Tennessee Protection and Advocacy, Inc., DAB No. 1454 (1993)


  Department of Health and Human Services

        DEPARTMENTAL APPEALS BOARD

     Appellate Division


SUBJECT:        Tennessee Protection   DATE:  December 27, 1993 and
    Advocacy, Inc.              Docket No.
   A-93-139 Decision No. 1454

   DECISION

Tennessee Protection and Advocacy, Inc. (TPAI) appealed a determination
of the Division of Audit Resolution (DAR) of the Office of Grants
Management disallowing $63,436 in federal grant funds based on an audit
covering the period July 1, 1987 to November 1, 1990.  The amounts
disallowed fell into five categories:  unallowable salary, leave and
merit pay raise ($12,663); interest and penalties on taxes ($127);
unallowable hotel costs ($12,625); attorney's fees retained by a
volunteer attorney representing a TPAI client ($35,000); and
miscellaneous unallowable costs, including local meals, babysitting,
finance charges and personal items ($3,021).  During the course of the
appeal, DAR accepted documentation submitted by TPAI as sufficient to
justify withdrawing the disallowance as to some of the costs.  For the
reasons discussed more fully below, we uphold the remaining disallowance
of $46,505 in full.

         Background

TPAI is a nonprofit advocacy organization for individuals with
developmental disabilities.  During the period at issue, it received
grants from the Department of Health and Human Services (HHS) under two
programs, Protection and Advocacy for the Developmentally Disabled and
Protection and Advocacy for the Mentally Ill.  An audit of the program
was undertaken by a contractor on behalf of the Office of Inspector
General (OIG) after allegations of mismanagement were brought to HHS by
the State of Tennessee.  DAR Exhibit (Ex.) 1, at 1-3.  OIG found that
previous audits covering the same time period could not be relied on
because they were not conducted in accord with generally accepted
government auditing standards.  Id. at 5.

OIG and its contractor made findings in a number of areas, of which the
five categories above were at issue on appeal.  Below, we analyze the
disputed audit findings and the parties' arguments on each category in
turn.

   Analysis

(1)  Salary, leave and merit pay raise ($12,663):

The former Executive Director of TPAI 1/, Ms. Harriet Derryberry, left
office on October 13, 1990, after which she received three payments
which the audit found to be unallowable.  The payments covered salary
from October 15-31, 1990, a retroactive five per cent merit pay raise,
and reimbursement for 47.8 days of accrued annual leave.  The audit
found that Ms. Derryberry did not work after October 13, 1990, that
program records did not show approval of the pay raise by the Board of
Directors, and that the accrued annual leave claim could not be verified
because Ms. Derryberry had not been required to maintain personal
activity records.  See DAR Ex. I, at 7.  DAR accepted documentation
submitted by TPAI establishing that the salary payment constituted
permissible severance pay and that the five per cent retroactive pay
raise was granted in accord with proper procedures; DAR therefore
withdrew those parts of the disallowance.  See Summary of Telephone
Conference at 1 (Sept. 17, 1993), and DAR Reply Br. at 1.  Therefore,
only the amount relating to annual leave ($9,633) remains in dispute.

TPAI conceded that primary documentation substantiating the claim for
accrued annual leave as of Ms. Derryberry's termination date could not
be located, because Ms. Derryberry apparently removed her personnel file
when she left the agency.  TPAI Br. at 2-3; TPAI Exs. 4 and 5.  However,
TPAI offered three affidavits in an effort to support the annual leave
claim.  None of them came from the former Executive Director herself.

Instead, an affidavit from TPAI's bookkeeper represented that she had
reviewed the existing records and found records of accrued vacation
leave as of June 1987 of 25.8 days for Ms. Derryberry.  She calculated
that, based on policies in effect over the period, Ms. Derryberry would
have earned 53 days of leave between June 1987 and her termination date,
for a total of 78.8 days.  She then relied on the representations of two
other employees to estimate the leave used by Ms. Derryberry during that
period as about 30 days, thereby justifying at least the balance of 47.8
days for which Ms. Derryberry was paid.  Affidavit of Sheila Mullis, at
1-2.  The record which was submitted with this affidavit was unsigned,
showed only the initials HJD to indicate that it related to Ms.
Derryberry, and was confusing at best.  On its face, the form indicated
that it covered a period beginning October 1987 and then listed changes
to annual leave days beginning in October 1987 and continuing on through
June 1987 with consecutive numbers showing one day added per month.  The
inference may be drawn that either the form was meant to cover October
1986 through June 1987 or October 1987 through June 1988, but it is
impossible to tell which.  Also, nothing on the document indicates that
it is an official record of TPAI or gives the date of its preparation.

