GAB Decision 186
May 31, 1981 City of Hope National Medical Center; Docket No. 79-71
Ford, Cecilia; Garrett, Donald Teitz, Alexander
On April 11, 1979 Grantee, City of Hope National Health Medical
Center, appealed the April 5, 1979 decision by the National Institutes
of Health (NIH) Grant Appeals Board upholding the August 11, 1978
disallowance by the NIH Audit Resolution Section. The disallowance was
in the amount of $30,435 expended by the Grantee on items considered to
be general purpose equipment purchased without prior approval from NIH.
This decision is based on the Grantee's application for review, the
response of the National Institutes of Health of the Public Health
Service (Agency), an Order to Develop the Record issued by the Board,
and the responses of both parties thereto.
Statement of the Case
It appears from the record that Grantee is operated by an accredited
national philanthropic organization, the City of Hope, and provides
patient care and conducts medical research and educational activities.
In 1976 the Regional Audit Agency of the Department of Heralth,
Education and Welfare (HEW, now HHS) completed an audit of costs claimed
by the Grantee under HEW grants and contracts, which originally covered
the period from October 1, 1970 through September 30, 1973. However,
with regard to general purpose equipment claimed to be purchased without
prior approval, the audit was extended to September 30, 1975. The
auditors determined purchases of at least $11,169 came within this
classification and recommended that this amount be refunded to the
Federal government. This was based upon examination of 31 purchases
selected as a sample, of which the auditors determined that 24 had been
purchased without prior approval. No attempt was made to extraporate
from the sampling, and the $11,169 represented the amount of the actual
items claimed to be purchased without prior approval. The auditors did
recommend that the Grantee review all general purpose equipment
purchases made subsequent to October 1, 1970 to see which were without
prior approval.
The Grantee did subsequently furnish such a list with documentation.
Based upon this submittal, the Agency determined that an additional
$20,286 of general purpose equipment was purchased without prior (2)
approval. However, the Agency in reviewing the original $11,169
questioned by the Auditors, determined that this should be reduced by
$1,379 for general purpose equipment acquired under a specific grant
which did not require prior approval. This brought the original amount
questioned by the auditors down to $9,790, which, added to the
additional $20,286, came to a total of $30,076. Various minor
adjustments were made both ways, resulting in a final disallowance of
$30,435. Of this amount, the major item is an Ampex Tape Recorder
costing $10,149, which the Grantee claims is scientific or research
equipment not requiring prior approval by the Agency before being
purchased. This is the primary issue to be discussed in this decision.
The disallowance letter of August 11, 1978, cited no authority for
the action. It merely stated that general purpose equipment "required
prior approval... before purchase", and that since such approval was not
obtained, nor was the equipment included in the grant budget, the cost
was unallowable. The letter goes on to say that even if any of the
items were "solely scientific equipment", as Grantee contended, an
institutional prior approval system was required to approve the
purchases.
So also the NIH Grant Appeals Board, in upholding the disallowance,
gave no reference to any particular authority.It merely said that "(t)
he (NIH) Grant Appeals Board examined the PHS policy statements
pertaining to general purpose equipment applicable to the period in
question."
When the Board notified the Agency of the Grantee's appeal, it asked
for applicable policy statements, which were then furnished.n1 The
references given to support the disallowance are the July 1, 1972
revision to the NIH Grants for Research Projects Policy Statement and
the July 1, 1974 Public Health Service (PHS) Grants Policy Statement.
The Agency, in its Response to the Board's Order to Develop the Record,
stated that all NIH grantees were advised of the 1972 revision in an NIH
Guide dated August 16, 1972, and were sent copies of the Policy
Statement about the same time. Copies of the 1974 Grants Policy
Statement were distributed in the spring of 1974. The Grantee admits in
its Response that copies were in its hands not long after they were
issued.
