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Second Appeal Analysis
PA ID# 037-90027; California Institute of Technology
DSR ID# 27782, 27788, 28889, and 27790; Unsupported Project Costs
As a result of damage from the Northridge Earthquake, FEMA prepared over 200 Damage Survey Reports (DSRs) for the facilities at California Institute of Technology (Cal-Tech) totaling $1,697,693. After the project closed the Office of Inspector General (OIG) conducted an audit of Cal-Techs application. The audit report dated September 25, 2001, recommended deobligation of five DSRs, totaling $106,713. The FEMA Regional Office concurred with the OIG decision and prepared supplemental deobligation DSRs. Cal-Tech appealed supplement DSRs 27787, 27788, 28889, and 27790, January 25, 2002.
The OIG audit addressed two main Issues: ineligible project costs and unsupported project costs. Costs amounting to $28,119 for the repairs to Halls Jewelers building were determined to be ineligible as the facility was privately leased and not being used for a public purpose at the time of the disaster. Unsupported project costs totaling $78,594 related to force account labor charges and project expenditures. Cal-Tech did not have time cards or other equivalent evidence to support force account labor charges in the amount of $36,393. Project expenditures in the amount of $42,201 were not supported with invoices, cancelled checks, or other evidence providing evidence that payment was made. Of the total project expenditures the purpose and use of $10,993 could not be determined. The remaining $31,208 was claimed for repairs to a mass spectrometer. While neither Cal-Tech nor Californias Office of Emergency Services (OES) provided invoices for the spectrometer repair, an internal expenditure report and purchase order were provided. Cal-Tech appealed part of FEMAs decision.
In a letter dated January 25, 2002, Cal-Tech agreed with the OIG conclusion regarding $28,119 in ineligible project costs, and $10,993 in unsupported project costs. Cal-Tech appealed the remaining ineligibility determination for $36,393 in force account labor charges, and $31,208 for the repair of a mass spectrometer.
Cal-Tech asserted that FEMA failed to consider evidence of a purchase requisition, and an accounting expenditure report, as well as the Final Inspection Report that indicated the certification and approval of an invoice for repairs to the mass spectrometer by Californias Office of Emergency Services (OES) and FEMA. Cal-Tech claimed that in light of this evidence the costs for the repair work should be allowed. Cal-Tech also claimed that the unsupported force account labor costs should be approved. It claimed that the labor records submitted, which contain only employees names and a disaster code referencing the DSR, satisfy the Office of Management and Budgets (OMB) requirements that the subgrantees maintain accounting records which adequately identify the source and application of funds provided for financially-assisted activities. Cal-Tech also asserted that the time cards referenced in the Code of Federal Regulations (CFR) Title 44 §13.20 are listed only as an example of a source document and that the regulations do not require disallowance in the absence of time cards.
FEMA determined that repairs to the mass spectrometer were still ineligible, as the costs claimed were not supported with invoices, cancelled checks or other evidence of actual payment for services. Regarding the documentation of force account labor charges, FEMA concurred with Cal-Tech that time cards are only an example of source documentation to support force account labor costs. However, the records provided to OIG did not include the dates, hours, or location of work preformed. In addition, the records were not reviewed or approved by the appropriate department supervisor. FEMA in a letter dated September 6, 2002, determined that the additional documentation provided in the appeal still did not meet the standards in 44 CFR §13.20(b)(5), and upheld the audit conclusions.
The OES letter of January 10, 2003, transmitted Cal-Techs second appeal dated November 13, 2002. In their appeal Cal-Tech states that FEMA has set too high a standard for documenting allowable costs and that the Agencys determination was inconsistent with applicable Federal regulations and law. No additional enclosures are being provided with this second appeal because the enclosures and arguments set forth in Cal-Techs first appeal were not properly considered.
In summary, Cal-Tech states in its legal argument that FEMAs requirement for adequate documentation is in conflict with Federal laws, regulations, and policy. FEMA stated in the first appeal decision that One of the basic requirements under OMB cost principles is that to be allowable a cost must be adequately documented and supported. FEMA applied an incorrect standard of assurance versus the proper standard of adequacy. The same cost principles applicable to FEMA grants are applied to government contracts. Cal-Tech also provided two court decisions, Missile Systems Corp of Texas, Eintex Div, ASBCA No. 8153, 64 BCA 4398, and Stanwick, SBCA No. 18083, 76-2 BCA 12, 114, regarding government procurement contracts in support of its argument.
In its November 13, 2003, transmitted letter, OES recommends that FEMA partially reverse its previous appeal decision. It supports re-obligating funding for the repair of the mass spectrometer, but does not support the eligibility of the force account labor charges.
Per Cal-Techs statement, no additional information was provided for the appeal review. Therefore, the merit of the second appeal was considered based upon the legal argument presented and existing information.
FEMAs use of the word assurance in regards to allowable costs was not being applied as a new standard. The standard is still adequacy. Adequate documentation provides the Grantor with the assurance that Federal funds are being used for their intended purpose. Absent this information, there is no assurance the records were prepared using data obtained from force account labor applied to FEMA approved projects, or whether the labor was used for allowable direct costs or ineligible indirect costs under FEMAs Public Assistance grant agreements.
Furthermore, while grants and contracts share similarities in terms of cost principles, Cal-Tech has incorrectly applied case law in its argument. Different authorities govern Grant and procurement contract administration; therefore, court decisions related to contracts are not applicable to grants. Grant administration is governed by OMB Circulars, while contract administration is governed by Federal Acquisition Regulations.
Cal-Tech unfortunately failed to meet the basic FEMA and OMB requirements to adequately document and support costs for the mass spectrometer and for the force account labor charges. Cal-Tech did not comply with the subgrantee record retention requirements in 44 CFR §13.42, and retain the proper documentation (invoice) for the mass spectrometer. An invoice would have verified that expenditures were actually made for the repairs, what the repairs actually were, and what the actual amount was. Unfortunately, none of the documentation submitted - the purchase requisition, accounting expenditure report or the OES certification of the invoice - provides information proving that repairs to the spectrometer were made in accordance with those specified in the DSR.
Cal-Tech also failed to provide adequate documentation to verify that force account labor costs in the amount of $36,393 are attributable to FEMA eligible repair work. Cal-Techs documentation standards do not provide a level of detail necessary to support its claim and do not ibder an account code were reasonable or directly related to eligible work under the DSRs.
Cal-Tech has not provided adequate documentation to support the force account labor costs or repairs for the mass spectrometer. Therefore, there is no basis for granting the appeal. Accordingly, the appeal is denied.