GAB Decision 332
June 30, 1982 New Bedford Area Center for Human Services; Docket No.
81-175 Garrett, Donald; Settle, Norval Teitz, Alexander
New Bedford Area Center for Human Services (Grantee) appealed the
Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA, Agency)
Grant Appeals Committee's upholding of the decision of the ADAMHA
Executive Officer to disallow $107,472 in grant funds for the period of
July 1, 1971 through June 30, 1979. ADAMHA had determined that Grantee
(1) had drawn down $98,979 in federal funds in excess of the amount
actually expended, and (2) had claimed $8,493 in indirect costs in
excess of the amount allowable.
For reasons stated below, we uphold the disallowance in part and
reverse the disallowance in part. This decision is based on the written
record including Grantee's written comments following a telephone
conference conducted by the Board; the Agency elected not to comment.
Excess Federal Fund Drawdown ($98,979)
The Agency's disallowance letter stated that Grantee drew down
$98,979 in federal funds in excess of expenditures. Records provided to
the Agency and Grantee by the Departmental Federal Assistance Financing
System (DFAFS) and the Federal Reserve Bank of Boston indicated that
Grantee had drawn down $4,077,770 in federal funds.
The record presented to the Board by the Agency contained four
different figures for the total allowable expenditures and, therefore,
four different figures for the excess federal drawdown.
The revised reports of expenditures submitted by Grantee and
subsequently recommended for acceptance by the National Institute on
Drug Abuse (NIDA), the awarding and administering component, totalled
$4,054,221. Using this figure for the total allowable expenditures, the
excess federal fund drawdown was $23,549 ($4,077,770 -- $4,054,221).
(2)
The original reports of expenditures showed a total of $4,035,912 in
allowable expenditures. This figure was never advanced by NIDA or the
Agency as the appropriate figure. Using this figure for the total
allowable expenditures, the excess federal fund drawdown was $41,858
($4,077,770 -- $4,035,912).
Based on the original reports of expenditures, NEDA had recommended
that, by adjusting the FY 79 indirect cost rate, a total of $4,021,432
be accepted in allowable expenditures. Using this figure for the total
allowable expenditures, the excess federal fund drawndown was $56,338
($4,077,770 -- $4,021,432).
Based on their examination of Grantee's records, the auditors stated
that the total allowable expenditures were $3,978,791. Using this
figure for allowable expenditures, the excess federal drawdown was
$98,979 ($4,077,770 -- $3,978,791).
The Agency stated that the appropriate figure for allowable
expenditures was the $3,978,791 recommended by the auditors. The Agency
said that it accepted the auditors' figure because the auditors were the
ones who had examined Grantee's records and because the auditors were
the ones who could best decide which expenditures were properly
documented and allowable. The Agency, therefore, disallowed $98,979.
We uphold the disallowance only for the amount of $23,549 ($4,077,770
-- $4,054,221). The largest figure advanced for total allowable
expenditures is the $4,054,221 derived from Grantee's revised reports of
expenditures and the amount recommended by NIDA. Although Grantee
argued that the entire $98,979 disallowance should be reversed on
substantive grounds (see discussion below), even the Grantee's own
figures (on its revised reports of expenditures) do not support a claim
larger than $4,054,221. By its own admission, therefore, the Grantee
drew down $23,549 more than it spent.
We reverse the remainder of the disallowance, $75,430 ($98,979 --
$23,549), without prejudice to the Agency reissuing or modifying the
disallowance. Our decision is not based on the substantive arguments of
Grantee, however.
The Agency stated that it accepted the auditors' figures because the
auditors had examined the books of Grantee. However, NIDA, the
administering component of the Agency, examined the same audit report
that the Agency did and recommended the acceptance of two higher
allowable figures for expenditures based on the original and revised
reports of expenditurres. (Agency's Record, Ex. D, p. 64; Ex. F, p.
6) NIDA, as awarding and administering component, arguably had as great
a familiarity (3) with the program and Grantee as the Agency. In
addition there is no indication that the auditors considered the revised
expenditure reports. The Agency concluded that there was no basis for
accepting Grantee's revised expenditure reports but did not give the
Grantee a reason why they would not be accepted. The Agency did not
provide either the Grantee or the Board with any substantial explanation
and justification of why the ADAMHA Executive Officer followed the
recommendations of the auditors as opposed to the recommendations of
NIDA based on the same information examined by the Agency. the Agency,
therefore (if it chooses to pursue the higher disallowance), should
provide a reasoned justification of which expenditure level it chooses,
considering the evidence in the record as discussed above, and issue a
new or revised disallowance. Grantee may appeal in accordance with 45
CFR Part 16 (1981) and, to avoid delay, the Board would provide
accelerated review.
