SUBJECT:

Rhode Island Substance Abuse Task Force Association

DECISION

The Rhode Island Substance Abuse Task Force Association (Association) appealed the November 1, 1999 determination of the Substance Abuse and Mental Health Services Administration (SAMHSA) disallowing $68,353.65 that the Association sought to charge as expenditures for grants awarded under the Community Partnership and the Community Prevention Coalitions Demonstration Programs, Grant Nos. SP06999 and SP07596, respectively.⁽¹⁾ During the proceedings before the Board, it became apparent that the case presented the threshold issue of whether there are federal funds still available in these grant accounts to pay any of the costs at issue if we were to determine that they are allowable types of costs. If all of the funds authorized by the grant awards have been expended, no purpose would be served by a Board decision on the merits of the disallowance since expenditures in excess of the amount awarded for a grant are unallowable. See Sumter County Opportunity, Inc., DAB No. 112 (1980).

For the reasons discussed below, we find that no funds remain in Grant No. SP06999. Accordingly, without considering whether the costs are allowable types of costs, we uphold SAMHSA's decision not to reimburse the $49,783.95 at issue for that grant. We also find that only $2,157.52 remains in Grant No. SP07596 and uphold SAMHSA's decision not to reimburse the $16,412.18 the Association sought to charge to that grant in excess of the amount available. We reverse the disallowance as to the $2,157.52 for which funds are available since the disallowance was taken on the ground that the costs were incurred after the grant ended, and we find that SAMHSA's denial of the Association's request for a no-cost extension of the grant project period was arbitrary and capricious in the circumstances presented here.

Background

The Association is a non-profit organization that provides training and technical assistance on substance abuse prevention and education to local task forces from municipalities in Rhode Island. In 1995, the Association received two grants, one known as the Consortium for Community Initiatives grant (Grant No. SP06999), awarded under the Community Partnership Program, and one known as the Consortium United for Prevention grant, awarded under the Community Prevention Coalitions Demonstration Program (Grant No. SP07596). The activities for which Grant No. SP06999 was awarded were previously carried out by another grantee, the Rhode Island Anti-Drug Coalition (RIADC), under a separate grant (Grant No. SP04426). In August 1996, the Association was designated by SAMHSA as an "exceptional organization," and special conditions were imposed to monitor its fiscal management, including a requirement that the Association submit expenditure reports (on a "Form 270") before being reimbursed for expenditures under the grant. Consequently, the Association was obliged to obtain SAMHSA's approval of each claimed expenditure as allowable and allocable to its grants prior to receiving any grant funds that had been awarded to it.

The November 1, 1999 determination appealed here addressed "outstanding expenses" reported by the Association on Form 270's for the period August 1 to September 30, 1999, as well as in an August 31, 1999 letter from the Association to SAMHSA summarizing expenditures reported on Form 270's for the period January 1997 through July 1999 which remained unpaid. The costs disallowed in SAMHSA's November 1, 1999 determination consisted of $22,534.48 charged to Grant No. SP06999 for retroactive vacation, holiday, sick leave and discretionary time, and related payroll taxes, for 1995, 1996 and 1997; and a total of $45,819.17 charged to the two grants -- $27,249.47 for Grant No. SP06999 and $18,569.70 for Grant No. SP07596 -- for costs incurred after the end of the grant project periods (December 31, 1997 and July 31, 1999, respectively).

In addition to disallowing the costs identified above, SAMHSA determined that $4,798.18 charged to Grant No. SP06999 and $22,112.59 charged to Grant No. SP07596 were allowable. However, SAMHSA stated that there were no funds remaining in Grant No. SP06999 to reimburse the Association for the $4,798.18 that was allowable.

The Association took the position that additional funds should have been available in Grant No. SP06999 to reimburse allowable expenditures under that grant. SAMHSA calculated that no funds remained based on a total funding authorization figure of $979,044.63. The Association argued that the amount authorized had been increased by $24,774, from $979,044.63 to $1,003,819, and that these additional funds were available for obligation by the Association. In addition, the Association argued that, in calculating the funds available for Grant No. SP06999, SAMHSA had deducted $30,003 of outstanding expenses for that grant reported in the Association's August 31, 1999 letter and addressed in SAMHSA's November 1, 1999 determination, although this amount had not been paid to the Association, and that this amount should be restored to the grant. The Association also argued that SAMHSA had improperly used funds awarded under Grant No. SP06999 to pay costs incurred by RIADC under the prior grant, although the Association did not identify the amount in question.

