DAB Decision 95 4 May 1, 1980 Medical Care Center of Louisiana, Inc.;
Docket No. 77-16; Decision No. 95 Coster, Clarence M.; Przybylinski,
Donald G. Dell'Acqua, Frank
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel. Similar official summaries of earlier cases
appear in 45 CPR Part 16, Appendix.)
Grantee appealed from a determination of the Public Health Service (PHS)
Grant Appeals Committee upholding a disallowance of $8,375 made by the
PRS Regional Office under Sections 314(e) and 330 of the Public Health
Service Act.
PHS disallowed $2,250 pertaining to a Board of Directors' training
program on the ground that the grantee had not complied with a special
grant condition requiring prior approval of all contracts. During the
course of the proceedings before the Board, however, PHS concurred in
the tentative conclusion in an Order issued by the Board Chairman that
the disallowance of this cost should be overturned because the grantee
had obtained prior written approval to conduct the training program the
previous year, the program having been deferred when the designated
trainer declined the contract.
The Board upheld the disallowance of $2,858 pertaining to radiological
services provided without prior approval based on the same special grant
condition, finding inapplicable another special condition allowing the
expenditure of up to $1500 for goods and services without prior
approval.
Finally, the Board upheld the disallowance of $3,267 charged to two
successive grants (FY 74 and 75) for architectural services for which no
prior approval had been obtained. The Board found that the grantee had
violated a special grant condition, applicable in FY 74, requiring prior
approval of any contracts of $1500 or above, since there had been no
showing by the grantee that the amount allocable to that year was less
than $1500. The Board further found that the grantee had not complied
with the special grant condition applicable in FY 75 requiring prior
approval of all contracts.
DECISION
On September 22, 1977, the grantee, Medical Care Center of Louisiana,
Inc. (MCCLI), a private non-profit corporation, appealed the August 22,
1977 decision by the Public Health Service (PHS) Grant Appeals Committee
to uphold the May 3, 1977 disallowance by the PHS Regional Office of
$8,375. The disallowance was based upon an audit of the grantee's Family
Health Center grant for the period July 1, 1973 through June 30, 1976.
The grants were made under the authority of Sections 314(e) and 330 of
the Public Health Service Act for a project period from July 1, 1973
through June 30, 1977 divided into four one-year budget periods. The
awards for the various budget years were made subject to requirements
that prior Agency approval be obtained for most contractual services.
The specific language of the conditions was changed somewhat from one
year to another.
This decision is based on the grantee's application for review, PHS's
response to the appeal, and both parties' responses to an Order to Show
Cause issued by the Board Chairman. Each cost item in dispute will be
examined separately and evaluated in light of the specific applicable
terms and conditions.
Board Training
The auditors questioned and PHS disallowed $2,250 in expenses for a 75
Board of Directors' training program because funds for such training
were not specifically included in the FY 75 budget and because the
grantee had violated special grant condition 13 of the award for 75
which stated that "all contracts involving grant funds must be submitted
to the Project Officer for approval prior to the commitment of funds."
MCCLI argued that it had requested and received written approval from
the Regional Health Administrator in a letter dated March 29, 1974 to
expend $3,000 for training to be provided by a specific individual in
74, but that the designated individual ultimately declined the contract
and the grantee instead obtained the services in FY 75 from another
individual. MCCLI further stated that it notified the Project Officer by
telephone of the change and was advised that only approval of
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the new contractor by its Board of Directors was required in light of
the unchanged dollar amount. Grantee's Board did approve the change of
contractor, and this approval is documented in minutes of a Board of
Directors' meeting provided by the grantee.
The Order to Show Cause observed that, under the circumstances, the
grantee may have been justified in relying on its FY 74 approval. In its
response to the Order, PHS stated that it concurred that the training
costs should be allowed. Therefore, the Grant Appeals Committee's
decision to uphold the $2,250 disallowance for Board training costs is
overturned.
