GAB Decision 479
Docket No. 83-120
November 28, 1983
New Bedford Area Center for Human Services, Inc.;
Garrett, Donald; Settle, Norval Teitz, Alexander
On June 30, 1982, the Board issued a decision (No. 332) which
reversed in part the determination of the Alcohol, Drug Abuse, and
Mental Health Administration (Agency) that the New Bedford Area Center
for Human Services, Inc. (grantee) had drawn down $98,979 in federal
funds in excess of expenditures in fiscal years 1972 through 1979. The
Board found that the grantee's own revised reports of expenditures
showed that it drew down $23,549 more than it spent. The Board reversed
the remainder of the disallowance ($75,430) on the ground that the
Agency did not explain why the excess drawdown should be computed using
the total allowable expenditures shown in the grantee's revised reports
of expenditures. This reversal was without prejudice to the Agency's
reissuing or modifying the disallowance, provided that the Agency gave a
reasoned justification of which figure it chose as total allowable
expenditures.
On May 31, 1983, the Agency issued a new disallowance. The Agency
again relied on the total allowable expenditures as shown in the audit
report, noting that the grantee had withdrawn its revised reports of
expenditures because it did not have documentation to support the costs
claimed. In reauditing the claim, however, the Agency determined that
an additional $16,693 (representing drug treatment costs not previously
claimed) was allowable, reducing the excess drawdown to $58,737. The
Agency rejected the grantee's claims for further expenditures to be
applied against the remaining $58,737. For the reasons discussed below,
we uphold the Agency's determination that additional costs related to
resolving the audit of grantee's operations in fiscal years 1972 through
1979 and additional costs related to a state-funded drug program were
unallowable.
I. Costs Related to Resolving the Audit.
The grantee claimed that it incurred additional costs in connection
with the audit which gave rise to the original disallowance in this
case. The Agency found, however, that grantee recovered $28,068 in
audit-related costs under an indirect cost rate agreement negotiated for
fiscal year 1979. The Agency took the position that the granteee could
not now charge as additional direct costs any costs which were
previously classified as indirect costs. (Letter from Leone to Wilson
dated May 31, 1983, pp. 2-3) The grantee conceded that its claim should
be reduced by the amount of indirect (2) costs previously recovered.
(Brief for Petitioners, dated September 13, 1983, p. 6) However, the
grantee asserted that its claim also included expenditures incurred
after June 30, 1979, which were not previously recovered, and argued
that if those costs can be supported as direct costs, they should be
allowed. (Id.) The Agency responded that costs incurred after June 30,
1979 were not allowable since they were incurred after both the grant
and the period covered by the audit ended. (Memorandum from Forrest to
Teitz, dated October 4, 1983, p. 1)
We are not persuaded that audit-related costs incurred after June 30,
1979 were not allowable on the basis stated by the Agency. Costs
incurred after the expiration of a grant may still be allocable to the
grant. The applicable cost principles state that "a cost is allocable
if it is assignable or chargeable to a particular cost objective, such
as a grant . . ., in accordance with the relative benefits received or
other equitable relationship." 45 CFR Part 74, Appendix F, B.4. (1978).
If the grantee incurred expenses as a result of the audit of the grant,
then it appears that those expenses benefited the grant and are properly
allocable to it regardless of when they were incurred. Moreover, the
fact that similar costs were covered by the indirect cost rate agreement
for the prior year would not appear to preclude the grantee from
charging additional costs incurred after the period covered by that
agreement as direct costs. The general rule that similar costs should
be accorded consistent treatment and should not be split between direct
cost treatment and indirect cost treatment seems to serve no purpose in
this context. Since the indirect cost rate agreement did not cover
costs incurred after June 30, 1979, the integrity of that agreement
would not be violated by treating these later costs differently than
similar costs are treated under the agreement. In addition, because
there was no indirect cost rate after June 30, 1979, the only means by
which the grantee could recover the later costs would be to classify
them as direct costs.
Nevertheless, we find that the grantee's claim for audit-related
costs incurred after June 30, 1979 must be disallowed on the ground that
there is no evidence in the record that such costs were incurred.
Although grantee asserted in its brief that its claim included
"expenditures incurred after June 30, 1979," the schedule of costs
submitted with the brief states that the total shown "does not include
additional costs incurred after June 30, 1979 pertaining to the HHS
audit." (Brief for Petitioners, dated September 13, 1983, pp. 6, 9)
There is no indication in the record before the Board of either the
types or amount of expenditures allegedly made in connection with the
audit after June 30, 1979. Moreover, when the grantee initially claimed
additional audit-related costs, it submitted to the Agency essentially
the same schedule of costs as it submitted to the Board with its brief.
(Letter from Davis to Parigian, dated August 24, 1982, attachment, pp.
