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Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division


IN THE CASE OF  

United Maine Families

Docket No. A-99-97
Decision No. 1707
Date: 1999 October 28
 
DECISION
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United Maine Families (UMF) appealed the July 22, 1999 determination of the Center for Mental Health Services (CMHS), Substance Abuse and Mental Health Services Administration (SAMHSA) to disallow $9,535.52 in salary costs charged to grant SM 52167 based on an audit report for fiscal years 1997 and 1998. SAMHSA disallowed the costs at issue under Office of Management and Budget (OMB) Circular A-122, Attachment B, paragraph 6.l., which establishes standards of documentation for charging salaries and wages to federal grants.

For the reasons discussed below, we uphold the disallowance. We conclude that SAMHSA properly disallowed the costs at issue on the ground that the costs were not adequately documented as required by OMB Circular A-122, Attachment B, paragraph 6.l. Additionally, we conclude that the Board does not have the authority to grant the relief requested by UMF, that the Department of Health and Human Services accept a subrogation of UMF's rights to compensation under UMF's insurance policy in lieu of immediate payment of the debt. This decision does not, however, preclude UMF from bringing its request to the operating division of the Department of Health and Human Services that has the authority under the Federal Claims Collection Act regulations at 45 C.F.R. Part 30, to suspend, compromise, or terminate debt collection actions.

Applicable Law

The cost principles that apply to federal grants awarded to nonprofit organizations such as UMF are found in OMB Circular A-122. The OMB Circular was made applicable to the grants awarded to UMF during the period at issue by 45 C.F.R. § 74.27(a).(1)

Attachment B, paragraph 6 of OMB Circular A-122 addresses compensation for personal services. Under section l.(1) of paragraph 6, charges to awards for salaries must be based on documented payrolls approved by a responsible organization official, and the distribution of salaries to awards generally must be supported by personnel activity reports. Section 1.(2) of paragraph 6 requires that reports reflecting the distribution of activity of each employee be maintained for all staff members whose compensation is charged, in whole or in part, directly to awards; that the reports maintained reflect an after-the-fact determination of the actual activity of each employee; that each report account for the total activity for which employees are compensated and which is in fulfillment of their obligations to the organization; that the reports be signed by the individual employee, or by a responsible supervisory official; and that the reports be prepared at least monthly and coincide with one or more pay periods.

Factual Background

UMF was the recipient of several CMHS grants, including grant SM 52167, which supported UMF's Voices of Strength program. In a letter dated December 23, 1998, the President of the Board of Directors of UMF notified CMHS of "[p]ossible irregularities in the management" of UMF. The letter stated that UMF had taken steps to rectify the matter, including scheduling an internal audit and a compliance audit, and placing its Executive Director on administrative leave without pay. The letter also stated that UMF hoped that CMHS would work with UMF to resolve any problems identified in its ongoing investigation.

By letter dated April 9, 1999, the Financial Advisory Services Office, Division of Grants Management of SAMHSA, requested UMF to respond to a series of findings in UMF's single audit report for fiscal years 1997 and 1998. With respect to audit finding no. 98-2, SAMHSA stated:

According to the report, when [the] grant was awarded, the former Executive Director was awarded a salary increase with no authorization or approval of the Board of Directors. Please explain how the Executive Director's time and salary was distributed, which grants were charged and the amount charged to each grant. What was the total amount of salary charged to each grant (SM 52167 and SM 52537) during the audit period? Also, who signed the payroll checks for the Executive Director?

In response, UMF wrote on May 3, 1999, that the Executive Director had not filed time sheets recording distribution of her time across grants and that there was no management protocol for her time sheets to be approved by another UMF employee. UMF also stated that the Executive Director had submitted time sheets on January 2, 1999, for the time period between September 1, 1997, and December 10, 1998, identified as relating to grant SM 52167. UMF added that, of the $18,168.80 in salary costs charged to grant SM 52167 for the Executive Director and the Project Coordinator, the Executive Director paid herself $9,535.32, which "was not approved by the Board of Directors, as a salary increase for the Executive Director." According to UMF, the Executive Director "sometimes wrote and recorded and always signed her own pay check," although the Board had asked her to change the practice after a 1996 audit. UMF enclosed with its letter a corrective action plan for changes in check writing and other procedures.

By letter dated July 22, 1999, SAMHSA notified UMF that it was disallowing $9,535.52 in salary costs charged to grant SM 52167 based on OMB Circular A-122, Attachment B paragraph 6.l.(1) and (2)(a)-(d). SAMHSA's notice repeated the information relating to the Executive Director's salary that UMF provided in its May 3, 1999 letter. The notice stated specifically that the salary charges for the September 30, 1997 - December 10, 1998 period were not supported by personnel activity reports, did not account for the employee's total effort, were not prepared monthly, and were not signed, as required by the OMB Circular. In addition, SAMHSA stated, the salary was not authorized or approved by the Board. The notice also stated that while the employee retroactively prepared time sheets, they were not signed and did not account for the total hours for which the employee was compensated, as required by the OMB Circular. Finally, the notice directed UMF to pay the disallowed amount within 30 days of the notice date and stated that if timely payment was not received, additional interest and administrative charges would apply.

