National Health Plan, Inc., DAB No. 871 (1987)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT:  National Health Plan, Inc. 

Docket No. 86-160
Audit Control No. 03-50350
Decision No. 871

DATE:  May 27, 1987

DECISION

National Health Plan, Inc., (NHP) appealed the decision by the Ad Hoc
Review Committee of the Health Resources and Services Administration
(HRSA) to disallow certain costs charged to grants awarded to NHP, under
section 330 of the Public Health Service Act, for the operation of two
community health centers.  The Department of Health and Human Services
Office of the Inspector General, Office of Audit (OIGOA), audited NHP's
accounting systems and internal controls and determined that NHP
frequently disbursed grant funds without proper authorization or
documentary support.  OIGOA also found that NHP had made disbursements
in violation of its own written policies and by-laws.  OIGOA identified
$278,762 in expenditures that were made improperly or without adequate
support.

As provided for in 42 CFR 50.401 through 50.406, NHP appealed OIGOA's
findings to HRSA's Ad Hoc Review Committee.  As explained in greater
detail below in the section on calculations and in the appendix to this
decision: (1) in reviewing the Ad Hoc Committee's decision we determined
that $98,807 of the expenditures were allowable, and (2) the parties
disagreed on how much of the questioned $278,762 NHP appealed to the Ad
Hoc Committee and how much of the disallowance is properly before this
Board.

The Board's review of this appeal was complicated by calculation errors
and HRSA's relying, for the most part, on findings made by OIGOA and the
Ad Hoc Committee rather than replying substantively to the arguments NHP
presented to the Board.  The Board therefore undertook a thorough
examination of the underlying record and based its conclusions on an
independent analysis of the record and relevant regulations.

We have determined that $120,931 in disputed costs are properly before
this Board.  This amount represents payments for the following items:
executive functions performed by NHP's board chairman, unused vacation
time, excessive audit fees, management services and special studies, and
plant consultant fees.  Other disallowed costs totalling $50,524 are not
properly before this Board because NHP failed to raise these items in
its Request for Review before the Ad Hoc Committee.  Board regulations
at 45 CFR 16.3 require an appellant to have exhausted any preliminary
appeal process required by regulation before appealing to the Board.
Furthermore, 42 CFR 50.403 requires that all informal appeals
procedures, such as the Ad Hoc Committee, must be exhausted before a
formal appeal to the Board is allowed.  NHP's failure to challenge these
items at the Ad Hoc Committee appeal stage precludes the Board from
considering them here.

For the reasons set forth below, of the $120,931 at issue here, we
sustain the disallowance of $116,561, and we reverse the disallowance of
$4,370.

Calculation Issues

The OIGOA review questioned $278,762 in NHP expenditures as either
improper or without adequate support.  As noted above, there are some
questioned costs where the parties disagree on the amount NHP appealed
to the Ad Hoc Review Committee and on the amount now properly appealed
to this Board.  Our review of the record revealed both possible
calculation errors and other differences between the parties' statements
of the amounts in dispute.  Consequently, the Board issued an Order to
Develop the Record which addressed many of these calculation matters in
order to evaluate NHP's arguments and determine the correct amounts.
Below is a summary statement of our analysis.  The appendix to this
decision gives a more detailed analysis with explanations of the reasons
for our conclusions.

Summary statement of Board's analysis of the calculation issues

$ 278,762       Costs questioned by OIGOA

   <8,500>               Amount by which disallowance of full amount of
   questioned costs was overstated ___________ 270,262
  Adjusted disallowed costs

  <50,524>               Disallowed costs not appealed to the Ad Hoc
  Committee and thus not appealable in this proceeding

___________ 219,738                Disallowed costs covered by Ad Hoc
  Committee Determination

  <98,807>               Questioned costs allowable under Ad Hoc
  Committee Determination

$ 120,931                Disallowed costs properly appealed to this
Board

Payment to Former NHP Board Chairman for Executive Functions ($19,860)

HRSA disallowed $19,860 paid by NHP to its board chairman.  HRSA
referred to NHP's own bylaws and 42 CFR 51c.107 as grounds for
disallowing this item.  Article VI, Section 9, of NHP's bylaws states:

     Compensation.  Directors as such shall not receive any stated
     compensation for their services but by resolution of the Board may
     be reimbursed for their expenses of attendance at meetings of the
     Board.  Such compensation, if any, shall be limited to reasonable
     and actual expenses incurred by any said Director.

