Mid-American Health Systems Agency, DAB No. 420 (1983)

GAB Decision 420
Docket No. 82-166

April 29, 1983

Mid-America Health Systems Agency;
Ford, Cecilia; Garrett, Donald Settle, Norval


The Mid-America Health Systems Agency (MAHSA) appealed a decision by
the Public Health Service (Agency) disallowing $29,069 in federal funds
claimed by MAHSA during the period April 1, 1978 through December 31,
1979. MAHSA accepted a portion of the disallowance and appealed $27,025
to the Health Resources Administration Ad Hoc Grant Appeals Review
Committee (Ad Hoc Committee), which upheld the disallowance. MAHSA then
appealed that decision to this Board. The Agency had found that the
disallowed costs lacked adequate documentation, were unreasonable and
unrelated to the furtherance of grant objectives, or violated other
applicable Agency grant policies. MAHSA asserted that all the costs
were adequately documented as well as reasonable and necessary to the
furtherance of grant objectives. /1/ For the reasons discussed below,
we reverse the disallowance of $1,475 for working dinners for the Board
of Directors, but we uphold the remainder of the disallowance.


Background

MAHSA provided federally funded health planning services to counties
in Missouri and Kansas between April 1976 and March 31, 1982. The
Agency conducted an audit after receiving an anonymous notification
which alleged numerous improprieties, including: 1) abuse of travel
reimbursement; 2) using sole source contracts in lieu of a competitive
bid process; 3) illegal expenditure of grant funds by the Executive
Director. (Audit Report, Audit Control No. 07-11452, p. 2)

The audit was limited in scope to issues raised by the allegations.
The auditors indicated that "many of the questioned costs appeared
unnecessary to the furtherance of grant objectives." (Audit Report, pp.
4-5) The auditors also found a significant number of "abuses" in (2)
MAHSA's employee expense reimbursement system. Ultimately, the auditors
concluded that MAHSA had charged expenditures in excess of $31,000 to
the grant which were unallowable under federal regulations and MAHSA's
own policies. (Audit Report, pp. 1-5) The questioned expenditures
included charges for the lease of a car, parking space rental, travel
reimbursement for a member of MAHSA's Board of Directors and a
consultant, and charges for meals and other entertainment expenses for
the Executive Director, employees and other persons.

The auditors further concluded that MAHSA's procurement policies did
not meet established federal standards: MAHSA did not employ
competitive bidding practices where they were required, nor had it
demonstrated the need for certain purchases. The auditors found that
MAHSA had no effective formal system of review to determine which costs
were proper charges to the grant under 45 CFR Part 74, Appendix F, and
charged all its costs to the grant without regard to allowability. The
auditors also concluded that MAHSA had no formal personnel reimbursement
policy, and that MAHSA needed to formalize, update and enforce its
reimbursement policies to comply with federal regulations. (Audit
Report, pp. 6-8, 20)

In response to the Audit Report, MAHSA stated that it would adopt
revised personnel policies and accounting procedures which addressed
many of the auditors' recommendations. (MAHSA Exhibit F, p. 5) However,
MAHSA argued that the disallowance should not have been taken because
the expenditures were reasonable and necessary. MAHSA admitted it
should have generated more complete records at the time the expenses
were submitted, but took the position that these were merely minor
procedural failings. (MAHSA Exhibit F, pp. 5-6) MAHSA indicated that it
believed that the relationship between the costs and grant objectives
had been clearly demonstrated through the presentation to the auditors
of documentary evidence and oral testimony supported by receipts,
calendars, and diaries. We do not know the precise nature of this
evidence because MAHSA did not submit it to either the Ad Hoc Committee
or the Board; however, the brief descriptions MAHSA offered about the
evidence indicate that the documentation showed who ate the meals, and
when they were eaten. Because MAHSA has submitted no new evidence to
the Board regarding any aspect of this disallowance, our review is
limited to whether the arguments which MAHSA made previously and
reiterated in a brief letter which MAHSA submitted with its request for
Board review, are supported by the applicable law and documentation.
/2/


(3) Below, we present the parties arguments for each item disallowed,
followed by our analysis of those arguments in view of applicable
federal regulations and Agency guidelines.

