Office of the inspector General's Audit
|Applicant||Santa Monica Hospital Medical Center|
|PW ID#||DSR 60526, 60527, 60528, 60529, 60530, 60531|
In its first appeal, the Applicant argued that the audit was not conducted within a permissible timeframe. The Applicant also claimed that the decision to negotiate an early settlement with its insurance carrier was commercially reasonable and the settlement amount should be used by FEMA for insurance reduction. The Deputy Regional Administrator denied the appeal.
In its second appeal, the Applicant stated that, pursuant to 44 Code of Federal Regulations (CFR) §13.42(c), funding was continued or renewed at numerous intervals, corresponding to each of the multiple DSRs. Therefore, the Applicant argued that the 3-year document retention period(s) for audit began in 1997 when the Applicant submitted the last expenditure report, not when the Governors Office of Emergency Services (State) submitted the final expenditure report to FEMA. The Applicant reiterated its argument that FEMA has improperly valued the insurance benefits at $50M and argued that FEMA has not sufficiently substantiated its own challenges to expenditures. The State did not support the Applicants appeal.
Governors Authorized Representative
Governors Office of Emergency Services
Response and Recovery Division
3650 Schriever Avenue
Mather, California 95655
Re: Second AppealSanta Monica Hospital Medical Center, PA ID 037-90329-00, Office of Inspector Generals Audit, FEMA-1008-DR-CA, Damage Survey Reports (DSRs) 60526, 60527, 60528, 60529, 60530, 60531
Dear Mr. McCarton:
This letter is in response to your letter dated January 26, 2007, which transmitted the referenced second appeal on behalf of Santa Monica Hospital Medical Center (Applicant). The Applicant is requesting that the Department of Homeland Securitys Federal Emergency Management Agency (FEMA) reinstate $1,584,565 for the Santa Monica Hospital Medical Center (Hospital).Background
Following the Northridge earthquake on January 17, 1994, FEMA approved $8,078,262 in funding for the repair of the Hospital. Following completion of the project, the Office of the Inspector General (OIG) conducted an audit of the Hospital and recommended, in OIG Audit Report Number DS-08-05, dated February 8, 2005, that FEMA de-obligate $1,584,565 funding based on four findings:
(A) $629,904 for work that was not disaster-related;
(B) $518,814 for the Applicants failure to recover the full $50M face amount of its insurance policy and to equitably allocate proceeds to all insured properties;
(C) $359,777 for the pre-disaster use of the facility; and
(D) $76,699 for various ineligible project costs.
FEMA agreed with the audit recommendations and de-obligated $1,584,565 on DSRs 60526 through 60531.
The Applicant submitted its first appeal to the Governors Office of Emergency Services (OES) on November 11, 2005. In its first appeal, the Applicant requested reinstatement of all funding de-obligated as a result of the audit and argued two primary positions. First, the Applicant
claimed that the audit was not conducted within a permissible timeframe and that FEMA was required to dispute costs within three (3) years of December 29, 1998, the date the
Applicant claimed it submitted its last expenditure report to OES. The Applicant claimed that FEMA was barred by laches from de-obligating funds because of the excessive delay in conducting an audit.
Second, the Applicant claimed that the decision to negotiate an early settlement with its
insurance carrier was commercially reasonable and that FEMA should use the settlement amount, instead of the policy value, for the insurance reduction. In its transmittal letter to FEMA, OES did not support the appeal arguments raised by the Applicant, but questioned the de-obligation of several items that were not raised by the Applicant, in the amount of $61,696.
The Deputy Regional Administrator denied the appeal in a letter dated July 21, 2006. The denial was based on three primary positions. First, the audit was conducted in a timely manner based on the fact that OES submitted the final expenditure report on April 4, 2002. Second, the $50 million face value of the insurance policy was the amount of available insurance and a pro rata methodology should have been used to allocate the $50 million. Third, the Applicant did not submit any documentation that the earthquake caused the damages in finding A or that the units in finding D provided eligible services at the time of the earthquake.
The Applicant submitted its second appeal to OES on November 22, 2006. The Applicant stated that pursuant to 44 Code of Federal Regulations (CFR) §13.42(c), funding was continued or renewed at numerous intervals, corresponding to each of the multiple DSRs. Therefore, the Applicant argued that the 3-year document retention period(s) for audit began in December 1998 when the Applicant submitted the last expenditure report to OES, not when OES submitted the final expenditure report to the Applicant. The Applicant reiterated its argument that FEMA has improperly valued the insurance benefits at $50 million and argued that FEMA has not sufficiently substantiated its own challenges to expenditures. In its transmittal of the second appeal, OES concurred with FEMAs findings on the first appeal.
44 CFR §13.42 requires applicants to retain project records for three years from the day the grantee submits its final expenditure report. Section 705 of the Stafford Act states that FEMA cannot recover any payments made to grantees or sub-grantees more than three years after the
date of transmission of the final expenditure report for the disaster. OES approved final payment to the Applicant on May 13, 2002. OIG completed the audit on February 8, 2005. Therefore, FEMAs de-obligation of funds is consistent with statute and regulations.
The face value of the Applicants insurance policy was $50 million. Instead of receiving payout from the insurance company in future installments, the Applicant accepted a negotiated settlement of $46.7 million. The amount was the present value of the $50 million that the Applicant was eligible to receive over time. For purposes of the Public Assistance Program, the Applicant received the equivalent of $50 million in insurance.
Based on a review of all information submitted with the appeal, I have determined that the Deputy Regional Administrators 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.
Carlos J. Castillo
Disaster Assistance Directorate
cc: Karen Armes
Acting Regional Administrator
FEMA Region IX