The two other employees who made statements concerning the use of annual
leave were the current interim Executive Director, who has worked at
TPAI since 1986, and another individual employed since December 1988.
The current Executive Director stated that Ms. Derryberry "normally took
one week vacation in the summer and one week in the winter during most
years.  Thus, I believe that she took approximately ten days vacation in
1987, ten days vacation in 1988, and approximately ten days in 1990
(maybe less)."  Affidavit of Joy Sullivan at 3.  The other employee
obviously had no information concerning 1987 and 1988, but asserted that
Ms. Derryberry "took no vacation in 1989, and she took ten days in 1990
prior to her resignation, to the best of my knowledge."  Affidavit of
Theresa Webster at 1.

The Board has generally scrutinized carefully non-contemporaneous
affidavits, especially those prepared, as these clearly were, for the
purpose of an appeal before us.  See, e.g., Lac Courte Oreille Tribe,
DAB No. 1132, at 6, n.4 (1990).  In any event, both affidavits made only
tentative statements about the vacation time taken by another individual
three to six years ago.  Ms. Sullivan, who is the only affiant with
information relating to 1987 and 1988, based her assertion that the
former Executive Director took ten days of vacation in each of those
years on a belief arising from her recollection of Ms. Derryberry's
normal practice of taking a week in the summer and a week in the winter.
Neither Ms. Sullivan nor Ms. Webster purported to have an actual memory
of what Ms. Derryberry did in 1987 and 1988.  Their statements regarding
1989 and 1990 did not express certainty.  Ms. Sullivan did not mention
1989 and both believed Ms. Derryberry had already taken about ten days
in 1990 before she left in the fall of 1990.  Thus, Ms. Derryberry's
alleged conduct in 1989 and 1990 did not follow the pattern to which Ms.
Sullivan referred.  Furthermore, the form that purportedly related to
June 1987 indicates that Ms. Derryberry took five days in December 1987,
1 day in January 1987, and two days in May 1987, which is also not
consistent with the alleged pattern.  We do not find a reliable basis in
any of these affidavits to determine the outstanding balance of annual
leave accrued when Ms. Derryberry left TPAI.

Even more disturbing, however, is TPAI's failure to offer a credible
explanation for the absence of contemporaneous supporting records.  In
order to be allowable, costs must be "adequately documented."  Office of
Management and Budget (OMB) Circular A-122, Attachment (Att.) A, .
A.2.g. 2/  It is the responsibility of the grantee to have in place
adequate internal controls to maintain the records necessary to document
its use of federal funds.  Regulations generally require retention of
records by a grantee for three years from the time an expenditure is
reported.  45 C.F.R. . 74.21(a) (1992).  However, if an audit is started
before the expiration of the retention period, the records must be
retained until "completion of the action and resolution of all issues
which arise from it."  45 C.F.R. . 74.21(b) (1992).  The audit report
indicated that field work was performed at TPAI's offices in April 1991,
so that TPAI was on notice by that date, if not sooner, that records
relevant to the audit must be retained until all issues were resolved.
DAR Ex. 1, at 4.  Therefore, TPAI should have had available records
relating to Ms. Derryberry's actual use of annual leave at least back to
April 1988.  Had TPAI offered records relating to periods subsequent to
that date consistent with the affidavits, the reliability of the
affidavits' representations about the earlier period would have been
bolstered.  Instead, the bookkeeper claimed in her affidavit to rely on
a document supposedly covering June 1987 but to have no documentation
from the period when record retention was required.  Affidavit of Sheila
Mullis, at 1-2.  The absence of any relevant records from the retention
period, despite the availability of earlier records, casts further doubt
on the affidavits.