It is clear that the Tape Recorder in issue here was purchased in
1974 but the exact date is not in the record. If it were purchased
under a grant awarded before the Grantee had any notice of the 1974 PHS
Grants Policy Statement the Grantee might well not be bound by its (3)
provisions. Both parties have treated the matter as if both the 1972
and the 1974 Policy Statements were binding on the Grantee. The Board
wll do the same, since the applicable provisions of the two policy
statements are similar enough so that the decision of the Board would be
the same if either or both applied.
The 1972 NIH Policy Statement states that individual items of
research equipment costing $1,000 or more
must have been in the grant budget approved by the NIH or will
require prior approval by the designated grantee institution official
(p. 18).
For rebudgeting (departing from the grant budget to meet
unanticipated requirements of the research project), prior approval is
required by "an appropriate institution official" designated for that
purpose by the grantee (p. 28).
For general purpose equipment costing $200 or more, prior approval by
the NIH awarding unit is required (p. 28). General purpose equipment is
defined as:
items which are unable for activities of the institution other than
research, i.e., office equipment and furnishings, air conditioning,
reproduction equipment, automatic data processing equipment, etc. (p.
18).
The 1974 PHS Grants Policy Statement requires prior approval by NIH
for:
1. Project - specific equipment - purchase of such equipment having
an acquisition cost of $1,000 or more per unit.
2. General purpose equipment - Purchase of such equipment having an
acquisition cost of $300 or more. p. 52.
For rebudgeting "between budget categories within the total direct
cost budget of the grant to meet unanticipated requirements" (p. 57),
3. Grantee institutions which are colleges, universities, hospitals,
research institutes or research foundations may establish and utilize an
institutional prior approval system... for rebudgeting actions in the
following categories:
(4) b. Each individual item of project-specific equipment with
acquisition cost of $1,000 or more;... (p. 58).
General purpose equipment in the 1974 PHS Policy Statement
refers to items of equipment that are generally usable for activities
in the institution other than the technical, specialized activities
supported by the grant, e.g., office equipment, air conditioning, office
furniture, reproduction equipment, etc. (p. 51).
Discussion
1. Tape Recorder
The major item in dispute in this appeal is the Ampex Counter and
Voice Log Tape Recorder costing $10,149. As to the other items, the
Grantee, in its letter of April 21, 1981 responding to the Order to
Develop the Record, says simply:
(W)e did not follow proper prior approval precedures. We acted in
good faith, but we agree that the Agency has a right to insist on our
suffering the consequences. /2/
If the recorder were general purpose equipment, clearly Agency prior
approval would be required for its purchase. If it were "research
equipment" or "project specific equipment" prior approval by
the Agency
would not be required for rebudgeting, but "institutional prior
approval" would. It is not disputed that the purchase of the recorder
came under rebudgeting, nor that prior Agency approval was not
requested.
The factual situation for classifying the Ampex recorder is by no
means clear. The basis for Grantee's position that it is not general
purpose equipment is set out in two letters from the Assistant
Administrator of Grantee to NIH, submitted with Grantee's appeal to this
Board. In the first, dated April 21, 1978, the recorder is described as
follows:
The device covers a frequency range of DC to 30KH2 with tape speed to
60 ips; it is designed for use in analog data processing of high
frequency events and is not appropriate for any general audio (5)
purposes; and it was acquired to replace a pen recorder and
long-recording camera whose status as "project specific" equipment
was
never in question.
The letter of June 8, 1978 is more detailed, and speaks of the use by
investigators in specific research projects. On April 16, 1979, Grantee
submitted to the Board the manufacturer's descriptive literature of a
recorder which Grantee states is the nearest current equivalent of the
instrument in question here. This includes the following:
In medical, aerospace, automative, chemical and defense research this
recorder continues to log data that extends the limits of man's
knowledge.
The disallowance letter hardly cites convincing authority for the
ruling that this recorder was general purpose equipment. After reciting
that this question had been discussed at length in correspondence
between the Grantee and the Agency, and also discussed internally in the
Agency, the following rationale for the finding is given:
A member of the scientific staff of NINCDS (the awarding institute)
has concluded that "this recorder can be used for other than laboratory
purposes..."