Section 51c.107 of 42 CFR (1982) provides that project funds awarded
under section 330 of the Public Health Service Act may be used for the
reimbursement of a grantee's governing board for only reasonable
expenses actually incurred by reason of their participation in board
activities.

In June 1982 NHP's president, at the request of the board chairman,
redeemed a certificate of deposit and gave the board chairman a check,
in the amount of $19,860.98, made out to NHP.  The board chairman
deposited the check in the NHP account.  One week later the board
chairman directed a NHP board member to draw a check payable in the
amount of $19,860.98 to the board chairman.

In January 1983, the NHP board's Executive Committee requested the
chairman to justify his receipt of the $19,860.  The chairman's
subsequent inability or refusal to supply documentation supporting his
claim that the money was due him as "partial payment for professional
services and expenses accrued while performing executive functions in
his capacity as acting executive director for NHP's predecessor
organization" (Appeal File, Ex. 16) ultimately led to the chairman's
resignation from NHP on March 30, 1983.  After the resignation NHP
continued to seek information from its former chairman, but he never
provided the requested material.  Ultimately NHP initiated legal
proceedings against the chairman to recover this payment.  Appellant's
Brief, p. 1.

In its arguments before this Board NHP stressed that the chairman did,
in fact, perform "executive functions" for NHP's board that exceeded his
responsibilities as board chairman.  NHP argued that in addition to
fulfilling the responsibilities of a board director as listed in the
Bureau of Health Care Delivery and Assistance's Governing Board
Handbook, the chairman carried out such executive functions as the
negotiation of an agreement with the District of Columbia Department of
Human Resources, the hiring of medical directors, making personnel
evaluations, the preparation of NHP's budget, and the mediation of a
claim against NHP.  NHP concluded that as a result of all these
"executive functions" which were beyond the scope of his duties as a
board director, the chairman was entitled to the $19,860.

We find little merit in NHP's contentions.  While we acknowledge NHP's
somewhat contradictory position in that it has initiated legal action to
recover the $19,860 from the former chairman yet defended the chairman's
receipt of the funds before this Board, we cannot overlook the fact
that, even before HRSA sought to disallow the funds, NHP itself
questioned the chairman's receipt of the funds, and, when no supporting
documentation was presented by him, requested his resignation.  It is
apparent that those members of NHP Board of Directors most familiar with
the daily operations of NHP saw no justification for the chairman's
receipt of these funds.

NHP's claims that the chairman deserved the funds for "executive
functions" beyond the scope of duties listed in Governing Board Handbook
are not convincing.  First, there is sparse documentation other than the
recorded minutes of NHP Board of Directors meetings to support the claim
that the former chairman performed such functions.  We find these
recorded minutes to be inadequate, as they are unaccompanied by any
independent verification by date, time, or place of the chairman's
participation in such activities.  Nor has there been any documentation
produced for any negotiated fee or payment to the chairman for each of
the services he allegedly performed.  The Board has repeatedly held that
a grantee has the obligation to provide documentation to support all its
claims.  See, e.g., New York State Department of Social Services,
Decision No. 204, August 7, 1981.

Even if NHP were able to produce additional documentation supporting the
chairman's participation in these activities, however, the record
contains no support for the conclusion that these alleged "executive
functions" were beyond the normal purview of the duties of a chairman of
the community health organization.  Moreover, there is no evidence to
show that the chairman had been hired by NHP to perform these functions.
Notwithstanding the Governing Board Handbook, we find such actions as
hiring, personnel evaluations, budget preparation, and the like to be
presumably within the ambit of the chairman's responsibilities unless
there is concrete evidence to the contrary.

Accordingly, we sustain the disallowance of the $19,860 paid to NHP's
former chairman.

Unused Vacation Time ($22,837)

HRSA disallowed payments by NHP of $10,694 to its president and $12,143
to other employees for unused vacation time.  HRSA cited NHP's written
policies and procedures requiring that vacation time must be used or
lost as the basis for disallowing this item.  With regard to the
president, OIGOA noted that he also received payment for 120 hours of
unused leave that he did not have coming to him.