Even if, as TPAI alleged, Ms. Derryberry removed her personnel file when
she left the agency, TPAI is not thereby excused from its corporate
responsibility for retaining adequate records.  Furthermore, TPAI did
not explain why the loss of one employee's personnel file resulted in a
complete inability to document the employee's accrual and use of annual
leave.  Normally, an agency would be expected to have that information
in more than one location, such as on paycheck stubs and payroll
accounting records.  Nor did TPAI explain why only files covering the
time period at issue were missing, while older records were available to
the bookkeeper.

We conclude that the payment to the former Executive Director for
unsubstantiated annual leave was unallowable.  Therefore, we sustain
that part of the disallowance.

(2)  Tax interest and penalties ($127)

TPAI was required to pay to the Internal Revenue Service $127 as
interest and penalties resulting from late payment of payroll taxes.
DAR Ex. I, at 7-8.  TPAI did not contest DAR's position that these costs
were explicitly unallowable under OMB Circular A-122, Att. B, . 14
(making fines and penalties resulting from violations of federal law
unallowable except under certain circumstances not involved here).  TPAI
Br. at 3; TPAI Ex. 6.  However, TPAI was able to document to DAR's
satisfaction that the costs were paid from a savings account which
contained only non-federal funds.  DAR Reply to TPAI Supplemental Br. at
2.  Therefore, this part of the disallowance was withdrawn.

(3) Hotel Costs ($12,625)

TPAI paid for hotel room charges at conventions in its local Nashville
area for TPAI board members, employees and presenters who lived in
Nashville.  DAR Ex. 1, at 8.  DAR did not dispute the allowability of
costs for the training conventions generally, but argued that the
accommodations for local board members who lived in Nashville, as well
as certain charges for liquor, were unallowable and were included in the
total.  DAR Br. at 10.

DAR argued that the liquor costs were not reasonable and necessary and
constituted unallowable entertainment costs under OMB Circular A-122,
Att. A, . A.3 and Att. B, . 12.  TPAI did not dispute that position and
admitted that the liquor charges ($133) were incurred because of
inadequate internal controls; TPAI made no substantive argument in
support of allowability of the charges.  TPAI Br. at 6.  We therefore
uphold that part of the disallowance.

In regard to the charges for local persons, TPAI stated that it offered
the rooms to them only because it was liable for the room charges in any
event.  According to TPAI, out-of-town attendees for whom the
reservations were made changed their plans and failed to give TPAI
sufficient notice.  TPAI submitted an agreement form from the Hermitage
Hotel dated February 12, 1990 which indicates that "no shows" and
cancellations with less than two weeks' notice would be billed to the
organization reserving the block of rooms.  TPAI Ex. 7 at unnumbered 15.
As to three of the rooms, TPAI contended that they were appropriately
used because the individuals involved were either presenters or disabled
participants for whom transportation would be difficult.  DAR accepted
the use of these "no-show" rooms for local attendees, since only a
limited number were involved and the costs would have been incurred in
any case.  DAR Reply to TPAI Supplemental Br. at 2.  DAR also did not
challenge TPAI about the appropriateness of the room charges for the
presenter and disabled persons with transportation difficulties.

However, DAR continued to challenge the allowability of $185 for a room
for then-Executive Director, Ms. Derryberry.  DAR pointed out that
TPAI's documentation did not demonstrate that she filled in for a
no-show rather than having reserved her own room.  Id. at 2.  TPAI
submitted a hotel contract that substantiated its liability for
no-shows, and an affidavit that identified the persons who used the
no-shows and the persons with special needs mentioned above.  See TPAI
Supplemental Br. at 7-8; Affidavit of Joy Sullivan at 2-3; and TPAI Ex.
7.  Ms. Derryberry was not among the persons listed in the affidavit.
TPAI did not submit any other documentation to indicate that Ms.
Derryberry used a room for which TPAI would have had to pay in any case
or that her use of the room was otherwise reasonable or necessary.
Therefore, we uphold that part of the disallowance.

