GAB Decision 322
June 30, 1982 McLean Hospital; Docket No. 81-193 Settle, Norval;
Teitz, Alexander Garrett, Donald
McLean Hospital (McLean, Appellant) appealed on behalf of Harvard
University (Grantee) /1/ from a determination by the Alcohol, Drug Abuse
and Mental Health Administration (ADAMHA) disallowing $6,946 in salary
costs plus applicable fringe benefits and indirect costs /2/ charged to
an ADAMHA grant. The grant, No. AA-00199, was awarded for the period
May 1, 1974 to April 30, 1975 for the purpose of studying alcohol abuse.
The disallowance was based on a finding by the Department's Audit Agency
that the salary was paid for time spent by a researcher in foreign
travel to Hong Kong and Bangkok for the purpose of studying drug abuse
rather than alcohol abuse. The audit report noted that all of the other
costs assocated with the foreign travel (which consisted of salary and
fringe benefits for a second researcher, living expenses, air fare, and
subject costs) were charged to a drug abuse grant (No. DA4RG010) awarded
to McLean and administered by ADAMHA. (Audit Control No. 01-01457, pp.
13-15) At the same time that it disallowed the salary costs as a charge
to Grant No. AA-00199, ADAMHA advised McLean that the costs could
properly be charged to Grant No. DA4RG010. (Letter dated July 21, 1980,
pp. 2-3) For the reasons discussed below, we find that the foreign
travel benefited both Grant Nos. AA-00199 and DA4RG010 (although not
necessarily in the ratio claimed by McLean), and we remand the case to
the Agency (1) to determine the relative benefit to each grant, and (2)
to reconsider its refusal to grant retroactive approval of certain costs
associated with the foreign travel.
(2) Standard of Review
Section 16.12(d)(1) of 45 CFR Part 16 (1981) provides that in cases
involving $25,000 or less where there has already been review by an
independent reviewing authority, such as the ADAMHA Grant Appeals
Committee, the Board's review will be restricted to whether the decision
below was "clearly erroneous." Section 16.12(d)(1) further provides,
however, that this standard does not apply if the Board determines that
the record is inadequate. Since the record on which ADAMHA Grant
Appeals Committee based its decision does not contain any information
regarding possible benefits to Grant No. AA-00199 from the foreign
travel, that record is inadequate and the "clearly erroneous" standard
does not apply. Instead, the lack of relevant evidence in the record
below compels our review of the case on a de novo basis.
Basis for Appeal
Appellant disputed the finding that the foreign travel did not
benefit Grant No. AA-00199. It explained that, although the samples and
data collected during the foreign travel were from heroin addicts, " .
.
. the same blocking agents were found to have efficacy in both heroin
addiction and alcohol addiction," so that some of the samples and data
were useful in research conducted under Grant No. AA-00199 as well as
Grant No. DA4RG010. Appellant also indicated that since the heroin
addicts in Hong Kong, unlike those in the U.S., did not usually abuse
other drugs such as alcohol, the information obtained ". . . was
critical in understanding . . . the interplay of concurrently abused
heroin and alcohol." (Letter dated January 15, 1982, pp. 3-4) As
evidence of the benefits received by Grant No. AA-00199, Appellant
submitted a list of publications hich it stated were substantially based
on the samples and data collected during the foreign travel and
acknowledged the support of both grants. Appellant also submitted a
copy of a paper prepared based on those samples and data. (Letter dated
January 15, 1982, pp. 6-7 and Ex. 1) Appellant further asserted that the
two grants benefited from the foreign travel in the ratio of 60:40
(Grant No. AA-00199: Grant No. DA4RG010), and that the salary and
related costs were properly charged to Grant No. AA-00199 since they
constituted approximately 60% of the total costs incurred for the
foreign travel. /3/ (Letter dated January 15, 1982, p. 2)
(3) Appellant contended that nothing in the applicable regulations
requires that each cost be separately allocated between the two grants
based on the 60:40 ratio, noting that the same amount would have been
charged to each grant if Grantee had allocated the costs in this manner
rather than charging the salary and related costs to one grant and the
remaining costs to the other grant. (Letter dated January 15, 1982, pp.
4-5, 7.)
Discussion
1. 60:40 Ratio
In its response to the Board's Order to Show Cause, the Agency did
not dispute that there was some benefit to both grants from the foreign
travel. It stated, however, that it could neither accept nor reject
Appellant's assertion that the benefit was in a 60:40 ratio ". . .
