OIG Audit – Reasonable Costs

Summary Paragraph

In September 2004, Hurricane Frances created hydrologic runoff and increased flows into the Applicant’s flood control canal system.  FEMA drafted Project Worksheet (PW) 9338 to address the non-72 hour emergency response period for work done in support of the Emergency Operations Center.  FEMA obligated PW 9338 for $2,684,174.55.  In August 2012, the DHS Office of Inspector General (OIG) issued Audit Report DA-12-26, recommending the disallowance of $15,460.00 in labor and fringe benefits charges pursuant to a FEMA Recovery Policy published after Hurricane Frances.  Following OIG Audit Report DA-12-26, FEMA deobligated $15,460.00 for labor charges that encompassed “down” or “standby” time.  In the first appeal, the Applicant asserted that FEMA erred in deobligating funding based on the OIG recommendation because the OIG applied a FEMA policy that was issued after the declared disaster date for Hurricane Frances.  The Regional Administrator (RA) concurred with the Applicant that deobligation should not be based on the 2006 Recovery Policy.  However, the RA denied the appeal because of a longstanding FEMA practice predating the disaster to not allow costs for standby time.  In the second appeal, the Applicant asserts that FEMA incorrectly characterized the hours in dispute as standby time.  The Applicant states that because it required its employees to work 22 hours or more, Federal regulations required it to pay its employees for the entire period of work time.  In addition, the Applicant asserts that it did not need to have an internal written policy in place because it operated in compliance with federal labor law. Alternatively, the Grantee argues that deobligation is precluded by the Stafford Act § 705(c).

Authorities and Second Appeals

• Stafford Act §§ 403 and 705(c).

• OMB Circular A-87, 2 C.F.R. § 225.

• 44 C.F.R. § 206.225.

• PA Guide, at 34-35.

  Headnotes

• Pursuant to the Stafford Act § 403 and 44 C.F.R. § 206.225(a)(1), FEMA may reimburse a state or local government for work and services completed that are essential to saving lives and protecting property before, during, and immediately after a disaster.

• The Applicant’s employees and contractors logged between 22.5 and 24 hours per day for several days. 
• A portion of these hours constituted standby time which is not eligible as emergency work. 

• According to OMB Circular A-87, eligible costs must be necessary to accomplish eligible work.In addition, FEMA policy states eligible costs must be tied to eligible work.

• The costs claimed by the Applicant are not eligible for PA reimbursement because they cannot be tied to eligible emergency work.

• Stafford Act § 705(c) prohibits FEMA from recovering funds when the payment was authorized by an approved agreement specifying costs, the costs were reasonable, and the purpose of the grant was accomplished.

Here, FEMA is precluded from deobligating funding associated with overtime pay because all three requirements of Stafford Act § 705(c) have been met.