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Direct Administrative Costs and Management Costs; Appeals

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1791
ApplicantMemorial Hermann Hospital System
Appeal TypeSecond
PA ID#000-UADRD-00
PW ID#PW 14798, 15211, 11588, 15075, 15098, 11584, and 14769
Date Signed2021-02-02T17:00:00

Summary Paragraph

Between September 7 and October 2, 2008, Hurricane Ike struck Texas with high winds, heavy rains, and storm surge.  Memorial Hermann Hospital System (Applicant) sustained damage to its facilities.  FEMA prepared and obligated seven Project Worksheets (PW) (14798, 15211, 11588, 15075, 15098, 11584, and 14769).  The Texas Division of Emergency Management (Grantee) notified FEMA that for each PW a financial compliance review revealed a cost underrun due, in part, to unsubstantiated direct administrative costs (DAC) and recommended that FEMA amend the PWs to deobligate DAC and then close the PWs.  FEMA agreed, finding no DAC eligible at closeout.  FEMA notified the Grantee that the unsubstantiated DAC had been deobligated and each PW had been closed.  The Grantee informed the Applicant of each deobligation.  As to each of the seven PWs, the Applicant appealed for 5 percent of the PWs’ costs and argued FEMA did not follow its own policies and procedures for eligibility determinations or provide guidance on DAC for its projects.  The FEMA Region VI Regional Administrator (RA) denied the appeals.  The RA determined the Applicant did not demonstrate that FEMA failed to provide correct and consistent information regarding DAC.  Additionally, the Applicant did not demonstrate that FEMA has the authority to provide alternative methodologies of assessing the eligibility of DAC for Hurricane Ike.  The Applicant’s second appeal reiterates prior arguments, and notes FEMA Disaster Assistance Policy 9525.9, Section 324 Management Costs and Direct Administrative Costs, is inconsistent with the Disaster Mitigation Act of 2000.

 

Authorities and Second Appeals

  • Stafford Act § 324.
  • DAP 9525.9, at 2, 5.
  • Cent. Bradford Progress Auth., FEMA-4030-DR-PA, at 4.
  • Univ. of Tex. Med. Branch, FEMA-1791-DR-TX, at 8-10.

Headnotes

  • Stafford Act § 324 provides for establishment of management cost rates.  Management costs include any indirect cost, any administrative expense, and any other expense not directly chargeable to a specific project under a major disaster, emergency, or disaster preparedness or mitigation activity or measure.
  • According to DAP 9525.9, indirect costs are incurred by the grantee or applicant for a common or joint purpose benefitting more than one cost objective.  DAC can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspections and preparation of a PW.  Such costs cannot be assumed eligible if not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.
    • The Applicant has not provided the necessary documentation to support its DAC claims because the costs cannot be accounted for directly to specific projects.

Conclusion

The Applicant’s documentation to support its DAC claims does not include costs that are accounted for directly to PWs 14798, 15211, 11588, 15075, 15098, 11584 and 14769, but rather are indirect costs which are ineligible for reimbursement as DAC.  As such, each appeal is denied.

 

Appeal Letter

W. Nim Kidd

Chief, Texas Division of Emergency Management

Vice Chancellor – The Texas A&M University System

1033 LaPosada Drive, Suite 370

Austin, Texas 78752

 

Re:       Second Appeal – Memorial Hermann Hospital System, PA ID: 000-UADRD-00,

      FEMA-1791-DR-TX, Project Worksheets (PWs) 14798, 15211, 11588, 15075, 15098,  11584, and 14769 – Direct Administrative Costs and Management Costs; Appeals

 

Dear Chief Kidd:

This is in response to  letters from your office dated November 19, 2020 and December 30, 2020, which transmitted the seven referenced second appeals on behalf of Memorial Hermann Hospital System (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of 5 percent of the costs for PWs 14789, 15211, 11588, 15075, 15098, 11584, and 14769.

As explained in the enclosed analysis, the Applicant’s documentation to support its direct administrative costs (DAC) claims does not include costs that are accounted for directly to each PW, but rather are indirect costs which are ineligible for reimbursement as DAC.  Therefore, each appeal is denied.

Please inform the Applicant of my decision.  This determination is the final decision on each referenced matter pursuant to 44 C.F.R. § 206.206, Appeals.
 