Indirect Costs
In its disallowance letter, the Agency stated that it disallowed
$8,493 in indirect costs because they were in excess of the amount
allowable based on the establishment of the final indirect cost rate.
The audit report (page 5) recommended the disallowance of $8,493 because
". . . (1) major subcontract costs were inappropriately included in the
direct cost base for fiscal year 1979 ($7,991), (2) the 1978 and 1979
final indirect cost rates are lower than the rates used to prepare the
expenditure report ($10,551). . ."
the Agency allowed Grantee a credit of $10,049 against these
disallowances because the Agency found that the 1975 final indirect cost
rate was higher than the provisional rate used in preparing the 1975
claim. The net disallowance for these costs was $8,493 ($7,991 plus
$10,551 minus $10,049).
Grantee sought recovery of the following indirect costs: (1) $41,091
in administrative costs in excess of the provisional rate for the year
which ended June 30, 1975, and (2) $47,099 in administrtive costs in
excess of the provisional rate for the year which ended June 30, 1974.
Grantee argued that these costs were properly allowable and, therefore,
should be granted retroactive approval. Grantee stated that it should
be allowed to offset these amounts against the excess federal fund
drawdown because the provisional rate was set to get a "handle" on
administrative costs.
Grantee has confused the term "prior approval" with a determination
by the Agency that costs incurred for the grant, which were previously
held to be unallowable costs, are later found to be allowable and
properly chargeable to the grant. (4)
In its response to the Confirmation of Telephone Conference, Grantee
(correctly) interpreted 45 CFR Part 74, Subpart Q, section 74.176(c), as
providing for waiving a requirement for prior approval by the Agency of
certain costs. (p.2) Grantee overlooked the sentences immediately
following the part of the regulation it cites:
Such a waiver shall apply only to the requirement for approval. If,
upon audit or otherwise, it is determined that the costs do not meet
other requirements or tests for allowability specified by the applicable
cost principles, such as reasonableness and necessity, the costs may be
disallowed.
The disallowance is not based on any failure to obtain any prior
approval where required.
Furthermore, the Grantee's use of the term "in excess of the
provisional rate" is misleading. The provisional rate is not the one
that is important in terms of the final amount allowed for indirect
costs. The provisional rate may be used initially in filing a claim if
no final rate has been negotiated at that time. However, if the final
rate is different from the provisional rate, an adjustment in the claim
is made, as is the case for this grantee for the fiscal years of 1975,
1978, and 1979. In fact, as discussed above, an adjustment of $10,049
in indirect costs in excess of Grantee's provisional rate was made by
the Agency in fiscal year 1975 to reflect a final rate greater than the
provisional rate for that year.
Grantee can not recover these excess administrative costs, not
because of any prior approval issue, but rather because the grantee is
seeking recovery of indirect costs in excess of the final rate.
Double Counting of Drawdown
Grantee asserted that a $62,000 federal fund drawdown was counted
twice and, therefore, the actual amount for the total federal fund
drawdown was overstated by $62,000. Grantee has provided the Board with
financial statements that indicate that in the year ended June 30, 1972
there was an advanced federal fund drawdown of $62,000 in funds
designated for the year ended June 30, 1973. (Agency Record, Ex. C, p.
28) However, Grantee has provided the Board with no documentation that
this $62,000 drawdown was counted in the drawdown figures for the year
ended June 30, 1973. Therefore, we find that Grantee has not provided a
sufficient basis for a finding that the $62,000 federal fund drawdown
had been counted twice. (5)
CONCLUSION
For the reasons stated above we uphold the disallowance of $23,549
for excess federal fund drawdown and $8,493 in indirect costs. We
reverse the disallowance of $75,430 for excess federal fund drawdown
without prejudice to the Agency's reissuing or modifying the
disallowance. Before doing so, the Agency should examine any additional
documentation the Grantee wishes to furnish, within a reasonable time
set by the Agency. The Agency should also examine the documentation on
which NIDA relied for its recommendations.
OCTOBER 22, 1983