Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Tennessee
Protection DATE: December 27, 1993
and
Advocacy,
Inc.
Docket No.
A-93-139 Decision No. 1454
DECISION
Tennessee Protection and Advocacy, Inc. (TPAI) appealed a determination
of
the Division of Audit Resolution (DAR) of the Office of Grants
Management
disallowing $63,436 in federal grant funds based on an audit
covering the
period July 1, 1987 to November 1, 1990. The amounts
disallowed fell
into five categories: unallowable salary, leave and
merit pay raise
($12,663); interest and penalties on taxes ($127);
unallowable hotel costs
($12,625); attorney's fees retained by a
volunteer attorney representing a
TPAI client ($35,000); and
miscellaneous unallowable costs, including local
meals, babysitting,
finance charges and personal items ($3,021). During
the course of the
appeal, DAR accepted documentation submitted by TPAI as
sufficient to
justify withdrawing the disallowance as to some of the
costs. For the
reasons discussed more fully below, we uphold the
remaining disallowance
of $46,505 in full.
Background
TPAI is a nonprofit advocacy organization for individuals
with
developmental disabilities. During the period at issue, it
received
grants from the Department of Health and Human Services (HHS) under
two
programs, Protection and Advocacy for the Developmentally Disabled
and
Protection and Advocacy for the Mentally Ill. An audit of the
program
was undertaken by a contractor on behalf of the Office of
Inspector
General (OIG) after allegations of mismanagement were brought to
HHS by
the State of Tennessee. DAR Exhibit (Ex.) 1, at 1-3. OIG
found that
previous audits covering the same time period could not be relied
on
because they were not conducted in accord with generally
accepted
government auditing standards. Id. at 5.
OIG and its contractor made findings in a number of areas, of which
the
five categories above were at issue on appeal. Below, we analyze
the
disputed audit findings and the parties' arguments on each category
in
turn.
Analysis
(1) Salary, leave and merit pay raise ($12,663):
The former Executive Director of TPAI 1/, Ms. Harriet Derryberry,
left
office on October 13, 1990, after which she received three
payments
which the audit found to be unallowable. The payments covered
salary
from October 15-31, 1990, a retroactive five per cent merit pay
raise,
and reimbursement for 47.8 days of accrued annual leave. The
audit
found that Ms. Derryberry did not work after October 13, 1990,
that
program records did not show approval of the pay raise by the Board
of
Directors, and that the accrued annual leave claim could not be
verified
because Ms. Derryberry had not been required to maintain
personal
activity records. See DAR Ex. I, at 7. DAR accepted
documentation
submitted by TPAI establishing that the salary payment
constituted
permissible severance pay and that the five per cent retroactive
pay
raise was granted in accord with proper procedures; DAR
therefore
withdrew those parts of the disallowance. See Summary of
Telephone
Conference at 1 (Sept. 17, 1993), and DAR Reply Br. at 1.
Therefore,
only the amount relating to annual leave ($9,633) remains in
dispute.
TPAI conceded that primary documentation substantiating the claim
for
accrued annual leave as of Ms. Derryberry's termination date could
not
be located, because Ms. Derryberry apparently removed her personnel
file
when she left the agency. TPAI Br. at 2-3; TPAI Exs. 4 and
5. However,
TPAI offered three affidavits in an effort to support the
annual leave
claim. None of them came from the former Executive
Director herself.
Instead, an affidavit from TPAI's bookkeeper represented that she
had
reviewed the existing records and found records of accrued
vacation
leave as of June 1987 of 25.8 days for Ms. Derryberry. She
calculated
that, based on policies in effect over the period, Ms. Derryberry
would
have earned 53 days of leave between June 1987 and her termination
date,
for a total of 78.8 days. She then relied on the representations
of two
other employees to estimate the leave used by Ms. Derryberry during
that
period as about 30 days, thereby justifying at least the balance of
47.8
days for which Ms. Derryberry was paid. Affidavit of Sheila
Mullis, at
1-2. The record which was submitted with this affidavit was
unsigned,
showed only the initials HJD to indicate that it related to
Ms.