since no solid documentation or evidence has been presented to
substantiate this ratio." (Agency's response to Order, dated June 4,
1982, attached memorandum from Acting Chief, Grants Management Branch)
We agree that the evidence presented by Appellant does not clearly
support the distribution of the foreign travel costs in the ratio argued
for by Appellant, although the evidence does indicate that there was
some, arguably substantial, benefit. The evidence shows that
researchers for both grants relied on the samples and data collected in
the foreign travel, but does not qualify in any way the relative benefit
to each grant. If Appellant were to have argued for a different ratio,
the evidence presented would provide no basis for determining whether
that ratio or the 60:40 ratio was valid. Appellant indicated that the
decision to charge the costs associated with the travel to the two
grants in the manner in question here was made by the Principal
Investigator (P.I.) on Grant No. DA4RG010 (the second researcher
referred to above). (Letter dated January 15, 1982, pp. 3, 8) While the
P. I. may have been in a position to judge the relative benefit to the
two (4) grants, Appellant must at least show that his deterination that
the two grants benefited in a 60:40 ratio was based on information that
might reasonably lead a disinterested third person to make the same
determination. Appellant has not done so here. Since we do not have
sufficient information to determine the relative benefit to the two
grants, and since the Agency has not denied that there was some benefit
to both grants, we remand the case to the Agency to determine, based on
further evidence and arguments that Appellant might present, whether the
60:40 ratio or some other ratio was justified.
2. Item-by-Item Allocation of Costs
Even assuming that the 60:40 ratio is justified, however, we find
that Grantee was required to allocate the costs associated with the
foreign travel to each grant on an item-by-item basis. Title 45 CFR
Part 74, Appendix D, Part I, C.4. (published September 19, 1973 at 38
Fed. Reg. 26274, 26299) provides that --
(a) cost is allocable to a particular cost objective (i.e., a
specific function, project, research agreement, department or the like)
if the goods or services involved are chargeable or assignable to such
cost objective in accordance with relative benefits received or other
equitable relationship.
Under accepted rules of grammar, the phrase "a cost," being in the
singular, means a single item of cost. While this provision does not
indicate what breakdown of a budget line item, if any, is required in
order to isolate "a cost," it is in our view clearly unreasonable
to
consider the total amount charged to a grant as "a cost." Appellant
argued that the inclusion of the phrase "or other equitable
relationship" at the end of the provision quoted above ". . .
specifically authorizes the allocation of a particular cost or costs on
either a strict proportionate item-by-item basis or in any other manner
which reflects a fair distribution of the cost in question." (Response
to Order, dated June 17, 1982, p. 3) We read the phrase "or other
equitable relationship" as authorizing the allocation of a cost on some
basis other than direct benefit received (such as square footage),
however, and do not see how it is inconsistent with our reading of the
first part of the provision. Thus, assuming a 60:40 ratio is shown to
be justified, only 60% of the salary and related costs would be properly
allocable to Grant No. AA-00199, with the other 40% allocable to Grant
No. DA4RG010. Similarly, each of the remaining costs associated with
the foreign travel would have to be distributed between the grants in
the same ratio.
(5) 3. Prior Approval of Foreign Travel
Appellant nevertheless took the position that nothing is to be gained
by requiring that each cost be separately allocated between the two
grants since the same amount would be charged to each grant whether the
costs are allocated in that manner or on a lump sum basis. In this
case, however, the amount charged to each grant is not the sole issue.
Regulations applicable to both grants specifically prohibited the
transfer of funds which are allocable to one research grant to another
research grant if the purpose of the transfer is to avoid "restrictions
imposed by law." 45 CFR Part 74, Apendix D, Part I, 4.b. and Appendix E,
III.D.2. (published September 19, 1973, at 38 Fed. Reg. 26274, 26293,
26302) /4/ In this case, by charging the costs as it did, Grantee
effectively circumvented the requirement for prior approval of travel
costs applicable to Grant No. AA-00199. Specifically, 45 CFR Part 74,
Appendix D, Part I. J.44.e. (published September 19, 1973, at 38 Fed.
Reg. 26274, 26299) states that "(foreign) travel costs are allowable
only when the travel has received specific prior approval." Travel costs
are defined at J.44.a as ". . . the expenses for transportation,
lodging, subsistence and related items. . . . " The difficulty in this
case is that although foreign travel was approved for Grant No.
DA4RG010, no such approval was requested or received for Grant No.
AA-00199 (Letter dated January 15, 1982, p. 8) Thus, no travel costs may
properly be charged to Grant No. AA-00199 absent retroactive approval by
the Agency. (The issue of retroactive approval is discussed later in
this decision.) Of the costs associated with the foreign travel, living
expenses and air fare fall within the definition of travel costs in
J.44.a.Thus, for example, assuming that a 60:40 ratio is justified to
the Agency's satisfaction, and absent retroactive approval of foreign
travel, the charges would be allowable only as follows:
Grant No. AA-00199 -- 60% of researcher's salary
60% of P.I.'s salary
60% of subject costs
Grant No. DA4RG010 -- 40% of researcher's salary
40% of P.I.'s salary
40% of living expenses
40% of air fare
40% of subject costs
(6) In addition, the indirect costs applicable to the above amounts
would be allowable. Should the Agency conclude that the two grants
benefited in a ratio other than 60:40, the percentages should be changed
accordingly.