NHP responded that the $22,837 for unused vacation time represented
compensation for employees who were required to work during their
allotted vacation time.  NHP explained that, while there was no written
policy for unused vacation, NHP's usual policy was that if an employee
were unable to take a vacation, the employee would be paid for it.  NHP
pointed out that HRSA has approved NHP's paying an employee at overtime
rates for working beyond normal business hours.  It questioned why HRSA
would then disapprove of NHP's paying other employees at their regular,
lower base rate for working during their vacations.

NHP's vacation policy, as stated in its Personnel Policies (Appeal File,
Ex. 3, p. 4), is as follows:

   VACATION TIME.  All new full time employees who are eligible
   for leave benefits will receive one (1) week of vacation time
   after the first six (6) months of employment.  This vacation
   time must be used during the second six (6) months of
   employment.  After the first year of service and on each
   anniversary date thereafter, (date one year following entrance
   on duty date) an employee will receive two (2) weeks of
   vacation time to be used for that year.  This time must be
   used before the next anniversary date.  Vacation time is
   noncumulative and must be used or lost before each new
   anniversary date.  If she/he would like his/her vacation pay
   before he/she leaves on vacation, he/she must inform the
   Personnel Office at least two (2) weeks in advance.  (Emphasis
   added)

An NHP employee must therefore either use his vacation time or forfeit
it.  No mention is made in the Personnel Policies of paying an employee
for working during his vacation.  NHP has furnished no evidence of any
necessity or emergency that required an employee to work during his
allotted vacation time.  To allow payment for unused vacation time would
result in a supplementation of an employee's base salary beyond the
amount approved by HRSA.  Paying employees for unused vacation time
would therefore result in amounts in excess of what NHP budgeted for
salaries, an excess which must be taken from resources budgeted for
other program objectives.

We find no contradiction in HRSA's having approved overtime time for
other employees.  NHP's Personnel Policies specifically provide for time
and a half for all compensation worked over 40 hours a week.  Appeal
File Ex. 3, p. 2.  Furthermore, in approving the overtime, HRSA
specifically noted that "the overtime was a legitimate expense, given
the additional workload created by the processing of refugees."  Ad Hoc
Commission Decision, p. 3.

As NHP has not provided any justification for allowing its employees to
increase their salaries by forfeiting their vacations, we sustain the
disallowance of $22,837 for unused vacation time.

Excessive Payment for Audit Fee ($16,500)

For a 1982 audit of its operations, NHP paid an auditor $33,000.
According to HRSA, this payment exceeded bids made by two other
qualified accounting firms by $16,500. HRSA accordingly disallowed the
excess amount.

NHP questioned HRSA's conclusion that the $33,000 fee paid the auditor
was excessive.  While acknowledging that the bids from two other
accounting firms for the 1982 audit were for $15,000 and $16,500 (Appeal
File, Ex. 7), NHP contended that those bids included only the costs of
professional services and not the cost of expenses associated with
performing an audit.  NHP further argued that those bids were only
estimates, with actual costs possibly rising due to unanticipated delays
or difficulties.  NHP claimed that unanticipated delays in completing
the audit did in fact occur because manual, rather than automated,
accounting processes were used by NHP.  NHP concluded that, in light of
these facts, HRSA was unreasonable in asserting that all of the $16,500
represented an excessive expenditure of program funds.  NHP requested
the Board to remand this issue to HRSA for further determinations as to
what portion, if any, of the $16,500 was excessive given the
difficulties in completing the audit.

We do not think that a remand is warranted here.  We view the facts of
this issue as clearly supporting a finding that the amount paid to the
auditor was excessive.  NHP, a Washington, D.C.-based program, rejected
the bids of two reputable local accounting firms.  Instead, NHP chose a
one-man firm from Chicago.  We find that HRSA was not unreasonable in
comparing the cost of his services to the bids made by the local
accounting firms.  Attachment O of Office and Management Budget Circular
A-110, set forth at 45 CFR Part 74, Appendix H, 3.b., provides, with
regard to procurement transactions:

     Awards shall be made to the bidder/offeror whose bid/offer is
     responsive to the solicitation and is most advantageous to the
     recipient, price and other factors considered.