An examination of the letter in which these words are contained gives
a different light on the matter, in describing the instrument.
About the instrument, it is a four channel FM recorder that has
specifications more stringent than the usual model one finds in stereo
systems. Instrumentation recorders tend to have linear frequency
responses from DC to frequencies well beyond auditory ranges.
Furthermore, they have high quality shielded motors that permit the
instrument to record faithfully at steady speeds and do not introduce
mechanical or electrical noise into the data collection process. Motor
cases also act as well-grounded spark shields. In other words, this
recorder can be used for other than laboratory purposes, and are (sic)
used for electrophysiological data recording becquse the specifications
allow for relatively faithful storage of electrical activity at
frequencies of interest to the scientist. (Agency Response to NIH Grant
Appeals Board, September 29, 1978, Exhibit B).
The discussion continued unabated following the Board's Order to
Develop the Record. Grantee submitted (Exhibit B) a letter from the
manufacturer which included the following:
(6) The PR-2230 is a wideband instrumentation recorder widely used in
scientific research and testing programs where accuracy, reliability,
and repeatability are important factors. The following are examples of
applications where one time data must be preserved accurately for
further studies.
UCLA Brain Research Institute is currently using the PR-2230 for
Epileptic Siezure Studies.
Edwards Air Force Base is using the PR-2230 for Rocket Booster
Stability Research.
NASA at Edwards is using it for Acoustical Studies.
The PR-2230 is also being used by the Dept. of Energy at the Nevada
Test Site on various classified research programs.
The Agency in its Response persisted in its contention that the
Recorder was general purpose equipment.
It is a quality instrument proven to be effective in medical research
enterprises but likewise just as useable in any general data capture or
sound recording activity. It does not require medical research
expertise in its operation, rather emphasizing in its advertising its
simplicity, mobility, and multi-purpose utility. p. 3.
This time the Agency submitted a copy of an advertisement of the
instrument, which stressed its adaptability for multiple uses.
The determination of what is in each instance "general purpose
equipment" is not an easy one in the absence of clear guidelines. The
definitions given in the 1972 NIH Policy Statement and the 1974 PHS
Policy Statement are very similar. The first is "items which are usable
for activities of the institution other than research." (p. 18). The
second defines general purpose equipment as items "that are generally
usable for activities in the institution other than the technical,
specialized activities supported by the grant." (p. 51).
The examples given are also similar. He NIH 1972 Policy Statement's
examples are:
Office equipment and furnishings, air conditioning, reproduction
equipment, automatic data processing equipment, etc. (p. 28)
(7) The 1974 PHS Policy Statement's are:
Office equipment, air conditioning, office furniture, reproduction
equipment, etc. (p. 51)
The Agency has admitted that the recorder is "a quality instrument
proven to be effective in medical research enterprises" (Response to
Order to Develop the Record), and is "used for electrophysiological data
recording because the specifications allow for relatively faithful
storage of electrical activity at frequencies of interest to the
scientist." Its basis for calling the recorder general purpose equipment
is that it "can be used for other than laboratory purposes." See Agency
Response to NIH Grant Appeals Board, Exhibit B.
The reading of the Agency is too narrow. There must be a great many
instruments which are intended primarily for a scientific project but
which can be used for purely mundane purposes. Thus the elaborate
Hasselblad cameras used in space vehicles and satellites for
photographing and mapping the earth could presumably be used for taking
a family snapshot. While price alone is not conclusive, it seems
unlikely that a tape recorder costing over $10,000 would be purchased
for ordinary office use. The test should not be whether the equipment
can under any stretch of the imagination be used for another purpose
than the one for which it is bought, but whether its primary ordinary
use is in a scientific project. Taking all the factual submissions into
consideration, the Board finds that the recorder is not general purpose
equipment. The finding of the NIH Grant Appeals Board to the contrary
is not a reasonable one supported by the evidence.
