DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Confederated Tribes of the Chehalis Reservation
Docket No. 87-124
Audit Control No. CIN-A-10-87-05032
Decision No. 949
DATE: April 26, 1988
DECISION
The Confederated Tribes of the Chehalis Reservation (Grantee or
Appellant)
appealed the decision of the Administration on Native
Americans (ANA or
Respondent), disallowing $30,206 in costs for
salaries, telephone services,
repairs, travel, and related indirect
costs incurred in the operation of a
medical clinic. ANA disallowed the
expenditures on grounds that they were
obligations incurred after the
expiration of the grant. ANA based its
disallowance on an audit report
finding that these expenditures did not
benefit the grant; this finding
raised a question of allocability under the
applicable cost principles.
We uphold the disallowance in full. Our
decision is based on the
written record.
Facts
Grantee received a $170,573 demonstration grant to establish a
for-profit
medical clinic to serve the population in the area of its
reservation.
The original project period was September 1, 1983 through
August 31,
1984. Due to a "lack of qualified personnel to handle
this
undertaking," Grantee requested and received two no-cost
six-month
extensions of the project period, through August 31, 1985.
Respondent's
Brief, Ex. 3, p. 20; Appellant's Brief, Att. 7.
Still behind schedule in August 1985, Grantee sent representatives
to
Washington on August 7 and 8 to seek assistance. Appellant's Brief,
p.
2; Respondent's Brief, Ex. 3, p. 20. During this trip, Grantee
held
meetings with ANA representatives and hand-delivered a letter
requesting
a third no-cost extension. Appellant's Brief, Att. 5.
Based on its
understanding of the discussions with ANA, Grantee, during the
last week
of the grant, ordered supplies, services, and capital equipment
for
delivery after the end of the grant and signed employment contracts
for
the ninety days after the approved grant ending date (August 31,
1985).
Appellant's Brief, Att. 4. By letter dated August 29, 1985, ANA
denied
Grantee's request for a third extension, noting that Grantee
had
received all the extensions permitted under its grants policy,
and
instructed Grantee that:
You have ninety days after your budget period ends,
to pay any
outstanding debts obligated prior to the
end of your budget period.
Grantee interpreted this to be a confirmation that its actions would
be
supported by ANA.
A subsequent audit of Grantee's financial records found that:
The benefits received from these goods and services
were not within
the grant period as extended, and
thus, did not benefit grant
performance. The
costs were unnecessary for grant performance.
Respondent's Brief, Ex. 3, p. 20.
Upon consideration of the recommendations of Grantee's auditor,
ANA
determined that the expenditures for equipment and supplies
($12,582)
were allowable obligations properly charged to grant funds, but
that the
expenditures for services, repairs, travel, and related indirect
costs
(the $30,206 in question here) were not. Disallowance Letter,
p. 2.
Grantee appealed.
The disallowed expenditures, totalling $30,206.00, were identified in
the
disallowance letter as: $23,072.00 for salaries, $24.00 for
repairs,
$476.00 for travel, $292.00 for telephone service, and
$6,342.00 for indirect
costs. y 1/
Arguments
The Respondent argued that the expenditures failed to meet the
definition
of the term "obligation" stated in 45 C.F.R. 74.71, since
they were for
services performed after the end
of the grant period. y 2/ Respondent also relied on the Office of
Human
Development Grants Administration Manual (OHD GAM)(1977) policy on
the
expenditure of funds. The Respondent contended that "costs that do
not
occur during the project [period] are not considered to be
reasonable
and necessary to the performance of the grant" and are not
allocable to
the grant. Respondent's February, 23, 1988 Brief, pp. 2
and 3.
The Appellant argued that the expenditures were incurred in good faith,
in
accordance with its understanding of instructions from ANA staff
(during the
August 7 and 8 meetings), and in accordance with its
interpretation of the
August 29, 1985 letter from ANA. The Appellant
pointed out that its
representatives had gone to Washington for the sole
purpose of "working out
the details for implementing the rest of the ANA
grant," and that Grantee
interpreted its meetings with ANA staff and the
August 29 letter as "a green
light to obligate the funds and proceed
with the project as planned . . .