Derryberry, and was confusing at best. On its face, the form
indicated
that it covered a period beginning October 1987 and then listed
changes
to annual leave days beginning in October 1987 and continuing on
through
June 1987 with consecutive numbers showing one day added per
month. The
inference may be drawn that either the form was meant to
cover October
1986 through June 1987 or October 1987 through June 1988, but
it is
impossible to tell which. Also, nothing on the document indicates
that
it is an official record of TPAI or gives the date of its
preparation.
The two other employees who made statements concerning the use of
annual
leave were the current interim Executive Director, who has worked
at
TPAI since 1986, and another individual employed since December
1988.
The current Executive Director stated that Ms. Derryberry "normally
took
one week vacation in the summer and one week in the winter during
most
years. Thus, I believe that she took approximately ten days
vacation in
1987, ten days vacation in 1988, and approximately ten days in
1990
(maybe less)." Affidavit of Joy Sullivan at 3. The other
employee
obviously had no information concerning 1987 and 1988, but asserted
that
Ms. Derryberry "took no vacation in 1989, and she took ten days in
1990
prior to her resignation, to the best of my knowledge." Affidavit
of
Theresa Webster at 1.
The Board has generally scrutinized carefully
non-contemporaneous
affidavits, especially those prepared, as these clearly
were, for the
purpose of an appeal before us. See, e.g., Lac Courte
Oreille Tribe,
DAB No. 1132, at 6, n.4 (1990). In any event, both
affidavits made only
tentative statements about the vacation time taken by
another individual
three to six years ago. Ms. Sullivan, who is the
only affiant with
information relating to 1987 and 1988, based her assertion
that the
former Executive Director took ten days of vacation in each of
those
years on a belief arising from her recollection of Ms.
Derryberry's
normal practice of taking a week in the summer and a week in the
winter.
Neither Ms. Sullivan nor Ms. Webster purported to have an actual
memory
of what Ms. Derryberry did in 1987 and 1988. Their statements
regarding
1989 and 1990 did not express certainty. Ms. Sullivan did not
mention
1989 and both believed Ms. Derryberry had already taken about ten
days
in 1990 before she left in the fall of 1990. Thus, Ms.
Derryberry's
alleged conduct in 1989 and 1990 did not follow the pattern to
which Ms.
Sullivan referred. Furthermore, the form that purportedly
related to
June 1987 indicates that Ms. Derryberry took five days in December
1987,
1 day in January 1987, and two days in May 1987, which is also
not
consistent with the alleged pattern. We do not find a reliable
basis in
any of these affidavits to determine the outstanding balance of
annual
leave accrued when Ms. Derryberry left TPAI.
Even more disturbing, however, is TPAI's failure to offer a
credible
explanation for the absence of contemporaneous supporting
records. In
order to be allowable, costs must be "adequately
documented." Office of
Management and Budget (OMB) Circular A-122,
Attachment (Att.) A, .
A.2.g. 2/ It is the responsibility of the
grantee to have in place
adequate internal controls to maintain the records
necessary to document
its use of federal funds. Regulations generally
require retention of
records by a grantee for three years from the time an
expenditure is
reported. 45 C.F.R. . 74.21(a) (1992). However, if
an audit is started
before the expiration of the retention period, the
records must be
retained until "completion of the action and resolution of
all issues
which arise from it." 45 C.F.R. . 74.21(b) (1992). The
audit report
indicated that field work was performed at TPAI's offices in
April 1991,
so that TPAI was on notice by that date, if not sooner, that
records
relevant to the audit must be retained until all issues were
resolved.
DAR Ex. 1, at 4. Therefore, TPAI should have had available
records
relating to Ms. Derryberry's actual use of annual leave at least back
to
April 1988. Had TPAI offered records relating to periods subsequent
to
that date consistent with the affidavits, the reliability of
the
affidavits' representations about the earlier period would have
been
bolstered. Instead, the bookkeeper claimed in her affidavit to
rely on
a document supposedly covering June 1987 but to have no
documentation
from the period when record retention was required.
Affidavit of Sheila
Mullis, at 1-2. The absence of any relevant records
from the retention
period, despite the availability of earlier records, casts
further doubt
on the affidavits.
