GAB Decision 330
June 30, 1982 Ohio Developmental Disabilities Planning Council; Docket
No. 81-169-OH-DD Ford, Cecilia; Settle, Norval Teitz, Alexander
The Ohio Developmental Disabilities Planning Council (Council)
appealed the decision of the Office of Human Development Services
(Agency) to disallow $223,264. These funds were part of a grant award
to the State of Ohio (State) for fiscal years (FY) 1976 and 1977. The
award was for the creation of a Protection and Advocacy (P&A) program
under section 113 of the Developmental Disabilities Assistance and Bill
of Rights Act (Act) as amended, 42 U.S.C. 6000, et. seq. The Agency
charged that the Council did not follow established procurement
standards in awarding contracts chargeable to HHS grants, failed to
adequately monitor the contracts once awarded, and, in some instances,
used funds unobligated in one fiscal year to cover expenses incurred in
the next fiscal year. The Council argued that the costs were allowable,
and that its actions were reasonable given the time constraints which it
faced in trying to develop the P&A program. For the reasons discussed
below, we sustain the disallowance.
This decision is based upon the submissions of the parties and
testimony offered at the hearing held in this case at the request of the
appellant.
The Board's Jurisdiction
At the hearing the Council challenged the Board's jurisdiction over
this appeal. As support for its position, the Council cited the Board's
regulations in effect at the time the award was made. At that time
(August 1976) section 113 was not included in 45 CFR Part 16, Appendix
B, which listed programs subject to the Board's jurisdiction. The
Council also cited the minutes of a meeting held January 16, 1980
between officials from the Chicago Office (Region V) of HHS and Council
officials. The minutes of that meeting show that a member of the Region
V Office told the Council that the fiscald audit was not "subject"
to
the Grant Appeals Board. (Appellant's Hearing Exhibit N, p. 3)
The Agency directed the Board's attention to 45 CFR 1385.3 (1978),
which provided that, inter alia, 45 CFR Part 16, "as cited therein,"
would apply to grants funded under 45 CFR Part 1386. Part 1386 includes
the protection and advocacy program for the developmentally (2)
disabled. There regulations were published at 42 Fed. Reg. 5278, on
January 27, 1977. It is not clear, however, that this regulation
established the Board's jurisdiction in 1977 or 1978 because 45 CFR Part
16 did not list section 113 of the Act at that time.
The Council argued that it understood that the Chicago Regional
Office was going to handle this matter. (Transcript (Tr.) 6/9/82, p.
196) The Agency pointed out that the Regional Office did handle the
matter up to and including the issuance of a disallowance. The issuance
of the disallowance by the Regional Administrator reflected a program,
as well as fiscal, decision not to conduct any further review of the
matter. If the Council's agrument about the Board's lack of
jurisdiction is correct, the Agency was not obligated, by law or
regulation, to offer the Council any further administrative review.
Under that assumption, the Board's process is more than the Council
would otherwise receive in terms of administrative review. The Agency
has stated, however, that it believes the Board has jurisdiction over
this appeal. Under 45 CFR Part 16 (1981), Appendix A, paragraph G., the
Board has stated that it would be bound by the opinion of the HHS
component which issued the decision for which review issought, unless
the Board Chair determines that the opinion is clearly erroneous. The
Agency recently delegated to the Board the responsbility for reviewing
disallowances in programs under sections 113 and 132 of the act. (45
CFR Part 16, Appendix A, paragraph B., (a)(3) (1981)) The letter of
disallowance specifically offered appeal rights under 45 CFR Part 16 to
the Council. Therefore, in the interests of fairness, the Board Chair
has determined to hear this appeal.
background
In April 1976, the Agency notified the State that funds were avaiable
for the planning and implementation of an advocacy system for the
developmentally disabled. To be eligible for funds, the State had to
designate a state agency to be responsible for the federal funds. The
Agency informed the State that it would receive guidelines for the
program by May 1 and that the designated agency had to obligate funds by
June 30, 1976. The State designated the Council as the appropriate
agency. In May 1976 the agency provided the State with guidelines for
the planning stage of the program and extended the deadline for the
obligation of funds until September 30, 1976. The Council received
$84,974 in FY 76 funds on August 12, 1976. The council also received
$140,896 in FY 77 grant funds, giving it a totoal award of $225,870 for
the period in question.