(4)  Attorney's Fees ($35,000)

The amount at issue here was received as court-awarded attorney's fees
by an attorney for services which he provided in representing a TPAI
client.  DAR Ex. 1,  Appendix at 7.  The attorney was a former board
member of TPAI and was the spouse of the Executive Director at the time
the award was received.  DAR contended that the fee award was improperly
retained by the attorney, who was acting as a volunteer for the program.
DAR characterized the attorney's fee award as an applicable credit under
OMB Circular A-122, Att. A, . A.5.a, which should have been credited to
the grant "either as a cost reduction or cash refund."  DAR Br. at 12.
TPAI made several arguments regarding the fee award.  First, TPAI
contended that it was program income and that its retention by the
attorney was permissible.  Second, TPAI argued that the attorney was
representing the client under a contingent fee arrangement, rather than
as a volunteer, or that the representation was not under the auspice of
TPAI.  Third, TPAI argued that a 1990 statute prohibited payment of
attorney's fees to lawyers under these circumstances and that the
passage of that statute implied that such payments were previously
permissible.

We turn first to the question of whether the fee award constituted
program income.  Program income is defined generally as "gross income
earned by a recipient from activities part or all of the cost of which
is either borne as a direct cost by a grant or counted as a direct cost
toward meeting a cost sharing or matching requirement . . . [and]
includes but is not limited to  . . . fees for services performed during
the grant . . . ."  45 C.F.R. . 74.41 (1992) (unchanged during the
relevant period).

The findings of the contractor auditor regarding the disputed fee award
were as follows:

 The former Board member and husband of the former Executive
 Director, volunteered to assist the EACH office with a case.
 The former Board member represented the client through the EACH
 office on an ongoing basis through October 1988 when the case
 was closed.  We have copies of the intake sheet which was
 completed when the client initially contacted EACH.  We also
 have copies of the correspondence between EACH personnel and the
 former Board member throughout the proceedings of the case.

DAR Ex. 1, Appendix at 7.  The auditor found that a check for $35,000 in
attorney's fees was issued to the volunteer attorney and was not
remitted to TPAI.  The check was issued by the Shelby County Board of
Education and made payable directly to the attorney and endorsed by him.
See DAR Ex. 1, Appendix at 7; Letter from TPAI Counsel to the Board with
attachment (Oct. 27, 1993). 3/

Advocacy on behalf of clients is clearly one of the activities for which
TPAI receives federal funds.  To the extent that the attorney was acting
for TPAI in carrying out this activity for TPAI's client, he was clearly
performing a service on behalf of TPAI, even if acting as a volunteer
rather than a paid staff member, which generated the award as gross
income.  We therefore conclude that the attorney's fee award constituted
program income for TPAI. 4/  However, contrary to TPAI's contentions,
none of the alternative uses allowed for program income include the
retention of the funds by a volunteer. 5/  Under all of the alternatives
provided in the regulation, the income "shall be retained by" the
program.  45 C.F.R. . 74.42(b)(1).

We turn next to TPAI's second argument that the fee award was not
program income but rather belonged to the attorney, because he acted on
a contingency fee agreement rather than as a TPAI volunteer.  An
analysis of the audit findings supports a conclusion that the attorney
was in fact volunteering to act on behalf of TPAI in assisting in its
representation of the client on an unpaid basis, for the following
reasons:

 o  The client initially contacted TPAI and completed an intake
 process as a TPAI client.

 o  The auditor found that the attorney "volunteered to assist"
 TPAI with the case.  Nowhere does the auditor describe the
 arrangement as a referral from the program to the attorney or
 refer to any contingency fee arrangement.

 o  TPAI was in correspondence with the attorney in regard to his
 representation throughout the case, which both reinforces the
 conclusion that the attorney was acting on behalf of TPAI
 (rather than in an independent attorney-client relationship) and
 suggests that any fee agreement with TPAI would have been
 referenced in the correspondence.  .       o  The attorney
served as a Board member and was married to the former Executive
Director of TPAI, which suggests he might well have had an interest in
volunteering to assist with a TPAI advocacy activity without requiring
the incentive of a potential fee award. 6/

In order to rebut these audit findings and the resulting inferences,
TPAI had to offer more than unsubstantiated assertions.  However, TPAI
presented no documentation supporting its version of the attorney's role
and, in fact, offered inconsistent information.

