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Second Appeal Analysis
PA ID# 079-UH44Y-00; Milwaukee Immediate Care Center
ID# 60; Scope of Work - Timeliness
In July 2010, severe storms flooded the two-story building and basement of the Milwaukee Immediate Care Center (MICC/Applicant) in Milwaukee, Wisconsin. The storm damaged the Applicant’s heating, ventilation, and air conditioning (HVAC), communication platform and electrical systems, and office equipment. The storm also caused the growth of mold and mildew. On September 29, 2010, in Project Worksheet (PW) 60 Version 0, FEMA obligated $157,565.12 in Public Assistance (PA) funding to remove and replace damaged components and remediate mold and mildew, as well as for a hazard mitigation proposal to reduce or eliminate the threat of future flooding by installing an automatic backflow preventer valve and storm water sump pump with a high flow alarm. At the request of the Applicant, Wisconsin Emergency Management (Grantee) issued an advance payment of $118,173.84 on October 27, 2010, in order to expedite flood recovery and the reopening of MICC to provide medical care. Subsequently, the Applicant requested and the Grantee approved five time extensions for the project through June 30, 2014. The reasons cited in the requests referred to financial hardships, the discovery of additional damage, construction issues, and subsequent flooding, which resulted in the delays. The Applicant did not complete any work after February 2011.
In January 2015, the Grantee discovered the Applicant spent only $50,436.00 for eligible repair and remediation work, but used the remainder of the funds to pay past-due tax bills and provide a loan to a doctor employed by MICC, for which it charged interest at a rate of 6 percent. On April 14, 2015, the Grantee requested FEMA close out the project and deobligate all funds that were not used for eligible work. FEMA concurred and deobligated $107,129.12 in PW 60 Version 1. A determination letter dated May 4, 2015, was generated to formally notify the Grantee of FEMA’s deobligation and closeout actions.
The Grantee sent the determination letter to the Applicant via certified mail on May 7, 2015, and it was received at MICC on May 9, 2015. In addition, the Grantee sent a separate copy of FEMA’s determination to the Applicant’s representative, which was not picked up and was eventually returned to the Grantee on June 3, 2015. The Grantee also sent the Applicant a deobligation packet with the final paperwork via certified mail and first-class mail on June 1, 2015. The certified package was received at MICC on June 3, 2015 and also received at the residence of the Applicant’s representative on June 23, 2015.
In a letter dated August 20, 2015, the Applicant appealed FEMA’s determination. The Applicant contended that for reasons beyond its control, it could not complete the project. As evidence thereof, the Applicant cited to the discovery of additional damage during construction, as well as the State of Wisconsin’s postponement of Medicaid reimbursements, which caused the loss of ownership of the Applicant’s building. The Applicant also explained that the loss of ownership was the reason it expended PA funds to pay the past-due tax bills to regain ownership of its building. While the Applicant admitted portions of the grant funding were used for purposes unrelated to the scope of work (SOW), it argues this was done to keep MICC open to later complete the PW as approved. The Applicant requested FEMA rescind its deobligation. The Grantee forwarded the Applicant’s appeal in a letter dated October 15, 2015, but did not support the appeal and urged FEMA to keep the PW closed and, force the Applicant to return the deobligated funds.
On March 31, 2016, the FEMA Region V Regional Administrator (RA) denied the appeal. The RA found the first appeal was untimely. In addition, the RA determined the Applicant used federal funding for purposes unrelated to the SOW approved in PW 60. The RA concluded that the Applicant misused the funds as the past-due tax bills and personal loan were not results of the major disaster, directly tied to eligible work in the PW’s SOW, or reasonable and necessary to accomplish the repair work. The RA stated that when an applicant fails to comply with the terms of an award, FEMA may disallow all or part of the cost of the project. As such, the RA denied the appeal.