On September 27, 1976 the Council filed an Intra-Department
Requisition to encumber the funds awarded to it for FY 76. (Appellant's
Exhibit, If) In October 1977, the Council entered into an agreement (3)
with the Epilepsy Association of Ohio (EAO) by which EAO would act as
fiscal agent for the Council, distributing funds at the Council's
direction.
In October 1976, the Council, through its Ad Hoc Advocacy Committee
(Committee), sent out Requests for Proposals (RFPs) for the P&A System.
No proposals were submitted in response to this request. In November, a
second mailing was conducted which resulted in three submissions.
Proposals were submitted by the Center for Human Development -- Ohio
University (Ohio University), Developmental Disabilities Resources, and
the Arizona Association for Retarded Citizens (AARC). The Committee
accepted the AARC proposal on the condition that a separate corporation
be formed to handle the grant so as to avoid any financial conflicts
with other AARC funds. /1/ (Tr. 6/8/82, p. 44; Appellant's Exhibit IIc)
Advocacy Horizons Incorporated (AHI) was formed for this purpose and it
received $114,500 from the Council to develop the P&A System. The
Committee also determined that one aspect of the Ohio University
proposal was worth funding. Consequently, the Council awarded a
contract for $29,273 to Ohio University to develop a monitoring
component.
The Council also made other awards which have been challenged by the
Agency. The Council awarded $30,000 to several consumer groups for the
purpose of conducting surveys to locate and identify the entire
statewide developmentally disabled population. The Council also made an
award of $49,491 to the Ohio Protection and Advocacy Agency (OPAA), the
terms of which will be discussed more fully below.
On the basis of a fiscal audit for the period January 1, 1976 through
September 30, 1977, the Agency disallowed $223,264 in charges to the
grant. The main components of the disallowed costs were:
$114,500 -- awarded to AHI, disallowed for failure to comply with
applicable procurement standards;
$29,273 -- awarded to Ohio University, disallowed for failure to
comply with applicable procurement standards; (4) $49,491 -- awarded to
OPAA, disallowed because of improper use of grant funds;
$30,000 - awarded to local agencies, disallowed for failure to comply
with applicable procurement standards.
The Award to AHI
AHI received an award of $114,500 to develop a P&A System for the
State. Both the Council and the Agency agreed that this award was a
procurement contract. (Tr. 6/10/82, pp. 34, 55-56, 61-63) The question
now before the Board is whether the contract between the Council and AHI
complied with the procurement standards set out at 45 CFR Part 74,
Subpart P, (1975). The regulations contained in Subpart P establish
both the procedures to be used in soliciting bids and offers for
contracts under HEW (HHS) grants (45 CFR 74.153 and 45 CFR 74.154), as
well as the basic standards each contract must meet (45 CFR 74.159).
Although the Agency questioned the adequacy of the Council's contract
solicitation process under the Subpart P standards, the primary basis
for the disallowance was the Council's failure to adhere to the
procurement standards set out at 45 CFR Part 74, Subpart P. Sec.
74.159.
he relevent portions of 45 CFR 74.159 require that a grantee:
(a)(1) . . . include provisions to define a sound and complete
agreement in all contracts . . . when the contract costs . . . are to be
borne as a direct charge in whole or in part by an HEW grant.
(b)(1) . . . its contracts shall contain contractual provisions or
conditions which will allow for administrative, contractual, or legal
remedies in instances where contracts violate or breach contract terms
and provide for such sanctions and penalities as may be appropriate.