 

                                                      Sincerely,

                                                               /S/

                                                       Ana Montero

                                                       Division Director

                                                       Public Assistance Division                                                         

 

Enclosure

cc: George A. Robinson

      Regional Administrator

      FEMA Region VI

 

Appeal Analysis

Background

Between September 7 and October 2, 2008, Hurricane Ike struck Texas with high winds, heavy rains, and storm surge.  Memorial Hermann Hospital System (Applicant) sustained damages to its facilities.  FEMA prepared and obligated seven Project Worksheets[1] (PW).  The Texas Division of Emergency Management (Grantee) notified FEMA that, for each PW, a financial compliance review revealed a cost underrun due, in part, to unsubstantiated direct administrative costs (DAC) and recommended that FEMA amend the PWs to deobligate DAC and then close each PW.  FEMA agreed, finding no DAC eligible at closeout.  FEMA notified the Grantee that the unsubstantiated DAC had been deobligated and each PW had been closed.  The Grantee then informed the Applicant of each deobligation.

First Appeal

The Applicant appealed by letters dated May 29, 2020 and August 27, 2020.  In its appeals, the Applicant asked that additional DAC be added to a Category Z PW that would reimburse DAC for all of its Hurricane Ike projects[2] and argued that: (1) FEMA did not follow its procedures for issuing Determination Memoranda (DM); (2) FEMA and the Grantee provided incorrect and inconsistent information regarding DAC; (3) FEMA creatively addressed DAC for other applicants yet refused to do so in this case; and, (4) FEMA developed Public Assistance Alternative Procedures for DAC (PAAP-DAC)[3] which demonstrates innovation and also that prior DAC procedures were burdensome.  The Applicant attached materials including meeting notes, previous appeals and appeal responses, Requests For Information (RFIs) and RFI responses, to be added to the Administrative Record.  The Grantee supported and forwarded the appeals on June 5, 2020, June 9, 2020, and September 10, 2020.

By letters dated September 2, 2020 and October 7, 2020, the FEMA Region VI Regional Administrator denied the appeals.  FEMA found that the Applicant did not demonstrate that FEMA failed to follow its eligibility determination policies and procedures, or that FEMA failed to provide correct and consistent information regarding DAC.  Additionally, the Applicant did not demonstrate that FEMA has the authority to provide alternative methodologies of assessing the eligibility of DAC for Hurricane Ike.  Finally, documentation the Applicant submitted to support its claims did not include direct costs accounted for in the PWs but were instead indirect costs which are not eligible for reimbursement as DAC.

 

Second Appeal

The Applicant’s November 12, 2020 and December 10, 2020 second appeals, reiterate that FEMA and the Grantee provided incorrect and inconsistent information regarding DAC, stating that FEMA is authorized to provide alternate methods of assessing eligible DAC.  The Applicant asserts that it provided adequate documentation, and questions whether Congress, through FEMA, provided the fullest extent of appellate review in accordance with the law.  The Grantee supported the appeals in its letters dated November 19, 2020 and December 30, 2020.

 

Discussion

 

Direct Administrative Costs and Management Costs

In accordance with FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, DAC includes only those costs incurred by a grantee or applicant “that can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspections and preparation of a PW.”[4]  Eligible DAC is limited to actual reasonable costs incurred for a specific project.[5]  Such costs cannot be assumed eligible if not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.[6]  To allow FEMA to evaluate DAC, applicants must provide information about each activity performed in sufficient detail.[7] 

The Grantee completed financial compliance reviews and determined that, due in part to unsubstantiated  DAC, that a cost underrun existed, and recommended that FEMA deobligate the unsubstantiated amounts to account for the underrun, and FEMA did.  In its appeals, the Applicant asks that FEMA reimburse DAC at a fixed 5 percent rate to be added to an all-inclusive Category Z PW for all of its Hurricane Ike projects.  However, an allowance of up to 5 percent of eligible costs is not applicable or available to the Applicant; instead, DAP 9525.9 applies.[8]  In addition, the Applicant acknowledged that it cannot provide the necessary documentation to support its DAC claims.[9]  The Applicant requested 5 percent DAC be added to each PW, rather than submitting costs tracked, charged, and accounted for directly to PW 14798, PW 15211, PW 11588, PW 15075, PW 15098, PW 11584, and PW 14769.  Because costs that cannot be accounted for directly to specific projects are indirect costs, the 5 percent requested by the Applicant for each PW is ineligible for reimbursement as DAC.[10]

