GAB Decision 299
May 25, 1982 Pennsylvania College of Podiatric Medicine; Docket No.
81-53 Garrett, Donald; Teitz, Alexander Settle, Norval
The Pennsylvania College of Podiatric Medicine (PCPM) appealed a
decision by the Ad Hoc Grant Appeals Review Committee of the Health
Resources Administration (HRA), Public Health Service, disallowing costs
in the amount of $16,987.25 under a Health Professions Special Project
Grant. The disallowance represented an amount PCPM had subgranted to
Temple University (Temple) during the first-year funding of the grant.
The major issues presented are whether PCPM is responsible for the
expenditure of grant funds made to Temple and whether PCPM's
documentation for the disputed costs is adequate.For reasons stated
below, we find that under the regulations in effect PCPM was accountable
for funds entrusted to Temple and that PCPM has not provided sufficient
documentation for the costs. We accordingly sustain the disallowance in
full.
Our decision is based on the written record and briefs.
Factual Background
The Public Health Service (PHS) awarded PCPM a Health Professions
Special Project Grant of $247,000 in 1974 to develop an educational
system, incorporating interdisciplinary education and team health care
delivery with schools of medicine, dentistry, optometry, pharmacy,
podiatry, social work, and nursing in the Philadelphia area. To carry
out this program PCPM issued subgrants to eight universities and medical
schools in the Philadelphia area. In administering the grant, PCPM made
direct payments to the participating institutions except Temple
University.All the funds subgranted to Temple, with the exception of an
amount expended for fringe benefits, were paid directly to an
individual, the Chairman of the Nursing Department, who was Temple's
coordinator for the project. In the fiscal year beginning July 1, 1974,
PCPM subgranted $16,987.25 to Temple, of which $986.46 was deposited in
Temple's account. The remainder was deposited in the coordinator's
account. The funds subgranted to (2) Temple were for the following
purposes:
Salaries Institutional Coordinator $10,000.00 Clerk-Typist
3,500.00 Fringe Benefits 986.46 Equipment and
Supplies 2,250.79 Travel 250.00
$16,987.25
An audit (ACN 03-01003) disclosed that Temple's grant accounting
office had no record of the subgrant and that Temple could not provide
adequate documentation to support any of the costs claimed. The audit
report stated that Temple's time and effort reporting system showed that
100 percent of the coordinator's time was devoted to Temple activities,
while the coordinator had been scheduled to spend 50 percent of her time
on grant activities. The auditors could not verify the salary paid to
the clerk-typist. The auditors were not able to locate the equipment
purchased under the grant or documentation to show that it was actually
received and used for grant purposes. The audit report further stated
that Temple could not support the $250 received for travel purposes.
Based on the audit report, HRA concluded that "PCPM did not exercise
sufficient stewardship over the use of grant funds by awarding the
subgrant directly to the coordinator at Temple University and by not
adequately monitoring the expenditure of the funds" and held PCPM
accountable for the full amount subgranted to Temple. (August 4, 1980
letter from the Director, HRA Division of Grants and Procurement
Management, p. 2)
Parties' Arguments
PCPM's primary position in this appeal was that all the questioned
expenditures were made on behalf of the grant program and that HRA, in
issuing its disallowance, "relied on an inequitable and overly-technical
reading of the policy statements promulgated by the Public Health
Service." (PCPM's appeal letter dated April 7, 1981, p. 2) PCPM stated
that, with the exception of the amount expended for fringe benefits, all
the funds subgranted to Temple were paid directly to the coordinator at
Temple's request. PCPM contended that it "only did all that it was
required to do; it did all that it could reasonably be expected to do."
(Id., p. 4) (emphasis in original) PCPM argued that it only followed
Temple's request on how the grant funds should be administered and that
PCPM should be entitled to rely on the good faith of Temple's
administration that the subgranted funds were handled pursuant to
Temple's standard institutional practices.
(3) HRA did not dispute that all the funds were expended for
grant-related purposes, but stated that under applicable regulations,
grant management policies, and cost principles, detailed documentation
of project expenditures was required.HRA argued that PCPM, by providing
funds directly to the coordinator, assumed responsibility for any
federal funds expended contrary to the grant management policies and
cost principles.
Discussion
We will examine each of the disputed cost items separately, but we
believe it first necessary to discuss the issue of whether the grantee
or the subgrantee is ultimately responsible for the proper management of
subgranted funds.
Grants Management
As stated above, PCPM argued that it followed Temple's instructions
when it sent the subgranted funds directly to the project coordinator,
bypassing Temple's grant accounting office. Hence, according to PCPM,
it should not be held responsible for Temple's failure to properly
manage the subgranted funds and the lack of adequate documentation.