In a letter dated June 8, 2016, the Applicant appeals the RA’s decision. Again, the Applicant admits to using PA funds for purposes outside the PW’s approved SOW but rationalizes this needed to be done to keep MICC open. It highlights the importance of MICC to the community and the impact multiple floods had on it throughout the years starting with the 2010 disaster; and suggests that “two crises arose which became matters of life-and-death for the survival of MICC” and as such, it loaned the money out to address them. First, the Applicant notes that MICC only had one doctor, who was not able to continue working at MICC due to the reduced hours of operation without a loan unless MICC extended him approximately $50,000.00 over a series of loans. Second, the Applicant again cites delays in Medicaid payments in the amount of approximately $100,000.00, which not only derailed the repayment schedule of the FEMA-approved project, but also caused a loss of ownership of the building due to unpaid real estate taxes. Thus, the Applicant states that it paid $46,188.00 in past-due taxes in order to reclaim ownership of MICC’s building.
The Applicant notes that it is not requesting that FEMA approve or condone the acts it acknowledges, “were not approved uses.” However, the Applicant argues that the only thing deobligation would accomplish would be to destroy MICC and therefore it should be allowed to complete the approved work within 12 months. Finally, the Applicant denies that the first appeal was untimely and states it reached out to FEMA on multiple occasions and confirmed the date its appeal was due after receiving guidance from Region V.
The Grantee forwarded the Applicant’s appeal to FEMA on August 5, 2016. It does not support the Applicant’s appeal and argues that FEMA should hold the Applicant accountable for the knowing and intentional misuse of federal funding by the Applicant’s representative.
Pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act)
§ 423, an Applicant may appeal any decision regarding eligibility for, from, or amount of assistance within 60 days after the date on which the applicant for such assistance is notified of the award or denial of award of such assistance. FEMA’s implementing regulations require an applicant to submit its appeal within 60 days of receiving notice of the appealable action. Neither the Stafford Act nor regulation provides FEMA with authority to grant time extensions for filing appeals.
In this instance, the Grantee sent FEMA’s determination letter for PW 60 – which provided notification of FEMA’s deobligation of funding (i.e., the appealable action) – to the Applicant via certified mail on May 7, 2015 and it was received at MICC on May 9, 2015. The Grantee also sent the Applicant the deobligation packet with the final paperwork via certified mail and first-class mail on June 1, 2015. The certified package was received at MICC on June 3, 2015. It was also received at the residence of the Applicant’s representative on June 23, 2015.
The Applicant’s first appeal timeframe lapsed on July 8, 2015, or 60 days after it received FEMA’s determination. In arguendo, even if FEMA considered receipt of the deobligation packet from the Grantee as notice of FEMA’s determination, the 60-day timeframe still lapsed on August 3, 2015. The Applicant was notified no later than June 3, 2015, however, the Applicant did not mail its first appeal until August 20, 2015, 78 days after receiving the Grantee’s final paperwork. As such, the Applicant’s first appeal was untimely because it was submitted beyond the 60-day statutory and regulatory timeframes. Due to the untimely submittal, the Applicant exhausted its appeal rights regarding FEMA’s determination. Timeliness aside, the appeal would otherwise be denied due the Applicant’s failure to comply with statutory and regulatory requirements as explained below.
Noncompliance with Grant Award Requirements
Private non-profit subrecipients of federal funds shall adequately safeguard all such funds and assure they are used solely for authorized purposes. Only those costs which are directly tied to the performance of work documented in a PW are eligible for reimbursement. As such, if FEMA determines an applicant materially fails to comply with the terms and conditions of an award or grant, whether stated in a federal statute or regulation, notice of award or elsewhere, it may, among other remedies, terminate the award or disallow all or part of the cost of the activity or action.
The Applicant attempts to connect to the disaster the use of PA funds to pay real estate taxes and loan its employee money. While the disaster may have exacerbated MICC’s hardships beyond the damage to its facility, the Applicant acknowledges that it willfully used PA funds awarded to repair disaster related damage for unauthorized purposes. The loan to a MICC employee is expressly disallowed as it was used for a personal service and the subsequent flooding and loss of ownership of the clinic occurred in 2013 and 2014, long after the 2010 disaster and when the Applicant stopped repair work in February 2011. There should have been no impact on completing the approved SOW had the Applicant not stopped the repair work. Though the Applicant may rationalize its behavior and believes it acted in good faith, it did not comply with federal regulations. The Applicant agreed to the terms of the PW and signed it, then accepted federal funds to repair MICC according to the approved SOW. Using federal funds awarded for disaster-related repairs to pay back-taxes and provide a loan to an employee clearly demonstrates that the Applicant materially failed to comply with the terms of the PW. While the Applicant may believe the only thing upholding the deobligation of funding accomplishes would be the destruction of MICC, FEMA disagrees and finds ensuring subrecipients are held accountable for proper use of PA funds to be a compelling reason to do so. As such, the Region V RA was within his authority to deobligate the remaining funds and terminate the project.