While the above is not a requirement that a grantee must always accept
the lowest bid, it does indicate that price should be considered.  Here
NHP paid a price that was not just marginally greater than the competing
bids, but a price that was 100% greater.  We also note that the NHP
chairman, who authorized the payment to the auditor, also lived in
Chicago and, according to NHP, knew the auditor, which suggests that the
choice of an auditor was not the result of an "open and free
competition" as required by OMB Circular A-110, Appendix H, 3.b.

As to NHP's contention that the other accounting firms' bids were mere
estimates and their actual costs might have been much higher, we
consider this argument pure speculation on NHP's part.  While NHP argued
that out-of-pocket expenses associated with the performance of the audit
might have driven up the cost of the audit, on the basis of the record
before us there is no better measure to evaluate the reasonableness of
the $33,000 expense than the unsuccessful bids.  NHP's position in this
regard is further undermined by the fact that, while it was able to
supply the Board with the bids of the unsuccessful competitors, it never
furnished the Board with the auditor's successful bid or NHP's contract
with the auditor.  Without the contract terms to establish the nature of
the audit services and the basis for the billings resulting in the
$33,000 payment, there is no basis for concluding other than that the
payment was excessive by $16,500.  We conclude that NHP, in light of
these omissions in its case, has not proved that a remand is warranted
and we sustain the disallowance of $16,500 for this item.

Management Services and Special Studies ($56,734)

HRSA disallowed additional payments made by NHP to its auditor for
"management services" and "special studies."  HRSA disallowed the former
because, although NHP provided a list of the management services
provided by the auditor, sufficient documentation was not presented to
ensure that the services were actually performed.  HRSA also maintained
that a local firm could have performed the same services at a lower
cost.  Concerning the "special studies," HRSA stated that NHP failed to
supply sufficient documentation for these payments, provide a product to
support the charge, and list or identify the subjects for which fees
were paid.

NHP disputed HRSA's finding that there was inadequate documentation to
support the payments to the auditor.  NHP attacked HRSA's belief that
the management services could have been procured locally at a lower
price as speculation unsupported by any evidence.  NHP pointed to a list
of management services provided by the auditor (Appeal File, Ex. 19, Tab
F).  NHP also questioned whether HRSA was demanding a more detailed
documentation than is required by 45 CFR 74.61(b) and (g).  These
regulations require a grantee to maintain records which identify
adequately the source and application of funds for program activities,
with the records to be supported by source documentation such as
cancelled checks and paid bills.  NHP claimed that it had submitted such
documentation.  Appeal File, Ex. 19, Tabs H, I, and J.  This
documentation, according to NHP, showed that the auditor had performed
management services and special studies which were reasonable for the
performance of NHP's grant award.

While it is true that NHP has supplied some documentation in support of
these items, that documentation is not sufficient to justify the entire
amount of these payments to the auditor.  The documents supplied by NHP
are for the most part general references which are insufficient to
justify these costs; the dates, time, billing rates, etc., have not been
furnished.  There has been no showing that this is a common, acceptable
method of supporting such billings.  Moreover, as detailed in the
summary of checks paid to the auditor (Appeal File, Ex. 19, Tab G, p.
2), the fees paid in the fiscal year ending May 31, 1982 appear
unreasonably high in comparison to previous periods.

NHP has made no showing that it was a reasonable and necessary expense
for the program to seek an auditor for these management services and
special studies.  Furthermore, there has been no showing that NHP
contracted by means of a competitive bidding process for the performance
of these activities.  Once again, there appears to be a suggestion of
less than arms-length dealing between the board chairman and the
auditor.