HRA's position is that "PCPM assumed all legal and financial
responsibility at the time the grant was awarded and is accountable for
the grant funds, including funds subgranted by PCPM to Temple
University." (Decision of the HRA Ad Hoc Grant Appeals Committee, p. 2)
Standard grant principles support HRA's position. The PHS Grants
Policy Statement (DHEW Publication No. 76-50,000, July 1, 1974)
describes subgranting as
Allowable only when grant funds are provided to another individual or
organization to carry out the purposes for which the grant was made, and
when the original grantee institution retains scientific, administrative
and financial responsibility over the activity and the funds. (p. 21,
emphasis in the original)
The definitions for the administration of grants set forth at 45 CFR
74.3 (1973) provide:
"Grantee" means the organization or person to which a grant is made
and which is accountable to the Federal Government for the use of the
funds provided.The term does not include any secondary recipients such
as subgrantees, contractors, etc., who may receive from a grantee
pursuant to a grant.
(4) "Subgrantee" means the organization or person to which a subgrant
is made and which is accountable to the party awarding the subgrant for
the use of the funds provided.
The ultimate responsibility that all grant funds are properly
expended thus lies with the grantee. The grantee, not the subgrantee,
is solely accountable to the awarding agency for the use of the funds.
In Community Relations - Social Development Commission in Milwaukee
County, Decision No. 134, November 28, 1980, the Board held:
The legal relationship created by a grant award is between the Agency
and the Grantee. The subgrantee is accountable to the Grantee not the
Agency.... The Grantee is, therefore, responsible to the Agency for
adequate documentation of expenditures made by the subgrantee. (p. 2)
PCPM argued that it reasonably relied on Temple's institutional
system. We question whether such reliance was reasonable in light of
the fact that payment was made directly to the project coordinator
rather than the institution. In any event, a grantee has the
responsibility to ensure that all grant expenditures are properly
documented and it must bear the risk for any omissions in record-keeping
by a subgrantee.
Project Coordinator's Salary ($10,000)
The largest part of the disallowance is represented by the project
coordinator's salary for administering the grant program at Temple. The
agreement between PCPM and Temple provided that Temple would supply an
institutional coordinator who would devote 50% of her time to the grant
program. In reviewing Temple's time and effort reporting system,
however, HRA's auditors found that 100% of the coordinator's time was
devoted to Temple activities and the coordinator accordingly received
her normal annual salary from Temple. HRA disallowed the coordinator's
salary because, according to the PHS Grants for Training Projects
Policy, (Salaries) and wages are allowable for time and effort spent on
a grant-supported project. Rate must be consistent with salaries paid
from institution funds. No supplementation of base salary is
permitted...
HRA concluded, "Since the Coordinator received 100 percent salary
from Temple University, additional salary claimed against PCPM grant
related funds is disallowed." (Decision of HRA Ad Hoc Grant Appeals
Committee, p. 3)
(5) PCPM responded that it did not know whether Temple continued to
pay the coordinator 100% of her old salary while she worked on
grant-related activities, but that PCPM was certain that 50% of her time
was spent on the grant project. While unable to supply any detailed
time reports for the coordinator's work on grant-related activities,
PCPM submitted an affidavit from the director of PCPM's grant project.
The director stated that Temple had agreed to supply an institutional
coordinator who was to spend 50% of her time on grant activities. The
director further stated that the coordinator performed her
responsibilities under the grant in a professional and competent manner.
PCPM claimed that the coordinator planned and scheduled clinics and
seminars and supervised students. PCPM argued that it was Temple's duty
to adjust its time reporting system to reflect the agreement that the
coordinator was to spend 50% of her time on grant-related activities.
PCPM contended that it should not be held responsible for Temple's
failure to alter its system, and that, if anyone supplemented the
coordinator's salary, it was Temple and not PCPM.
HRA reviewed the affidavit and, while not disputing that the
coordinator performed grant-related activities, concluded that the
affidavit did not address the central issue that the coordinator
received her full salary from Temple while also receiving salary support
under the grant.
It is evident that the coordinator received her usual salary from
Temple and $10,000 in salary under the subgrant. The question before us
is the allowability of this charge to the grant. Although the Grants
for Training Projects Policy, cited by HRA, was replaced by the PHS
Grants Policy Statement, effective July 1, 1974, other grant principles
hold that the supplementation of an individual's salary with grant funds
is not allowed. Section 74.172(c) of 45 CFR states that Appendix D of
Subpart Q of 45 CFR Part 74 is to be used as a guide for determining the
allowability of costs of certain activities conducted by an institution
of higher learning under a grant. Paragraph J.7.c. of Appendix D
specifically prohibits any such supplementation of salaries. The PHS
Grants Policy Statement (p. 19) requires certain documentation of effort
for salaries. We consider the after-the-fact affidavit submitted by
PCPM to be insufficient documentation.
We have already stated that PCPM is accountable to the awarding
agency for the proper use of the grant funds and that PCPM cannot shift
that accountability to its subgrantee. We therefore sustain the
disallowance of the coordinator's salary.
