GAB Decision 026
August 17, 1976 State of Minnesota, Department of Public Welfare; Audit
Control No. 05-50088 Docket No. 75-15 Bernstein, Bernice; DeGeorge,
Francis Hastings, Wilmot
This appeal by the State of Minnesota Department of Public Welfare
("Grantee") by letter dated September 18, 1975 ("Appeal")
asks the
Departmental Grant Appeals Board ("Board") to review an adverse
determination made by an ad hoc review committee of the Health Services
Administration ("HSA") upholding a disallowance of certain expenditures
incurred by Grantee in its Crippled Children's Services Program (the
"Program"). The disallowance involves $404,314 expended by Grantee
for
the Program during the period July 1, 1970 to November 27, 1973 on
account of services and items purchased in fiscal years prior to the one
for which the funds were given to Grantee, and resulted from audit
exceptions contained in HEW Audit Report No. 05-50088.
The amounts involved in the Appeal are $5,959 from Fiscal Year 1973
project grant funds, used to pay for services rendered during Fiscal
Year 1972, and $76,380 from Fiscal Year 1974 project grant funds, used
to pay for services rendered in Fiscal Year 1973. An additional amount
of $321,975 in formula grant funds, similarly applied to discharge
obligations incurred in prior fiscal years, is not within the Board's
jurisdiction (see 45 CFR Sec. 16.2(a)(1)) absent, in this case, a
designation of the Assistant Secretary for Health, which designation has
not been made. Thus, this decision will deal only with the project
grant funds.
By letter dated May 21, 1976, the parties were notified that the
Board had determined pursuant to 45 CFR Sec. 16.60(c) (2), that (a)
there appeared to be no dispute as to a material fact and (b)
accordingly, the matter would be determined in accordance with 45 CFR
Sec. 16.61 on the basis of the existing documentary record (specified in
the Appendix hereto) and any additional written briefs the parties
desired to submit.
In its Appeal, Grantee has conceded that funds granted it for
services to be provided in one fiscal year "were expended from one
fiscal year to pay for a prior year's services," and has also tacitly
conceded that such expenditures violated Chapter 17-1.5B.1 of the
Federal Health Grants Manual. Grantee in the Appeal has offered several
justifications for these expenditures, as follows:
(1) "there exists no evidence that grant monies were ever used for
anything other than proper Crippled Children's Services expenses;"
(2) the Grantee has taken corrective action to prevent further such
occurrences;
(3) Congress did not intend that certain groups of children or
certain states be penalized, as would occur if the State of Minnesota
were required to repay the funds in question;
(4) it would be "virtually impossible and inappropriate for us to now
attempt to seek repayment from the medical vendors who provided the
services;"
(5) to sustain the disallowance "would unfairly reflect upon what has
been and continues to be an outstanding program;" and
(6) "HEW had never enforced this provision (Chapter 17-1.5B.1 of the
Federal Health Grants Manual) in the past."
In conclusion, Grantee asks that consideration be given to the fact
that the children in the Program needed "immediate medical care which
could not be deferred until such time as the necessary fiscal year
allocation was available to the State Agency."
In its final brief, Grantee has largely repeated these justifications
in substance, if not in precise terms, but has added arguments that (7)
it was faced with a "delemma" of a "perplexing, but not unusual,
accounting problem" in cases where service and provider billing occurred
in separate fiscal years and (8) the Federal Health Grants Manual
provision in question has "absolutely no legal basis."
None of Grantee's justifications is meritorious. Points 1 and 3
above clearly argue for too much. Each would lead to the conclusion
that no accountability procedures or fiscal standards established by
Federal grant agencies could be enforced so long as expenditures were
for proper programmatic purposes. The comment that Congress did not
intend that "certain groups of children" be penalized by the failure
of
States to meet their grantee responsibilities is dismissed as a
rhetorical flourish. This Appeal relates solely to the relative fiscal
responsibilities of the Federal government and the State of Minnesota.