We also find, however, that NHP's proffered documentation does support a
portion of two of the payments.  Two invoices from the auditor (Appeal
File, Ex. 19, Tabs H and I) each list three separate services, with a
lump sum balance due, $3,784 and $3,500 respectively, and no individual
cost breakdown for the services.  The services listed on one invoice
are:  "Preparation of Audit Report and Management letter from the Fiscal
Year ended May 31, 1981"; "Preparation of Form 990 Return of
Organization Exempt from Income Tax for the Fiscal Year ended May 31,
1981"; and Management Services for the month of March 1982."  The other
invoice lists the following services:  "Preparation of the Form 990
Return of Organization Exempt from Income Tax for fiscal year ended May
31, 1980"; "Preparation of Management letter for fiscal year ended May
31, 1980"; and "Management services for the months of September,
October, and November 1980."

The Request for Review (Appeal File, Ex. 19, pp. 14-15) pointed out, and
HRSA did not deny, that OIGOA did not question the legitimacy of the
first two items on each invoice (Appeal File, Ex. 19, Tab G), yet the
total payments were disallowed.  The Request for Review protested this
overly inclusive approach, and suggested that if HRSA should decide to
deny expenditures on the third item on each invoice, management
services, HRSA should disallow only a certain percentage of the two
payments.  The Request for Review made a formal proposal that, of the
combined $7,284 payments on the invoices, there be a 40% disallowance
($2,914) and a 60% allowance ($4,370).

We have found nothing in the record to indicate that HRSA ever responded
to this proposal.  In the absence of an alternate valuation for the
payment of the recognized services performed by the auditor, we reverse
the disallowance of $4,370 for these services, but sustain the
disallowance of the remainder of the fees paid the auditor.

Payment to Maintenance Consultant ($5,000)

In November 1982 NHP issued a check for $5,000 to its former plant
maintenance consultant.  According to OIGOA, this payment was made on
the specific instructions of NHP's board chairman, even though the
consultant had already been paid his regular fee up to the date his
services were terminated.  OIGOA found no documentation to support or
otherwise explain the payment.  In disallowing the $5,000, HRSA
additionally found that NHP had failed to follow recommended procedures
for contracting for plant maintenance services, and never provided
evidence that any contractual agreement ever existed for providing
maintenance services.

NHP responded that the purpose of the $5,000 payment was  to resolve a
claim that the consultant had asserted against NHP for $15,585 pursuant
to his employment contract.  NHP provided a note from its president
(Appeal File, Ex. 19, Tab U) and a statement from the consultant (Appeal
File, Ex. 19, Tab T) as evidence for its assertion.  NHP claimed that
the payment should be upheld because it resolved the consultant's claim
prior to the filing of a lawsuit, therefore saving NHP litigation costs
and attorney fees.

Although HRSA failed to address the Board's question in its Order as to
whether NHP's proffered documentation adequately supported the payment,
we find that NHP has simply not justified this payment.  Despite having
submitted a voluminous appeal file to the Board, NHP has not produced
any substantive documentation concerning its contract with the
consultant.  NHP has not provided the contract, explained how it was
awarded, or detailed its provisions.  Above, we detailed how a grantee
must be able to document its claims and follow the standards set forth
in OMB Circular A-110 in awarding contracts.  Those guidelines also
apply here.  Not being able to produce the contract itself, a minimum
showing, calls into question the credibility of NHP's position.  The two
documents furnished by NHP do not establish that any contract ever
existed.  In these circumstances, we must sustain HRSA's disallowance of
the $5,000 payment.

Conclusion

For the reasons stated above, of the $120,931 in disputed costs before
this Board, we sustain $116,561 of the disallowed costs, and we reverse
the disallowance of $4,370.

 

________________________________ Norval D. (John) Settle


________________________________ Alexander G. Teitz


________________________________ Cecilia Sparks Ford Presiding Board
Member

Appendix

Costs questioned by federal auditors (Audit Report, p. 3)    $278,762

Recognized by auditors as adjusted        <2,500> 1

Amount duplicated in questioned costs     <6,000> 2

Adjusted disallowed costs        $270,262


 Disallowed under        Not Appealed Allowed under Ad Hoc
 Ad Hoc Committee        to Ad Hoc Committee Decision
Decision                Committee    $80,512 3           $ 19,860 5  $
 6,500 7 10,694 5         6,500 7 12,143 5         9,615 7 12,000
  4                56,734 6         7,109 7,8 6,295 4
   16,500 5       ______      _  5,000 5   20,800 9 $98,807
 $120,931         $50,524


Explanatory notes for Appendix

1.  $2,500 downward adjustment to the disallowed amount.