." Appellant's Brief, p.2. Appellant
argued that even after the
audit it had been informed that ANA would
"'address the issue' in light of"
the August meetings. Appellant's
Brief, p.2. Finally, Appellant argued
that the purpose of the grant was
to establish a for-profit health clinic
and, largely on account of the
expenditures in question, that objective had
been accomplished.
Analysis
It is uncontested that the expenditures disallowed were for
project
operations during September and October of 1985, the two
months
following the end of the project period. The question presented
here is
whether these expenditures could properly be charged to grant
funds.
It is a fundamental rule of grant administration that allowable costs
must
be reasonable, necessary, and allocable. In general, costs are
regarded as
allocable "to the extent of benefits received." OMB
Circular A-87, Att.
A., Section C. 1.a, and 2.a. The expenditures in
question here
pertained to a time period for which federal support was
unavailable and,
thus, these costs are not allocable to the grant.
There was no benefit to the
federal grant, despite the fact that the
Grantee incurred these costs for the
medical clinic for which the grant
was awarded, since the costs were incurred
for the two months following
the end of the grant. When the project
period of the grant ended on
August 31, 1985, federal funding for Grantee's
clinic project ceased.
In this regard, the Agency's grants policy concerning
the expenditure of
funds provides:
Grantees may not obligate grant funds to conduct
program
operational activities subsequent to the
termination of the
project.
This policy expressly precludes the obligation of funds to
continue
program operations after the end of a grant; it essentially restates
the
requirement in the cost principles that grant funds be used only
for
costs which benefit the grant. y 3/ OHD GAM (1977) Ch.1, section
H.1.
Agency's February 23, 1988 submission, Ex. H.
The Grantee had received the maximum time extension permitted under
the
Agency's grants policy. OHD GAM (1977) Ch.1, section I.3.
When the
Grantee was informed that there would be no further extensions,
the
Agency noted, as is routine, that the Grantee had a period of 90
days
after the expiration of the project to disburse grant funds for
costs
obligated prior to the end of the budget period. Agency's August
29,
1985 letter. This cannot reasonably be construed as authorization
to
continue operations with grant funds beyond the end of the
project
period.
In past decisions, the Board has consistently concluded that costs
which
do not benefit a grant are not allocable to the grant. On this
basis,
the Board has upheld disallowances of claims for equipment and
supplies
which would have been virtually unused during the period of
federal
support. Metropolitan Beverbrook Mental Health and Retardation
Services,
Inc., DGAB No. 291 (1982); Dooly Health Care Association, Inc.,
DGAB No.
527 (1984). Although in this case we are not concerned with
equipment
and supplies, the same principle applies because the services,
repairs,
travel, and telephone costs in this case were not used during the
grant
project period and, therefore, did not benefit the grant.
Grantee also raised certain equitable considerations to support
charging
these expenditures to grant funds and argued that it had acted
in
accordance with its understanding of the advice from ANA.
Grantee
identified the ANA program specialist claimed to have informed
Grantee
that it could "obligate" the funds in question prior to the end of
the
grant. Grantee presented a letter dated August 8, 1985, from the
Tribal
Chairman to another ANA program specialist. Appellant's Brief, p. 2
and
Att. 2. The letter described the agenda for a meeting. Among the
topics
listed were "the opportunity for ... a time extension" and a
personal
services contract, to run through December 1985, with a physician
or
physician assistant. The letter was not a summary of what ANA
had
advised Grantee. Respondent presented an affidavit, signed by
the
program specialist in question, which stated both that she had
attended
meetings on August 7 and 8, 1985 with Grantee's representatives and
that
she had never advised Grantee that it could obligate funds for
a
personal services contract to be performed after the grant
ended.
Respondent's Brief, Att. 1, p.2. Grantee also argued that the
August 29
letter from ANA misled Grantee, in that Grantee interpreted the
August
meetings and this letter as a confirmation of the advice it thought
it
had received.
