GAB Decision 258
February 25, 1982 McLean Hospital; Docket No. 81-22 Ford, Cecilia;
Teitz, Alexander Garrett, Donald
McLean Hospital (Grantee) appealed a decision by the Alcohol, Drug
Abuse and Mental Health Administration (ADAMHA) Grant Appeals Committee
sustaining ADAMHA's disallowance of $191,536 in clinical expenditures
charged to a grant awarded for a "Drug Abuse Research Center" under
the
Drug Abuse Office and Treatment Act (Pub. L. 92-255). /1/ The issue
presented by the case is whether Grantee was authorized to expend funds
for clinical purposes during the term of an extension of the grant where
Grantee requested the extension to allow completion of a different
aspect of the grant project, primate studies. For the reasons discussed
below, we conclude that the expenditure of grant funds for clinical
purposes was not precluded, and accordingly, we reverse the
disallowance.
This decision is based on the written record. In view of our
disposition of the case, we find no need for the hearing requested by
Grantee in its earliest briefing.
How the Disallowance Arose
The grant (No. DA4RG010) was awarded in the amount of $3,995,510 for
a three year period, January 1, 1974 through December 31, 1976. The
research supported by the grant, as described in the grant application,
consisted of "(a) program of multidisciplinary clinical research, which
examines both heroin and barbituate self-administration patterns in
addicts, and relevant biological variables . . ." and ". . . ancillary
studies in primates, which are designed to clarify the basic behavioral
pharmacology of drug self-administration with and without antagonists."
(Emphasis in the original.) The grant application thus distinguished
between clinical research (in man) and research in primates; no such
distinction was made in the Notice of Grant Awarded (NGA), however, nor
was the approved budget broken down in these terms.
(2) By letter dated March 1, 1976, Grantee requested that the
National Institute on Drug Abuse (NIDA), the part of ADAMHA responsible
for administering the grant, extend a component of the grant which
Grantee identified as "Experimental Analysis of Opiate and Antagonist
Administration in Primates" without additional funds until December 31,
1977. The extension was requested on the ground that there had been
delays in construction of a primate living facility and primate
laboratory. Grantee requested the extension "for all funds awarded for
completion of this research component which remain unobligated by
December 1976." /2/ NIDA's response dated March 23, 1976, stated --
Your request for an extension to December 31, 1977 without additional
funds has been approved. Please mark your records to show the new
budget period as 1/1/74 - 12/31/77 and the project period as 1/ 1/74 -
12/31/77.
NIDA's copy of the NGA was marked by hand to show this change.
(Agency's memorandum dated 3/20/81, Attachment referenced in Paragraph
(3)
In 1977, Grantee in fact spent $188,317 of previously unobligated
funds on primate studies. It also spent, however, a total of $191,536
for clinical purposes. The use of grant funds for the clinical
component was questioned during the course of an audit performed by the
HEW Audit Agency in 1978 on the ground that NIDA had approved only the
expenditure of funds for the primate component during the extended term
of the grant. Grantee subsequently wrote to NIDA on October 2, 1978
requesting "specific approval" for the use of unobligated funds from
Grant No. DA4RG010 for clinical research during 1977. Grantee noted in
its request that it had understood from a January 31, 1977 meeting with
NIDA officials regarding the funding of another grant that NIDA's letter
extending Grant No. DA4RG010 until December 31, 1977 provided
"appropriate approval." By letter dated December 20, 1978, NIDA
responded that it was approving the expenditure of $190,560 /3/ (3)
awarded under Grant No. DA4RG010 for clinical research during 1977.
NIDA stated, however, that it could not confirm that approval had been
given or promised at the January 31, 1977 meeting, and that it was
approving Grantee's request since a misunderstanding had occurred in
this regard. It further stated that the approval should not be regarded
as setting a precedent since "if prior approval had been sought, it
probably would not have been granted." The latter statement was
apparently intended to refer to PHS Grants Administration Manual
Chapter: 1-510-40C, which provides as one of the criteria for the
granting of retroactive approval (in situations where prior approval was
required but not obtained) that "approval would have been given had the
request been submitted on time."