    Although the audit report identified $278,762 in improper or
    inadequately supported expenditures (Audit Report, Appeal File, Ex.
    19, Tab B, p. 3), the auditors found that "the Plan made an
    adjustment for the $2,500 duplicate payment to the plant engineer"
    and recommended a further adjustment for $276,262 ($278,762 -
    $2,500) in questioned costs (Audit Report, p. 11).  Although there
    is no dispute as to whether this adjustment was actually made, the
    initial December 20, 1985 disallowance determination, as well as
    other documents in the record, reflect, erroneously, the higher
    questioned costs figure.

2.  $6,000 downward adjustment to the disallowed amount.

    OIGOA questioned $86,512 in contingency fund expenditures and a
    $12,000 payment made in 1982 to the NHP auditor for a 1975 audit.
    There was a $6,000 duplication between these questioned expenditures
    resulting in an overstatement of the questioned costs.  Audit
    Report, p. 3 (noting that the contingency fund questioned
    expenditures included $6,000 paid to the auditing firm); Appellant's
    Brief, pp. 8-10; HRSA Response to the Board's Order to Develop the
    Record, Question 3; and Appellant's Reply to HSRA's Response to the
    Board's Order to Develop the Record, pp. 2-3.

3.  $80,512 allowed under Ad Hoc Committee Decision.

    The NHP Request for Review and the Ad Hoc Committee Decision both
    state the amount of disputed contingency fund expenditures as
    $80,312.  Appeal File, Ex. 19, p. 9, and Appeal File, Ex. 21, p. 1.
    The Ad Hoc Committee, however, determined that NHP "should not be
    accountable to HRSA" for the contingency fund expenditures since the
    fund monies "did not constitute program income."  Appeal File, Ex.
    21, p. 1.  NHP asserted that it had erroneously listed $42,200 in
    questioned contingency fund payments to the former NHP president as
    $42,000 when it described the contingency fund expenditures in its
    Request for Review.  Although HSRA argued that this misstatement
    results in a proper disallowance of the omitted $200 as an
    unappealed expenditure, we do not agree.  This $200 was not from
    funds for which NHP is accountable to HRSA.  The funds ultimately
    disallowed and recovered by HRSA cannot properly include an amount
    inconsistent with HRSA's own finding on the merits.  Consequently,
    we have concluded that the amount of contingency fund expenditures
    allowed under the Ad Hoc Committee Decision properly includes this
    $200.  Appellant's Brief, pp. 8-10; HRSA's Response, p. 3; Board's
    Order to Develop the Record, Question 2(a) and HRSA's response and
    NHP's reply to that question.

4.  $12,000 and $6,295 allowed under the Ad Hoc Committee
Decision.

    The $12,000 payment in 1982 to the NHP auditor for a 1975 audit and
    the $6,295 payment to various NHP employees for overtime work were
    specifically found allowable by the Ad Hoc Committee.  Appeal File,
    Ex. 21, pp. 2-3.

5.  Amounts disallowed under the Ad Hoc Committee Decision where there
is no dispute that the amounts are properly appealed to this Board.

   $19,860        Payment to NHP board chairman for
   executive functions

   $10,694        Payment to NHP president for
   unused vacation time

   $12,143        Payment to employees for unused
   vacation time

   $16,500        Payment to auditor alleged
   excessive

   $ 5,000        Payment to plant maintenance
   consultant

     Appeal File, Ex. 21.

6.  $56,734 disallowed as improperly paid to the NHP auditor for
management services and "special studies."