The Association did not dispute SAMHSA's calculation (explained in its submission dated March 30, 2000, at 2) of the amount of funds remaining in Grant No. SP07596 as $2,157.52. The Association also did not question SAMHSA's later statement that it was subtracting from this amount $196.37, which represented payments to the Association in excess of the amount authorized for Grant No. SP06999. SAMHSA letter dated 4/7/00, at 1. The Association appeared to argue, however, that SAMHSA's determination to disallow costs for Grant No. SP07596 on the ground that they were incurred after the end of the grant project period was not proper because the Association would not have incurred these costs but for SAMHSA's failure to process by the end of the grant project period on July 31, 1999 all 270's submitted by the Association. Association letter dated February 15, 2000, at 7. The record shows that the Association requested a 30-day no-cost extension of the grant project period to "address all outstanding issues" due to that alleged failure. Association letter dated 7/26/99.⁽²⁾ SAMHSA denied that extension request. SAMHSA letter dated 7/29/99.

Conclusion

For the foregoing reasons, we conclude that there are no funds remaining in Grant No. SP06999, so that there is no need for us to determine if any of the Association's expenditures for that grant were for allowable types of costs. We therefore uphold SAMHSA's decision not to reimburse the $49,783.95 the Association sought to charge to Grant No. SP06999. We also find that only $2,157.52 remains in Grant No. SP07596, and we uphold SAMHSA's decision not to reimburse the $16,412.45 the Association sought to charge to that grant in excess of the amount available. We reverse the disallowance as to the $2,157.52 for which funds are available since the disallowance was taken on the ground that the costs were incurred after the grant project period ended, and we find that SAMHSA's denial of the Association's request for a no-cost extension of the grant was arbitrary and capricious.

1. Grant No. SP96999

We find no support in the record for the Association's position that additional funds should have been available for Grant No. SP06999. The record establishes that the amount authorized for Grant No. SP06999 was $979,044, not $1,003,819 as the Association contended. SAMHSA issued five notices of grant award for Grant No. SP06999. The first notice, dated 7/5/95, awarded $61,870 in new funds for the budget period 7/1/95 through 7/31/95. The second notice, dated 7/14/95, awarded $600,086 in new funds for the budget period 8/1/95 through 7/31/96. The third notice, dated 11/8/95, identified as a "Revised Notice of Grant Award," awarded $169,678 in unobligated funds from prior budget periods (i.e., funds originally awarded to RIADC) for the budget period 8/1/95 through 7/31/96. The fourth notice, dated 12/4/95, did not affect the amount of funds awarded but merely approved a new project director. The fifth notice, dated 4/29/96, also identified as a "Revised Notice of Grant Award," awarded $147,411 in unobligated funds from prior budget periods for the budget period 8/1/95 through 7/31/97. SAMHSA letter dated 6/26/00, Ex. 5, at 1-4; SAMHSA letter dated 7/10/00, enclosure. Thus, the amount awarded for this grant totalled $979,044. This is consistent with the amount identified in SAMHSA's briefing (although SAMHSA included an additional 63 cents notwithstanding the fact that all of the award amounts were in whole dollars).

SAMHSA nevertheless noted in its briefing that, according to the Payment Management System (which records the authorization and transfer of funds), "the Association's funding authorization[] for SP06999 was $1,003,818.37 (rounded to $1,003,819) as of March 10, 1998 . . . ." SAMHSA letter dated 6/26/00, at 1. However, there was no actual increase in the award amount for Grant No. SP06999 since no notice of grant award was ever issued for the additional $24,774 in question.⁽³⁾ Instead, it appears that the $24,774 increase was simply a bookkeeping entry that was later reversed. A Payment Management System inquiry for the Association submitted by SAMHSA shows that $99,595.97 was transferred to Grant No. SP06999 on August 10, 1998, resulting in the total authorization figure of $1,003,818.97. SAMHSA letter dated 6/26/00, Ex. 3, at 2.⁽⁴⁾ According to SAMHSA, the $99,595.97 was transferred from RIADC's Grant No. SP04426, which SAMHSA believed had an unobligated balance in that amount as of the August 10, 1998 grant closeout. SAMHSA indicated that it realized later that only $74,821.63 in unobligated funds remained in Grant No. SP04426. SAMHSA stated, and the Payment Management System inquiry for RIADC submitted by SAMHSA confirms, that SAMHSA transferred the difference of $24,774 back to Grant No. SP04426 on March 13, 2000. SAMHSA letter dated 6/26/00, Ex. 4, at 2.⁽⁵⁾

