SUBJECT:

ProED, Inc.,

Petitioner,

DECISION

ProED, Inc. (ProED), appealed a determination by the National Institutes of Health (NIH) Grant Appeal Board (NIH Board) disallowing $10,259 in costs claimed by ProED under two grants awarded by the National Cancer Institute (NCI). The NIH Board's decision affirmed an earlier determination by NCI that ProED had incorrectly charged to NCI grants $1,737 in 1995 for supply and related costs and $8,522 in 1997 for consultant and related costs.⁽¹⁾

For the reasons discussed below, we find that ProED established that some, but not all, of the questioned supply costs were allowable. Accordingly, we reduce the disallowance of $1,737 related to supply costs by $486, with a further downward corresponding adjustment in the indirect costs and fixed fee. We further find that ProED has established that the consultant costs were an allowable charge to the NCI grant, with the result that we reverse the disallowance of $8,522 for the consultant costs.

Background

Costs charged to two separate grants ProED received from NCI are in dispute. For grant R44 CA61621 ("Antihormonal to Leukemia-Modified Cytokine Receptor"), NIH disallowed $1,737 ($1,301 direct costs, plus $338 in associated indirect costs, with an associated fixed fee of $98) for supplies charged to the grant.⁽²⁾ The basis for the disallowance was the absence of source documentation supporting ProED's claim, including documentation to establish whether particular costs had or had not been charged to the grant in question.

Regarding the second grant, Small Business Technology Transfer Research (STTR) grant R41 CA71150 ("Kits for Profiling Estrogen Receptors in Breast Cancer"), NIH disallowed $8,522 for consultant costs ($5,000 direct costs, plus $3,040 in associated indirect costs, with an associated fixed fee of $482) charged to the grant. Under the grant, ProED executed a subcontract with Howard University and engaged a faculty member of Howard University's School of Medicine as the principal investigator for the grant. ProED later hired this same individual as a consultant and charged the consultant fees to the grant. NIH disallowed the consultant costs on the basis that the payment of the consultant fees violated a provision of the Public Health Services Grant Policy Statement and the consultant costs were not documented as allocable to the grant.

Discussion

A. Supply costs

NIH identified 12 purchases of supplies by ProED in 1995 that NIH labeled questionable.⁽³⁾ NIH Folder F.⁽⁴⁾ In submitting a schedule of the disallowed items, NIH acknowledged that one of the items in the amount of $114.55 had not been charged to an NCI grant, and thus should not have been disallowed. For purposes of identifying eight of the disallowed purchases, NIH provided purchase orders, packing slips, and invoices. NIH provided no further documentation for the remaining three questioned purchases other than the supplier and the amount (Office Depot - $82.97; Park Seed Co. - $90.40; and Caroline Biologicals - $13.56).

In response, ProED argued: 1) the three items for which NIH failed to supply any further identifying documents were listed on its order log as intended for its educational division and were never charged to an NCI grant, as evidenced by the fact that they do not appear on the schedule of supplies charged to grants by ProED in 1995 (NIH "first" Folder F); 2) two items, one for $65.41 and another for $119, were for supplies directly related to the NCI grant project, and thus should be considered allowable; and 3) the other six purchases were for ProED's educational program but were initially recorded incorrectly as charged to the NCI grant, and were subsequently recorded correctly prior to the closing of the grant so that those purchases were not billed to the grant. ProED Attachments 1 and 4.

We agree with ProED that there is nothing in the record before us that establishes that the three purchases ($82.97, $90.40, and $13.56) were ever charged to the NCI grant, as NIH failed to supply any identifying documentation for those purchases that linked them to the NCI grant. Furthermore, these items do not appear among the items listed as charged to ProED's grants in NIH's "first" Folder F, which is a schedule of supplies charged to grants by ProED in 1995. Accordingly, we reverse the disallowance for these three items.

The two items that ProED argued were correctly charged to the NCI grant were sample bags ($65.41) and pansorbin cells ($119). ProED stated that the former was a normal laboratory supply item used for the grant, while the latter was ordered for work directly related to the grant, the immunoprecipitation of erythropoietin receptor antibodies. ProED further explained that the pansorbin cells might have been questioned by NIH because of a notation on its order log that it was for Dr. Poola, whose consultant fees in a later grant were disallowed by NIH. ProED explained that it provided these supplies for Dr. Poola's collaboration in the antibody purification studies under the earlier grant.