This determination is appropriate in this case since the NIH Grant
Appeals Board did not give any detailed explanation of its decision on
this point. It states only its conclusion:
The NIH Grant Appeals Board examined the statements on general
purpose equipment in... published grants policy statements applicable to
the periods in question. The Board noted that the definitions had
remained reasonably consistent with only modest additions and revisions
which were obviously intended to provide clarity and that the equipment
listed, to which an audit exception has been taken, is in agreement with
these definitions.
There is still left the "institutional approval" issue. The 1972
NIH
Policy Statement requires for rebudgeting of individual items of
research costing $1000 or more, a "prior approval by the designated
grantee institution official." (p. 28) The 1974 Grants Policy Statement
has similar but more detailed requirements. (p. 58-59)
(8) The Grantee had, prior to the Order to Develop the Record,
submitted two documents bearing on the institutional approval issue.
The first was a letter from Grantee's Assistant Administrator to the
Grants Management Officer of the NIH dated June 8, 1978 which has the
following language:
Dr. Ishikawa had a grant from NINCDS, in which there were funds
awarded for specific items of scientific equipment.In the course of Dr.
Ishikawa's work on this project his equipment needs changed, as so often
happens in scientific research. The recorder and long-recording cameras
he was using did not meet the needs of his work, and by reviewing his
priorities he came to the decision to acquire the Ampex equipment. He
discussed this with me since re-budgeting was involved. After
consultation with the then Medical Director (who has professional
responsibility for matters of scientific research) there was no doubt in
our minds that the item in question was needed to further the project in
the best possible way, and that it was clearly scientific equipment and
not "general purpose equipment." I enclose a copy of Dr. Ishikawa's
memo to me dated June 19, 1974 in substantiation.
The memo referred to, dated June 19, 1974, contains the following:
Thank you for your arrangement for my purchase of the Ampex tape
recorder. This recorder will substitute the functions of the pen
recorder and the long-recording camera with the added capability of
storing data for further analysis by different means...
Now I am requesting another rebudgeting... (for other equipment)
In the Order to Develop the Record the Grantee was directed to
indicate whether these two statements were intended to be institutional
prior approval, how they fulfilled the requirement, and furnish any
additional evidence available. The Response of the Grantee said that
the statements were intended to reflect institutional prior approval,
and in substance repeated the prior statements.
The Agency was in the same Order directed to state what formalities
are required for an institutional prior approval to be valid and state
the authority therefor. The Agency in turn submitted a Circular from
1968, which was superseded by two 1972 Guides. These really add nothing
to the Policy Statenents previously referred to. They do say that an
"appropriate administrative official" must review the rebudgeting
request for scientific or program propriety in relation to the
objectives of the specific project supported by the grant, and decisions
(9) affecting rebudgeting must be "well documented." NIH Guide for
Grants and Contracts, May 15, 1972, and December 15, 1972, p. 3,
6.b.(2) and 6.b.(6).
Agency personnel certainly had different opinions as to whether the
person who gave the rebubgeting approval for the Grantee was an
"appropriate administrative official." In a memorandum dated September
29, 1978 to the Chairman of the NIH Grant Appeals Board, the Chief of
the Agency Audit Resolution Sections says:
Additionally, we do not believe that an employee with the title of
administrative assistant would be the proper official to grant a request
for rebudgeting of funds. (Item 7, Submission of Agency to this Board)
In commenting on this statement, the Chief of the Agency Grants
Management Branch said that: "The logic of this rational (sic) escapes
me," since this "administrative assistant" is "the same
official with
the same title" who has been the official authorized to sign grant
applications for the grantee. (Item 9, Submission of Agency to this
Board).
In fact, in this letter addressed to the Chairman of the NIH Grant
Appeals Board, he substantially admits that institutional prior approval
was given. In explaining why prior approval was not obtained from the
Agency, he stated that:
the grantee had determined the recorder to be project-specific
equipment and, having so determined, utilized its Institutional Prior
Approval System to authorize the purchase of the recorder.