Even if a notice of grant award had not been required in order to authorize the $24,774.34 for Grant No. SP06999, the Association had prior notice that it was not necessarily entitled to retain funds transferred from the RIADC grant. Specifically, the first notice of grant award stated that "[i]f the unobligated balance from the prior institution has been overestimated, it may be necessary to reduce the amount of this award." Moreover, the Association should have known well before the $24,774.34 was transferred back to Grant No. SP04426 that the unobligated funds at the time RIADC's grant was closed out totalled only $74,821.63. Specifically, in a letter to SAMHSA dated March 9, 1998, the Association forwarded a copy of RIADC's "Substitute PMS272 Report," which showed $99,595.97 total cash available, $24,774.34 net disbursements since June 30, 1995, and $74,821.63 cash on hand. At the same time, the Association also forwarded a copy of a check in the latter amount from RIADC to SAMHSA dated March 12, 1996. SAMHSA letter dated 6/26/00, Ex. 2, at 2-3.

Finally, there is nothing in the record which even suggests that SAMHSA deducted $30,003 of the amount at issue in its November 1, 1999 determination from the authorized amount for Grant No. SP06999, as the Association contended. As of February 29, 2000 (the date of the most recent Payment Management System inquiry submitted by SAMHSA), the Payment Management System showed no such deduction. SAMHSA letter dated 6/26/00, Ex. 3, at 1-2. Moreover, there would have been no reason for SAMHSA to deduct the $30,003 from the authorized amount since SAMHSA determined that all but $4,798.18 of these expenditures were unallowable and that, to the extent that the expenditures were allowable, there were no funds remaining in the grant to pay them.⁽⁶⁾

Accordingly, we conclude that SAMHSA properly decided not to reimburse the $49,783.95 the Association sought to charge to Grant No. SP06999 since all of the funds authorized by the grant awards have been expended.

2. Grant No. SP07596

We note preliminarily that there is no basis for SAMHSA to subtract from the $2,157.52 that remained in Grant No. SP07596, the $196.37 that SAMHSA somehow paid in excess of the amount awarded for Grant No. SP06999. Clearly, funds awarded for one grant cannot be used to pay costs that were allocable to a separate grant awarded under a different statutory authority. See 31 U.S.C. § 1301(a) (former § 628) (providing that federal appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law). SAMHSA did not allege that the $196.37 represented costs that were properly allocated to Grant No. SP07596 instead of the grant under which they were claimed, Grant No. SP06999. Accordingly, the amount of funds remaining in Grant No. SP07596 is $2,157.52, as originally stated by SAMHSA.⁽⁷⁾ We conclude that SAMHSA properly decided not to reimburse the additional $16,412.18 the Association sought to charge to this grant for which no funds remain available.

Since some funds remain in Grant No. SP07596, however, we must determine whether SAMHSA properly disallowed the costs sought to be charged to this grant on the basis that they were incurred after the end of the grant project period. The applicable regulations provide that "[w]here a funding period is specified, a recipient may charge to the award only allowable costs resulting from obligations incurred during the funding period and any pre-award costs authorized by the HHS awarding agency . . . ." 45 C.F.R. § 74.28.⁽⁸⁾ In a prior decision, the Board stated that this regulation specifically precludes reimbursement of expenses incurred after the expiration of a grant and sustained the disallowance of expenditures made by the grantee after the specified grant period. Delta Foundation, Inc., DAB No. 1710 (1999). It is undisputed that the costs in question here were incurred in August and September 1999, after the project period for Grant No. SP07596 had ended.

Nevertheless, we are not persuaded that, under the circumstances of this case, section 74.28 requires us to sustain the disallowance of the $2,157.52 for which funds are available. As noted above, the Association argued that the disallowance was not proper because the Association would have not incurred costs after the end of the grant project period on July 31, 1999 but for SAMHSA's failure to process all 270's by that date. If SAMHSA had granted the Association's request for a 30-day no-cost extension of the grant project period in order to permit the Association to address "outstanding issues" due to that alleged failure, then the $2,157.52 in disallowed costs for which funds are still available would have been incurred within the grant project period.⁽⁹⁾ Thus, the disallowance was not warranted if SAMHSA improperly denied the requested 30-day no-cost extension.