We accept ProED's assertion that these two purchases were for supplies related to the NCI grant, as the supplies were the types of supplies that were in fact used for the NCI grant project, and NIH provided no basis for our concluding that these purchases should not have been charged to the NCI grant as allowable costs. Accordingly, we reverse the disallowance for these two items.

The remaining six purchases in dispute concern supplies that ProED admitted were not grant-related, but nevertheless were charged to the NCI grant in 1995. ProED stated that these purchases were for items to be used by its children's science educational division, but its bookkeeper accidentally recorded the items at the time of purchase as standard laboratory supplies and logged them as direct costs to the NCI grant. ProED asserted that it corrected these errors prior to the closing of the grant so that the costs were not charged to the grant. The documentation submitted by ProED to support its position consisted of a handwritten schedule of purchasing records for supplies for educational projects (Attachment 1), listing to what account a purchase was charged; and a printout of transactions showing to what account purchases were allocated (Attachment 4). This latter document bears a date of "08/02/99" and shows the six questioned purchases as not being billed to any grant. ProED explained that in 1995, when the questioned purchases were made, it had a rudimentary accounting system that did not provide for reversal entries, that is, account entries indicating that an item previously charged to one account was deleted from that account. Therefore, according to ProED, the 1995 accounting sheets relied on by NIH in making its disallowance, which showed the questioned purchases as originally charged to the NCI grant, should not be considered definitive.

Both parties acknowledge that the most persuasive documentation a grantee could provide to establish the reversal of a charge made to a grant would be a contemporaneous record of an actual reversal formally deleting the charge from the grant account. The difficulty here is that ProED readily admitted that it has no such contemporaneous documentation to support its position that the questioned costs for the six purchases were not ultimately charged to the NCI grant.

Moreover, the documentation supplied by ProED to establish that these costs were no longer charged to the grant in question is not sufficient in and of itself to enable the Board to conclude that the costs had been deleted as charges to the grant. It is true that ProED provided schedules of transactions from January 1995 through December 1998 (Attachment 4) that indicate these particular items are no longer charged to any grant. These particular schedules, however, are dated August 2, 1999, and thus are not a contemporaneous record of a reversal of charges that had the effect of reimbursing NCI for what had originally been charged against the grant. Moreover, ProED failed to argue, much less demonstrate that, with the removal of these charges in August 1999, it still had sufficient allowable costs to cover the full amount of funding received under this particular grant for the period in question. Although ProED stated in its March 27, 2000 submission that it firmly stood behind its contention that there should be no disallowed costs, it provided the Board with no explanation as to how the Board could conclude that it had met its burden to document the allowability of the full amount of funding that it had received under the grant in light of its 1999 reversal of the charges in question. As the Board has repeatedly held, based on applicable costs principles and regulations, the burden to document the allowability of the full amount of funding received under a grant rests with the grantee. See, e.g., Lac Courte Oreilles Tribe, DAB No. 1132, at 5, n.4 (1990). Accordingly, we must uphold the disallowance of this particular set of supply costs.

For the $1,301 in questioned direct costs for supplies, we therefore reverse the disallowance by $486.⁽⁵⁾ As the disallowance amount for supplies also included indirect costs and an associated fixed fee, we also direct NIH to reduce the disallowance amount by the amount of indirect costs and portion of the fixed fee attributable to the $486 in allowable supply costs.

B. Consultant costs

As its principal investigator (PI) on the NCI grant, ProED engaged Indra Poola, PhD. Dr. Poola performed her work as the PI on the grant at Howard University and received salary support under the grant. Additionally, Dr. Poola went to ProED's facilities to work as a consultant. ProED explained that it hired Dr. Poola as a consultant in order to pursue a new approach which had not been originally envisioned in ProED's project proposal. ProED paid Dr. Poola $1,000 per month for five months as a consultant. ProED charged $5,000 in consultant costs paid to Dr. Poola to the NCI grant.

The NIH Board found that there was no discernible difference between Dr. Poola's role as the PI under the grant and her role as a paid consultant, noting that no records were kept of the time Dr. Poola spent on the grant or on other projects. The NIH Board thus found that Dr. Poola's activities as a consultant were not outside the scope of her employment as the PI on the grant.