At times, TPAI suggested that the attorney represented the client under
a contingent fee agreement, since he would have received no fee if the
case had been lost.  TPAI asserted that his "fee agreement provided that
the judgment, if any, would constitute his entire fee."  TPAI
Supplemental Br. at 6.  No such contingency agreement was ever produced
by TPAI, despite the obvious relevance it would have had and despite our
repeated explicit inquiries to TPAI concerning the existence of any
agreement relating to the representation.  See, e.g., Summary of
Telephone Conference at 1 (Sept. 17, 1993).  The findings of the
contractor auditor who had reviewed the attorney's correspondence with
TPAI, as noted, make no reference whatsoever to any agreement that the
volunteer attorney would receive any fee.  We conclude that TPAI failed
to show that any agreement existed.

At one point, TPAI suggested that, instead of having made a contingency
fee arrangement for representation of a client, TPAI was unaware of the
fee award and even of the client.  Thus, the present Chair of the TPAI
Board of Directors (who has been a member since 1986) stated in an
affidavit that when the OIG report came out the Board of Directors
"learned approximately then for the first time" that the attorney had
received the fee, and that "no independent investigation" has been made
by TPAI to verify that a TPAI client was involved, although she did
"presume" so.  Affidavit of Ann Ormesher at . 4. 7/  If TPAI thought
that it needed to do any investigation, it should certainly have
undertaken to conduct it long before completing its appeal to us.  We
granted numerous extensions to TPAI in this matter, repeatedly directed
the attention of counsel for TPAI to the need for documentation relating
to the fee award, and provided ample opportunity to TPAI to offer
evidence in response to the audit findings.  Yet this assertion is the
first time in this lengthy case that TPAI raised any question about the
identity of the client.  The suggestion that TPAI was unaware of the
representation until the OIG report was issued and is still unaware of
the identity of the client lacks credibility.  The attorney was married
to the Executive Director at the time of the representation.  See Letter
from DAR at 1, n.1 (Nov. 19, 1993).  It strains credulity to believe
that TPAI was not thereby aware of the representation and the receipt of
the fee award, especially in light of the contemporaneous correspondence
between the attorney and TPAI.  The documentation on which the auditor
relied was contemporaneous, and therefore more reliable than the
unsupported assertions made in Ms. Ormesher's affidavit.  In any event,
the lack of awareness of one or more Board members about the activities
of a volunteer attorney in assisting with TPAI's client advocacy does
not excuse TPAI from recouping program income once TPAI becomes aware
that such income has been improperly retained by the volunteer.

The record also demonstrates that the TPAI Board of Directors and former
Executive Director were aware that attorneys' fees earned in the
representation of the program's clients constituted program income.
See, e.g., TPAI Supplemental Br., first unnumbered exhibit at 2 (Ms.
Derryberry's resignation letter) and DAR Ex. 1, Appendix at 21-22.
These documents relate to the Board of Directors' concern about the
failure of a staff attorney to file for potential attorneys' fees awards
which would have benefitted the program.  We see no reason to treat an
award resulting from an attorney's representation of a TPAI client
through the program differently simply because he acted as a volunteer
rather than a paid staff member, absent some agreement evidencing a
different intent.

Finally, TPAI argued that no explicit "prohibition against using agency
money" for attorneys' fee payments to "legal contractors" was enacted
until 1990, and that OMB Circular A-122 does not address the issue.
TPAI Supplemental Br. at 5, citing Pub. L. No. 101-496 (1990) codified
at 42 U.S.C. . 6042(g).  That provision states that suits may be brought
"on behalf of persons with developmental disabilities against a State,
or agencies or instrumentalities of a State" and that amounts received
through court judgments in such cases and "used by the system" must be
"limited to furthering the purpose of this subchapter and shall not be
used to augment payments to legal contractors or to award personal
bonuses."  42 U.S.C. . 6042(g)(1) and (2).  TPAI contended that the 1990
statute should not be applied retroactively, and that even if the 1990
statute applied, the fee here constituted the attorney's entire
compensation on a contingent basis and was therefore not used to
"augment" any payment.  TPAI Supplemental Br. at 6.

