DATE: April 27, 1998
SUBJECT: Center for Human Behavior Studies, Inc.
Docket No. A-97-105
Decision No. 1657
DECISION
The Center for Human Behavior Studies, Inc. (Center), of Custer County, Oklahoma, appealed a March 25, 1997 decision by a SAMHSA Appeals Committee (Committee Decision). The Committee Decision decided an appeal from a May 2, 1995 SAMSHA program determination requesting repayment of $66,111.63 in federal funds received by the Center under a CSAP grant program. The determination related to the Center's expenditure of grant funds awarded for the period September 30, 1991 through September 30, 1993. At issue are SAMHSA's findings of excess salary and fringe benefits for Center employees; excess facility rental costs; costs for non-grant related activities; unsupported accounting and auditing costs; and inadequately documented utilities and communications costs.
The record in this case consists of the parties' briefs and evidentiary submissions in this case and a previous appeal, as well as the parties' answers to a series of questions raised by the Board after the close of the regular briefing process. See Request to Develop the Record and Ruling on Jurisdiction (November 10, 1997) (Request and Ruling).
SAMHSA modified the disallowed costs in several respects during Board proceedings, effectively reducing the disallowed amount by $5,119.25 ($665.75 + $4,453.50). Based on the record, we reverse the disallowance of $14,605 and sustain the remaining disallowance. Thus, the Center must repay $46,387.38. ($66,111.63 -($5,119.25 + $14,605)) in funds received in excess of its total allowable costs.
BACKGROUND
We review in this section the somewhat complicated history of this grant project and various disallowance actions by CSAP and later SAMHSA, since understanding this history is key to sorting out the relationship of various amounts originally disallowed, as well as amounts originally paid and subsequently disallowed.
The Center received funding as the lead agency for a coalition, titled Custer County Community Coalition, to operate a substance abuse prevention program for two budget periods of a project period beginning September 30, 1991. See Center Tab 1. On December 17 and 18, 1992, CSAP conducted a site visit at the Center to evaluate the Center's progress in carrying out grant activities as well as its financial management. Based on that visit, CSAP suspended the Center's grant from December 23, 1992 through May 13, 1993. On May 17, 1993, the Center received a letter from CSAP. (The date on the record copy of this letter is not legible.) There, CSAP notified the Center that, after review of additional documentation, CSAP had lifted the suspension, but classified the Center as an "exceptional organization." This classification is placed upon grantees exhibiting evidence of poor program audit or business management practices. See, e.g., Rhode Island Substance Abuse Task Force Association, DAB No. 1642 (1998). Consequently, CSAP imposed special conditions on the Center to facilitate CSAP's ability to monitor the Center's financial activities.
On March 16, 1994, CSAP issued a determination disallowing costs claimed by the Center during year 2 of the grant. In December 1994, after unsuccessfully attempting to get information from CSAP, the Center appealed that determination to the Board. See DAB Docket No. A-95-38. The Center's appeal raised a jurisdictional question, specifically, that CSAP's determination had not afforded the Center an opportunity for a preliminary appeal process normally available to PHS grantees. See 42 C.F.R. . 50.406. Thus, CSAP's determination was not a final written decision appealable to the Board. See 42 C.F.R. . 50.404(a) and 45 C.F.R. . 16.3(b),(c). In its Acknowledgment, the Board asked PHS to explain whether CSAP's determination was a final decision appealable to the Board or whether the Center still had preliminary appeal rights to PHS.
In response, SAMHSA admitted that it had not met its procedural requirements for processing the Center's case. Consequently, SAMHSA provided the Center with the option of allowing the Board to retain original jurisdiction over Docket No. A-95-38 or pursuing its preliminary appeal rights within PHS. At the same time, SAMHSA reexamined the files, increased the disallowance to $40,273, and requested repayment of $20,144 (the difference between the amount that CSAP determined was total allowable expenses for years 1 and 2 of the grant and the amount CSAP determined that the Center had been paid). See SAMHSA Letter to the Board (February 10, 1995). Attachments to this letter explained the major items disallowed, based on the year 1 audit, an on-site review by a CSAP-contracted accountant, and CSAP's examination of receipts, vouchers, billing letters and statements, and estimates provided by the Center for the period of suspension and closeout of the grant. Major items disallowed included salary advances, rent overpayment, non-CSAP expenditures paid with CSAP funds, equipment rental, and audit expenses.