Analysis

I. Automobile Lease

MAHSA leased a 1979 Oldsmobile Cutlass Salon Brougham at an annual
cost of $3,336. (Audit Report, p. 9) In the disallowance letter, the
Agency questioned the need for the lease of an automobile in an area
where "ample public transportation is available." The Agency also
charged that MAHSA failed to follow federal guidelines which establish
minimum procedural requirements for leases or procurements.
Specifically, the Agency found no evidence that MAHSA had sought
competitive bids on the lease or had considered less expensive models.
The Agency also indicated that MAHSA paid the first year lease cost in
one payment although monthly payments were provided for in the lease.
/3/


The Agency also argued that this cost should be disallowed on the
basis of MAHSA's failure to establish formalized policies or procedures
addressing the use of this vehicle. The Agency pointed out that in
spite of language in the lease which indicated that the vehicle was to
be used only in lessee's (MAHSA's) business, the Executive Director (4)
drove the vehicle to and from work. Neither a mileage log, nor any
other system, was employed to bill the Executive Director for a portion
of the lease cost or fuel consumption attributable to personal use of
the vehicle. The Agency noted that MAHSA's personnel policy indicated
that employees would not be reimbursed for expenses incurred in travel
to and from work or parking at the office. (Ad Hoc Committee Decision,
p. 2) The Agency indicated that MAHSA had not requested, and the Agency
had not granted, prior approval for MAHSA to incur this cost. /4/


MAHSA argued that this cost was reasonable under the standards
established in the cost principles at 45 CFR Part 74, Appendix F, G.38.
/5/ MAHSA indicated it had prepaid the first year's cost in order to
receive the benefit of a less costly fleet rental rate even though it
rented only one vehicle. MAHSA indicated that it served an area in
excess of 4,000 square miles and that three of the counties which it
served did not have reasonable access to public transportation. MAHSA
contended that it did keep a mileage log book to track business use of
the car and that the Executive Director's outside meeting schedule
justified his use of the vehicle while traveling to and from work.
MAHSA concluded that, in its opinion, the cost incurred for this lease
was reasonable, and that it did not need to obtain prior approval.


The Public Health Service Grants Administration Manual (GAM), Chapter
6-10, section 35, provides generally that grantees are expected to
justify the need to lease facilities or equipment at the time of
application. If the need to lease equipment arises subsequent to the
grant award, lease costs must be applied to the grant in a manner
consistent with the cost principles at 45 CFR Part 74, Subpart Q.
Additionally, grantees are urged to consult the Grants Management Office
when there is a question of cost allowability.

(5) The cost principles at 45 CFR Part 74, Appendix F, B.3 (1973)
provide the general definition of reasonableness applicable to all
costs.

Definition of reasonableness. A cost is reasonable if, in its nature
or amount, it does not exceed that which would be incurred by an
ordinarily prudent person in the conduct of a competitive business...
In determining the reasonableness of a given cost, consideration shall
be given to:

(a) Whether the cost is of a type generally recognized as ordinary
and necessary for the operation of the institution or performance of the
grant/contract.

(b) The restraints or requirements imposed by such factors as
generally accepted sound business practices, arms length bargaining,
Federal and State laws and regulations, and grant/contrast terms and
specifications;

(c) The action that a prudent businessman would take in the
circumstances, considering this responsibilities to the public at large,
the Government, his employees, his clients,... and the fulfullment of
the purposes for which the institution was organized;

Furthermore, federal regulations governing procurement apply to this
transaction. See, 45 CFR 74.160(a). Section 74.164 provides that
grantees should follow procedures to assure that unnecessary items are
not procured, and that an analysis should be made of lease and purchase
alternatives to determine which is the most economical, and practical.
It also provides that some form of price or cost analysis should be done
for every negotiated procurement action, to review and evaluate the
procurement for reasonableness, allocability and allowability.