Parties' Arguments

In its appeal to the Board, UMF did not dispute that the funds at issue were not allowable under OMB Circular No. A-122. Rather, UMF stated that as soon as it became aware of "possible irregularities" in management, the Board of Directors had taken responsible actions to rectify the situation, including authorizing an exhaustive audit and ultimately dismissing the Executive Director. Notice of Appeal at 1. According to UMF, it had kept its funding sources informed of the matter, "assuming the state and federal agencies would appreciate such honesty in the spirit of partnership." Id. UMF acknowledged that the Executive Director was "not discharging her responsibility to keep accurate records with proper signatures of persons in authority," but asserted that the Board of Directors could not "properly discharge their responsibility to sign off on these timesheets in that they were not aware that the employee was taking a salary for the grant in question." Id. According to UMF, the Board of Directors accepted the Executive Director's assertion that no time sheets were necessary since she was drawing her salary from a single source.

UMF further stated that its Board of Directors was pursuing compensation under its employee dishonesty insurance policy and asked that "instead of demanding immediate payment and imposing penalties for delays in payment," the Departmental Appeals Board "accept a subrogation of [UMF's] rights to insurance compensation and work with [UMF] to resolve this matter in a way that does not destroy [UMF]." Id. UMF added that SAMHSA's punitive response to UMF's efforts to be forthcoming about its management problems might deter other grantees from being honest with their federal funding sources.

In its September 1, 1999 response to UMF's appeal, SAMHSA stated that while UMF's Board of Directors had taken appropriate action, authorizing an audit to confirm management irregularities, SAMHSA was required to recover any unallowable costs charged to the grant. Once an audit identifies potentially unallowable costs, SAMHSA wrote, SAMHSA is required to obtain any additional documentation from the grantee and make a final determination as to whether the costs are allowable. SAMHSA further stated that the language in its final determination letter concerning payment of the debt is required by regulation. Finally, SAMHSA concluded, UMF should work with the Collection Officer, Debt Management Branch of the Department of Health and Human Services, "to work out a repayment schedule."(2)



ISSUES
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FINDINGS OF FACT AND CONCLUSIONS OF LAW
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ANALYSIS
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Applying the relevant sections of OMB Circular A-122, Attachment B, paragraph 6, to the uncontested facts in this case, we conclude that SAMHSA properly disallowed the $9,535.52 at issue on the ground that UMF did not maintain the documentation required to support the Executive Director's salary charge to the grant. UMF did not dispute that it failed to prepare personnel activity reports that reflected the Executive Director's distribution of activities, accounting for her total activities in fulfillment of her obligations to the organization. In addition, reports were not prepared at least monthly, coinciding with one or more pay periods. While the Executive Director prepared after-the-fact time sheets, they accounted only for the ten hours charged to the grant, not her total activities, and they were not signed. Moreover, there is no evidence that the charges were based on documented payrolls approved by a responsible UMF official. To the contrary, as UMF acknowledged, the amounts charged represented an increase in salary that was not authorized or approved by the Board of Directors.

UMF's efforts to bring the problems identified with the former Executive Director to SAMHSA's attention and UMF's remedial actions do not provide a basis for reversing the disallowance. The cost principle at issue is designed to ensure that federal funds are used only for the purposes for which Congress appropriated them. UMF had notice that it could claim salary costs under the grant only to the extent that the costs were supported. UMF's assertion that the Board of Directors thought the Executive Director was not taking a salary for the grant but was being paid full time from a different source suggests just the kind of duplicate claim that time and effort reporting is intended to preclude.

This Board has previously held that a grantee is responsible for the proper administration of its grant program, despite any problems it has with its staff or Board. Cayuga County Action Program, Inc., DAB No. 1151 (1990). Accordingly, even if UMF's failure to comply with the applicable authority was wholly attributable to the Executive Director, this is not a basis for reversing the disallowance. We note, moreover, that the Board of Directors shares some responsibility since it apparently did not monitor whether the Executive Director was still signing her own checks, contrary to their direction.

While we agree with UMF that grantees should be encouraged to report problems to the grantor agency, we do not view the disallowance here as a "punitive" action that will discourage such reporting. Grantees have an obligation to ensure that only allowable costs are charged to a grant. Identifying problems at an early stage is not only consistent with this obligation, but protects the grantee from incurring additional unallowable costs that would be disallowed when the grantee is audited.

Finally, we note that the Board lacks authority to compromise UMF's debt to the Department of Health and Human Services by accepting a subrogation of UMF's rights to insurance proceeds and waiving any interest or administrative charges that may apply. Under 45 C.F.R. Part 16, the Board has jurisdiction to review disallowances determined by component agencies of the Department of Health and Human Services. However, once the Board concludes that there is a valid debt, the Federal Claims Collection Act regulations at 45 C.F.R. Part 30 provide a separate process for the Secretary (or her designee within an operating division or regional office) to determine how the debt should be repaid. Accordingly, we direct the parties' attention to 45 C.F.R. Part 30 and note that our decision does not preclude UMF from engaging in discussions to resolve its indebtedness with the appropriate operating division of the Department of Health and Human Services.



CONCLUSION
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Based on the foregoing analysis, we uphold the disallowance in full.


JUDGE
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Cecilia Sparks Ford
Donald F. Garrett
Judith A. Ballard


FOOTNOTES
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1. We cite here the version of OMB Circular A-122 in effect at the time the grant in question was awarded. The Circular was amended June 1, 1998. The relevant provisions were renumbered, but no substantive change was made.

2. UMF chose not to submit a written reply to SAMHSA's response, and both parties declined to present oral comments to the Board by teleconference.

CASE | DECISION | ISSUES | FINDINGS OF FACT AND CONCLUSIONS OF LAW | ANALYSIS | CONCLUSION | JUDGE | FOOTNOTES