The University of Arizona (the University) appealed a determination by the Ad Hoc Appeals Review Committee (Committee) of the Health Resources and Services Administration (HRSA) disallowing $78,180 in costs related to the Border Health Fellowship Program component of a grant that had been awarded to the University by HRSA. s Bureau of Health Professions (BHPr) for the period July 1, 1995 through June 30, 1998. The Committee found that a significant and nonsupportable change in the grant project. s scope of work occurred without notification to and the required prior approval by BHPr.

For the reasons discussed below, we find that the University did not abide by the terms of its approved grant application and violated the program regulation requiring full-time effort by trainees receiving financial assistance from grant funds. The University used federal funds for a project that differed materially from what had been approved. Accordingly, we sustain the decision of the Committee to disallow $78,180 in costs charged to the Border Health Fellowship component for the second and third budget periods.

Part 74 of 45 C.F.R. sets forth the uniform administrative requirements for grants awarded by the constituent agencies of the Department of Health and Human Services to grantees, including institutions of higher education. Section 74.62(a) provides:

Requirements for grants for faculty development education programs in family medicine awarded under section 747 of the Public Health Service Act are set forth at 42 C.F.R. Part 57, Subpart Q. These regulations provide in pertinent part:

42 C.F.R. � 57.1604(d).

Guidelines for the award and administration of financial assistance awards made by components of the Public Health Services (PHS) are set forth in the PHS Grants Policy Statement. Chapter 8-1 of this document provides:

Following the approval of its grant application (HRSA Tab II), the University became a Family Medicine Traineeship grantee, as authorized by section 747 of the Public Health Service Act. The grant had a project period of July 1, 1995 through June 30, 1998. The grant project included a Border Health Fellowship Program, with the University proposing to "establish a full-time, one year Border Health Fellowship program," with the objective to "prepare physicians for faculty roles in bi-cultural, underserved settings." HRSA Tab II at 2 and 26. Trainees under the program were to be full-time fellows academically based at the University. s Medical Center. Id. No fellows were enrolled in the first year of the grant because the grant was awarded too late. In the period at issue in this appeal, the last two years of the grant, the University gave stipends of $28,200 each to three fellows, Drs. S, G, and V. In progress reports filed in January 1996 and 1997, the University reported that the Border Health Fellowship Program was progressing favorably, with no obstacles in implementing the project. s objectives. HRSA Tabs IV and VI.

After a complaint was filed in June 1997 to the Secretary of this Department concerning the management of the grant, a BHPr team conducted a site visit of the University. s Border Health Fellowship Program in September 1997. HRSA Tab XV. The site visit team found that the three fellows in the Program were devoting 25% of their time to the project and did not participate in the project on a full-time basis for the regulatory minimum of three months. The site visit team also found that the University did not provide on-site supervision or evaluation of the fellows, which was a project requirement. Id. at 16. The site visit team concluded that changing a full-time fellowship program to one requiring only 25% effort constituted a change of scope in the project, which, under the PHS Grants Policy Statement, Chapter 8-1, requires prior authorization from the HRSA Grants Management Office. Id. at 15.

Based on information gathered from the site visit and the University. s response to the site visit report, BHPr concluded that the Border Health Fellowship Program conducted by the University under the Family Medicine Faculty Development Grant was neither full-time nor academically based as presented in the University. s grant application and approved and funded by BHPr. BHPr disallowed all costs ($147,811), including applicable indirect costs, charged to the Border Health Fellowship Program component of the grant in the second and third budget periods, with an additional $7,393 charged against program income also disallowed, for a total disallowance of $155,204. HRSA Tab XVIII.

In its appeal to the Committee, pursuant to 45 C.F.R. Part 50, Subpart D, the University appealed $85,573 of the disallowance, comprised of $78,180 in program costs and $7,393 in costs charged to program income, but conceded that $70,816 of the claimed costs were properly disallowed. University Enclosure 2, Statement of Appeal at 2. The appealed amount included: $10,071 in costs allocable to the Dr. G stipend; $10,071 in costs allocable to the Dr. V stipend; $42,545 in personal services costs otherwise related to the project; $9,702 in operations costs related to the project; $5,791 in indirect costs for the project; and $7,393 in costs charged to program income. Id. In that appeal, the University denied that it altered the goals, scope, or objectives of the project; rather, the University alleged that the Project Director decided that the best way to achieve the goals of the project was to change the methodology from full-time academically based to part-time clinically based. Id. at 1. The University conceded that "the shift from a full-time academically based program to part-time clinically based is a major change and should have been approved by [BHPr] prior to our implementing it." Id. The University then asserted, however, that it believed that BHPr would have approved the change to a part-time clinically based program had the University "requested the change in a timely manner." Id.