The Department's policy on no-cost extensions is contained in its Grants Administration Manual (GAM) and is specifically applicable to all discretionary grants. Under the GAM, SAMHSA has the discretion to award a no-cost extension of a project in the following circumstances:

If support for a project is ending, the grants officer may noncompetitively extend the project for a limited time, usually a few months to provide for an orderly phase-out of Federal support. The grants officer may also extend any budget period for a few months for administrative reasons.

GAM Chapter 1-85-10. The Board has examined this discretionary authority in a number of cases and has in each case upheld the denial of the no-cost extension, holding that as long as the awarding agency can show that its denial of a no-cost extension was reasonable under the circumstances, the Board will not find that decision arbitrary. See, e.g., DAB No. 1710; New Opportunities for Waterbury, Inc., DAB No. 1512 (1995); Southbay Community Development Corporation, DAB No. 1432 (1993); Bedford Stuyvesant Restoration Corp., DAB No. 1404 (1993); and Oakwood Child Development Center, Inc., DAB No. 1092 (1989). In DAB No. 1512, the Board elaborated as follows:

The standard of judicial review under the Administrative Procedure Act, when ruling on a challenge to informal agency action, is whether the agency action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706. The "arbitrary and capricious" standard of review has been stated to be a highly deferential one, which presumes the agency action to be valid. The standard is also a narrow one, which forbids a court from substituting its judgment for that of the agency; it mandates judicial affirmance if a rational basis for the agency's decision is presented, even though the court might otherwise disagree. Environmental Defense Fund v. Costle, 657 F.2d 275, 283 (D.C. Cir. 1981).

DAB No. 1512, at 12, n.7. Moreover, it is well-established in federal case law that, while the scope of review under the "arbitrary and capricious" standard is narrow, the agency nevertheless must offer a satisfactory explanation of its reasons for its action based on the relevant data. Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29, at 30, 43 (1983).

Applying this standard here, we conclude that SAMHSA's denial of the Association's request for the 30-day no-cost extension was arbitrary and capricious. SAMHSA stated: "This denial is based on the fact that your organization has already been granted an extension for the very purpose that you have stated in your correspondence. You were informed when you were granted that extension, that you were to take steps to bring this grant to a close." SAMHSA letter dated 7/29/99. However, SAMHSA's letter granting the earlier extension to which this refers says nothing about the need for additional time due to the late processing of 270's. Docket No. A-99-46, letter dated 3/17/99. Instead, SAMHSA's March 17, 1999 letter states that "a four-month no-cost extension appears appropriate to complete the approved goals and objectives as outlined in the -03-year continuation application."⁽¹⁰⁾ The reason given for SAMHSA's denial of the Association's request for the 30-day no-cost extension -- that a prior extension provided adequate time for the Association to meet the goals and objectives of the grant -- was thus completely unresponsive to the stated basis for the request. SAMHSA's apparent inattention to the basis for the Association's request is particularly troubling because that request made a plausible allegation that the need for the no-cost extension arose from SAMHSA's failure to follow the applicable regulations. The record shows that some requests for reimbursement had not been processed by July 31, 1999, when the project period for Grant No. SP07596 ended. See Association letter dated 2/15/00, Exs. 5 and 6; SAMHSA letter dated 8/31/99. At least one of these requests for reimbursement had been pending for more than 30 days, in contravention of 45 C.F.R. § 74.22(e)(1). See Association letter dated 7/30/99, Tab 3.

Since SAMHSA did not offer a satisfactory explanation for its denial of a no-cost extension request that was alleged to be necessitated by SAMHSA's own failings, we find that the denial was arbitrary and capricious. Accordingly, we reverse the disallowance of the $2,157.52 that we found above would have been incurred within the grant project period if SAMHSA had granted that extension.⁽¹¹⁾ In order to assure that the expenditure of these funds is authorized, SAMHSA is directed to issue a revised notice of grant award extending the grant project period for Grant No. SP07695 to August 30, 1999.