Program income is defined, in part, as gross income earned by a recipient of a federal award that is earned as a result of the award, and includes interest on loans made with award funds. Pursuant to 2 C.F.R. §215.2(x), program income shall be deducted from the total project on which the federal share of costs is based.
The Applicant used federal funds received as part of a federal award to loan an employee approximately $50,000.00. The promissory note included on appeal stated that the employee would repay the loan(s) with 6 percent interest. Any interest earned by the Applicant is considered program income and will be deducted from the eligible project costs. Once FEMA determines the amount of federal funds used for the personal loan(s), FEMA will collect the interest due.
The Applicant did not submit its first appeal within the required 60-day timeframe. Thus, its appeal rights lapsed and this appeal is untimely. In addition, the Applicant did not use PA funding for the authorized purposes detailed in the PW’s SOW. As such, the appeal is denied on both procedural and substantive grounds. In addition, FEMA is entitled to collect interest on the loan the Applicant made to its employee with federal funds.
 Project Worksheet 60, Milwaukee Immediate Care Center, Version 0 (Sept. 29, 2010) (stating that the scope of work included: (1) removing and replacing damaged components of the HVAC systems at a cost of $16,613.22; (2) removing and replacing the damaged communications platform at a cost of $3,875.00; (3) removing and replacing a damaged copier machine at a cost of $5,980.00; (4) remediating mold and mildew issues in basement and lower level first floor (replace structural foundation wood, drywall, flooring tiles, ceiling tiles) at a cost of $64,438.69; (5) removing and replacing the damaged electric system and internal components at a cost of $53,320.00; (6) removing and replacing the damaged water heater at a cost of $980.00; (7) steel security doors at a cost of $2,210.20; and (8) a hazard mitigation proposal removing the existing manual backflow preventer valve, and installing an automatic backflow preventer valve, storm water sump pump, connection/discharge lines to the storm sewer, and a high flow alarm in basement) at a cost of $10,148.00).
 Letter from President, Milwaukee Immediate Care Ctr., to Pub. Assistance Officer, Wis. Dep’t of Military Affairs, at 5 (June 8, 2016) [hereinafter Applicant’s Second Appeal Letter] (stating that it always intended to pay back the “loans” in order to continue with the FEMA funded work).
 The Applicant subsequently submitted additional documentation to rebut the Grantee’s assertions in its second appeal letter. These letters were submitted after the administrative record closed and accordingly will not be considered on second appeal. In any event, the Applicant does not offer any new information relevant to FEMA’s determination. While it discusses the racial issues occurring in Milwaukee and reiterates that it acted in good faith, those are distinct issues from the issues on second appeal regarding timeliness and compliance with grant requirements. Letter from President, Milwaukee Immediate Care Ctr., to Assistant Adm’r, FEMA Recovery Directorate (Sept. 8, 2016); Letter from President, Milwaukee Immediate Care Ctr., to Pub. Assistance Officer, Wis. Dep’t of Military Affairs (Sept. 5, 2016).
 The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 423, 42 U.S.C. § 5189(a) (2007).
 44 C.F.R. § 206.206(c)(1) (2009).
 FEMA Second Appeal Analysis, Broward County School Board of Florida, FEMA-1609-DR-FL, at 2 (Sep. 4, 2014).
 Applicant’s Second Appeal Letter, at 8 (stating that it did not receive the certified letter of deobligation from the Grantee until June 23, 2015; that the representative did not see the letter addressed to him at MICC; and that the representative called FEMA twice and submitted the appeal consistent with the date told to him by an assistant).
 2 C.F.R. §§ 215.0(b)(2), 215.21(b)(3).
 Public Assistance Guide, FEMA 322, at 40 (June 2007).
 2 C.F.R. §§ 215.61, 215.62.
 2 C.F.R. § 215.2(x).
 2 C.F.R. § 215.24(b)(3),(d).