    The Ad Hoc Committee decision construed NHP's request for review as
    appealing only $36,534 in payments for management services and
    $11,200 in payments for "special studies" rather than appealing the
    full $56,734.  That decision then disallowed $47,734 ($36,534 +
    $11,200) for improper payments to the NHP auditor.  Appeal File, Ex.
    21, pp. 1-2.  Before the Board, HRSA argued that the $9,000
    difference was "unappealable."  HRSA Response to the Board's Order
    to Develop the Record, Question 6.  However, NHP asserted that the
    audit workpapers identified actual expenditures for management
    services and/or "special studies" totalling only $47,734 so that the
    additional $9,000 should either be allowed or remanded to the Ad Hoc
    Committee since the record stated no basis for a further
    disallowance.   NHP Reply to HRSA Response to the Board's Order to
    Develop the Record, pp. 6-7.  NHP explained its conclusion this way:

       The invoices which list "management services"
       between June 1, 1980 and May 31, 1982, total
       $36,534.  In addition, the OIG's initial cost
       disallowance of $32,700 for special studies
       included $21,500 that was included in the $36,534
       amount for management services.  This leaves only
       $11,200 attributable to payments for "special
       studies."  This amount, together with the $36,534
       for management services, totals $47,734, or $9,000
       less than the amount claimed for this expenditure
       by the OIG.

    Appellant's Brief, pp. 10-11.

    Although the Board's Order asked that HRSA explain how it arrived at
    the $56,734 amount, HRSA only restated the summary figure and
    referenced the federal audit report.  NHP has also not provided a
    breakdown by invoice or payment for its figures, apparently relying
    instead on the figures and analysis stated in the Request for
    Review.  See Appeal File, Ex. 19, pp.  13-17.

    The two questions before the Board are (1) whether the federal audit
    workpapers substantiate the full $56,734 diallowance and (2), if so,
    whether NHP requested review only of $47,734.

    As we explain below, our review of the audit workpapers
    substantiates questioned costs for management services and/or
    "special studies" of $56,734.  Also, we conclude that while the
    Request for Review both contained some calculation errors and was
    apparently misconstrued by the Ad Hoc Committee, it nonetheless
    stated a sufficiently clear request for review of the full amount
    disallowed.

    The audit workpapers consist of two pages analyzing payments to the
    NHP auditor.  Appeal File, Ex. 19, Tab G.  The first page lists
    payments to the auditor by NHP fiscal year.  The payments are
    categorized and total payments calculated for each fiscal year by
    category.  The categories relevant here are those for management
    services, "special studies," and split (for both management services
    and "special studies").  The audit workpapers show the following
    payments:

      Management services  Special Studies   Split

FYE 5/31/81     $ 2,000                 $ 1,500                 $ 3,500
           3,000
           3,500
     _______                   2,000
     2,500 $ 2,000                 $
     6,500                 $ 9,500

FYE 5/31/82             $ 2,500                 $ 1,200
$ 3,000 3,000                                           3,000 3,784
       2,500 3,250
       4,000 3,000 _______
     _______                   3,000
     $12,534                 $ 1,200
     $18,500

FYE 5/31/83                                             $ 3,500
$ 3,000 $ 3,500                 $ 3,000

Totals                  $ 2,000                 $ 6,500
$ 9,500 12,534                   1,200                  18,500 _______
     3,500                   3,000
     $14,534                 $11,200
     $31,000


    There are dates stated for each item and there is no apparent
    duplication of the payment amounts between the categories.  The
    combined total of the questioned costs for the three fiscal years
    is:

   $14,534         management services 11,200
    special studies 31,000         split $56,734

    The second page of the audit workpapers, which contains a summary
    both of all the payments to the auditor and of the questioned
    charges, restates these same totals for each of the relevant
    categories.  Thus, the audit workpapers substantiate the full
    disallowance amount.

    The Request for Review references the audit report and states
    unequivocally that NHP disagrees with the OIGOA challenge to
    payments to the auditor for management services and/or special
    studies.  The record contains many, although not all, of the
    invoices pertaining to the questioned payments.  There is no
    indication from the record of any intent by NHP to exclude any
    particular payment from the Request for Review.  The Request for
    Review, however, erroneously calculates the disallowed payments for
    management services for the years ending May 31, 1981 and May 31,
    1982 as $36,534.  (NHP's request also references documentation
    supporting these management services.  Appeal File, Ex. 19, Tab F.)
    However, the payments for those fiscal years for management services
    (including those also for special studies) actually totalled $42,534
    ($2,000 + $12,534 + $9,500 + $18,500) and the split payments for
    those two years totalled $28,000 (not $22,000 as the Request for
    Review calculated).