On January 19, 1979, however, the Inspector General of HEW wrote to
the Administrator of ADAMHA stating the that HEW Audit Agency did not
believe that the justification for retroactive approval given in NIDA's
December 20, 1978 letter was sufficient, and recommending that the
approval be rescinded.He stated that the Audit Agency was withholding
issuance of its draft audit report until it received ADAMHA's comments.
In a letter to Grantee dated February 14, 1979, the Director of NIDA
stated that he had been advised by the Public Health Division of the
Office of the General Counsel that the retroactive approval given on
December 20, 1978 was void. He instructed Grantee that the December 20,
1978 letter "is to be disregarded because it cannot legally change our
prior approval limiting the use of the ... funds to the primate studies
component of the project." Subsequently, a final audit report (Audit
Control No. 01-01457) was issued recommending the disallowance of
$191,536 incurred after December 31, 1976 for clinical purposes rather
than for primate studies. In a July 21, 1980 letter to Grantee,
ADAMHA's Executive Officer stated that the audit finding was sustained
and that ADAMHA was disallowing $191,536. The letter indicated that
this determination was based on legal advice from the Office of the
General Counsel which it summarized as follows:
The United States has a reversionary interest in any funds that are
expended for unallowable purposes -- 42 Comp. Gen. 289, 294 (1962) . .
. Since the extension of the grant period in this instance was awarded
only for primate studies in 1977, the funds were available only for that
purpose and the reversionary interest of the United States "vested"
the
moment the funds were expended for the unallowable purpose, i.e., the
clinical studies. Upon this vesting the funds expended legally reverted
to the United States Treasury because the fiscal year during which they
were available to HEW for obligation to grantees had passed. NIDA
officials had no authority to change this legal reversion (4) and
therefore had no authority to approve the expenditure retroactively.
(Application for review dated 2/4/81, Tab B, Exhibit 1, pp. 1-2.)
Grantee appealed the Executive Officer's determination pursuant to 42
CFR Part 50, Subpart D. In a letter dated January 6, 1981, the
Chairperson of the ADAMHA Grant Appeals Committee advised Grantee that
the Committee upheld the determination regarding the $191,536 expended
for clinical purposes on the ground that Grantee had specifically
requested the extension of time for completion of the primate component
of the grant project, and that the approved extension was thus limited
to that component. The letter stated that the Committee "did not deal
with the legal issue concerning the retroactive approval given in . . .
(the) letter of December 20, 1978, which was subsequently withdrawn."
The letter further stated, however, that the Committee had noted that
such approval was not valid even if PHS Grants Administration Manual
Chapter 1-510 was applicable since NIDA had indicated that, had prior
approval been sought, it probably would not have been granted. However,
ADAMHA effectively removed the issue of compliance with this criterion
for retroactive approval from the case with its statement, in response
to an inquiry by the Board, that "(it) is impossible to know whether or
not prior approval would have been granted . . . ." (Agency's memorandum
dated 3/20/81, p. 2)
Grantee's Arguments
Grantee took the position that the controlling issue in this case is
whether NIDA limited the scope of the grant in its letter extending the
term of the grant until December 31, 1977. It contended that, although
NIDA's letter, in acccordance with Grantee's request, extended the grant
for the purpose of completing primate studies, NIDA did not thereby
modify the scope of the grant so as to preclude any spending for
clinical purposes. In support of this contention, Grantee argued that
the division of the grant into components was effected by Grantee for
its own convenience and not pursuant to any Departmental policy or
guideline, so that Grantee's reference to the primate component in its
request for extension "had no legal binding effect on NIDA."