(2) All contracts . . . in excess of $2,500 shall contain suitable
provisions for termination by the grantee including the manner by which
it will be effected and the basis for settlement. In addition, such
contracts shall set forth the conditions under which the contract may be
terminated for default as well as conditions where the contract may be
terminated because of circumstances beyond the control of the
contractor. (5) The only evidence provided to the Board of an agreement
between the Council and AHI is a letter (January 6, 1977) notifying AHI
that its proposal had been accepted. The letter also informed AHI that
it would receive $100,000 in finding. /2/// The letter contains no
terms and conditions such as those referred to in Sec. 74.159, nor does
it define the relationship between AHI and the Council. The Council
asserted that it complied with the Sec. 74.159 standards. (Tr. 6/8/82,
pp. 45-46) However, no documentation has been offered by the council on
this point.
The regulation sets out clear standards applicable to this award.
The Agency alleged these standards were not met. The Council has not
demonstrated compliance. We must uphold the disallowance of the award
to AHI.
Ohio Protection and Advocacy Agency
The Ohio Protection and Advocacy Agency (OPAA) was the P&A agency for
persons with developmental disabilities in the State of Ohio. In
November 1977, the Council received permission from the Agency to
transfer a total of $49,491 in FY 77 funds to OPAA. With these funds,
OPAA was to provide training, public awareness, and education pertaining
to the developmentally disabled until it received FY 78 funding.
However, OPAA received permission to use these funds for administrative
purposes, provided that when OPAA received funding for FY 78, any FY 77
funds used for administrative purposes were repaid and thereafter used
to provide the agreed upon items. (Appellant's Exhibit IIIb;
Appellant's Reply Brief, p. 4)
After the transfer of funds, the Council discovered that these funds
were being used for activities outside the scope of the transfer
agreement. The Council then attempted to recoup the money. OPAA
refused to return the funds and the Council sought to withhold further
FY 78 funding from OPAA. However, OPAA obtained an injunction in
federal court which blocked this course of action.
The agreement under which the Council had transferred the funds
permitted the use of the funds for administrative purposes, provided
they were repaid from FY 78 funds. The Audit Report disclosed that the
bulk of the FY 77 funds had been used for administrative expenses and
were not repaid. The remainder was not expended and should have been
returned. Therefore, the auditors recommended disallowance of the
entire $49,491. (Audit Report, pp. 2, 11) The parties to this appeal
agreed that the transferred funds were used for administrative expenses
not within the scope of the transfer agreement. However, the Council
maintained that the Court order preventing (6) recovery of funds from
OPAA also prevented the Agency from recovering the funds from the
Council. The Agency argued that the State of Ohio's efforts to replace
OPAA with a new P&A agency resulted in the federal court injunction upon
which the Council relies. The Agency argued that the injunction did not
address the question of whether or not the State might recoup FY 77
funds because they were not spent in accordance with the agreement.
Appellant's Exhibit Ib is an Executive Order from the Governor of the
State of Ohio designating the Council as the agency to receive funds for
the planning of a protection and advocacy system for the developmentally
disabled. The Council was clearly the party with the ultimate
responsibility for grant funds received from the Agency. The fact that
the Council was unable to recover the funds in no way diminishes its
accountability for the funds as the recipient of a federal grant. Based
on the above analysis, we uphold the disallownace of these funds.
The Award to Ohio University
The parties agreed that the award to Ohio University was a contract.
(Tr. 6/10/82, pp. 61-64) Thus, it was subject to the procurement
standards at 45 CFR Part 74, Subpart P, Sec. 74.159. The Agency alleged
that the element of Ohio University's proposal for which the award was
made was not addressed by the RFP. Thus, by purchasing a different
service than that for which the RFP was issued, the Council purchased
without following the requirements set by Subpart P.
The award document to Ohio University was a one page ltter,
containing nothing meeting the requirements established in 45 CFR
74.159. There is no evidence that the requirements of Subpart P were
complied with in regard to this award. Therefore, we must uphold the
disallowance of these funds.