2-4) We are unwilling to give the grantee a further opportunity at this
juncture to provide evidence that it incurred audit-related costs after
June 30, 1979 when it failed to do so in its prior dealings with the
Agency and in its briefing before this Board. We do not mean by this
decision to imply that the grantee should have submitted to the Board
complete documentation of any audit-related expenditures made after June
30, 1979. However, (3) we believe that the mere allegation that such
expenditures were made, absent more specific information regarding the
nature and amount of such expenditures, does not warrant our further
consideration. Accordingly, we find that the excess drawdown was not
offset by any additional expenditures made after June 30, 1979 in
connection with the audit. This does not preclude the Agency from
considering any material submitted by the grantee after this decision in
support of audit-related costs incurred after June 30, 1979.
It is not clear whether the grantee also takes the position that
there were some audit-related costs incurred prior to June 30, 1979
which were not recovered through application of the indirect cost rate.
In any event, reimbursement of such costs is clearly precluded by
Chapter 6-150-50, A.l.d. of the Grants Administration Manual, which
requires that requests for adjustments in indirect costs be submitted to
the Agency within one year after the negotiation agreement is executed.
/1/ In this case, a final indirect cost rate for fiscal year 1979 was
negotiated on May 23, 1980. (Letter from Parigian to Spain, dated
November 29, 1982, p. 2) Thus, even if the additional indirect costs
were incurred no earlier than fiscal year 1979, a request for additional
funds should have been made by May 23, 1981. However, the grantee did
not even raise the issue of additional audit-related costs until well
after this date. The grantee should not be permitted to circumvent this
restriction on indirect cost adjustments by reclassifying the costs as
direct costs. /2/ Accordingly, we find that the excess drawdown was not
offset by any audit-related expenditures made prior to June 30, 1979.
II. Indirect Costs Related to State Drug Program.
The grantee claimed $29,113 in additional indirect costs related to a
drug program funded under a state contract. The grantee contended that
the state drug program was "an integral part" of the federally-supported
drug program, and argued that since the state did not completely
reimburse the program for its allowable indirect costs, the federal
government should pay the difference. (Letter from Davis to Parigian,
dated August 24, 1982, attachment, p. 5; letter from Wilson and Lewis
to Forrest, dated January 31, 1983, p. 3) The Agency responded that the
costs were not allowable since "(under) PHS policy . . ., only the
amount obtained by multiplying the direct costs of the Federal program
by the amount obtained by multiplying the direct costs of the Federal
program by the appropriate indirect cost rate is allowable as the
indirect cost of the Federal program." (Letter from Leone to Wilson
dated 31, 1983, p. 3)
(4) We agree with the Agency that the grantee may not be reimbursed
for indirect costs not applicable to a federally funded project or
program. A grantee may received federal funds only to the extent
authorized in the grant award document. There is no evidence in this
case that the Agency agreed to support any costs other than the direct
costs of the federal drug program and a percentage of those costs as
provided in the grantee's indirect cost rate agreement. The
programmatic relationship between the federal and state drug programs
does not have any bearing on the sources of funding for those programs.
Moreover, even assuming that the grantee had a legitimate basis for
requesting additional indirect costs, its request must be rejected as
untimely. As discussed above, pursuant to Chapter 6-150-50, A.l.d. of
the Grants Administration Manual, the grantee should have submitted any
request to adjust indirect costs to the Agency by May 23, 1981, but did
not even raise the issue of additional indirect costs within this
period. Accordingly, we find that the excess drawdown was not offset by
indirect costs applicable to the stat-funded drug program.
III. Lack of Opportunity to Review Draft Audit Report.
The grantee also asserted on appeal that it did not have an
opportunity to review a draft of the audit report beore it was issued.
(Brief for Petitioners, dated September 13, 1983, p. 5; Letter from
Hodgson to Teitz, dated October 25, 1983, p. 1) We conclude, however,
that this did not result in any prejudice to the grantee, as the Agency
solicited and considered comments on the final audit report and the
grantee has been afforded ample opportunity in proceedings before the
Board to rebut any audit findings.
Conclusion
For the foregoing reasons, we uphold the Agency's disallowance in the
amount of $58,737. /1/ This requirement was noted in the original audit
report on the grantee's operations, which was sent to the
grantee on January 22, 1981. (Audit Control No. 01-11455, p. 9)
/2/ Although Ch. 6-150-50, A.l.d. permits adjustments to indirect costs
where "permanent rate(s)" have been established, Chapter 6-100-20C.
of
the Grants Administration Manual, cited by the Agency, states that a
final indirect cost rate is a permanent rate which is not subject to
subsequent adjustment. If Ch. 6-100-20C. governs, then no adjustment
would have been permitted in any event since the grantee had a final
indirect cost rate for fiscal year 1979.
NOVEMBER 14, 1984