Radiological Services
The auditors questioned, and the Regional Office subsequently
disallowed, $2,858 out of the grant for FY 75. This represented the
cost of radiological services provided without the prior approval of the
Project Officer as required by special grant condition 13, cited above
under Board Training. An individual employed by the grantee as a field
worker soliciting applicants for the program but who was a registered
gray technician terminated regular employment on July 31, 1974 and for
approximately 4-112 months performed services under a contractual
agreement with MCCLI, involving preparation of a manual and protocol and
"operational set-up for delivery and evaluation of radiological
services! (Audit Report, Appendix I, p.2). The auditors noted that at
the end of the contract the individual was reinstated as a regular MCCLI
employee and that the payments made to the individual during the period
of the contract were $650 per month although the employee's regular
salary, both before and after the contract, was $400 per month. In its
response to the audit report, the grantee submitted no justification
concerning this item other than a statement that the work performed by
the individual was available for inspection. Grantee also pointed out
that special grant condition 14 allowed it to expend up to $1,500 for
goods or services without prior regional office approval.
The Order issued by the Board Chairman asked PHS to respond to the
argument that at least part of the payments would be allowable under
special grant condition 14 and asked MCCLI why special grant condition
13 would not apply. Neither party answered satisfactorily. Since we are
presented with a record showing a contract which resulted in payments of
a total of more than $1,500, however, we conclude that special grant
condition 14 is superseded by special grant condition 13 which more
directly applies to the services in question and that the disallowance
of $2,858 should be upheld since the grantee did not obtain prior
approval as required by special grant condition 13.
Architectural Services
MCCLI expended $3,267 for architectural services during FY 74 and FY 75
in connection with renovation of MCCLI office space; nothing in the
record
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indicates how much was spent in each year. PHS has characterized the
costs as "alteration and renovation", and the grantee has not objected
to this characterization. Special grant condition 16 applicable to the
74 grant provided that the "Regional Health Director reserves the right
to review and approve before the fact any contracts involving grant
funds of $1,500 or above." The 1975 award was subject to special
condition 13 cited in the section on Board Training and special
condition 14 cited in the section on Radiological Services above. The
auditors contended, and the Regional Office determined, that the
required approval was not obtained and that funds for architectural
services were not provided for in the budget. MCCLI argued that the
Project Officer was kept fully informed of the grantee's intentions and
arrangements with respect to the architectural services, and that an
understanding had been reached between the parties that the grantee hire
the architect at the rate prescribed by the American Institute of
Architects. MCCLI further contended that details of its negotiations
with the architect were given to the Project Officer and that there were
numerous telephone conversations between the parties concerning the
matter. The grantee does not assert that funds for the architect's
services were specifically included in the budgets or grant awards. The
Grant Appeals Committee stated in its decision on this cost item that it
found no evidence that funds for such services were included in the
project budget, and there was no record of prior approval by the Project
Officer as required by the special grant conditions or, in fact, of
approval by the Regional Office at all.
The grantee was specifically asked by the Board to provide a copy of the
contract between it and the architectural firm in order to determine
whether the grantee had been put on notice that the contract cost was
greater than $1500. A copy of the contract has not been provided; it
therefore cannot be assumed that the figure specified in the contract
was greater than $1500 in light of the fact that the total amount
disallowed for two years was greater than $3000. Therefore, in Pu 74,
special grant condition 16 applied, and the grantee was obligated to
submit the contract to the Regional Health Director for his review and
approval before the contract was entered into. The grantee merely has
asserted that it talked with the Project Officer about the project; it
supplied no contemporaneous documentation of these conversations.
In 75, the transaction was governed by special grant condition 13
requiring approval of all contracts by the Project Officer prior to the
commitment of funds. Although "prior approval" is not defined in the
grant document itself, the PHS Grants Policy Statement makes it clear
that prior approval means prior
The Glossary of the PHS Grants Policy Statement (1972), which, in part,
defines terms commonly used in PHS grants, states that prior approval
Written permission to use grant funds for certain purposes not
included in the approved budget, or to change certain aspects of
the program in a way not originally planned. Such permission must
be obtained from the PHS awarding component from which the grant
was received or, when specifically
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prescribed, from the designated institutional office, prior to the
performance of the act requiring such approval. Faire Co obtain
prior approval, when required, is at the grantee's risk. PHS yes
no commitment to approve such expenditures on a retroactive basis.
The grant award document put the grantee on notice generally that its
grant was subject to the "policy standards applicable to the ... grant
program."
MCCLI was therefore on notice that it had to submit the contract to PHS
before it was signed and that in 75, it had to receive prior written
approval. Since it did not follow these procedures, the disallowance of
$3,267 was proper.
Conclusion
Accordingly, we affirm the determination by PHS to disallow funds for
radiological and architectural services and grant the appeal on the