This argument reflects TPAI's fundamental misunderstanding of this
issue.  DAR did not argue that grantees were prohibited from using
program funds to make payments to legal contractors.  We have found that
the attorney here acted as a TPAI volunteer, and TPAI presented no
evidence that he was a legal contractor.  We have also found that the
fee award was income earned by the attorney in his representation of the
client, but was not a payment from TPAI.  Thus, the issue here was
whether fees earned in a program-related activity must be treated as
program income (and be used to reduce costs charged to federal funds),
even where a volunteer working for the program retains the fees.

OMB Circular A-122, as noted above, does have explicit rules on the use
of program income.  Those rules do not and need not specify in advance
every possible source of program income, since that would be impossible
to foresee.  Thus, the absence of an express reference in the definition
of program income to attorney's fee awards earned in advocacy by a
volunteer on behalf of a program client is not significant.  The program
income rules which apply here were in effect long before the 1990
statute and continue in force.

Furthermore, the 1990 statute has no relevance to the factual situation
in this case.  On its face, the statute deals with limitations on the
use of program income, not with defining what constitutes program
income.  We see nothing in this statute to imply that fee awards had
previously not constituted program income.

TPAI suggested that policy considerations prior to the enactment of the
1990 statute might support the offering of attorney's fee awards in
contingency cases as an inducement to recruit volunteer attorneys.  See
TPAI Reply Br. at 13.  This argument overlooks the main point, i.e.,
TPAI submitted no evidence whatsoever that the volunteer attorney here
was ever offered a contingency arrangement or had ever made any
agreement with TPAI permitting him to retain the fee award.  His
willingness to volunteer in the absence of such an incentive may have
resulted from his relationship with TPAI, his interest in serving as a
volunteer advocate, or from some other motive.  In any event, no
evidence in the record demonstrates that TPAI offered attorney's fees in
the recruitment of volunteer attorneys generally or this attorney in
particular.  We thus need not address whether such a policy would be
permissible before or after the 1990 statute.

We therefore uphold the disallowance of the amount of the attorney's fee
award improperly retained by the volunteer attorney.

(5) Miscellaneous ($3,021)

The auditors disallowed payment for items given as gifts to volunteers
($529).  TPAI asserted that these gifts were reasonable because the
volunteers performed numerous hours of advocacy service and were
otherwise uncompensated except for expenses.  DAR argued that the cost
principles make unallowable any "[c]ontributions and donations by the
organization to others . . . ."  OMB Circular A-122, Att. B, . 8.
However, as in the case of the interest and penalty payment, TPAI was
able to document to DAR's satisfaction that the funds came from the
savings account derived from non-federal sources.  DAR therefore
withdrew this part of the disallowance.  DAR Reply to TPAI Supplemental
Br. at 2.

TPAI offered no basis for charging costs for meals at local restaurants
while not in travel status ($1,504) and credit card finance charges
($50) to federal funds and admitted they were incurred as a result of
inadequate internal controls.  Since TPAI made no argument relating to
these parts of the disallowance, they are upheld.

Charges of $891 were disallowed for babysitting services provided for
the children of board members and volunteers while attending conferences
and board meetings.  A charge for $47 marked "personal" on a travel
voucher submitted by the Executive Director was also disallowed.  TPAI
Ex. 9.  DAR accepted documentation submitted by TPAI relating to these
items and withdrew them from the disallowance.  See Summary of Telephone
Conference at 1 (Sept. 17, 1993).

         Conclusion

For the reasons discussed above, we uphold $46,505 of the disallowance.
As explained above, DAR withdrew $16,931 of the disallowance.

 


       ___________________________
       M. Terry Johnson

 


       ___________________________
       Norval D. (John)
       Settle

 


       ___________________________
       Judith A.
       Ballard
       Presiding Board
       Member

 

 

1.   TPAI was formerly known as Effective Advocacy for Citizens with
Handicaps, Inc. or EACH and is referred to under that name in some of
the exhibits and documents in the record.