Based upon the facts and applicable regulations and grant guidelines,
we find that the disallowance of this cost was proper. While MAHSA
probably should have contacted the Grants Management Office to clear the
lease, under chapter 6-10-35 of the GAM, it is not clearly required that
MAHSA had to obtain prior approval of the lease. Chapter 6-10-35,
however, still mandates that the cost of a lease be consistent with the
cost principles at 45 CFR Part 74, Subpart Q, including being
reasonable. MAHSA has not demonstrated that it conducted either a
competitive bidding process or a price analysis prior to leasing the
car.

(6)

MAHSA argued that this lease was necessary in order for it to service
those areas under its jurisdiction not reasonably accessible by public
transportation. However, MAHSA has not provided any evidence to show
the frequency of travel to those areas. MAHSA argued that it had
obtained a less expensive annual rate by prepaying the first year cost,
but did not demonstrate that it needed full time access to a vehicle
rather than merely renting one occasionally. Moreover, MAHSA has not
shown that it had a need for a luxury model car. Thus, MAHSA has not
justified either the lease, or the amount of the cost of renting a car.

Further, the undisputed fact that the Executive Director made
personal use of this vehicle prohibits MAHSA from attributing the entire
lease of the vehicle to the grant as a cost which furthered grant
objectives. MAHSA indicated that a business mileage log was maintained
for the vehicle, yet has provided no evidence of such a document. MAHSA
argued that the Executive Director's outside meeting schedule justified
his personal use of the car. However, MAHSA has not provided any
evidence which would lead us to conclude that the Executive Director's
outside schedule was such that he was justified in using the vehicle
outside the "normal" work day. Without a breakdown demonstrating how
the vehicle was used, we do not believe that MAHSA can properly
attribute 100% of the vehicle's use to grant business. Since MAHSA did
not segregate the business use of the vehicle from the non-business use,
the Agency properly disallowed the entire cost.

Thus, we uphold the Agency decision to disallow $3,336 in lease
costs.

II. Parking Spaces

MAHSA rented parking spaces at a cost of $11,239, which it charged to
the grant. The Agency characterized this cost as a fringe benefit to
MAHSA employees. The Agency stated that because the free parking was
not listed as a fringe benefit in MAHSA's formalized personnel policies
it was, therefore, unallowable. The Agency also contended that MAHSA
did not obtain competitive bids for the parking contract and, as a
result, failed to get the best price available. The auditors indicated
that other facilities were available to MAHSA which would have charged
$20 per month for a space, as opposed to the $23 MAHSA's contract called
for. Further, the Agency contended that, by providing parking for its
employees, MAHSA violated its own personnel policies which stated that
employees would not be reimbursed for parking at the office. The Agency
also asserted that this expense did not meet the reasonableness standard
set out at 45 CFR Part 74, Appendix F, B.3.

(7) MAHSA argued that the parking facility was essential to provide
services to its constituency, and that no parking facility accompanied
its offices. It argued that renting these spaces facilitated access to
its services and encouraged community participation in regional health
planning. MAHSA pointed out that the parking facility was available to
anyone coming to MAHSA, not simply employees, and, therefore, the
parking should not be classified as a fringe benefit. MAHSA
acknowledged that its personnel policy prohibited employee reimbursement
for parking at the office, but argued that it would have been
uneconomical not to allow MAHSA employees to take advantage of this
situation. MAHSA also argued that since its Board of Directors was
aware of the parking facility, its personnel policy had effectively,
although not formally, been overruled.