Even if, as TPAI alleged, Ms. Derryberry removed her personnel file
when
she left the agency, TPAI is not thereby excused from its
corporate
responsibility for retaining adequate records. Furthermore,
TPAI did
not explain why the loss of one employee's personnel file resulted
in a
complete inability to document the employee's accrual and use of
annual
leave. Normally, an agency would be expected to have that
information
in more than one location, such as on paycheck stubs and
payroll
accounting records. Nor did TPAI explain why only files
covering the
time period at issue were missing, while older records were
available to
the bookkeeper.
We conclude that the payment to the former Executive Director
for
unsubstantiated annual leave was unallowable. Therefore, we
sustain
that part of the disallowance.
(2) Tax interest and penalties ($127)
TPAI was required to pay to the Internal Revenue Service $127 as
interest
and penalties resulting from late payment of payroll taxes.
DAR Ex. I, at
7-8. TPAI did not contest DAR's position that these costs
were
explicitly unallowable under OMB Circular A-122, Att. B, . 14
(making fines
and penalties resulting from violations of federal law
unallowable except
under certain circumstances not involved here). TPAI
Br. at 3; TPAI Ex.
6. However, TPAI was able to document to DAR's
satisfaction that the
costs were paid from a savings account which
contained only non-federal
funds. DAR Reply to TPAI Supplemental Br. at
2. Therefore, this
part of the disallowance was withdrawn.
(3) Hotel Costs ($12,625)
TPAI paid for hotel room charges at conventions in its local
Nashville
area for TPAI board members, employees and presenters who lived
in
Nashville. DAR Ex. 1, at 8. DAR did not dispute the
allowability of
costs for the training conventions generally, but argued that
the
accommodations for local board members who lived in Nashville, as
well
as certain charges for liquor, were unallowable and were included in
the
total. DAR Br. at 10.
DAR argued that the liquor costs were not reasonable and necessary
and
constituted unallowable entertainment costs under OMB Circular
A-122,
Att. A, . A.3 and Att. B, . 12. TPAI did not dispute that
position and
admitted that the liquor charges ($133) were incurred because
of
inadequate internal controls; TPAI made no substantive argument
in
support of allowability of the charges. TPAI Br. at 6. We
therefore
uphold that part of the disallowance.
In regard to the charges for local persons, TPAI stated that it
offered
the rooms to them only because it was liable for the room charges in
any
event. According to TPAI, out-of-town attendees for whom
the
reservations were made changed their plans and failed to give
TPAI
sufficient notice. TPAI submitted an agreement form from the
Hermitage
Hotel dated February 12, 1990 which indicates that "no shows"
and
cancellations with less than two weeks' notice would be billed to
the
organization reserving the block of rooms. TPAI Ex. 7 at unnumbered
15.
As to three of the rooms, TPAI contended that they were
appropriately
used because the individuals involved were either presenters or
disabled
participants for whom transportation would be difficult. DAR
accepted
the use of these "no-show" rooms for local attendees, since only
a
limited number were involved and the costs would have been incurred
in
any case. DAR Reply to TPAI Supplemental Br. at 2. DAR also
did not
challenge TPAI about the appropriateness of the room charges for
the
presenter and disabled persons with transportation difficulties.
However, DAR continued to challenge the allowability of $185 for a
room
for then-Executive Director, Ms. Derryberry. DAR pointed out
that
TPAI's documentation did not demonstrate that she filled in for
a
no-show rather than having reserved her own room. Id. at 2.
TPAI
submitted a hotel contract that substantiated its liability
for
no-shows, and an affidavit that identified the persons who used
the
no-shows and the persons with special needs mentioned above. See
TPAI
Supplemental Br. at 7-8; Affidavit of Joy Sullivan at 2-3; and TPAI
Ex.
7. Ms. Derryberry was not among the persons listed in the
affidavit.
TPAI did not submit any other documentation to indicate that
Ms.
Derryberry used a room for which TPAI would have had to pay in any
case
or that her use of the room was otherwise reasonable or
necessary.
Therefore, we uphold that part of the disallowance.