The Center elected to pursue its preliminary appeal rights through PHS. Consequently, on February 27, 1995, the Board dismissed Docket No. A-95-38 without prejudice.
Subsequently, the parties exchanged additional documentation. See Center Tab 1, Letter to the Board dated March 3, 1995. On May 2, 1995, SAMHSA responded to the Center's submission with a Revised Disallowance, requesting repayment of $66,111.63 and notifying the Center of the proper appeals process. See Center Tab 2.
In an Attachment to the Revised Disallowance titled "Schedule of Expenditure Requests, Adjustments and Accepted Expenditures," CSAP identified the components of the new disallowance as follows:
Of the specific items disallowed, the Center appealed, through the PHS informal appeals process, only the following items: personnel costs for pay between 1/7/93 and 5/14/93 (specifically, funds claimed for salary payments to two individuals and fringe benefits costs); rental costs; costs of non-grant related activities; audit and accounting costs; and costs for utilities and communications. As the Board Chair held in a previous ruling, only those items appealed through the PHS informal appeal process are properly before us. See Request and Ruling.
APPLICABLE LAW
The cost principles applicable to nonprofit organizations, such as the Center, are found in Office of Management and Budget (OMB) Circular A-122. During the period in issue, OMB Circular A-122 was made applicable by 45 C.F.R. . 74.174(a)(1991). See also Notice of Grant Award accompanying SAMHSA Response to Board Questions (undated).
Generally, in order to be an allowable charge to federal grant funds, a cost must be reasonable for the performance of the grant and allocable thereto. See OMB Circular A-122, Attachment (Att.) A, . A, Att. A., .2a. Among other factors, a cost is reasonable if it is the type generally recognized as ordinary and necessary for the operation of the organization or performance of the award. Id. at .3a. Generally a cost is allocable to a grant in accordance with the relative benefits received. Id. at .4a.
Under grant administration regulations at 45 C.F.R. Part 74, a grantee is required to document its costs. Specifically, accounting records must "be supported by source documentation such as canceled checks, paid bills, . . . ." 45 C.F.R.
. 74.61(g). Based on these requirements, the Board has consistently held that a grantee bears the burden of documenting the allowability of all charges to grant funds. See, e.g., North Carolina Central University, DAB No. 1640 (1998); New York State Dept. of Health, DAB No. 1636 (1997).
ANALYSIS
General arguments
The Center raised several arguments with respect to specific items of disallowed costs, which we discuss below. The primary argument raised by the Center, however, was that CSAP had, during the period of suspension and after it was lifted, required the Center to submit invoices to support its costs. The Center implied that, given the closeout of the project, it was unfair of SAMSHA under these circumstances to disallow retroactively costs previously paid based on documentation the Center had submitted and CSAP had approved at the time.
We do not find these arguments persuasive generally, for several reasons:
Moreover, the most recent case addressing estoppel involved erroneous advice given to a disability benefit claimant by a government employee which caused the claimant, who clearly relied on that advice, to lose his eligibility for disability benefits. Office of Personnel Management v. Richmond, 496 U.S. 414, 423 (1990), reh'g denied, 497 U.S. 1046 (1990). The Supreme Court held that payments of money from the Federal Treasury were limited to those authorized by statute and that to allow payments in violation of a statute, such as to this claimant, would be a violation of the Appropriations Clause. 496 U.S. at 416, 424, citing U.S. Constitution, art. I, . 9, cl. 7. The purpose of the Appropriations Clause, which provides that "no money shall be drawn from the Treasury, but in consequence of appropriations made by law," is to assure that public funds will be spent "according to the letter of the difficult judgments reached by Congress as to the common good and not according to the individual favor of Government agents or the individual pleas of litigants." 496 U.S. at 428. The Court went on to say that to allow estoppel based on a misstatement of a government employee would give government fiscal officers a most dangerous discretion: they could ignore the requirements of congressional enactments and implement programs according to whim. 496 U.S. at 425.
Richmond cited with approval some earlier decisions, including a case which held that there is likewise no estoppel against the government when one is seeking to recover federal funds in violation of a duly promulgated regulation (rather than a statute): "not even the temptations of a hard case will provide a basis for ordering recovery contrary to the terms of the regulation, for to do so would disregard the duty of all courts to observe the conditions defined by Congress for charging the public treasury." 496 U.S. at 420, citing Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 385-386 (1947).