We do not necessarily accept the Agency's characterization of this
cost as a fringe benefit. Nevertheless, we do not think that this cost
is justified as a charge to federal funds. MAHSA did not demonstrate
that its building was inaccessible or that parking facilities would
encourage more persons to use its services. Even if it had done so, the
fact that a particular cost may, in some way, encourage community
participation in a grant program does not automatically justify charging
it to federal funds. As the regulation at Appendix F, B.3 indicates,
reasonableness of a cost is premised upon a variety of factors.
Specifically, reasonableness depends upon whether a cost is generally
recognized as ordinary and necessary for the performance of a grant
(B.3(a)) and whether the decision to incur a particular cost is the type
of action a prudent business person would take, in view of his
responsibilities to the grant and the public. (B.3(c)) MAHSA has not
demonstrated that providing parking for the public and its employees is
an ordinary and necessary grant cost. MAHSA has not demonstrated that
spending $11,000 on parking facilities in any way helped it to
accomplish the goals of its grant, and that this was the best way to use
federal funds under this type of grant. Thus, we conclude that this
cost was both unreasonable and unnecessary to the furtherance of grant
objectives.

III. Consultant Fees

The Agency disallowed $2,460 claimed by MAHSA for a consulting
contract with its former president for the period January to June 1978.
The consultant was hired to provide reports about committee meetings of
the American Health Planning Association (AHPA). Under the contract,
MAHSA was to reimburse the consultant for travel expenses incurred while
attending the AHPA meetings.

(8) The Agency claimed that the information provided by the
consultant was duplicative because the Executive Director was also a
member of the AHPA. Thus, the Agency concluded that the cost incurred
for this contract was not reasonable or necessary. The Agency also
argued that this cost should be disallowed because both the revised
grant award (in effect at the time of the contract) and federal
regulations required prior approval of a consultant's contract. MAHSA
did not obtain prior approval for this contract.

MAHSA argued that this cost was both reasonable and allowable. MAHSA
indicated that, although both the Executive Director and consultant were
AHPA members, the consultant's efforts were not duplicative because she
was on different committees than the Executive Director and would obtain
information not available to the Executive Director.MAHSA argued that
prior approval requirements were inapplicable here because the contract
was not for services, but for reimbursement of travel expenses.

MAHSA did not provide any evidence to show how the information
available to the consultant differed from that available to the
Executive Director, or that the information was essential to MAHSA's
delivery of services. Federal regulations at 42 CFR 122.111(b)(1)(
1977) provided:

(b) A health systems agency which employs consultants to assist the
agency in the performance of its functions must adopt and follow a
uniform policy... which requires, at a minimum, a written finding by the
agency prior to the employment of each consultant that:

(1) The consultant services to be provided are essential to the
performance of the agency's function and canot be performed by persons
otherwise presently employed by the agency;

MAHSA did not provide any evidence that it followed the required
procedures for employing a consultant, although the regulation clearly
requires written justification for consultant contracts. Instead, MAHSA
argued that its contract with the consultant did not fall within the
scope of this regulation because MAHSA paid the consultant's travel
costs rather than her salary. The regulation does not distinguish
between those situations in which a consultant is paid for the value of
the services provided or reimbursed for travel expenditures. MAHSA
tried to justify reimbursement for travel expenditures because of the
services provided. MAHSA failed to demonstrate that these services were
essential and failed to follow the requirements of section 122.111. We
upheld the Agency decision to disallow the costs incurred by MAHSA under
this consulting contract.

(9) IV. Attendance at American Bar Association Conference

The Agency disallowed $234 claimed by MAHSA as airfare reimbursement
for a board member who presented a paper to the American Bar Association
(ABA). The individual in question made a presentation to the ABA in
August 1978. The topic of the presentation was Antitrust Implications
of Regional Health Care Planning. In December 1978 the individual sought
reimbursement because the ABA does not reimburse its speakers. The
Agency disallowed this cost noting that during the period of this audit
MAHSA was paying a law firm an average of $1,725 per month to provide
advice on various topics including antitrust matters. Further, the law
firm was periodically reimbursed for reviews and conference
participation concerning antitrust matters. Therefore, the Agency
concluded that this cost was neither reasonable nor necessary.