(4) Attorney's Fees ($35,000)
The amount at issue here was received as court-awarded attorney's fees
by
an attorney for services which he provided in representing a
TPAI
client. DAR Ex. 1, Appendix at 7. The attorney was a
former board
member of TPAI and was the spouse of the Executive Director at
the time
the award was received. DAR contended that the fee award was
improperly
retained by the attorney, who was acting as a volunteer for the
program.
DAR characterized the attorney's fee award as an applicable credit
under
OMB Circular A-122, Att. A, . A.5.a, which should have been credited
to
the grant "either as a cost reduction or cash refund." DAR Br. at
12.
TPAI made several arguments regarding the fee award. First,
TPAI
contended that it was program income and that its retention by
the
attorney was permissible. Second, TPAI argued that the attorney
was
representing the client under a contingent fee arrangement, rather
than
as a volunteer, or that the representation was not under the auspice
of
TPAI. Third, TPAI argued that a 1990 statute prohibited payment
of
attorney's fees to lawyers under these circumstances and that
the
passage of that statute implied that such payments were
previously
permissible.
We turn first to the question of whether the fee award constituted
program
income. Program income is defined generally as "gross income
earned by
a recipient from activities part or all of the cost of which
is either borne
as a direct cost by a grant or counted as a direct cost
toward meeting a cost
sharing or matching requirement . . . [and]
includes but is not limited
to . . . fees for services performed during
the grant . . . ." 45
C.F.R. . 74.41 (1992) (unchanged during the
relevant period).
The findings of the contractor auditor regarding the disputed fee
award
were as follows:
The former Board member and husband of the former
Executive
Director, volunteered to assist the EACH office with a
case.
The former Board member represented the client through the
EACH
office on an ongoing basis through October 1988 when the
case
was closed. We have copies of the intake sheet which
was
completed when the client initially contacted EACH. We
also
have copies of the correspondence between EACH personnel and
the
former Board member throughout the proceedings of the case.
DAR Ex. 1, Appendix at 7. The auditor found that a check for $35,000
in
attorney's fees was issued to the volunteer attorney and was
not
remitted to TPAI. The check was issued by the Shelby County Board
of
Education and made payable directly to the attorney and endorsed by
him.
See DAR Ex. 1, Appendix at 7; Letter from TPAI Counsel to the Board
with
attachment (Oct. 27, 1993). 3/
Advocacy on behalf of clients is clearly one of the activities for
which
TPAI receives federal funds. To the extent that the attorney was
acting
for TPAI in carrying out this activity for TPAI's client, he was
clearly
performing a service on behalf of TPAI, even if acting as a
volunteer
rather than a paid staff member, which generated the award as
gross
income. We therefore conclude that the attorney's fee award
constituted
program income for TPAI. 4/ However, contrary to TPAI's
contentions,
none of the alternative uses allowed for program income include
the
retention of the funds by a volunteer. 5/ Under all of the
alternatives
provided in the regulation, the income "shall be retained by"
the
program. 45 C.F.R. . 74.42(b)(1).
We turn next to TPAI's second argument that the fee award was not
program
income but rather belonged to the attorney, because he acted on
a contingency
fee agreement rather than as a TPAI volunteer. An
analysis of the audit
findings supports a conclusion that the attorney
was in fact volunteering to
act on behalf of TPAI in assisting in its
representation of the client on an
unpaid basis, for the following
reasons:
o The client initially contacted TPAI and completed an
intake
process as a TPAI client.
o The auditor found that the attorney "volunteered to
assist"
TPAI with the case. Nowhere does the auditor describe
the
arrangement as a referral from the program to the attorney
or
refer to any contingency fee arrangement.
o TPAI was in correspondence with the attorney in regard to
his
representation throughout the case, which both reinforces
the
conclusion that the attorney was acting on behalf of
TPAI
(rather than in an independent attorney-client relationship)
and
suggests that any fee agreement with TPAI would have
been
referenced in the correspondence.
. o The attorney
served as a Board
member and was married to the former Executive
Director of TPAI, which
suggests he might well have had an interest in
volunteering to assist with a
TPAI advocacy activity without requiring
the incentive of a potential fee
award. 6/
In order to rebut these audit findings and the resulting inferences,
TPAI
had to offer more than unsubstantiated assertions. However,
TPAI
presented no documentation supporting its version of the attorney's
role
and, in fact, offered inconsistent information.