Under these cases, it is clear that the Board has no authority to estop SAMHSA from requiring reimbursement of the overpayment even were the elements of estoppel shown. There can be no estoppel against the government where the result would be to allow an entity to receive (or, in this case, retain) funds which properly belong in the U.S. Treasury because the use to which they are or have been put violates a statute or regulation.
Personnel Costs
The Committee Decision found --
[a]s to personnel costs for pay between 1/7/93 and 5/14/93 (the grant suspension period), . . . the grantee did indeed receive excess funds for salary payments for . . . [J.W. and B.A. (names deleted to protect the individuals' privacy)] and did indeed receive double reimbursement for salary fringe benefits.
Committee Decision at 1.
On September 20, 1993, the Center had requested reimbursement totaling $31,281.65 for salary, fringe benefits and unused annual leave for these individuals following the cessation of their employment with the Center.
In that letter, the portion of this request attributable to employee J.W. ($15,274.92) was broken down as follows:
Salary - $9,329.20
Fringe benefits (25% rate) - $2,332.36
Unused annual leave (31 days accrued from 10/1/91 through 4/16/93) - $3,613.36.
The portion of this request attributable to employee B.A. ($16,006.79) was broken down as follows:
Salary - $10,461.50
Fringe benefits (25% rate) - $2,615.37
Unused annual leave (28 days accrued from 10/1/91 through 5/14/93) - $2,929.92. Center Tab 4 at A-12.
In this section, we first discuss the payments for accrued annual leave, and then discuss the fringe benefits issue.
A. PAYMENT FOR ACCRUED ANNUAL LEAVE
SAMHSA determined that the amount of lump sum annual leave for which the Center requested payment exceeded the 80 hour per employee limit established by the Center's Personnel Policies. Consequently, SAMHSA disallowed the $6,543.28 originally claimed by the Center, allowing instead $2,212, which was the financial equivalent of 80 hours of unused leave for J.W. and B.A. Revised Disallowance at 2. SAMHSA based this disallowance on the cost principle at OMB Circular A-122, Att. B., .6.b.(1) which provides that costs of compensation for personal services are allowable only to the extent that they conform to a grantee's established personnel policies.
In a May 9, 1996 letter to SAMHSA, the Center questioned the limitation on reimbursement for unused annual leave on the ground that these employees had not been terminated. According to the Center, J.W. "left the program for another job in May 1993" and B.A. worked "until the program ended in September 1993." Before the Board, the Center asserted that as far as "employment termination (limiting annual leave payment) was concerned there were no terminations . . . [t]he pay requested . . . was a request for leave not taken during the first or second year of the grant . . . ." Center Brief (Br.) at 4 (unnumbered).
SAMHSA noted that the Center's Personnel Policies specifically stated that: "Upon leaving employment the employee will receive payment for all accrued leave pay up to eighty (80) hours." SAMHSA Br. at 2 (unnumbered).
We conclude that the Center's attempt to receive compensation for all unused leave for these employees is inconsistent with its own policies and therefore with the applicable cost principles. The Center's Personnel Policies provide:
Lump Sum for annual leave will not be allowed except upon termination from employment with the Tribes and for no other reason.
Upon leaving employment the employee will receive payment for all accrued leave pay up to eighty (80) hours. Payment will be made regardless of the reason for departure. . . .Center Tab 2, Manual of Personnel Policies for the Center for Behavior Studies, Inc., at 13, Section 4.4 Annual Leave.
"Termination" is defined as --
The release from employment of a temporary or emergency employee upon completion of his term of service or the need for his services. Id. at 4, Section 1.8 Definitions.
While the Center argued that J.W. and B.A. were not terminated, this fact would not establish that the costs in question are allowable under the Center's policies. Indeed, this fact supports a view that SAMHSA properly determined that payment for unused annual leave for these employees was governed by the Personnel Policies' restriction to a payout of no more than 80 hours of accrued leave "upon leaving employment" that would be made "regardless of the reason for departure."
In response to the Board's questions, the Center's representative stated:
A request was made that appears to be in violation of the personnel policies limit of paying for no more than 80 hours leave time. I do not remember if that requested amount was actually paid. If it was paid in late 1993, it was done so, with the determination by C-SAP staff, that the funds were allowable. . . Attachment 1 of the 6/23/93 letter from . . . [the Center to CSAP] made a totally different request regarding accrued leave. . . [B.A.], requested no leave time and . . .[J.W.] requested 80 hours from year one and 76.4 hours for year two. . . .Center Response to Board Questions (December 23, 1997) at 1.
