GAB Decision 374
January 25, 1983 Indiana Family Health Council, Inc.; Docket No. 82-139
Ford, Cecilia; Teitz, Alexander Settle, Norval
DECISION
Background of this appeal.
The Public Health Service (PHS or agency) disallowed $3,825 which the
appellant had charged to PHS Grants nos. FT-T-500022-03 and 04. This
amount was reduced to $1,685 by a PHS grants appeals committee.
Appellant conceded a portion of the amount in dispute, and sought our
review of the remaining $1,447.65. Since the dispute concerns an amount
under $25,000, and appellant received a review of its complaint by a
grant appeal commiittee before coming to this Board, the Board's special
expedited review procedures apply. 45 CFR 16.12(d) (1981). Thus, we
reviewed the record in the case, and appellant's arguments and evidence,
to determine whether PHS' determination was clearly erroneous. Section
16.12(d)(1). We conclude that the PHS determination was correct in part
and clearly erroneous in part.
The elements of the disallowance.
Appellant purchased the following educational materials for the
following amounts: a medical dictionary for $25.65; copies of a book
on women's health for $72.00; a film for $1,325; and a subscription to
a health newsletter for $25.00 (total: $1,447.65). PHS disallowed
these items because it said the four purchases were "initiated" after
the ending date of the grants involved, June 30, 1980. Agency's final
decision, June 17, 1982, p. 1.
The appeal.
On appeal to this Board, the appellant argued that the dates of
requisitions for the materials, rather than the dates of their purchase
orders, should be the factor used to determine when the purchases were
initiated. This argument was relevant because evidence in the record
showed that there were requisitions in June, 1980, for all four items,
although only two of the items (the film and the medical dictionary)
arguably were covered by purchase orders dated before the end of the
grant period.
(2) When funds were obligated for the materials in question.
The issue as framed by the agency's final decision (i.e., the
decision of the PHS grants appeals committee) and the appellant's brief
essentially concerned the point at which the grantee's funds were so
committed to purchase of the materials that the commitment became an
"obligation" of the funds. "Obligations" of funds are "
. . .orders
placed, contracts and grants awarded, services received, and similar
transactions during a given period, which will require payment during
the same or a future period." 45 CFR 74.71 (1979) (emphasis added). The
agency's final decision confused the issue somewhat by referring to
"initiation" of purchases rather than the correct regulatory term
"obligation" of funds; the appellant arguably is correct that the
purchases were "initiated" by the requisitions, but the process does
not
per se constitute a sufficient commitment of funding to be an
obligation.
In its submission to the Board dated September 13, 1982, the agency
stated that it did "not wish to submit any further statements in defense
of this decision." Because of the way the issue was framed, the Board
determined that it was unable to resolve the dispute without further
inquiry, and therefore the Board conducted a conference by telephone to
develop the positions of the parties. Participating in the conference
were representatives of the agency, the appellant, and the Michigan
Department of Public Health (under whose subagreement with the appellant
the disputed costs were incurred). In a brief discussion of the
obligation concept, the appellant acknowledged that the point of
obligation here would be the purchase order date; therefore, since the
record shows that the health books and the newsletter involved
obligations of funds after the end of the grant period, we conclude
without further analysis that the agency correctly disallowed the costs
of these items (in the total amount of $97).
For the other two purchases -- the film and the dictionary -- both
parties rely on evidence in a document of the appellant's called a
"departmental purchase order and contract release form," which we
refer
to as the purchase order. For the book, purchase order number PH3181
shows a "date" (which appears to record the date of the form itself)
on
June 26, 1980. For the film, number PH 3198 (or PH3188) shows the same
date, June 26, 1980. In and of themselves, these dates support the
appellant's assertion that funds for the materials were obligated before
the end of the grant period. But the matter is clouded by another entry
on each form: on each, a box called "record of approved vouchers"
shows
what appears to be a payment after the purchase order date: July 11 for
the dictionary, and September 17 for the film. Both forms also have the
typed-in legend "pay in advance." The agency's final decision called
these latter dates without further (3) discussion, the dates of the
purchase orders for the materials. The appellant's position in its
brief was simply that the purchase orders were dated June 26.