(Application for review dated 2/4/81, Tab B, pp. 7-8) Grantee also
pointed out that "NIDA did not issue a modified grant award notice,
close out the clinical component of the grant or take any other action
during the term of the grant to acknowledge that the clinical component
had terminated." Grantee argued that expenditures for clinical purposes
were therefore within the scope of the grant, and that its request for
retroactive approval was in effect simply a request to rebudget the
funds. (Grantee's letter dated 7/15/81, pp. 3-4) (5)$TChapter 1-510-40B
of the PHS Grants Administration Manual allows grantees to rebudget
funds provided that (1) the expenditures are necessary to the successful
completion of the project and (2) the expenditures are for an allowable
purpose. In addition, prior approval of a "rebudgeting action" is
required under certain conditions specified in Chapter 1-510-40B.3.a-f.
Grantee argued that the first two criteria were met and that NIDA's
retroactive approval of the clinical expenditures on December 20, 1978
was sufficient since Chapter 1-510-40C of the PHS Grants Administration
Manual allows retroactive approval in lieu of prior approval "in highly
unusual or exceptional circumstances." (Application for review dated
2/4/81, Tab B, pp. 9, 11) Grantee did not specify under which of the
conditions listed in Chapter 1-510-40B.3. it believed prior (or
retroactive) approval was required, however.
In an Order to Develop Record, the Board therefore requested that
Grantee (1) specify the rebudgeting actions which were required in order
to accommodate the $191,536 expended for clinical purposes after
December 31, 1976, and (2) specify the provision(s) of Chapter
1-510-40B.3. of the PHS Grants Administration Manual under which prior
(or retroactive) approval of the rebudgeting actions was required. In
response, Grantee stated that "it would appear" that prior approval
was
not required under Chapter 1-510-40B.3, and that it had requested
approval of its use of the funds for clinical purposes "only to satisfy
the DHEW Region 1 Audit Agency's insistence that a document specifically
approving clinical expenditures after December 31, 1976 was necessary to
eliminate a recommended disallowance." (Grantee's response to Order to
Develop Record, dated 12/9/81, pp. 12-13) Grantee nevertheless cited two
rebudgeting actions with respect to funds expended in 1977 for which it
sought and obtained approval: the transfer of $167,322 from indirect to
direct costs for subject payments and supplies, and the transfer of
$9,750 from the "other" expense category to the "travel"
category.
These rebudgeting actions were not related to Grantee's request for
"specific approval" of the clinical expenditures, however, but were
separately requested and approved. (Grantee's response to Order to
Develop Record, dated 12/9/81, pp. 11-12)
Discussion
We agree with Grantee that the controlling issue is whether NIDA, in
extending the term of the grant, modified its scope to preclude further
clinical expenditures. The Agency stated in response to the Board's
Order to Develop Record that "(there) was no intent, either explicit or
implicit, to grant or deny" use of the funds for clinical purposes,
since NIDA considered only Grantee's specific request to extend the
grant to complete primate studies. (Agency's response to Order, dated
(6) 11/4/81, p. 1) What is at issue here, however, is not NIDA's intent
but whether the effect of NIDA's action was to preclude, as a matter of
law, further expenditures of grant funds for clinical purposes.
We find that further expenditures for clinical purposes were not
precluded by NIDA's extension of the grant in response to Grantee's
request. Thus, Grantee was not required to seek Agency approval of the
clinical expenditures except to the extent that the expenditures
necessitated certain rebudgeting actions specified in the PHS Grants
Administration Manual.
Our finding that the extension of the grant did not have the effect
of precluding further clinical expenditures is based, first, on the lack
of evidence showing that the grant was ever divided into distinct
components for primate and clinical studies. As noted previously, the
Notice of Grant Awarded (NGA) did not divide the grant into clinical and
primate components. The only description in the NGA of the activity
funded by the grant is the project title, "Drug Abuse Research Center."
In addition, the approved budget shown on the NGA is not broken down in
terms of components, so that the Agency found it necessary to concede
that all unobligated funds were available for expenditure during the
extended term of the grant (see footnote 2 of this decision).