First, we note that the fact that the Center may have made a different request in June 1993 is not relevant since what is at issue here is the amount that was originally allowed, which was based on the Center's September 1993 request. Second, while it appears that CSAP may indeed have originally paid the full amount of that request, the Center provided no evidence that CSAP knew at the time of the Center's policy to the contrary. The Center, however, had notice of the applicability of the cost principle and notice of its own policy. Thus, it should have known that the full payments were not allowable and could not reasonably have relied on mere payment of the claim by CSAP.
We also note that it is irrelevant whether the Center actually paid the excess leave. If the excess leave was not paid by the Center, it still would not constitute a cost, much less an allowable cost, for purposes of calculating the amount owed by the Center.
Accordingly, we affirm the Committee Decision disallowing payments representing more that 80 hours of leave for each of the two individuals in question.
B. FRINGE BENEFITS
SAMHSA's Revised Disallowance stated:
The personnel costs . . . were included in the total allowable expenditures on the worksheet sent to the Appeals Board. Included in those expenditures were fringe benefits calculated at a rate of 25% . . . However, in evaluating the direct costs included in our allowable costs for each month, CSAP has approved direct payments for these costs. Therefore, since you are not entitled to be reimbursed twice for the same costs, the application of the 25% rate is not appropriate and these costs have been disallowed . . . [W]e are adding to the . . . acceptable costs . . . [a total of $794.58 in SUTA
paid to Oklahoma in January and March 1993 for which no invoices were previously submitted]. Revised Disallowance at 1-2.
The Center asserted:
In the correspondence with CSAP regarding personnel costs for . . . (the suspension period) there were no payments made until sometime after October 1993. . . There was no doubling for fringe. The itemized bills. . . sent to CSAP for the suspension period . . . had no request for salary or fringe. This was treated as a separate item and submitted at the end of the grant period . . . .Center Br. at 4 (unnumbered).
SAMHSA responded:
Grantee appeals the disallowance of fringe benefits at 25% of direct labor. Grantee cannot support a fringe rate of 25%. The only fringe benefits paid were FICA, SUTA and health insurance. These costs averaged only 10% in fiscal 1992 according to the audit report. Also a letter dated 6/23/93, where the grantee requested salaries for the suspension period, included an attachment which stated that the fringes were only 11.55%. We allowed the grantee 12% for fringe benefits from May through October. During the previous months, the fringe costs were paid as direct costs. SAMHSA Br. at 2 (unnumbered).
In response to the Board's questions, SAMHSA further indicated:
We allowed as direct costs . . . costs associated with unemployment and health insurance. In addition, we paid as a direct charge the leave benefits. The grantee had no pension plan. Normally, a rate of 25% would include paid leave, hospitalization, pension and required taxes. In view of the charging of these cost as direct, we disallowed the fringe benefits at 25%.
. . . [the second year budget] does include a line item for fringe benefits at the 25% rate. The grantee proposed a rate of 25% in the first year also. Our analysis of the proposed year 1 budget determined that a fringe benefit rate of 25% was reasonable. The second year award was made on July 22, 1992, before we received any audited information from the grantee which indicated the actual rate . . . The 1992 audit report shows a 10.3% fringe benefit rate.
SAMHSA Response to Board Questions (undated) at 1-2 (unnumbered) and attached Notice of Grant Award, Budget Period 9/30/92 through 7/31/93; see also Center Tab 1, Notice of Grant Award, Budget Period 9/30/91 through 9/29/92.
Once a grantor agency questions grant charges, the burden shifts to the grantee to prove their allowability. See North Carolina Central University, at 9. Here, the Center failed to demonstrate that SAMHSA's disallowance of fringe benefits is incorrect. The mere fact that fringe benefits were calculated for budget purposes as 25% of salary costs does not mean that the Center can claim for that amount if it did not actually incur fringe benefit costs in that amount. Moreover, having received reimbursement for certain months for specific cost items that are normally considered included in fringe benefit costs, the Center cannot reasonably claim that it also should be able to apply a fringe benefit rate to salary costs for the same period. The fact that the claim for 25% of salary costs for fringe benefits was not submitted as part of the itemized bills, but was instead submitted at the end of the period, does not change the fact that paying the 25% would result in excessive and duplicate reimbursement.