Appellant indicated, however, that if an item-by-item allocation of
costs wasrequired, the full amount of the P.I.'s salary ($6,090.39)
should still be charged to Grant No. DA4RG010. (Letter dated January
15, 1982, Ex. 2) This is wholly inconsistent with its position that the
total costs related to the foreign travel (which Appellant itself showed
as including the P.I.'s salary) were allocable to the two grants in a
60:40 ratio. In the absence of any further explanation, we find that
the P.I.'s salary must also be allocated to the two grants in the ratio
which the Agency determines is justified.
4. Retroactive Approval of Foreign Travel
In its Order to Show Cause, the Board inquired whether there was any
basis for retroactive approval of the foreign travel with respect to
Grant No. AA-00199, in which case 60% of the living expenses and air
fare costs would also be properly chargeable to that grant. The Agency
responded that there was no basis for retroactive approval since the
foreign travel was outside the scope of the approved project, which it
identified as the study of adult male volunteers at Boston City
Hospital. /5/ (Agency's response to Order, dated June 4, 1982, attached
memorandum from Acting Chief, Grants Management Branch) Appellant
asserted, however, that the scope of the project was the same as the
"Title of Project" shown on the Notice of Grant Awarded (NGA): beta
adrenergic blocking agents in the treatment of alcoholism. (Response to
Order, dated June 17, 1982, p. 4, footnote)
Although it does not specifically define the term "scope of project,"
the Department's Grants Administration Manual provides that changes in
research methods or procedures do not require Agency approval, while the
stated objectives of the research effort or the phenomenon under study
may be changed only with the Agency's prior approval. The exception to
this rule is where the methodology or experiment is stated as a specific
objective of the research work, in which case any changes must be
approved. Grants Administration Manual, Ch. 2-400-40A.-C. (HEW TN 74.1
(7/22/74)). It seems reasonable to consider those changes not requiring
Agency approval under this provision (7) as changes not affecting the
scope of the project (although in this case foreign travel was subject
to a separate requirement for Agency approval.) Thus, it appears that
the foreign travel was within the scope of the project unless the use of
subjects at Boston City Hospital was stated in the grant application as
a specific objective of the research work. If the foreign travel came
about only because of changed research methods or procedures which were
not stated as objectives of the grant, the fact that Grante did not
initially intend to engage in any foreign travel and did not request any
funds for that purpose does not make the foreign travel outside the
scope of the grant. Since the grant application is not included in the
record before us, however, we cannot make the necessary determination.
Accordingly, we remand the case to the Agency for reconsideration of
the issue whether the foreign travel was within the scope of the grant.
If the Agency determines that it was within the scope of the grant,
then, by virtue of the Agency's own position argued here, there may be a
basis for its granting retroactive approval. In that event, the portion
of the living expenses and air fare costs which is allocable to Grant
No. AA-00199 would also be allowable.
Conclusion
For the reasons discussed above, we conclude that the costs
associated with the foreign travel should be allocated to Grant No.
AA-00199 and Grant No. DA4RG010 on an item-by-item basis according to
the relative benefit to each grant from the foreign travel, and we
remand the case to the Agency to determine the ratio in which the two
grants benefited. We further conclude that the living expenses and air
fare costs allocable to Grant No. AA-00199 are not allowable unless the
Agency retroactively approves foreign travel for that grant.
Accordingly, we also remand the case to the Agency to reconsider whether
the foreign travel was within the scope of the grant (in accordance with
our discussion above) and, if so, whether retroactive approval is
therefore appropriate. /1/ The Board Chair accepted this appeal under
45 CFR 16.16(a) (1981), which permits a third person who is a
realy party in interest to present a case on appeal for the appellant.
(Letter to parties dated December 1, 1981) McLean previously sought
review of this matter by the ADAMHA Grant Appeals Committee, which
denied the appeal. (Letter dated January 6, 1981 from Chairperson,
ADAMHA Grant Appeals Committee to counsel for McLean) /2/ The
audit report on which the disallowance was based showed fringe benefits
of $1,241 and overhead costs of $2,821, for a total disallowance of
$10,986. (Audit Control No. 01-01457, p. 15) /3/ The Board's
May 14, 1982 Order to Show Cause restated Appellant's position as being
that 60% of the costs were attributable to Grant No. DA4RG010 and 40% to
Grant No. AA-00199, rather than vice versa. This was based on a
statement in the appeal that the salary of the researcher in question
represented ". . . a lesser portion of the costs . . . ." (Letter
dated
January 15, 1982, p. 3) Although neither party disputed this point, we
believe it to be incorrect, since the salary and fringe benefits charged
to Grant No. AA-00199 constituted approximately 60% of the total costs
charged to the two grants for the foreign travel. (See Appellant's
Letter dated January 15, 1982, Ex. 2) Appellant did not take indirect
costs into account in its computation, but that would not affect the
ratio since indirect costs are applicable to all direct costs at the
same rate. /4/ We find no basis for Appellant's assertion that this
provision only applies to nonrelated projects or grants. (Response to
Order, dated June 17, 1982, pp. 3-4) /5/ The Agency did not
explain why it believed the foreign travel was outside the scope of
Grant No. AA-00199 but within the scope of Grant No. DA4RG010, which
also benefited from the data and samples collected.
OCTOBER 22, 1983