This situation was not altered when the term of the grant was
extended, moreover. No amendment to the NGA was issued at that time,
and the Agency's letter approving the extension instructed Grantee only
to change the applicable dates on its records.
Furthermore, if the Agency nevertheless considered the grant as being
divided into clinical and primate components, then it should have acted
to close out the clinical component of the grant following its approval
of the grant extension. No such action was taken, however, although
closeout procedures were specified in the grant terms and conditions (
Application for review dated 4/4/81, Tab B, Exhibit 24) as well as in 45
CFR 74.111.
Thus, the only division of the grant into components was made by
Grantee, notably in the grant application and in the request to extend
the term of the grant. The grant application was not incorporated by
reference in the NGA, however. Moreover, as noted by Grantee, the grant
application repeatedly indicates that the two components would be
closely linked. (Grantee's response to Order to Develop Record, dated
12/9/81, pp. 13-17) Grantee asserted, based on this description, that
the relationship of the two components was such that an extension of
time to complete one component would require additional work on the
other component. (Grantee's response to Order to Develop Record, dated
12/9/81, p. 11)
(7) Thus, even assuming that Grantee's description of the project was
determinative of the matter, it is not clear that the components
identified by Grantee were intended to be severable. In the absence of
any Agency issuance or action identifying grant components, therefore,
Grantee was free to spend grant funds for any aspect of the grant
project, including clinical research, during the extended term of the
grant.
Grantee did indicate that two rebudgeting actions for which prior
Agency approval was required under Chapter PHS: 1-510-40B of the PHS
Grants Administration Manual were taken in connection with the 1977
clinical expenditures. The record shows, however, that Grantee
requested prior approval for these actions separately from its October
2, 1978 request for "specific approval" of the clinical expenditures,
and that prior approval was granted.
In view of our conclusion that further clinical expenditures were not
precluded by NIDA's extension of the grant, we need not reach the
question whether NIDA's retroactive approval of the clinical
expenditures was invalid on the ground that the funds in question had
reverted to the U.S. Treasury.
We note, finally, that our conclusion does not appear to result in
any prejudice to the Agency or in any misuse of grant funds. Although
the Agency advised Grantee that prior approval to use funds for clinical
purposes "probably" would not have been granted, it conceded during
the
course of the proceedings before this Board that it was "impossible to
know whether or not prior approval would have been granted . . ." (See
this decision, pp. 3,4) Thus, it is not clear that the Agency was misled
by Grantee's request to extend the grant in that it would have denied
the request had it knows that funds would be used for clinical purposes.
Further, the Agency did not argue that any of the clinical expenditures
during the extended term of the grant were unnecessary or unreasonable,
although given an opportunity to make that argument. (Order to Develop
Record, p. 9, item 2)
Conclusion
We find that the expenditure of grant funds for clinical purposes
during the extended term of the grant was not precluded, and reverse the
disallowance of $191,536. /1/ Grantee's appeal of the ADAMHA Grant
Appeals Committee's concurrent determination to sustain a
disallowance of $10,986 charged to Grant No. AA-00199 for salary and
related costs allocable to time spent by a researcher in foreign travel
is being considered separately by the Board as Docket No. 81-193.
/2/ In a memorandum to the Board, however, the Agency stated that
"because the NGA does not specify what amount was assigned to either the
clinical or the primate components, it should be construed that all
unobligated funds were available for expenditure." (Agency's memorandum
dated 3/20/81, p. 2) Accordingly, the amount of funds available is not
an issue in this case. /3/ This figure was based on information
supplied by Grantee to the Agency on November 13, 1978. Both parties
agree, however, that $191,536 was actually expended for clinical
purposes. (Agency's response to Order to Develop Record, dated 11/4/81,
p. 1; Grantee's response to Order to Develop Record, dated 12/9/81, p.
2)
OCTOBER 22, 1983