2.   Federal regulations provide that the allowability of costs of
Protection and Advocacy programs is governed by HHS regulations (which
would include 45 C.F.R. Part 74) or by OMB issuances (of which OMB
Circular A-122 applies to nonprofit organizations such as TPAI).  45
C.F.R. . 1386.24(b) (1992) (unchanged during relevant period).

3.   Counsel for TPAI claimed to have "uncovered" new information that
the check in question was payable directly to the attorney and was not
written on a TPAI account, as he had "mistakenly" assumed, and suggested
that "everyone on both sides wrongly assumed that the payment had come
through" TPAI.  Letter from TPAI Counsel (Oct. 27, 1993).  However, the
contractor's audit report, in evaluating the allegation that "legal fees
recovered went to" the volunteer attorney/board member instead of going
to TPAI, clearly stated that "the check was made payable to the former
Board member for $35,000" and that no corresponding deposit to TPAI
could be located.  DAR Ex. 1, Appendix at 7.  The OIG report
incorporated the contractor audit as an appendix and did not disagree
with the findings on attorney's fees although it did not specifically
reference them.  DAR Ex. 1, at 4.  The disallowance determination
notified TPAI that the fee award was disallowed as an uncoded finding
because the award was not remitted to TPAI by the attorney.  No
reference was made to the award having been paid by TPAI.  We conclude
that the misunderstanding was solely on the part of counsel for TPAI.
The issue is not whether TPAI made an improper payment to a volunteer
attorney, since it clearly did not pay the attorney.  The issue is
whether a fee award arising from representation of a TPAI client by the
attorney amounted to income earned as a result of a program activity.

4.   Although this characterization best fits the facts in the record,
it is also possible that the attorney's fee award constituted an
applicable credit.  Applicable credits include funds received which
operate to "offset or reduce expense items that are allocable to
awards."  OMB Circular A-122, Att. A, . A.5.a.  The record does not
establish whether the fee award was intended in part as reimbursement
for actual costs of the litigation as well as attorney services or
whether TPAI incurred such actual litigation costs or other indirect
costs on behalf of its client during the volunteer's representation.
Since the result is the same in this case regardless of whether the fee
award is considered an applicable credit or program income, we need not
reach a definitive conclusion.

5.   Briefly, the alternatives are (1) using the income for allowable
costs of the program and reducing the amount of federal participation to
correspond, (2) using the income for allowable costs and counting it as
part of the required non-federal share, or (3) using the income for
additional costs beyond the allowable program costs but furthering the
objectives of the federal grant.  The last two alternatives "may be used
only if expressly permitted by the terms of the grant."  TPAI did not
point to any terms of its grants which would permit use of any but the
first alternative for program income.

6.   We also note that a serious question of conflict of interest might
arise if we accepted TPAI's claims that the attorney was not, in fact,
acting as a volunteer but rather in anticipation of receiving a
contingency fee, in light of his relationship to the Executive Director
and his own fiduciary position on the Board.

7.   This version of events contradicts an unsigned version of the Board
Chair's affidavit, originally submitted by counsel for TPAI with its
supplemental brief, which asserted that an unwritten agreement existed
concerning a contingency fee arrangement.  The signed version omitted
any claim of an agreement and asserted that the Board of Directors was
unaware of the award until the OIG report.  Compare Affidavit of Ann
Ormesher (unsigned, attached to TPAI's Supplemental Brief) with
Affidavit of Ann Ormesher (signed, attached to Letter from TPAI counsel,
dated Nov. 10, 1993).  The signed affidavit was submitted without
permission after counsel for TPAI was instructed in writing by the Board
that no further submissions would be accepted.  Letter from Board, dated
Nov. 3, 1993.  The accompanying letter indicated that the attached
affidavits were merely executed copies of the original submissions, but,
as noted, Ms. Ormesher's affidavit differed materially from the original
affidavit in its assertions regarding the fee award.  DAR objected
strongly to the inclusion of the second Ormesher affidavit in the
record.  Letter from DAR, dated Nov. 19, 1993.  We do not rule on the
objection because, as discussed in the text, we find that the assertions
made in the second affidavit do not further TPAI's