Based on the ANA Program Specialist's affidavit and the absence of
any
evidence to the contrary, we conclude that Grantee has failed
to
establish that during the August meetings representatives of ANA
advised
Grantee to contract for services to be provided after the expiration
of
the grant. Moreover, while Grantee apparently thought that arranging
to
incur costs prior to the end of the grant was sufficient, Grantee
was
clearly mistaken. Although the August 29 letter stated that a
grantee
could disburse properly obligated funds for a short time after the
close
of a project, this letter denied Grantee's request for a time
extension
and cannot reasonably be read to authorize continued project
operations.
Moreover, it in no way altered the applicable cost principles
which
require that expenditures be allocable to the grant.
Furthermore, we agree with the Agency that the facts of this
case
establish no basis for concluding that the Agency is estopped
from
taking this disallowance. Even if the Grantee had established that
ANA
had provided erroneous oral advice (which it has not), there is no
basis
for concluding either that affirmative misconduct was involved or
that
all the traditional elements necessary to establish equitable
estoppel
were present in this case. See, e.g., Community Action
Commission of
Belmont County, Ohio, DGAB No. 565 (1984); Shenandoah
Professional
Standards Review Foundation, DGAB No. 652 (1985).
Grantee's remaining equitable arguments were that Grantee had acted
in
good faith and that the expenditures furthered the purposes of
the
grant. Grantee, indeed, may have acted in good faith and
made
expenditures which furthered the purposes for which the grant
was
awarded. Nevertheless, grant support for the project had ended and
the
costs of continued project operations for two additional months
are
clearly not allocable to the grant. The Board is bound by
applicable
law and regulation. 45 C.F.R. 16.14. See also, New
Hampshire Division
of Human Resources, DGAB No. 583 (1984); Office of Human
Concern, DGAB
590 (1984). While it is unfortunate that Grantee
apparently
misconstrued its authority, Grantee's equitable arguments provide
no
basis upon which the Board could overturn the disallowance.
Conclusion
Based on the foregoing, we sustain the disallowance in full.
_____________________ Donald
F.
Garrett
_____________________ Alexander G. Teitz
______________________ Cecilia Sparks
Ford
Presiding Board Member
1. Review of the purchase orders, vouchers, and
payment records
submitted by the Grantee on March 29, 1988 confirmed that (1)
the salary
cost pertained to personal services provided after the project end
date,
(2) the (FM radio) repair cost pertained to a purchase order
dated
September 20, 1985 and a payment record dated October 31, 1985, (3)
the
travel cost covered travel during November of 1985, and (4)
the
telephone cost covered long distance telephone service and pertained
to
a purchase order dated August 30, 1985 and a payment record
dated
October 28, 1985.
2. We note that Respondent's arguments relied
primarily on the
definition of the term "obligations" contained in 45 CFR
74.71. That
provision is contained in a subpart entitled "Financial
Reporting
Requirements," and states that "[O]bligations are the amounts of
orders
placed, contracts and subgrants awarded, services received, and
similar
transactions during a given period which require payment during the
same
or a future period." However, this provision does not state a
program
requirement and alone is not a sufficient basis for a
disallowance.
Fundamentally, an obligation is "a definite commitment which
creates a
legal liability . . . for the payment of . . . funds for goods
and
services ordered or received." Decision of the U.S.
Comptroller
General, B-116795, June 18, 1954; Texas Department on Aging, DGAB
No.
571 (1984). This case presents a question of allocability
concerning
whether Grantee's actions were sufficient to create obligations
during
the grant project period for expenditures properly charged to
grant
funds, rather than a question whether Grantee had actually
incurred
legal "obligations" to pay for the services, etc. that it had
obtained.
3. The disallowance letter cited examples contained
at page 1-7 of
the 1986 edition of the GAM. Although the 1977 edition
was in effect
when this grant was awarded, the relevant principle concerning
the
expenditure of funds remained the