In its decision, the NIH Board further relied on the Public Health Service (PHS) Grants Policy Statement, which provides:

[C]onsulting fees paid to employees of recipient or contractor organizations in addition to salary may be charged to PHS grant-supported projects only in unusual situations and when all of the following conditions exist:

• The policies of the recipient or contractor permit such consulting fee payments to its employees regardless of whether Federal grant funds are received.
• The consulting services are clearly outside the scope of the individual's salaried employment.
• It would be inappropriate or not feasible to compensate the individual for these services through payment of additional salary.

At 7-5.

The NIH Board found that none of these required conditions were present when ProED paid Dr. Poola the consultant fees.

On appeal, ProED asserted that the consultant fees for Dr. Poola were for "extensive extra effort beyond the originally anticipated and proposed work" in the grant project. ProED Brief at 6. ProED stated that Dr. Poola was hired to:

pursue a new approach to the quantitative analysis of variant Estrogen Receptors (ER) which had not originally been envisioned in our project proposal. It became evident that our approach of co-amplification of both the wild type and variant ER with flanking PCR primers underestimated the frequency of the variant forms. We first determined what additional reagents needed to be made and tasks needed to be accomplished in order to best address this problem. While it was ProED's task . . . to develop the specific primers and vectors needed to pursue this new approach, we determined that additional assistance was needed to make the necessary control vectors containing the variant receptors. At our request, Dr. Poola agreed to come to ProED's facilities and work as a consultant on this portion of the project outside of her Howard University committed time.

ProED Attachment 8, at 13.

ProED maintained that it had asked an NIH official about NIH policies concerning paying a PI as a consultant and was informed that it was appropriate to pay a PI as a consultant on the same grant and that no prior approval was required to do so. ProED argued that, as both subcontract costs and consultant costs are considered direct costs to the grant, there was no rationale for ProED to circumvent any recognized NIH policy on this subject. ProED further argued that the cited provision from the PHS Grants Policy Statement did not bar funding for the consultant fees under the circumstances here as Dr. Poola was never an employee of ProED.

During the telephone conference held in this appeal, NIH admitted, in response to questions from the Board, that there was no provision in the PHS Grants Policy Statement that explicitly prohibited the actions taken here by ProED in regard to Dr. Poola's consulting fees, as Dr. Poola was not an employee of ProED. NIH argued during the conference, however, that this situation was analogous to section 7-5 of the PHS Grants Policy Statement, as Dr. Poola was in effect a consultant to herself as the PI. NIH added that ProED still had failed to provide any documentation of Dr. Poola's work as a consultant. Subsequent to the conference, at the request of the Board, ProED submitted various documents regarding Dr. Poola's work as a consultant.

We find that NIH failed to produce any provision in the PHS Grants Policy Statement or other authority that would explicitly prohibit the payment of consultant fees to Dr. Poola. We note that the Grants Policy Statement does not absolutely preclude the payment of consultant fees, but rather sets conditions on such payments. The cited provision of the Grants Policy Statement does not directly apply to this situation since Dr. Poola was not an employee of ProED. NIH's assertion that the situation involving Dr. Poola is analogous to that in section 7-5 of the Grants Policy Statement is simply not persuasive. Since the Grants Policy Statement limits only the circumstances in which a grant may be charged for consulting fees paid by an organization or contractor to an employee of that organization or contractor, it provides no basis for disallowing consulting fees paid by ProED to someone who was not its employee. Moreover, these charges appear to meet the applicable conditions of the Grants Policy Statement since, among other things, ProED demonstrated that the consulting services were outside the scope of the individual's salaried employment under the subcontract and that there was a rationale for paying Dr. Poola separately for her work as a consultant.

As to any NIH concerns about documentation supporting Dr. Poola's work as a consultant and the allocability of that work to the grant project, we note that in support of its position that Dr. Poola performed at least 20 hours of work per month for which she received the consulting fee of $50 an hour, ProED supplied affidavits from Dr. Poola, from ProED's president, and from a fellow scientist who worked on the Estrogen Receptor project with Dr. Poola at ProED. March 27, 2000 submission, Attachment 1. These affidavits stated that Dr. Poola worked on the Estrogen Receptor project at ProED a minimum of 20 hours a month from December 1996 through April 1997. Additionally, ProED furnished (as representative of the work she had done) contemporaneous laboratory notes from Dr. Poola and a fellow scientist for experiments conducted in January 1997 at ProED as part of Dr. Poola's consultation work at ProED. Id., Attachments 2A and 2B.