Contrary to the Applicant’s arguments on second appeal, FEMA’s determination is neither inconsistent with any prior FEMA guidance or second appeal decision that the Applicant has identified.  Section 324 of the Stafford Act includes indirect costs and administrative expenses as potentially eligible management costs (which are separate from DAC), but does not require FEMA to reimburse an applicant’s costs on appeal as DAC.  FEMA published DAP 9525.9 in November 2007, months before Hurricane Ike, and did not issue any guidance for Hurricane Ike inconsistent with that policy.[11]  The policy plainly states DAC includes costs incurred “that can be tracked, charged, and accounted for directly to a specific project,” and this policy applied even if FEMA did not respond to alternate requests from the Applicant.[12]  Finally, in the University of Texas Medical Branch second appeal decision cited by the Applicant, FEMA denied funding when the applicant did not track costs directly to a specific project or substantiate the eligibility of DAC, consistent with FEMA’s decision here.[13]  As noted above, the Applicant has acknowledged that it cannot provide the necessary documentation to support its DAC claims, as costs cannot be accounted for directly to a specific project.  Therefore, the costs are ineligible. 

 

Conclusion

The Applicant’s documentation to support its DAC claims does not include costs that are accounted for directly to PWs 14798, 15211, 11588, 15075, 15098, 11584 and 14769, but rather are indirect costs which are ineligible for reimbursement as DAC.  As such, each appeal is denied.

 

[1] The seven PWs on appeal are 14798, 15211, 11588, 15075, 15098, 11584, and 14769.

[2] This request would result in the following amounts: $17,764.48 for PW 14798; $12,358.79 for PW 15211; $7,275.24 for PW 11588; $19,079.32 for PW 15075; $2,967.53 for PW 15098; $18,803.81 for PW 11584 and $48,353.69 for PW 14769.

[3] Recovery Policy, Public Assistance Alternative Procedures for Direct Administrative Costs, at 2 (Oct. 25, 2017).

[4] Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, at 5 (Nov. 13, 2007).

[5] Id.

[6] FEMA Second Appeal Analysis, Cent. Bradford Progress Auth., FEMA-4030-DR-PA, at 4 (Feb. 29, 2016) (citing FEMA Second Appeal Analysis, City of Cedar Rapids, FEMA-1763-DR-IA, at 3 (May 9, 2014)).

[7] Id.

[8] Prior appeal responses on this topic stated that PAAP DAC applied to disasters declared on or after January 29, 2013, which is the period of applicability for PA Alternative Procedures per Section 428 of the Stafford Act.  PAAP DAC applied to disasters declared on or after August 23, 2017.  This date does not affect the applicability of the policy to this appeal and prior decisions on this topic.

[9] Letter from Assoc. VP. Fin., Mem’l Hermann Health Sys., to Chief, Tex. Div. of Emergency Mgmt., at 17

(Nov. 12, 2020) (“If we were able to meet what FEMA eventually decided was its standards for DAC – we would have never been forced into a position to Appeal”); Letter from Assoc. VP. Fin., Mem’l Hermann Health Sys., to Chief, Tex. Div. of Emergency Mgmt., at 16 (Dec. 10, 2020) (“If we were able to meet what FEMA eventually decided was its standards for DAC – we would have never been forced into a position to Appeal”).

[10] See DAP 9525.9, at 2,5 (Nov. 13, 2007).

[11] In prior second appeals for this Applicant on DR-1791, the month and year the DAP was published was incorrectly cited as March 2008.  The corrected date does not affect the applicability of the policy to this appeal and prior decisions on this topic.

[12] DAP 9525.9, at 1-2, 5.

[13] FEMA Second Appeal Analysis, Univ. of Tex. Med. Branch, FEMA-1791-DR-TX, PWs 1001, 10638 and 12128, at 8-10 (Sept. 21, 2017) (denying costs ineligible as DAC, including any costs that were awarded in error earlier).

Last updated February 3, 2021