The Notices of Grant Award support SAMHSA's position that certain fringe benefits were budgeted as direct costs that would normally need to be itemized and supported by invoices or other documentation. Moreover, in a letter to SAMHSA dated 5/9/96, the Center acknowledged that there "was no budget made that separated direct costs from fringe benefits." SAMHSA's application of a lower fringe benefit rate, for the period May - October 1993, rather than the 25% sought by the Center, was justified by the 1992 audit which showed the Center's actual fringe benefit rate to be slightly over 10%. Grant charges must be based on allowable costs that are reasonable. Fringe benefits are reasonable in the abstract, but fringe benefits reimbursed at a rate more than twice that actually incurred are not reasonable. Since the audit revealing that the Center's actual fringe benefit costs were lower than the budgeted amount was not submitted until September 1993, CSAP's failure to question the earlier payments based on the 25% estimated rate cannot reasonably be considered approval of payment at that level.
Based on the foregoing, we affirm the Committee Decision disallowing the excess amounts for fringe benefits claimed by the Center.
We note that the Center's March 3, 1995 letter asserted that --
personnel pay was adjusted to recover any overpayment and outstanding advances to the project staff. This was subtracted (from amounts representing accrued leave and wages earned) on the last payment for . . . staff December 27, 1992. Center Tab 1.
The record indicates, however, that the reduction referred to was to account for salary advances to staff, not to adjust for excess fringe benefits or annual leave payments. Thus, this is not a basis for reversing the disallowance of personnel costs at issue here.
Rental Costs
SAMHSA stated --
In the first year of funding, the Grantee entered into a mortgage for a house . . . Using CSAP grant funds, the Grantee paid closing, leasehold improvements, loan and other costs. Net lease payments in year 01 . . . total $13,179. In addition, the grantee paid rent under a second lease . . . and charged the grant. Since this facility was not used for the grant, we are disallowing the excess payment totaling $200.
Since the Grantee owns the building, only the cost of ownership is an allowable cost under OMB Circular A-122. The annual depreciation for the building equals $935. In addition there is an agreement with the Grantee that only 90% of this cost is applicable to this grant. Therefore, we are only allowing an annual deduction of $841.50 for depreciation.
We are, therefore, disallowing rent costs totaling $12,337.50 charged to the grant in Year 1.
The allowable amount for Year 2 was $841.50. We are, therefore, disallowing $9,644.08 as a cost to the grant in Year 2. SAMHSA Letter to the Board (February 10, 1995), Summary at 2 (unnumbered) (emphasis in original).
The Center alleged generally that correspondence with the CSAP Grants Management Specialist reflected an approved agreement to allow $935 per month for space costs. The Center contended that the annual depreciation was approximately $11,220 for years 1 and 2 based on "approval" of the CSAP Grants Management Officer given in a September 20, 1993 telephone discussion with the Center's Project Director. See Center Letter to the Board (March 3, 1995).
The Center further stated that the "rental agreement was made as a way to save program money." The Center asserted that the grant Project Officer was included in the planning for this agreement and "fully supported the idea." Additionally, the agreement was included in the "budget forecast with full knowledge of the contracting officer." Center Letter to SAMHSA (5/9/96).
SAMHSA conceded that it had --
inadvertently allowed the inappropriate amount for depreciation for the property when making payments on the Center's requests for cash. . . [T]he allowable annual expenditure for the property was $841.50. CSAPhad incorrectly calculated this as a monthly allowance. Therefore, the Center has been overpaid for the use of the building. Revised Disallowance at 2-3. SAMHSA argued that, although the Center provided a statement indicating that "the Center is providing office space through a lease . . .," the Center never indicated that it was leasing from itself. SAMHSA Br. at 3 (unnumbered). The Committee Decision noted that the alleged approval of the CSAP Grants Management Officer was "immaterial" to the allowability of these costs. Committee Decision at 1.
The Center expressed incredulity at the Committee's statement that prior federal approval was immaterial, alleging that the Center's novice Principal Investigator relied on the advice of a trained federal project officer. Moreover, the Center asserted that the harm caused by this incorrect advice was compounded by CSAP's later approval and increase of this budget item. Center Br. at 4 (unnumbered). Ultimately, the Center acknowledged that the correct total annual depreciation for the property was $935 in each grant year. However, it insisted that it was advised by CSAP staff that the costs submitted during the first grant year were correct. Center Response at 1.
The cost principles at OMB Circular A-122, Attachment B, limit the Center's recovery on this issue. Paragraph 42.c. provides that rental costs under a less-than-arms-length agreement are allowable only up to the amount that would be allowed had title to the property vested in the organization. Under the definition of arms-length in that same paragraph, the lease agreement here is less-than-arms-length since the Center entered into a rental agreement with itself. Paragraph 42.d. limits rental costs under leases creating a material equity to expenses such as depreciation or use allowance.