MAHSA contended that this cost was appropriate and furthered grant
objectives. MAHSA argued that the expertise acquired by the board
member in preparing the antitrust presentation had furthered MAHSA's
ability to avoid any health care planning pitfalls inherent in antitrust
laws. Further, MAHSA claimed that this expenditure was allowable as a
direct cost of providing information to the public under 45 CFR Part 74,
Appendix F, C.2(b)(1978). /6/


A regulation applicable to this grant, 42 CFR 122.208(a)(1978),
provides:

(a) Any funds granted pursuant to this subpart... shall be expended
solely for carrying out the approved activity in accordance with... the
terms and conditions of the grant award, and the applicable cost
principles prescribed by Subpart Q of 45 CFR, Part 74.

We believe that this regulation places a burden on a grantee to
demonstrate the benefit derived from a particular charge to federal
funds. As noted above, MAHSA indicated that, in preparing the speech,
the individual in question gained expertise in the antitrust area.
However, the auditors indicated, and MAHSA did not deny, that MAHSA
retained a law firm to protect its interest in this and other areas.
MAHSA has not shown how a speech on legal issues to lawyers is a part of
MAHSA's primary mission. Further, the fact that the individual in
question sought reimbursement for this cost more than three months after
it was incurred raises a suspicion, in our minds, that this person was
merely seeking to defray the cost of addressing the ABA. MAHSA has not
demonstrated the benefit to its grant through this cost. We conclude
that the Agency decision to disallow this cost was proper.

(10) V. Other Expenditures

The Agency disallowed a total of $11,561 in costs for meals and other
social activities. This portion of the disallowance included $932 for
costs incurred by MAHSA at a local restaurant (of which MAHSA appealed
$392); $2,362 claimed by MAHSA for in-town working meals for employees
either during or after normal working hours, and $5,590 in expenses
claimed by the Executive Director, of which MAHSA appealed $4,865. The
amount claimed by the Executive Director included in-town meals for the
Executive Director, MAHSA employees and other individuals. /7/ The
Agency also disallowed $219 in costs for dues at a local civic club and
the costs of tickets for the Executive Director and another employee to
attend a banquet. MAHSA appealed $117 of this cost. The Agency
disallowed $983 claimed by MAHSA for the cost of alcoholic beverages, of
which MAHSA appealed $543. Finally, the Agency included $1,475 claimed
by MAHSA for the cost of working dinners for members of its Board of
Directors.


The Agency disallowed all these costs on the grounds that MAHSA did
not provide sufficient documentation to show that the expenses were
necessary and reasonable. The Agency also provided other reasons for
disallowing these costs, which we discuss below.

We will discuss all the costs charged at the local restaurant, the
in-town working meals, and the costs claimed by the Executive Director,
most of which represented meals as well, together.

MAHSA purchased the in-town meals for its employees either during the
work day or when the employees remained after work to attend
work-related meetings later in the evening. Other meals were apparently
for members of the community doing "volunteer" work for MAHSA, and for
persons with whom the Executive Director met when he was out of town.
MAHSA argued that the costs incurred at a local restaurant, where it had
a charge account, and the other costs of in-town meals were
business-related. Furthermore, MAHSA contended that it had provided
documentation regarding the names and affiliations of the persons for
whom meals were purchased. MAHSA argued that this documentation
established a relationship between (11) the expenditures and the grant
objectives. Further, MAHSA argued that a "common sense reading" of its
personnel policy allowed staff members to be reimbursed for meals. /8/