We find these submissions establish the extent of Dr. Poola's work on ProED's premises as a consultant and that the work was related to activities associated with the grant project. ProED documented the allocability of the consultant fees by establishing that Dr. Poola worked at least 20 hours a month at ProED and that the only project she was working on at ProED during this period was the NCI grant. In addition, NIH made no finding that her salary under the subcontract was not fully justified.

We note that NIH has never contested that the work performed by Dr. Poola as a consultant was related to the grant project; in fact, NIH contended that the activities undertaken by Dr. Poola as a consultant were identical to those in her capacity as the PI for the grant. ProED, however, established through the affidavits and the laboratory workbooks that Dr. Poola's work as a consultant was a feature of the grant that was not contained in the scope of the subcontract with Howard University, but added another dimension to the grant project. We therefore find that, contrary to the finding of the NIH Board, Dr. Poola's activities as a consultant were outside the scope of her employment as the PI on the grant.

We also note that, during the telephone conference held in this appeal, NIH appeared to concede that the cost of Dr. Poola's work at ProED would have been allowable if it had been paid as an increase in the salary for Dr. Poola as the PI of the grant for additional services rendered to the grant. NIH even allowed that ProED could have taken this course of action without getting prior approval from NCI, by using the available funds in the salary account under ProED's subcontract with Howard University. During the telephone conference, ProED responded that in hindsight it probably could have increased Dr. Poola's salary instead of paying her as a consultant. ProED added that it did not take this approach because the consulting work was outside the scope of Dr. Poola's activities in the subcontract, although within the scope of the overall grant objectives. Accordingly, since NIH conceded that the cost of the additional services of Dr. Poola was otherwise allowable and did not establish that the payment of consulting fees was precluded by the PHS Grants Policy Statement or other applicable authority, and since ProED provided sufficient documentation concerning the allowability of the cost, we reverse this part of the disallowance.

Conclusion

For the reasons discussed above, we reduce the disallowance of $1,737 relating to supply costs by $486, with a further downward corresponding adjustment in the indirect costs and fixed fee, and we reverse the disallowance of $8,522 in its entirety relating to the consultant costs.

Marc R. Hillson

M. Terry Johnson

Donald F. Garrett
Presiding Board Member

1. The Board's procedures, at 45 C.F.R. � 16.12, call for an expedited process where a component of the Department of Health and Human Services has used a board, such as the NIH Board, to conduct a formal preliminary review process resulting in a written decision. In cases where the amount in dispute is less than $25,000, the Board review is restricted to whether the decision of the preliminary review authority was clearly erroneous, unless the Board determines, as it has done in this appeal, that the record is inadequate. 45 C.F.R. � 16.12(d)(1).

2. As described by NIH, each of the grant awards in dispute specified an amount for a fee and stated that the fee is incrementally funded proportionately for each budget period, with an adjustment in the fee in the event the grant is terminated or future support is withheld. For purposes of this decision, a cost disallowance has the same effect as the withholding of future support, with the fee being reduced proportionately if direct and indirect costs are disallowed in whole or in part. NIH October 5, 1999 letter at 2.

3. It was only in response to a Board-initiated teleconference during the latter stages of this appeal proceeding that NIH finally identified the supply items in dispute. ProED had complained that its due process rights were being violated in that NIH was imposing a disallowance without identifying what items were being questioned. While NIH has now provided a schedule of the disallowed items, we consider it important to state here that the Board requires that a federal agency making a disallowance articulate the basis for the disallowance with sufficient detail to allow the grantee to respond, with the burden then shifting to the grantee to support its charges to grant funds with documentation. Delaware Dept. of Health and Social Services, DAB No. 1166, at 15 (1990). See also 45 C.F.R. � 74.90(c).

4. NIH submitted two exhibits titled "Folder F." The first was subtitled, "PE Cost Incurred Report for CY 1995, Supply Purchases Charged to NIH Grants." The second Folder F was subtitled, "Analysis of Selected Accounting Transactions." It was in this second Folder F that NIH highlighted the 12 questioned purchases.

5. This includes the $114.55 purchase that NIH acknowledged was not charged to the NCI grant, the three items for which there was no indication that they were ever charged to the NCI grant, and the two purchases which we found related to the NCI grant.