Awards To Local Agencies
The Council awarded a total of $30,000 to various statewide consumer
organizations for the purpose of conducting surveys in an attempt to
identify and locate the entire developmentally disabled population
within the state. Testimony elicited at the hearing indicated that 900
surveys were distributed statewide by volunteers from the various
organizations working in conjunction with the Council. For each
completed survey returned, the organization with which the volunteer was
affiliated would receive 25 dollars. Five hundred and forty-five
surveys were returned. (Tr. 6/10/82, pp. 8-9; Respondent's Hearing
Exhibit 19, p. 15)
A complete return of 900 surveys would have resulted in $22,500 for
the participating organizations. The return of 545 surveys should (7)
have resulted in a payment of $13,625, yet the Council paid $30,000 to
these organizations. (Audit Report, p. 14) The auditors could find no
written evidence of the (agreements) under which the survey money was
paid. The auditors did not find any evidence of a competitive
procurement procedure used in connection with these activities, nor any
justification for sole source awards.
Awards to the local agencies had to comply with 45 CFR Part 74,
Subpart P procurement standards. The Council provided no proof of
written agreements, no records of how the money in question was spent,
and no other proof of compliance with the procurement standards
contained in Subpart P. The Council did not allege that it should
receive the amount due for 545 surveys and the Board has no way of
evaluating whether those surveys would have met any terms and conditions
agreed to. Given those facts, the Board must uphold this portion of the
disallowance.
Use Of Lapsed Funds
In addition to the various bases for the disallowance set out above,
the Agency alleged that the failure of the appellant to obligate $84,974
prior to the end of the appropriate fiscal year is another reason for
disallowing part of the funds in issue. (Respondent's Brief, p. 18)
The Council stated that, although it knew in April 1976 that it would
be receiving federal funding, it did not actually receive the money
until August 1976, leaving it only six weeks to obligate the funds, or
lose the money. The Council argued that its submission of an
intra-department requisition prior to the end of FY 76 served as a
proper obligation of funds, in the absence of clear federal guidelines
on the subject. (Appellant's Reply Brief, pp. 6-7).
Since we have already sustained the entire disallowance on other
grounds, we need not reach the issue of whether the Council made use of
lapsed funds. Even if our analysis were to reveal that the $84,974 was
properly obligated prior to the close of FY 76, the finding alone would
not remedy the deficiencies in the Council's procurement and monitoring
procedures which compel us to sustain this disallowance.
Time Constraints and Good Faith
Throughout the course of this appeal the Council has argued that its
actions in dealing with the federal funds in question were reasonable,
considering the time constraints it was under to establish a P&A system.
Further, the Council contended that if it knew then what it knows now,
things would have been done in a different manner. The (8) Council
emphasized that at al times its actions were taken in good faith, with
the aim of better serving its constituency. (Tr. 6/10/82, pp. 100-101)
The Audit Report chronicled numerous substantive deficiencies in the
Council's award planning, solicitation, award process, and post-award
process. (Audit Report, pp. 3-4, Table 2) A general review of these
deficiencies makes it clear that the Council failed to comply with many
of the regulatory guidelines which applied to its actions under this
program. Furthermore, sound business practice would generally call for
written agreements with specific terms and conditions, as assurances
that the desired service would be delivered.
The Council admitted that the P&A grant program could have been
administered in a more efficient and effective manner, but insisted that
whatever deviation occurred was justified to meet program objectives and
conserve grant funds. (Council's Final Response to HEW Audit, July 16,
1979, p. 12)
The Council has, in effect, argued that the equities of the situation
merit reversal of the disallowance. The Council has not provided
adequate evidence to support its equitable arguments, and this Board is
bound by applicable laws and regulations. (45 CFR 16.14) The Board has
consistently upheld Agency determinations based upon clear regulations.
The Council has not argued that it was subject to ambiguous regulations,
nor has it produced evidence that it complied with the regulations to
which it was subject. The Board cannot reverse this disallowance solely
on equitable arguments, even if it were persuaded by them.
Conclusion
For the reasons outlined above we sustain the full disallowance of
$223,264. /1/ The Agency provided considerable testimony on this point
but did not specifically allege any impropriety arising from the
Council's action, nor did the Agency allege that the action violated any
federal requirements. Therefore, we will not devote further discussion
to this point. /2// AHI received an additional $14,500 in
February 1977.
OCTOBER 22, 1983