    For the fiscal year ending May 31, 1983, there were no payments for
    management services alone.  The totals of special studies payments
    and split payments was $6,500.  The special studies payments for the
    fiscal years ending May 31, 1981 and May 31, 1982 totalled $7,700.
    The invoices pertaining to these payments are in the record and NHP
    argued in its Request for Review that the payments were adequately
    documented by the invoices.

    The payments explicitly covered in the NHP Request for Review
    totalled $56,734 ($42,534 + $6,500 + $7,700).  Thus, we conclude
    that the Request for Review should be construed to cover the full
    amount disallowed.  Moreover, while the Ad Hoc Committee's decision
    reflected NHP's apparent calculation errors, the reasons stated for
    disallowing the payments for management services and "special
    studies" are quite broad and do not single out specific payments or
    invoices for analysis.  Accordingly, we also conclude that the
    $56,734 was disallowed under the Ad Hoc Committee decision and was
    properly appealed to and considered by this Board.

7.  Amounts disallowed under the Ad Hoc Committee Decision where there
is no dispute that the amounts have not been appealed to this Board.

   $6,500          Undocumented payments to NHP
   chairman from general account

   $6,500          Undocumented payments to auditor
   from general account

   $9,615          Salary advances and loans to NHP
   president

   $1,359          $1,359 of the $7,109 for
   payments       to a medical director

8.  $5,750 of the $7,109 in payments to a medical director where,
although not reviewed by the Ad Hoc Review Committee, NHP seeks review
by this Board.

    This amount was a salary payment for December 1982 to the NHP
    medical director.  NHP asserted that this was an allowable cost and
    urges its consideration by this Board "[i]n light of the confusion
    surrounding the actual amount of the disallowance."  Appellant's
    Brief, pp. 12-13.  Despite the obvious confusion over disallowed
    amounts present in this case, there is no question that there were
    certain expenditures not appealed in the NHP Request for Review.
    The auditors had determined that NHP had hired this medical director
    without the requisite HRSA approval and questioned this payment.
    Appeal File, Ex. 19, Tab B, p. 6.  This payment is not included in
    the substantive arguments made by NHP in its Request for Review and
    is not an expenditure included in NHP's summary of costs asserted to
    be allowable.  The disallowance of this expenditure was clearly not
    contested in the Request for Review and may not be appealed to this
    Board.  Appeal File, Ex. 19, pp. 29-30, and 42 CFR 50.403.

9.  $20,800 not reviewed by the Ad Hoc Committee but NHP seeks review by
this Board.

    The auditors found this $20,800 payment for painting  contractor
    expenses authorized by the NHP president to be unsupported.  This
    expenditure was not addressed by the substantive arguments in the
    Request for Review and not included in the summary of costs asserted
    to be allowable.  This payment was not among those expenditures
    appealed in the Request for Review, Appeal File, Ex. 19, pp. 29-30.
    NHP asserted in this proceeding that the disallowance should be
    reduced by this amount since NHP had made an adjustment prior to the
    federal audit so that this payment was not charged to federal funds.
    Appellant's Brief, pp. 6-7.  While it appears possible that there
    was an adjustment to no longer charge this questioned payment to
    federal funds, the record is inconclusive on this point due to NHP's
    own conflicting audit reports.  Appeal File, Ex. 11; NHP Reply to
    HRSA Response, pp. 2-3; Appellant's Reply to HRSA's Response to the
    Board's Order to Develop the Record.  NHP argued that:

       What is clear is that an adjustment for $20,800 was
       made in FY 1982 so this amount would not be charged
       against Federal grant funds, and another adjustment
       was made in FY 1983 to charge this amount to grant
       funds.  Because the effect of these adjustments on
       NHP's program fund balance was not considered by
       the Ad Hoc Committee, this matter should be
       remanded to the Ad Hoc Committee for its
       consideration.

     Appellant's Reply to HRSA's
     Response to the Board's Order to
     Develop the Record, p. 5.

    The OIGOA review makes no reference to an adjustment for the
    questioned $20,800.  Moreover, in light of NHP's failure to raise
    this matter in the Request for Review before the Ad Hoc Committee,
    this expenditure is neither properly considered by this Board or on
    remand by the Ad Hoc Committee.  42 CFR