Therefore, in the conference, the obvious question was what was the
meaning of the later dates. A representative of the appellant stated:
What happended is that the purchase order was issued June 26 and then
later it was found out that this company required an advance of payment
before they'd deliver the film. And in September we found that out. We
made the advance payment and then later on they delivered the film. But
the order actually was placed on June 26.
The appellant's representative also stated the same thing happended
concerning the medical dictionary.
In our view, the forms in question did not conclusively show any lack
of timely obligation; rather, they raised a legitimate question, which
required further inquiry, of whether or not there was timely obligation.
At the conference, the Board made that inquiry, and received a
reasonable explanation; and the agency offered no substantial rebuttal.
The voucher dates are as easily explainable as records of subsequent
outlays as anything else, and thus are not inconsistent with an earlier
obligation. The agency's response primarily raised two collateral bases
for the disallowance, discussed below, which were not mentioned in the
final agency decision. Given the appellant's affirmative statement that
the film and the dictionary were ordered by a purchase order before the
end of the grant period, the appellant's reasonable explanation of what
the later dates meant, and the lack of any substantial agency rebuttal,
we conclude that the agency erred in determing that the costs of these
materials should be disallowed because their purchase was not
"initiated" before the end of the grant period.
The agency's other reasons for the disallowance.
During the conference, largely in response to the appellant's
presentation discussed above, the agency representative argued that
there was two other reasons for the disallowance. *
(4) The first was that it was not clear that the film was ever
delivered and used for purposes related To the project. In response,
the appellant stated explicitly that the film had been received and used
(and was still being used) for project-related purposes. Since the
record indicates that the agency did not raise this matter as a basis of
the disallowance in its final decision, and given the unrebutted
evidence that the film was received and used relevantly, we conclude
that this position of the agency does not support the disallowance.
The second basis given for the disallowance essentially was that the
film was obtained and used so far after the end of the project that it
was no longer more than remotely related to the purposes for which the
grants were awarded.
The record indicates that auditors found the film was not in use as
late as February, 1981. Indeed, it is not clear from the record
precisely when the appellant began using the film, although testimony
during the conference indicates the film was received and used.
We are sympathetic to the agency's concern that grant funds may have
been used for a purpose only remotely connected with the grant project.
But there are two factors which compel us to conclude that the
disallowance cannot stand on the basis of that concern as reflected in
the record of this particular case.
The first is that the record indicates that the agency allowed other
cost items, including films and reference materials, which the appellant
received after June 30, 1980. The final agency decision indicates that
this was appropriate because the grant supported project, although no
longer receiving agency funds, continued uninterrupted.During the
conference, the agency's representative said that other late items may
have been allowable because of their "proximity" to the end of the
grant
period. This raises the spector of arbitrariness in determining how
"proximate" the use of the film was, since the record does not indicate
any specific time differential; the record also indicates that the
agency did not appear to know before the conference that the film
actually had been received and used.
The second factor is simply that the agency's final decision did not
inform the appellant that this was the basis of the disallowance
determination. The appellant never responded in its appeal to this
concern; instead, it presented a case only on whether the purchases
were "initiated" before the end of the grant period, which was
understandable since that was the sole concern specified in the final
decision.
(5) We conclude that the disallowances for the film and the medical
dictionary were clearly erroneous, because the record indicates that
funds for those items were obligated before the end of the grant period.
While the agency may have had other, different bases for the
disallowances, they were not stated in the final agency decision. The
appellant, therefore, had no opportunity to respond on any other basis,
and the record gives this Board no grounds to do more than question
whether such a further determination would be arbitrary.
The agency may, if it wishes, issue a further disallowance,
articulating its real basis for the disallowance. Should the agency
anticipate doing so, we urge further communication with appellant first
to determine when the materials in question actually came into use and
whether that was sufficient for the agency's purposes.
Conclusion
Based on the analysis above, we uphold the agency's disallowance of
$97 for the health books and the newsletter, and overturn the
disallowance of $1,350.65 for the film and medical dictionary as clearly
erroneous as stated, subject to the right of the agency to restate its
disallowance if it chooses to pursue another basis as explained above.
* The parties argued only in terms of the film, although the same
concerns apparently were present with regard to the medical dictionary.
See, e.g., reference to testimony at the conference, above. Therefore,
our analysis, although it speaks of the film only, is equally applicable
to the dictionary.
OCTOBER 22, 1983