June
24, 1971, when the grantee's project was first approved. In such a
case, the grantee could have argued that since the policy was applicable
only to grants awarded after its issuance, it would not apply to budgets
approved after issuance of the policy since they would not be an award
of a grant.
OCTOBER 04, 1983