The Grantee's point that corrective action has been taken to prevent
recurrence of the problem is not only irrelevant, as it concedes, but is
also not supported by the record. Indeed, the record indicates that as
late as 1975, the Grantee continued to condone the practice of paying
for one year's services from a later year's grant funds.
Grantee's fourth and fifth justifications are also plainly
irrelevant. No one has suggested that recoupment be attempted from
vendors. Indeed, any such attempt by Grantee would appear, as Grantee
states, to be totally inappropriate and unjustified. Nor is the
Program's reputation at issue in this appeal.
The grantee's sixth justification, that HEW had previously faled to
enforce Chapter 17-1.5B.1 of the Federal Health Grants Manual bears
further discussion. At first blush, we would suppose that an agency's
prior failure to enforce clearly articulated governmental policy could
not estop a later effort at enforcement. But beyond that, the record is
replete with evidence of attempts by HSA and predecessor agencies to
cause Grantee to end its practice of expending more grant funds than it
had available. Grantee cannot now complain that HSA or its predecessor
agencies should earlier have required refunds.
It should be noted, in response to the Grantee's argument regarding
emergency medical care, that the record contains no evidence whatsoever
that emergency medical care, rather than non-emergency or optional or
less necessary expenditures, was the cause of the prior year's
over-obligation of funds, or any justification for a charge of such
over-obligation, if such was the cause, to the next year's Federal grant
rather than to State funds.
It is also not clear to the Board why the accounting "dilemma" faced
by Grantee could not have been solved by reserving from current year
grant funds sufficient funds to cover services rendered during that year
or by using other accounting techniques used by state agencies generally
to limit expenditures to the funds available to it.
The Grantee's final argument, that the provision of the Federal
Health Grants Manual in question (Chapter 17-1.5B.1) has "absolutely no
legal basis," was made in response to the Board's request for an
analysis of the "legal status" of that Manual. The responses of both
parties to that request are clearly inadequate. Grantee's assertions of
lack of legal basis, without authority or analysis, are matched by HSA's
equally bare assertions that the Manual has not been "superseded".
In
the present case, we believe that the Manual's provisions were
adequately made known to Grantee, accepted by Grantee as applicable and
incorporated by reference in the applicable grant terms sufficiently to
preclude Grantee's denial now of their applicability. Nonetheless,
until the provisions of the Federal Health Grants Manual are promulgated
by HEW pursuant to its rule-making authority, the Board will view their
applicability as limited to grants as to which the provisions thereof
have clearly been incorporated in the grant terms.
It should be emphasized that the requirements of Chapter 17-1.5B.1 of
the Federal Health Grants Manual relating to the use of current year
grant funds for current year services are not arbitrary bureaucratic
devices for Federal meddling in state service programs. The purpose of
this requirement, simply stated, is to try to insure, in a world in
which there are simply not enough funds available to provide all
necessary services to all children or other persons in need, a rational
process by which funds which are available are allocated to priority
needs as identified by the grantee agencies. In the present case, prior
experience surely must have demonstrated to Grantee the need to allocate
a certain percentage of available funds for medical emergencies, if such
was the cause of the prior years' over-obligations (which, as previously
stated, is at best a speculative conclusion on this record). A failure
by a grantee to plan and monitor its projected expenditures by reference
to a set of articulated priorities within fiscal year limitations as to
available funds will likely lead to expenditures benefiting some with
lesser needs at the expense of others with greater needs. Such
misallocation is a disservice to the basic program objectives for which
the funds are provided as well as to those individuals in need.
Finally, the Board notes that the principles of Chapter 17-1.5B.1 of
the Federal Health Grants Manual are consistent with those applicable to
other Federal grant programs. See Borad Decision No. 10, November 6,
1975, giving effect to a similar requirement in an applicable National
Institutes of Health policy manual. See also 45 CFR Sec. 74.171 and
Appendix C thereto, Part II.C.6.
CONCLUSION
Grantee's appeal is denied. HSA's decision to require reimbursement
of $82,339 from the Minnesota Department of Public Welfare is sustained.
OCTOBER 04, 1983