At times, TPAI suggested that the attorney represented the client under
a
contingent fee agreement, since he would have received no fee if the
case had
been lost. TPAI asserted that his "fee agreement provided that
the
judgment, if any, would constitute his entire fee." TPAI
Supplemental
Br. at 6. No such contingency agreement was ever produced
by TPAI,
despite the obvious relevance it would have had and despite our
repeated
explicit inquiries to TPAI concerning the existence of any
agreement relating
to the representation. See, e.g., Summary of
Telephone Conference at 1
(Sept. 17, 1993). The findings of the
contractor auditor who had
reviewed the attorney's correspondence with
TPAI, as noted, make no reference
whatsoever to any agreement that the
volunteer attorney would receive any
fee. We conclude that TPAI failed
to show that any agreement
existed.
At one point, TPAI suggested that, instead of having made a
contingency
fee arrangement for representation of a client, TPAI was unaware
of the
fee award and even of the client. Thus, the present Chair of the
TPAI
Board of Directors (who has been a member since 1986) stated in
an
affidavit that when the OIG report came out the Board of
Directors
"learned approximately then for the first time" that the attorney
had
received the fee, and that "no independent investigation" has been
made
by TPAI to verify that a TPAI client was involved, although she
did
"presume" so. Affidavit of Ann Ormesher at . 4. 7/ If TPAI
thought
that it needed to do any investigation, it should certainly
have
undertaken to conduct it long before completing its appeal to us.
We
granted numerous extensions to TPAI in this matter, repeatedly
directed
the attention of counsel for TPAI to the need for documentation
relating
to the fee award, and provided ample opportunity to TPAI to
offer
evidence in response to the audit findings. Yet this assertion is
the
first time in this lengthy case that TPAI raised any question about
the
identity of the client. The suggestion that TPAI was unaware of
the
representation until the OIG report was issued and is still unaware
of
the identity of the client lacks credibility. The attorney was
married
to the Executive Director at the time of the representation.
See Letter
from DAR at 1, n.1 (Nov. 19, 1993). It strains credulity to
believe
that TPAI was not thereby aware of the representation and the receipt
of
the fee award, especially in light of the contemporaneous
correspondence
between the attorney and TPAI. The documentation on
which the auditor
relied was contemporaneous, and therefore more reliable
than the
unsupported assertions made in Ms. Ormesher's affidavit. In
any event,
the lack of awareness of one or more Board members about the
activities
of a volunteer attorney in assisting with TPAI's client advocacy
does
not excuse TPAI from recouping program income once TPAI becomes
aware
that such income has been improperly retained by the volunteer.
The record also demonstrates that the TPAI Board of Directors and
former
Executive Director were aware that attorneys' fees earned in
the
representation of the program's clients constituted program
income.
See, e.g., TPAI Supplemental Br., first unnumbered exhibit at 2
(Ms.
Derryberry's resignation letter) and DAR Ex. 1, Appendix at
21-22.
These documents relate to the Board of Directors' concern about
the
failure of a staff attorney to file for potential attorneys' fees
awards
which would have benefitted the program. We see no reason to
treat an
award resulting from an attorney's representation of a TPAI
client
through the program differently simply because he acted as a
volunteer
rather than a paid staff member, absent some agreement evidencing
a
different intent.
Finally, TPAI argued that no explicit "prohibition against using
agency
money" for attorneys' fee payments to "legal contractors" was
enacted
until 1990, and that OMB Circular A-122 does not address the
issue.
TPAI Supplemental Br. at 5, citing Pub. L. No. 101-496 (1990)
codified
at 42 U.S.C. . 6042(g). That provision states that suits may
be brought
"on behalf of persons with developmental disabilities against a
State,
or agencies or instrumentalities of a State" and that amounts
received
through court judgments in such cases and "used by the system" must
be
"limited to furthering the purpose of this subchapter and shall not
be
used to augment payments to legal contractors or to award
personal
bonuses." 42 U.S.C. . 6042(g)(1) and (2). TPAI contended
that the 1990
statute should not be applied retroactively, and that even if
the 1990
statute applied, the fee here constituted the attorney's
entire
compensation on a contingent basis and was therefore not used
to
"augment" any payment. TPAI Supplemental Br. at 6.