In its decision upholding BHPr. s disallowance of $78,180 in project costs and reversing the disallowance of $7,393 regarding program income, the Committee made the following conclusions relevant to this appeal:

In addition to repeating the arguments it made before the Committee that the scope of the project was not changed and that only the methodology of the project was altered, the University here dismissed the Committee. s conclusion that BHPr would not have approved the change in the project. s scope of work as "pure speculation." University Brief at 1. The University maintained that the change would have been approved or was within the discretion normally afforded a project director under general practices by the federal government. The University criticized the "failure by the committee to recognize that the issues presented were not clear cut and fell into a gray area" where reasonable people could arrive at different conclusions. University. s Brief at 2. Therefore, according to the University, the disallowance is a punitive sanction which is unwarranted given the nature of the controversy. The University also maintained that a service was provided to the federal government and that the objectives of the proposal were met. The University argued that it had already made significant concessions and that further penalties would constitute excessive punishment.

Our review of the record supports the Committee. s finding that there was a significant change in the scope of the project, with the result that the University. s project was not in accordance with the approved grant application. The purpose of the grant was "to prepare physicians for faculty roles." HRSA Tab II at 2. The grant application described achieving this objective by establishing a "full-time, one year Border Health Fellowship Program." Id. at 26. Instead, the project consisted of only part-time fellows, who spent 25% of their time on the project. The University also failed to comply with the requirement in 42 C.F.R. � 57.1604(d) that a trainee must be a full-time participant in the training program for at least three months. Not one of the fellows ever worked full-time as a Border Health Fellow. Under the provisions of 45 C.F.R. � 74.62(a), HRSA could properly disallow all of the stipend and related costs based on a material failure to comply with the terms or conditions of an award, as stated in a regulation or in the grant application. As the project called for a full-time effort by the fellows in an academic setting, part-time work on the project by the fellows in a clinical setting cannot be considered as anything but a material failure to comply with the terms of the grant application.

Moreover, the project. s director never sought approval for the change as was required by the PHS Grants Policy Statement. While the University is correct that a project director is given some latitude in carrying out a grant project, changes in the direction of a grant, such as its venue and type of training, explicitly require prior approval from the awarding PHS office. In any event, BHPr would have been precluded from granting prior (or retroactive) approval of the University. s change in the project from full-time to part-time participation by the fellows by the requirement for full-time participation set forth in 42 C.F.R. � 57.1604(d). The University did not dispute HRSA. s assertion that it lacked authority to approve an expenditure that would violate this regulation.

Furthermore, the University. s position that the change from full-time to part-time status was only a change in the methodology, and not the scope, of the project is not credible. The University. s claim that the fellows devoting 25% effort for a full year is the equivalent of their devoting 100% effort for three months, thus supposedly meeting the three-month requirement in 42 C.F.R. � 57.1604(d), ignores the fact that, pursuant to the approved grant application, funds were awarded for a full-time, one year program, more than the minimum required by the regulation. Thus, even if the change were not a violation of the express terms of this regulation, the University. s argument would not support payment of the full amount of the stipends.

Additionally, the University. s "fair value" argument is unpersuasive. The University argued that, because the federal government received some value from the project as two of the Border Health Fellows did devote 25% of their effort over a year toward the project and are now in family health faculty positions, the University should not suffer a total disallowance of the grant funds, but rather is entitled to what amounts to a pro rata share of the grant. We consider this to be an assertion of an equitable, quantum meruit argument by the University. The Board is empowered to resolve legal and factual disputes. It cannot provide equitable relief. See, e.g., California Dept. of Health Services, DAB No. 1670 (1998). The Board is bound by all applicable laws and regulations. 45 C.F.R. � 16.14. As discussed above, there is no basis in the regulations for payment of grant funds for the project as conducted by the University.

For the reasons discussed above, we find that in changing the scope of the project, the University did not abide by the terms of its approved grant application and violated the program regulation requiring full-time effort by trainees receiving financial assistance from grant funds. Accordingly, we sustain the disallowance of $78,180.

Donald F. Garrett

M. Terry Johnson

Cecilia Sparks Ford

Presiding Board Member