The regulations at both 42 CFR 122.208(a) and 45 CFR Part 74,
Appendix F, B.3 require that costs incurred by a grantee be reasonable
and necessary to grant objectives. Expenses for meals are subject to
strict scrutiny in view of the cost principles' prohibition against
paying for entertainment costs with federal grant funds. See, 45 CFR
Part 74, Appendix F, G.12 (1978) /9/ In our view, meals not taken in
connection with travel are presumed to be a personal expense unless the
business transacted is documented, and the reason for conducting
business over a meal is also documented. In spite of its arguments for
allowing these costs, MAHSA has provided no evidence to demonstrate how
incurring these costs furthered grant objectives. The fact that meals
were purchased for individuals affiliated with MAHSA does not
demonstrate that the purchase of the meals was necessary for furthering
grant objectives. MAHSA argued that the Executive Director was expected
to meet with community representatives and consultants and that as a
result, expenditures for meals were "usual, customary and necessary."
(MAHSA's appeal to Ad Hoc Committee, p. 8) Examination of MAHSA's 1979
grant application reveals that MAHSA enumerated many activities designed
to achieve its grant objectives through public involvement and
education. These included such activities as newsletters,
mini-documentaries, radio/television appearances, public hearings and
orientation sessions. The grant application does not provide generally
for entertainment costs or dinner meetings. The Ad Hoc Committee
concluded that the federal program regulations at 45 CFR Part 122 do not
provide for buying meals for volunteers. We agree and conclude that
none of the expenses incurred for these meals have been adequately
documented to show they were necessary and reasonable.


(12) MAHSA argued that the auditors had no proof that $543 of the
costs disallowed for alcoholic beverages were in fact for alcohol.
MAHSA contended that the auditors assumed the costs were for alcohol
because the receipts were from "cocktail lounges," but in fact the
expenditures were for meals. The purpose of policies regarding itemized
vouchers, which MAHSA's reimbursement policy required, is to document
that costs are legitimately incurred.If receipts are not clearly
indicated as meals, then the auditors may be correct to presume that the
costs were for alcohol. Even if MAHSA could show that the costs were
for meals, MAHSA would still have to justify the expenditures for meals
as being necessary to the grant objectives, as we discussed above.
MAHSA has provided no such evidence regarding these costs.

MAHSA argued that the costs for civic club dues and the banquet
tickets were reasonable costs incurred in furtherance of grant
objectives. These types of cost bear a tenuous relationship to grant
objectives, however. If the purpose of attending these clubs and the
banquet was to disseminate information about MAHSA, there would have
been no need to purchase memberships or tickets to the banquet for such
a task. Thus there is a presumption of unallowability accompanying
these costs unless the grantee can clearly demonstrate that they are
closely connected to grant objectives. MAHSA has provided no
documentation showing its need to expend the funds for these items.
Without any documentation, we cannot determine their reasonableness.
Thus, we uphold the Agency decision to disallow them.

With regard to the working dinners for members of the Board of
Directors, MAHSA argued that business meetings followed these dinners
and that the dinners were a means of increasing attendance. MAHSA
contended that these costs should be allowed as incidental costs of
Board of Director and committee meetings under 45 CFR Part 74, Appendix
F, G.24 (1978). Finally, MAHSA alleged it prepaid the meals directly
and, therefore, no individual expense vouchers were submitted. MAHSA
also argued that its 1979 grant application provided for working dinners
for members of the Board of Directors.

The cost principles allow "incidental costs" of meetings to be
charged to federal funds. Appendix F, G.24. The federal program
regulations at 42 CFR 122.109(e) provide that members of the Board of
Directors may be reimbursed for their reasonable costs incurred in
attending meetings. Further, MAHSA's 1979 grant application (p. 31)
indicates that MAHSA would hold working dinners for Board members. Some
of MAHSA's Board members were drawn from other counties, and presumably
they had to travel some distance to attend these meetings. The Agency
did not indicate that MAHSA expended more than the $15/person limit
contained in its personnel policy. Therefore, we must assume that this
expenditure falls within that limit.

(13) Therefore, with regard to the issue of working dinners, we
conclude that MAHSA has made a persuasive case that the Agency
determination was wrong. The cost principles allow these kinds of costs
and the grant specifically provided for them here. The nature of the
expenditure was not unreasonable. The sole reason given by the Ad Hoc
Committee was the lack of individual expense vouchers, and we think that
MAHSA responded reasonably when it pointed out that the nature of the
transaction was such that no individual expenditures occurred (the
record does not indicate that the Agency or the Ad Hoc Committee
otherwise found the occurrence or amount of the expenditure suspect or
unreasonable). Therefore, we conclude that the cost of the working
dinners should be allowed.