Judith A. Ballard

Cecilia Sparks Ford

M. Terry Johnson
Presiding Board Member

1. This case was originally docketed upon receipt of the Association's July 30, 1999 request for Board review of what the Association described as a final decision by SAMHSA. It was unclear at that point whether SAMHSA had in fact made a final decision that was appealable to the Board; however, the Board did not rule on this issue since SAMHSA represented that it would be making a final decision and a final decision was issued on November 1, 1999.

2. That letter states in relevant part that the Association "needs to: pay July bills; prepare and submit any final 270s required; address all outstanding issues which have been delayed due to SAMHSA not processing properly submitted documents in a timely fashion." Section 74.71(c) of 45 C.F.R. requires HHS to make prompt payments to a recipient for allowable reimbursable costs under an award which is being closed out. In addition, section 74.22(e)(1) provides that "[w]hen the reimbursement method is used, HHS will make payment within 30 days after receipt of the billing, unless the billing is improper."

3. A notice of grant award is the official award document used in discretionary grant programs and provides the documentary basis for recording the obligation of federal funds in the Department's accounting system. HHS Grants Administration Manual Ch. 1-67-10.

4. There is no explanation in the record as to why this and some of the other fund transfers shown by the Payment Management System do not track the notices of grant award with respect to either amount or date.

5. SAMHSA did not explain why it closed out Grant No. SP04426 more than three years after the expiration of the last budget period when the applicable regulations at 45 C.F.R. §74.71(a) generally require a grant to be closed out within 90 days. In addition, SAMHSA did not explain its failure to correctly reflect the amount of unobligated funds for that grant for nearly four years after RIADC reported the amount as $74,821.63.

6. We note that the Association requested in connection with its arguments regarding Grant No. SP06999 that SAMHSA provide it with various documents, including the financial cash transaction reports for RIADC's grant, itemized responses to the Form 270's submitted by the Association, and an itemized list of electronic transfers to the Association since January 1, 1995. Association letter dated 4/25/00, at 3-4. SAMHSA did not respond to these requests. Since the Association did not deny that it received all of the funds SAMHSA said the Association had received to reimburse costs under this grant, these documents would be irrelevant, so there is no need for SAMHSA to produce them as part of this proceeding.

7. While the amount of funds remaining in Grant No. SP07596 may not be reduced by the $196.37, this does not preclude an offset against any funds that might be disbursed to cover allowable costs of Grant No. SP07596. The Association has not disputed that the $196.37 represents a payment in excess of the amount authorized.

8. Part 74 establishes uniform administrative requirements governing Department of Health and Human Services grants to nonprofit organizations such as the Association. 45 C.F.R. § 74.1(a).

9. There is no breakdown in the record of when during August and September the Association incurred the $18,569.70 disallowed as incurred after the end of Grant No. SPO7596. However, an August 18, 1999 letter from SAMHSA to the Association indicates that the Association had already submitted Form 270's for some costs incurred after the end of this grant. Association letter dated 2/15/00, Ex. 6. It seems highly probable that at least $2,157.52 of the $18,569.70 was spent during the month of August.

10. SAMHSA approved the four-month no-cost extension (to July 31, 1999) in lieu of a nine-month no-cost extension requested by the Association. The Association appealed the denial of the nine-month extension to the Board. Letter dated 4/15/99, Docket No. A-99-46. The Board Chair ruled that SAMHSA's opinion that the Board had no jurisdiction to review this denial was not clearly erroneous, since the case did not fall into any of the four categories described in 45 C.F.R. Part 16, Appendix A, ¶ C(a). Rejection of Appeal, dated 6/7/99. However, the denial of a no-cost extension is clearly reviewable in the context of review of a disallowance or requirement to return funds. See DAB No. 1432, at 6, n.3 (stating that “review of the denial of a no-cost extension is generally a necessary concomitant to review of a disallowance or requirement to return funds. See 45 C.F.R. Part 16, Appendix A, C(a)(1).”) Nevertheless, we need not address here whether SAMHSA's denial of the nine-month extension was arbitrary and capricious since there are insufficient funds available to pay any costs in addition to the amount which we determine below was allowable based on SAMHSA's improper denial of the 30-day no-cost extension.

11. SAMHSA should promptly review the pertinent Form 270's to determine whether there are $2,157.52 in claimed costs which are otherwise allowable. If SAMHSA determines that the amount of allowable costs is less than $2,157.52, it should notify the Association of which costs SAMHSA has determined are not allowable and the reason why, and of the Association's right to appeal to the Board within 30 days pursuant to 45 C.F.R. Part 16.