It is the opinion of the Board that the requirements for
institutional approval have been met by approval by the appropriate
designated official and with adequate documentation. The decision of
the Board is reinforced by two factors. The first is that this Board
has, in several previous decisions, construed prior approval
requirements in favor of a grantee, on grounds that advance approval
requirements not plainly warranted by the nature of the case should not
be read into ambiguous provisions. University of California - General
Purpose Equipment, Decision No. 118, September 30, 1980; St. Landry
Parish School Board, Decision No. 17, May 28, 1976; see Point Park
College, Decision No. 16, May 20, 1976. The second factor which
supports the Board's decision on the recorder is that, whenever given
the opportunity, the program officials of the Agency (as distinguished
from the audit personnel) have indicated that they would have given
prior approval, or even retroactive approval, if requested.
Thus, the Chief of the Agency's Grant Management Branch had this to
say to the Chairman of the NIH Grant Appeals Board:
(10) (A) review of the file... indicates NINCDS (Agency) would have
acted favorably upon a request for retroactive approval... (Item 9,
Submission of Agency to HHS Grant Appeals Board).
So, also, the very person whose opinion that the recorder "can be
used for other than laboratory purposes" was relied on as the basis for
the disallowance (Exhibit B attached to Item No. 7 in Submission to the
Board), has this to say when asked to comment on the Auditor's review:
If the City of Hope had requested prior approval for the tape
recorder for the use to which it was put, I would have approved the
purchase and appropriate rebudgeting if funds were available. (Item No.
8 in Submission to the Board).
In its Order to Develop the Record the Agency was directed to state
why it should not now give retroactive approval for the recorder, in
light of the above two statements from NIH officials. In its response
the Agency said that while it was possible that retroactive approval had
been given in similar circumstances, the policy was not intended to
require retroactive approval even though criteria for consideration of
approval had been met.
The Board can of course not require the Agency to give retroactive
approval, even though it may feel the Agency's refusal to do so is
unreasonable. However, on consideration of all the circumstances, the
Board finds that all requirements for institutional prior approval for
rebudgeting to purchase the recorder had been met. Therefore the Board
sustains the appeal on this item, and reverses the disallowance of
$10,149 for the purchase of the recorder.
2. Other Items
The original amount disallowed was $30,435. The Ampex recorder cost
$10,149, so the reversal of its disallowance brings the total down to
$20,286. In its Response to the Order to Develop the Record the Agency
withdrew its exceptions to four items purchased in 1971:
Camera Bolex Rex Motion Picture $ 887 w/26 mm lens Film Cassette,
Zeiss 210 Camera Body - Nicon with waist level finder
bellows 526 Camera C-27 496
$2,119
This reduces the amount of the disallowance to $18,167. In addition,
the Agency is willing to reduce its disallowance by $6,596 for three
items purchased in 1971 if the Grantee can establish that proper prior
(11) institutional approval was given for their purchase. The Agency
will also withdraw the exception to an $865 Sharp Calculator (listed as
$866 by Grantee) if there was institutional prior approval and it was
purchased prior to August 16, 1972 (the date of distribution of the 1972
NIH Policy Statement). An exception to a Sears refrigerator for $288
will also be withdrawn if it was purchased prior to August 16, 1972.
Conclusion
The Board does not believe it necessary to keep this case open while
the parties see if they can resolve their differences in the above
items. Since the dispute before the Board is only as to the Ampex
recorder, the Board sustains the disallowance of $18,167, subject to
further reduction if the Grantee can furnish the Agency with the proof
requested for the other items referred to above. If the Grantee is
unable to effect a satisfactory resolution with the Agency on these
items, it may file a separate appeal with the Board. /1/ The first
authority cited was Section J. 13 of the Office of Management
and Budget (OMB) Circular A-21. This Board has in its Order to Develop
the Record pointed out that this Circular on its face appeared to apply
only to educational institutions. /2/ It appears that Grantee is
going further than necessary since the Agency has modified its
disallowance in its Response to the Order to Develop the Record, and
other items may have been purchased before any Policy Statements
requiring prior approval were sent out to the Grantee. See second part
of discussion below.
SEPTEMBER 22, 1983