Conclusion

For the reasons set out above, we uphold this disallowance in the
reduced amount of $25,550 and we reverse in the amount of $1,475. /1/
MAHSA had initially requested an evidentiary hearing. However,
MAHSA later stated that it could not produce any additional evidence so
there did not seem to be a need for a hearing. The Presiding Board
Member did conduct a telephone conference call with MAHSA, in which the
Agency chose not to participate. The purpose of the call was to provide
MAHSA with the opportunity to make additional arguments, and to explain
why it had not been able to produce documentation to support its
arguments. MAHSA made no new arguments. /2/ At one point during the
appeal, MAHSA agreed to review its accounting and administrative
files in order to substantiate its position. MAHSA later said that it
was unable to review the files because MAHSA terminated as an HSA on
March 31, 1982. MAHSA's representative alleged that, "because of the
vague nature of the audit papers," it was "impossible to reconstruct and
reexamine MAHSA's files." Letter of March 28, 1983. The regulation at
45 CFR 74.21 requires grantees to retain records until any audits,
claims, negotiations or other actions involving the records are
completed and all issues are resolved. The burden is on MAHSA to
provide the documentation supporting its claims. MAHSA has not done
this. Furthermore, we believe that the Audit Report provides enough
descriptions of costs that MAHSA should be able to find documentation
regarding them. The fact that MAHSA has generated relevant arguments
throughout this appeal, from the time the Audit Report was issued, is
evidence that MAHSA does know the items to which the auditors refer.
/3/ The Agency argued that MAHSA received no benefit from this
payment since the annual cost was not reduced by the lump payment, and
that the lease did not contain a termination clause in case federal
funding was withdrawn or substantially reduced. MAHSA has not provided
us with a copy of the lease. Thus, we are unable to determine whether
the period of the lease extended over two budget periods. Therefore, we
are unable to determine if MAHSA paid for costs incurred in a particular
grant year with funds from a previous grant year. Without the
information, we cannot properly evaluate the Agency's objection to the
prepayment and lease terms, and our decision on this cost does not rely
on this point. /4/ The Agency also considered the action under
the lease a purchase of general purpose equipment in excess of $300, an
act which requires prior approval under the 1976 Public Health Service
Grants Policy Statement (Policy Statement), p. 69. Since MAHSA did not
purchase this vehicle, we have no basis for finding that this particular
requirement applies to this lease. /5/ The cost principle at
G.38 subjects rental costs incurred by grantees to the guidelines for
reasonableness set out at 45 CFR Part 74, Appendix F, B.

information to legislative or administrative bodies is chargeable to
federal funds as a direct cost, when providing such information is a
normal part of an institution's primary mission. /7/ The
auditors indicated that in June 1978 the Executive Director charged
in-town meals on 16 occasions (39 meals); in October 1978 the Executive
Director charged in-town meals on 21 occasions (57 meals). (Audit
Report, p. 24) The Executive Director also charged in-town lodging costs
to the grant. The auditors also found that the Executive Director
"freely" purchased meals for others during out-of-town trips. (Citing
as an example, October 1978, 4 occasions - 16 meals; Audit Report, p.
25) /8/ MAHSA's personnel policy said: "When staff has an
Agency meeting after normal working hours, the staff will be reimbursed
for travel home and return. Staff will not be reimbursed for meals on
such evenings." We think the language of this policy is clear and that
the Ad Hoc Committee interpreted it correctly. /9/ The regulation does
provide for exceptions to this prohibition. Entertainment costs may be
allowable as charges to federal funds where they are incurred in
meetings the primary purpose of which is dissemination of technical
information (See, G.43). MAHSA has provided no evidence to show that
this exception should apply here.

JULY 07, 1984