This argument reflects TPAI's fundamental misunderstanding of
this
issue. DAR did not argue that grantees were prohibited from
using
program funds to make payments to legal contractors. We have
found that
the attorney here acted as a TPAI volunteer, and TPAI presented
no
evidence that he was a legal contractor. We have also found that
the
fee award was income earned by the attorney in his representation of
the
client, but was not a payment from TPAI. Thus, the issue here
was
whether fees earned in a program-related activity must be treated
as
program income (and be used to reduce costs charged to federal
funds),
even where a volunteer working for the program retains the fees.
OMB Circular A-122, as noted above, does have explicit rules on the use
of
program income. Those rules do not and need not specify in
advance
every possible source of program income, since that would be
impossible
to foresee. Thus, the absence of an express reference in the
definition
of program income to attorney's fee awards earned in advocacy by
a
volunteer on behalf of a program client is not significant. The
program
income rules which apply here were in effect long before the
1990
statute and continue in force.
Furthermore, the 1990 statute has no relevance to the factual situation
in
this case. On its face, the statute deals with limitations on the
use
of program income, not with defining what constitutes program
income.
We see nothing in this statute to imply that fee awards had
previously not
constituted program income.
TPAI suggested that policy considerations prior to the enactment of
the
1990 statute might support the offering of attorney's fee awards
in
contingency cases as an inducement to recruit volunteer attorneys.
See
TPAI Reply Br. at 13. This argument overlooks the main point,
i.e.,
TPAI submitted no evidence whatsoever that the volunteer attorney
here
was ever offered a contingency arrangement or had ever made
any
agreement with TPAI permitting him to retain the fee award.
His
willingness to volunteer in the absence of such an incentive may
have
resulted from his relationship with TPAI, his interest in serving as
a
volunteer advocate, or from some other motive. In any event,
no
evidence in the record demonstrates that TPAI offered attorney's fees
in
the recruitment of volunteer attorneys generally or this attorney
in
particular. We thus need not address whether such a policy would
be
permissible before or after the 1990 statute.
We therefore uphold the disallowance of the amount of the attorney's
fee
award improperly retained by the volunteer attorney.
(5) Miscellaneous ($3,021)
The auditors disallowed payment for items given as gifts to
volunteers
($529). TPAI asserted that these gifts were reasonable
because the
volunteers performed numerous hours of advocacy service and
were
otherwise uncompensated except for expenses. DAR argued that the
cost
principles make unallowable any "[c]ontributions and donations by
the
organization to others . . . ." OMB Circular A-122, Att. B, .
8.
However, as in the case of the interest and penalty payment, TPAI
was
able to document to DAR's satisfaction that the funds came from
the
savings account derived from non-federal sources. DAR
therefore
withdrew this part of the disallowance. DAR Reply to TPAI
Supplemental
Br. at 2.
TPAI offered no basis for charging costs for meals at local
restaurants
while not in travel status ($1,504) and credit card finance
charges
($50) to federal funds and admitted they were incurred as a result
of
inadequate internal controls. Since TPAI made no argument relating
to
these parts of the disallowance, they are upheld.
Charges of $891 were disallowed for babysitting services provided for
the
children of board members and volunteers while attending conferences
and
board meetings. A charge for $47 marked "personal" on a travel
voucher
submitted by the Executive Director was also disallowed. TPAI
Ex.
9. DAR accepted documentation submitted by TPAI relating to these
items
and withdrew them from the disallowance. See Summary of
Telephone
Conference at 1 (Sept. 17, 1993).
Conclusion
For the reasons discussed above, we uphold $46,505 of the disallowance.
As
explained above, DAR withdrew $16,931 of the disallowance.
___________________________
M.
Terry Johnson
___________________________
Norval
D. (John)
Settle
___________________________
Judith
A.
Ballard
Presiding
Board
Member
1. TPAI was formerly known as Effective Advocacy for Citizens
with
Handicaps, Inc. or EACH and is referred to under that name in some
of
the exhibits and documents in the record.
