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Office of the Inspector General's Audit

Appeal Brief Appeal Letter

Appeal Brief

DisasterFEMA-1008-DR
ApplicantSanta Clarita Health Care Association
Appeal TypeSecond
PA ID#037-90568-00
PW ID#DSRs 05638, 92013, 92014, 01032, 48030
Date Signed2009-01-05T05:00:00
Citation: FEMA-1008-DR-CA, Santa Clarita Health Care Association, Hospital, Damage Survey Reports 05638, 92013, 92014, 01032, 48030

Cross-reference: OIG Audit Report, Grant Acceleration Program (GAP)

Summary: Following the Northridge earthquake on January 17, 1994, the Santa Clarita Health Care Association (Applicant) received FEMA funding for the Henry Mayo Newhall Memorial Hospital. The Office of Inspector General (OIG) conducted an audit of the Applicant and recommended de-obligation of $2,290,275 based on four Findings: (A) $1,525,901 for a duplication of benefits, (B) $353,726 for ineligible project costs, (C) $311,309 for excessive construction management costs, and (D) $99,339 for unsupported project costs. FEMA de-obligated $2,104,418 based on the audit findings and the Applicant’s audit response.

In its first appeal, the Applicant requested reinstatement of all funding de-obligated as a result of the audit. The Applicant claimed that Finding A of the audit was invalid and FEMA was obligated to fund the total amount of all DSRs included in the GAP settlement, or $21,502,371. The Applicant also asserted it was not required to pay any claim that arose before the date it filed for bankruptcy. The Acting Regional Director denied the appeal stating that the GAP offer provided the Applicant with a fixed level of funding of $19,929,469 based on accepted industry cost estimating practices, net of any insurance recovery. The total funding obligated on multiple DSRs incorrectly exceeded the GAP offer resulting in an overpayment of $1,525,901. The Applicant did not provide any information on appeal that justified eligibility of items or costs addressed in Findings B-D.
In its second appeal, the Applicant claimed that FEMA contractually agreed to a
78 percent allocation of insurance benefits to the GAP DSRs and $1,525,901, or the remaining 22 percent of insurance proceeds, should not have been de-obligated. The Applicant asserted that FEMA violated 44 Code of Federal Regulations (CFR) §206.206(c), which required resolution of appeals within 90 days following receipt and thereby prejudiced the Applicant’s right to a speedy resolution of the first appeal. OES did not support the Applicant’s appeal.

Issues: Did the Applicant provide information to document why FEMA’s decisions were in conflict with federal laws, regulations, or policy?

Findings: No.

Rationale: 44 Code of Federal Regulations (CFR) §206.206

Appeal Letter

January 5, 2009

Frank McCarton
Governor’s Authorized Representative
Governor’s Office of Emergency Services
Response and Recovery Division
3650 Schriever Avenue
Mather, California 95655

Re: Second Appeal–Santa Clarita Health Care Association, PA ID 037-90568-00, Office of Inspector General’s Audit, FEMA-1008-DR-CA, Damage Survey Reports (DSRs) 05638, 92013, 92014, 01032, 48030

Dear Mr. McCarton:

This letter is in response to your letter dated October 13, 2006, which transmitted the referenced second appeal on behalf of the Santa Clarita Health Care Association (Applicant). The Applicant is requesting that the Department of Homeland Security’s Federal Emergency Management Agency (FEMA) reinstate $2,104,418 for the Henry Mayo Newhall Memorial Hospital (Hospital).Background

Following the Northridge earthquake on January 17, 1994, FEMA approved a Grant Acceleration Project (GAP) settlement offer of $19,929,469 for the Hospital. Following completion of the project, the Office of the Inspector General (OIG) conducted an audit of the Hospital project and recommended, in OIG Audit Report Number DS-12-04, dated May 7, 2004, that FEMA de-obligate $2,290,275 based on four findings:
(A) $1,525,901 for duplication of benefits;
(B) $353,726 for ineligible project costs;
(C) $311,309 for excessive construction management costs; and
(D) $99,339 for unsupported project costs.
Subsequently, the Applicant provided documents to support eligibility of site work that was questioned in Finding B in the amount of $185,857. FEMA agreed with the remaining Audit recommendations and de-obligated $2,104,418 on DSRs 60608, 60610, 60681, 60683, and 60687.

The Applicant submitted its first appeal to the Governor’s Office of Emergency Services (OES) on April 8, 2005. In its appeal, the Applicant requested reinstatement of all funding de-obligated as a result of the audit. The Applicant claimed that finding A of the audit was invalid and FEMA was obligated to fund the total amount of all DSRs included in the GAP settlement ($21,502,371). The Applicant also asserted that, according to its bankruptcy plan, any claims that arose before the bankruptcy filing date were discharged and would not be paid unless specifically stated in the plan.

The Acting Regional Director denied the appeal in a letter dated June 1, 2006. The Acting Regional Administrator stated that FEMA approved $19,929,469 in GAP funding in multiple DSRs. Unfortunately, the sum of the relevant DSRs exceeded the approved amount by $1,525,901. Therefore, it was appropriate to de-obligate $1,525,901. In addition, the Acting Regional Administrator concluded that the Applicant did not provide any information to justify the eligibility of items or costs addressed in Findings B-D.
Second Appeal

The Applicant submitted its second appeal to OES on April 11, 2006. In the appeal, the Applicant claimed that FEMA contractually agreed to a 78 percent allocation of insurance benefits to the GAP DSRs. Therefore, FEMA should not have de-obligated the remaining 22 percent of insurance proceeds ($1,525,901). The Applicant also asserted that FEMA violated
44 Code of Federal Regulations (CFR) §206.206(c), which required resolution of appeals within 90 days following receipt. The delay in responding to the appeal prejudiced the Applicant’s right to a speedy resolution of the first appeal. In its transmittal of the second appeal to FEMA, OES concurred with FEMA’s findings in the first appeal and maintained its right to enforce a claim against the Applicant for repayment of funds.

Discussion

The Applicant accepted a GAP settlement offer of $19,976,469, which FEMA funded with several DSRs. Unfortunately, FEMA did not reconcile the DSRs correctly and obligated $21,502,370. The error was due in part to the way FEMA reflected anticipated insurance proceeds on DSR 77490. The Acting Regional Administrator thoroughly explained in the first appeal analysis how the error occurred. FEMA final funding reflects the actual insurance proceeds that the Applicant received.

44 CFR §206.206(c) states that FEMA will respond to appeals within 90 days of receipt of the appeals. Unfortunately, FEMA did not meet the deadline in this case. The regulations do not authorize FEMA to grant an appeal when it does not meet the regulatory appeal deadline.

Conclusion

Based on all the information submitted with the appeal, I have determined that the Deputy Regional Administrator’s decision in the first appeal is consistent with Public Assistance regulations and policy. Accordingly, I am denying the second appeal.
Please inform the Applicant of my decision. This determination constitutes the final decision on this matter pursuant to 44 CFR §206.206.

Sincerely,
/s/
Carlos J. Castillo
Assistant Administrator
Disaster Assistance Directorate

cc: Karen Armes
Acting Regional Administrator
FEMA Region IX
Last updated February 4, 2020