In effect, the Center argued that CSAP should be estopped from disallowing these costs. Yet, the Center did not prove the elements of estoppel set out above. While the Center alleged that it had received approval to enter into the lease arrangement, the Center did not offer evidence definitively showing that CSAP was aware of both the fact that the Center was renting the property from itself and that the Center was charging to federal funds more than the depreciation costs allowed. Moreover, the Center dated the approval from the Project Director as occurring during a September 20, 1993 telephone conversation. See Center Letter to Board (March 3, 1995). That would place the approval well after most of these costs were incurred. Thus, the Center could not have acted on this advice. Besides, since CSAP later moved to inform the Center of the appropriate charge to the grant for this cost, it appears that a mere mistake was made by CSAP in assuming the depreciation amount was a monthly amount, rather than a yearly amount. The Center itself should have recognized this mistake. In any event, even if a CSAP employee did provide erroneous advice to the contrary, CSAP could not reasonably rely on it in light of the applicable cost principle.
Based on the foregoing, we conclude that SAMHSA properly disallowed excess rent and depreciation charged to the grant.
Funds Spent on Non-Grant Activities
Based on a detailed review of the Center's ledger and balance sheets for year 1, CSAP's accountant initially found that non-CSAP (i.e., non-grant) expenditures had exceeded non-CSAP receipts by $6,888 and that grant funds were used to cover the difference. See SAMHSA Letter to the Board (February 10, 1995).
SAMHSA's Revised Disallowance modified this finding, as follows:
The non-CSAP expenditures disallowed occurred in Year 1 of the project. The CPA consultant who performed the review of your project from October 1, 1991 to November 30, 1992 calculated that expenditures ($34,107) of the organization which were not CSAP related exceeded the revenues ($19,502) from non-CSAP sources by $14,605. The source of funds to pay these overexpenditures was the CSAP grant. Therefore, these costs were disallowed as charges to the CSAP grant. This is an increase of $7,717 from the $6,888 in our original calculations. Revised Disallowance at 3. SAMHSA later explained that the Revised Disallowance of $14,605 did not add to the list of costs found to be related to non-grant activities, but was based on a redetermination of the amount of resources available from other sources. SAMHSA Response at 3 (unnumbered).
Although the Center initially asserted that it could not identify those non-grant expenditures, the Center appeared before the Board to concede that such expenditures were incurred, arguing instead that it was authorized to charge these costs to grant funds. Specifically, the Center asserted that --
it was decided by CSAP and explained . . . by the Project Officer and Contract [S]pecialist that since all of the activities of the grantee dealt with [a]lcohol prevention and research into alcohol addiction there would be no difference made in expenditures between CSAP and non-CSAP activities. Center Br. at 5 (unnumbered). The Center referred to a letter dated September 7, 1993, from the Center's Project Director, stating that the CSAP Project Officer, after transmitting letters related to the CSAP contractor's review, had "said, since all the activities of the lead agency are similar the only concerns were" specifically mentioned cost items.
SAMHSA denied ever authorizing the Center to use grant funds to pay non-CSAP grant expenditures. SAMHSA Br. at 3 (unnumbered).
We reject the Center's estoppel argument. CSAP could hardly have relied on the alleged September 1993 statement in charging the CSAP grant for the costs at issue, which were incurred prior to September 1992. Moreover, in June 23, 1993 letter to CSAP, the Center had agreed to allocate only 90% of personnel costs to grant activities (and CSAP applied this percentage to claimed costs). See SAMHSA Att. A-14 in Docket No. A-95-38. This indicates that the Center had acknowledged that not all of its costs were properly allocated to CSAP funds.
Moreover, even if the CSAP employee did make the statement alleged, the Center could not reasonably rely on it in light of the cost principles requiring that all costs be allocable to the grant (that is, of benefit to the grant project). OMB Circular A-122, Att. A., .4. This principle is based on basic concepts of appropriations law, holding that federal funds may be used only for the purposes for which Congress appropriated them. Here, the funds in question were appropriated and awarded for a specific project of substance abuse prevention and were available only for that purpose.