Clerk-Typist's Salary ($3,500.00)
The audit report stated that it was unable to verify, from Temple's
records, the salary paid to the clerk-typist. In disallowing this (6)
item, HRA noted additionally that the clerk-typist was the daughter of
the coordinator of the program. HRA termed this relationship a conflict
of interest and referred to the PHS Grants Policy Statement, which
provides:
Grantee must establish safeguards to prevent employees from using
their positions for purposes which are, or give the appearance of being,
motivated by a desire for private gain for themselves or others, such as
those with whom they have family, business or other ties. (p. 36)
Because of the lack of adequate time and effort reporting and the
relationship between the coordinator and the clerk-typist, HRA
disallowed the clerk-typist's salary.
PCPM argued that the clerk-typist performed grant-related activities
at nights and on weekends. PCPM disputed HRA's assertion that the
person in question was not trained as a clerk-typist and questioned
HRA's characterization of this relationship as a conflict of interest.
We believe it unnecessary to address the question whether the
relationship between the coordinator and the clerk-typist constituted a
conflict of interest. We find that the lack of any documentation
concerning the clerk-typist's activities is sufficient ground to
disallow the cost of her salary. PCPM stated that it was prepared to
offer affidavits confirming that the clerk-typist was engaged in
grant-related activities, but PCPM failed to submit any such affidavits.
There is nothing, other than PCPM's assertions, in the record before the
Board to show that the clerk-typist performed grant-related activities.
In the absence of any documentation, we sustain HRA's disallowance of
the clerk-typist's salary.
Fringe Benefits ($986.46)
PCPM sent Temple $986.46 in grant funds for "staff benefits" for
the
coordinator and the clerk-typist. HRA disallowed this item because it
was unable to verify the appropriateness of the salaries which underlay
the fringe benefits. As we have already found the salaries of the
coordinator and the clerk-typist unallowable, we accordingly also
sustain the disallowance for the fringe benefits.
Equipment and Supplies ($2,250.79)
HRA disallowed equipment costs of $2,162.97 because its auditors were
unable to locate the equipment or discover any documentation that the
equipment was actually received and used for grant purposes. HRA also
disallowed supply costs of $87.82 because the audit report (7) indicated
that Temple had previously paid for the supplies that were claimed
against the subgrant.
PCPM admitted that it is currently unable to locate the equipment
used in the grant program. PCPM nevertheless argued that it had
furnished HRA with receipts for each item of equipment or supply
purchased with grant funds. PCPM contended that, as the equipment and
supplies were actually used in grant-related activities, PCPM should not
be held accountable for the equipment as new, but rather that some
adjustment should be made to reflect the equipment's use in the grant
program.
The purchased equipment consisted of such items as tape recorders,
calculators, a typewriter, and other similar office machines. The
documentation in the record relating to this equipment consists solely
of copies of sales receipts. There is nothing, beyond PCPM's mere
assertions, to indicate that the equipment was actually used for
grant-related purposes. The Board has previously held that "the most
elementary principle of grant administration is the requirement that a
grantee have documentation to show that claimed expenditures were, in
fact, incurred to further the purposes of the project." Neighborhood
Services Department, Decision No. 110, July 15, 1980, p. 2.
Specifically in regard to nonexpendable personal property, 45 CFR
74.136, made applicable to this grant by 42 CFR 57.1109 (1973), requires
that a grantee's property management standards include these procedural
requirements:
a) Property records shall be maintained accurately and provide for:
(1) A description of the property;
(2) Manufacturer's serial number or other identification number
(3) Acquisition date and cost;
(4) Source of the property;
(5) Percentage of Federal funds used in the acquisition of the
property;
(6) Location, use, and condition of the property.
We find that PCPM failed to provide even the minimum amount of
documentation concerning the equipment and supplies. Accordingly, we
sustain the disallowance for these items.
(8) Travel Costs ($250.00)
On each quarterly statement of expenditures the coordinator routinely
included an item for $62.50 in travel expenses. PCPM alleged that this
represented costs incurred by the coordinator for her travel to
meetings, seminars, and clinics associated with the grant programs. HRA
disallowed these costs because the coordinator failed to document the
purpose of each trip and to keep records on the number of trips, the
mode of travel and cost, and odometer readings.
The PHA Grants Policy Statement provides that travel costs which
provide direct benefit to the program being supported are allowable, but
are limited to the extent provided by formal institutional travel
policy. HRA argued that, as Temple was unable to substantiate the
travel costs incurred by the coordinator, the travel costs were not
allowable. Paragraph J.44 of Appendix D of 45 CFR Part 74, Subpart Q,
concerns travel costs. It states that allowable travel costs "may be
charged on an actual basis, on a per diem or mileage basis in lieu of
actual costs incurred, or on a combination of the two..." While a
documentation requirement is not expressly stated there, some type of
record-keeping is definitely implied. In a previous decision regarding
travel costs, the Board stated that the requirement for documentation of
travel costs was so basic that no specific provision concerning
documentation was needed.Head Start of New Hanover County, Inc.,
Decision No. 65, September 26, 1979, p. 3. Documentation or records
concerning the coordinator's travel costs have not been submitted. We
therefore sustain HRA's disallowance of the travel costs.
Conclusion
For the reasons stated above, we sustain the disallowance in the full
amount of $16,987.25.
SEPTEMBER 22, 1983