2. Federal regulations provide that the allowability of costs
of
Protection and Advocacy programs is governed by HHS regulations
(which
would include 45 C.F.R. Part 74) or by OMB issuances (of which
OMB
Circular A-122 applies to nonprofit organizations such as TPAI).
45
C.F.R. . 1386.24(b) (1992) (unchanged during relevant period).
3. Counsel for TPAI claimed to have "uncovered" new information
that
the check in question was payable directly to the attorney and was
not
written on a TPAI account, as he had "mistakenly" assumed, and
suggested
that "everyone on both sides wrongly assumed that the payment had
come
through" TPAI. Letter from TPAI Counsel (Oct. 27, 1993).
However, the
contractor's audit report, in evaluating the allegation that
"legal fees
recovered went to" the volunteer attorney/board member instead of
going
to TPAI, clearly stated that "the check was made payable to the
former
Board member for $35,000" and that no corresponding deposit to
TPAI
could be located. DAR Ex. 1, Appendix at 7. The OIG
report
incorporated the contractor audit as an appendix and did not
disagree
with the findings on attorney's fees although it did not
specifically
reference them. DAR Ex. 1, at 4. The disallowance
determination
notified TPAI that the fee award was disallowed as an uncoded
finding
because the award was not remitted to TPAI by the attorney.
No
reference was made to the award having been paid by TPAI. We
conclude
that the misunderstanding was solely on the part of counsel for
TPAI.
The issue is not whether TPAI made an improper payment to a
volunteer
attorney, since it clearly did not pay the attorney. The
issue is
whether a fee award arising from representation of a TPAI client by
the
attorney amounted to income earned as a result of a program activity.
4. Although this characterization best fits the facts in the
record,
it is also possible that the attorney's fee award constituted
an
applicable credit. Applicable credits include funds received
which
operate to "offset or reduce expense items that are allocable
to
awards." OMB Circular A-122, Att. A, . A.5.a. The record does
not
establish whether the fee award was intended in part as
reimbursement
for actual costs of the litigation as well as attorney services
or
whether TPAI incurred such actual litigation costs or other
indirect
costs on behalf of its client during the volunteer's
representation.
Since the result is the same in this case regardless of
whether the fee
award is considered an applicable credit or program income,
we need not
reach a definitive conclusion.
5. Briefly, the alternatives are (1) using the income for
allowable
costs of the program and reducing the amount of federal
participation to
correspond, (2) using the income for allowable costs and
counting it as
part of the required non-federal share, or (3) using the
income for
additional costs beyond the allowable program costs but furthering
the
objectives of the federal grant. The last two alternatives "may be
used
only if expressly permitted by the terms of the grant." TPAI did
not
point to any terms of its grants which would permit use of any but
the
first alternative for program income.
6. We also note that a serious question of conflict of interest
might
arise if we accepted TPAI's claims that the attorney was not, in
fact,
acting as a volunteer but rather in anticipation of receiving
a
contingency fee, in light of his relationship to the Executive
Director
and his own fiduciary position on the Board.
7. This version of events contradicts an unsigned version of the
Board
Chair's affidavit, originally submitted by counsel for TPAI with
its
supplemental brief, which asserted that an unwritten agreement
existed
concerning a contingency fee arrangement. The signed version
omitted
any claim of an agreement and asserted that the Board of Directors
was
unaware of the award until the OIG report. Compare Affidavit of
Ann
Ormesher (unsigned, attached to TPAI's Supplemental Brief)
with
Affidavit of Ann Ormesher (signed, attached to Letter from TPAI
counsel,
dated Nov. 10, 1993). The signed affidavit was submitted
without
permission after counsel for TPAI was instructed in writing by the
Board
that no further submissions would be accepted. Letter from Board,
dated
Nov. 3, 1993. The accompanying letter indicated that the
attached
affidavits were merely executed copies of the original submissions,
but,
as noted, Ms. Ormesher's affidavit differed materially from the
original
affidavit in its assertions regarding the fee award. DAR
objected
strongly to the inclusion of the second Ormesher affidavit in
the
record. Letter from DAR, dated Nov. 19, 1993. We do not rule
on the
objection because, as discussed in the text, we find that the
assertions
made in the second affidavit do not further
TPAI's