In any event, the record indicates that the Center did not rely on the Project Officer's alleged statement. The September 7, 1993 letter also refers to the ongoing audit of year 1, being performed by an independent CPA under contract with the Center. That audit, when released, faulted the Center for lack of appropriate review and approval of transactions and accounting entries. In response, the Center stated:
Expenses associated with program development and other non-grant related activities, including labor costs, have been removed from the grant. Center Tab 4 (Independent Auditor's Report at 11).
This raises a question, however, concerning whether the non-grant related expenditures identified by the CSAP-contracted CPA were included in the total grant expenditures of $219,373 reported in the audit subsequently issued by the independent CPA, as SAMHSA's calculations in the Revised Disallowance assume. The September 7, 1993 letter indicates that the letters from the CSAP-contracted CPA (including presumably the information regarding the non-grant related expenditures) were provided to the Center. This letter and other correspondence indicate that the independent CPA wished to take into account previous findings by CSAP before issuing his audit report. See Center Letter to SAMHSA Grants Management Officer 9/14/93.
In response to Board questions about SAMHSA's basis for its determination about the non-grant related expenditures in year 1, SAMHSA stated --
The year 1 audit report . . . is incorrect. The report does not show that the grantee had received cash of $236,173 as of September 30, 1992. Even though the award for the 01 year was only $225,000, the grantee had access to the 02 year funds from 7/22/97 and drew down $11,173 of the 02 year funds before the 02 grant year started. The audit report shows no cash balance at 9/30/92. . . . In addition, the Statement of Revenue, Expenditures & Changes in Fund Balance show only the CSAP grant; whereas the Balance Sheet shows receivables and payables associated with other projects that the grantee had. This all leads us to believe that our funds were used to fund other than the CSAP project. SAMHSA Response to Board Questions at 2 (unnumbered).
The record supports SAMHSA's conclusion that the Center had drawn down funds in excess of what its grant-related expenditures were and had applied those funds to non-grant activities. There is no support, however, for SAMHSA's conclusion that the non-CSAP grant expenditures identified by the CSAP-contracted CPA were included in the $219,373 identified in the independent audit as allowable grant expenditures. Indeed, some of the non-CSAP grant expenditures were identified by the CSAP CPA as associated with an NIAAA grant and the audit report identifies a $8,315 receivable due from NIAAA. This indicates that the Center had, by the time of the independent audit report, adjusted its expenditures to remove those previously identified as non-CSAP expenditures, as it claimed in response to the audit. Moreover, the difference between the amount drawn down by the Center prior to September 30, 1992 and the $219,373, is sufficient to account for the non-CSAP expenditures identified by the CSAP-contracted CPA and is already included in SAMHSA's calculation of the amount due from the Center.
Thus, we conclude that there is no basis for SAMHSA's determination that the $14,605 should be subtracted from $219,373, and we reverse the disallowance of this amount.
Audit and Accounting Fees
SAMHSA's February 10, 1995 letter included an attachment that described billings for a grant audit for year 1 of the grant totaling $8,800. In its Revised Disallowance, SAMHSA later determined that the Center had charged the grant $10,732 for audit and accounting services. SAMHSA claimed that the Center had provided no invoices, receipts or canceled checks to justify this expenditure and, moreover, the Center did not produce "the audit report that was paid for" for year 2 of the grant. Thus, SAMHSA disallowed this charge. Revised Disallowance at 3.
While reviewing the Center's documentation in preparation for this appeal, CSAP --
found invoices and checks which support costs of $4,453.50 for these services. These invoices appear to support monthly accounting services and costs for the 1992 audit which was received. The remaining costs of $6,278.50 are still considered unallowable as there is no support and we still have not received a 1993 audit report. SAMHSA Br. at 3 (unnumbered).
The Board asked SAMHSA why it was not reasonable to conclude that the remaining accounting costs must have been documented as they were incurred in a period when the Center was required to produce documentation of costs. See Request and Ruling at Question 12.
In response, SAMHSA noted that the financial reporting forms which the Center submitted for these costs were partially accepted as being reasonable for the services that needed to be performed. However, SAMHSA asserted that the Center had not provided supporting documentation (invoices or canceled checks) for the costs. Moreover, SAMHSA said, the Center still had not produced an audit report for 1993. SAMHSA Response at 3 (unnumbered).
The Center conceded that there "was no second year audit . . . ." Center Response at 1. The Center indicated that, during a site visit in August 1993, CSAP officials had admitted that the accounting funds had been expended by the Center in attempts to obtain answers to CSAP's questions regarding the Center's financial status. The Center alleged that one of the CSAP officials noted that an audit for the second year was not necessary as CSAP was responsible for the determination of the allowability of charges to the grant by that time. Id.
There is no evidence in the record supporting the Center's position regarding the August 1993 statements attributed to CSAP officials. Even if the Center was told that no audit of year 2 of the grant was required, however, there is a sufficient basis for the disallowance. As noted above, a grantee is required to maintain documentation of grant expenditures, including source documentation such as invoices. SAMHSA ultimately acknowledged (and the record contains) support for $4,453.50 of costs, some of it for the year 1 audit and some of it for accounting services. The Center provided no documentation to support any additional audit or accounting costs. While the Center claimed that it sent its original invoices to CSAP and some of its copies were illegible, the Center did not explain why it could not have obtained copies of invoices from the accountant, nor why it did not have canceled checks showing payment of additional amounts.
Accordingly, we uphold the disallowance of $6,278.50 claimed for costs of audit and accounting services ($10,732 - $4,453.50).
6. Undocumented Costs
The Committee Decision stated that --
[c]osts were disallowed primarily for utilities and communications. The SAMHSA Financial Advisory Services Officer's review contained in the May 2, 1995 letter provides clear explanation for which of these are properly documented by receipts, and allowable, and which are not in annotation to Attachment H, "Justification for Receipts Submitted." The Committee disagrees with the grantee that it submitted adequate documentation to support its position. Committee Decision at 2 (unnumbered).
The May 2, 1995 document to which the Committee Decision refers is the Revised Disallowance. There, SAMHSA stated that --
[t]he supporting documentation submitted with the Center's requests for cash included invoices (primarily for utilities and communications) which were cumulative for several months; e.g., the same month might appear on several bills. In addition, there were a number of items on the invoices for which there was either no supporting documentation or other justification for the charge against the CSAP grant. We have annotated Attachment H from your letter as to our determination for each item listed. Revised Disallowance at 3.
Annotated Attachment "h" is a document titled "Justification for Receipts Submitted for Payment . . . ." and covers the period of the Center's suspension, December 1992 through May 1993. The monthly "receipts" identify costs by category (e.g., Newspaper, Utilities, Telephone Service, Insurance, etc.). To the right of the dollar amounts for each item are handwritten notes indicating disposition (e.g., "allowed in orig. amt.," "Duplication," "No Justification," "90% allowed," "will accept and add to grant total"). SAMHSA had also provided, with its February 10, 1995 letter, annotated budgets and expense reports for each month in year 2 of the grant, indicating which items were disallowed.
Before the Board, SAMHSA reiterated its position that the Center had failed to document some of these costs. Further, it noted that these invoices --
many times included costs for more than one month. These same costs were billed in one month, were not paid by the grantee, and then appeared on a cumulative bill in the succeeding month. Payment was approved only for the appropriate amount.
SAMHSA Br. at 3 (unnumbered).
The Center indicated that it --
did not know what they [CSAP] were talking about. All payment of bills for the second year of the grant, by the requirements of the reinstatement, had to have the documents reviewed by CSAP prior to the release of the money. We sent a budget with the documentation and they reviewed it and allowed or disallowed each item with notations made about why. Center Br. at 5 (unnumbered). In response to Board questions, the Center restated its position that it assumed the costs would have been allowable since CSAP had to approve costs before releasing money. Center Response at 2 (unnumbered).
As mentioned above, however, the statement that funds were released only after documentation of actual expenditures is inaccurate. Under the special conditions, CSAP released funds based on budgeted amounts, and the expenditure reports and supporting documentation were submitted later. The report of amounts that the Center drew down under the grant shows that the Center was, in some months in year 2, drawing down funds in excess of what the annotated expenditure reports show as allowable amounts for those months. See SAMHSA Att. B-1 in Docket No. A-95-38. The report also shows that some year 2 funds were drawn down in year 1. Id.
The Center provided no evidence based on which we could conclude either that its total allowable expenditures for this period were more than what SAMHSA allowed, or that SAMHSA disallowed amounts that should have been allowed.
Accordingly, we uphold the disallowance of undocumented costs.
CONCLUSION
Based on the preceding analysis, we reverse the disallowance of $14,605 for non-grant expenditures. We uphold the remaining disallowances, as modified by SAMHSA during the appeal. We conclude that the Center should repay $46,387.38 in funds it received, but did not apply to allowable CSAP-grant costs.
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Cecilia Sparks Ford
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M. Terry Johnson
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Judith Ballard
Presiding Board Member