Direct Administrative Costs & Management Costs

Appeal Brief

Summary Paragraph

Texas experienced severe storms and flooding from May 4, 2015, through June 22, 2015. On February 13, 2018, the Texas Division of Emergency Management (Recipient) requested reimbursement for DAC incurred by four contractors it hired to assist applicants with project development and monitoring. FEMA developed Project Worksheets (PWs) 2282, 2283, 2284, and 2285 to document the DAC claim for each contractor. The Recipient submitted its claim using spreadsheets recording each line-item DAC with associated information such as project reference number, project type, task description, hours worked, and hourly rate. FEMA reviewed multiple submittals and determined some line-item DAC were ineligible due to the costs being allocated across more than one project; for other costs, FEMA found that the Recipient did not provide adequate detail justifying the associated task. FEMA approved DAC totaling $5,712,012.84, and noted some of the ineligible costs may be eligible as indirect administrative costs. The Recipient appealed for $3,743,866.77, maintaining it followed applicable guidance and used clear methodology to capture and document DAC as costs were incurred. FEMA requested information concerning detailed activity descriptions and held a conference call (facilitated discussion) with the Recipient. FEMA denied the appeal as the Recipient did not demonstrate that the $3,743,866.77 in contract DAC were reasonable and eligible. The Recipient’s second appeal reiterates first appeal arguments.

Authorities and Second Appeals

• 2 C.F.R. § 200.403(a), (g). 
• 44 C.F.R. § 206.206(a).
• DAP 9525.9, at 1, 5.
• Campbell Cnty. Fire Dist. #1, FEMA-4497-DR-KY, at 3.

Headnotes

• To be eligible, DAC must be necessary and reasonable for the performance of eligible work, and adequately documented. 
  • The Recipient did not provide sufficient details for FEMA to determine if the claimed DAC were necessary and reasonable.

Conclusion

The Recipient has not demonstrated the costs were necessary, reasonable, and accounted for directly to a specific eligible project. Accordingly, the claimed costs are not eligible as DAC. Therefore, this appeal is denied.

Appeal Letter

Appeal Analysis

Background

Texas experienced severe storms and flooding from May 4 through June 22, 2015.[1] The Texas Division of Emergency Management (Recipient) requested reimbursement for direct administrative costs (DAC) incurred by four contractors it hired to assist applicants with project development and monitoring. FEMA developed Project Worksheets (PWs) 2282, 2283, 2284, and 2285 to document the DAC claim for each contractor.[2] The Recipient submitted its claim using spreadsheets recording each line-item DAC with associated information such as project reference number, project type, task description, hours worked, and hourly rate. FEMA reviewed multiple submittals and determined some line-item DAC were ineligible due to the costs being allocated across more than one project; for other costs, FEMA found that the Recipient did not provide adequate detail justifying the associated task. In a Determination Letter dated 

March 23, 2022, FEMA approved DAC totaling $5,712,012.84, and noted some of the ineligible costs may be eligible as indirect administrative costs.

First Appeal

The Recipient appealed on May 25, 2022 for $3,743,866.77. The Recipient maintained it followed applicable guidance found within FEMA policy and a FEMA memorandum from the Assistant Administrator for the Disaster Assistance Directorate dated September 8, 2009 (Zimmerman Memo) that provided guidance on DAC claims.[3] The Recipient stated that it used a clear methodology which employed the terminology contained within the Zimmerman Memo to capture and document DAC as the costs were incurred. The Recipient provided a crosswalk of tasks and activity descriptions modeled on the Zimmerman Memo, and copies of other guidance material FEMA provided. The Recipient stated that, in an analysis of DAC line items deemed ineligible, it could not determine that a consistent methodology was employed when determining eligibility. It also stated that it could not be expected to garner additional activity details to be able to meet FEMA requests retroactively, especially requests that go beyond applicable policy.

FEMA issued a Request for Information (RFI) on August 25, 2022 requesting detailed activity descriptions for each DAC line item in the Recipient’s DAC spreadsheets, including: (1) detailed narratives for activity descriptions for each line item; (2) a detailed justification for the staff and/or skills required to accomplish each administrative task or activity; (3) documentation demonstrating non-FEMA related historical costs for similar administrative tasks or activities; and (4) any additional documentation the Recipient believed would support its case. FEMA and the Recipient held a facilitated discussion on September 7, 2022, and FEMA confirmed receipt of all documents provided in response to the RFI on September 28, 2022.

The FEMA Region 6 Regional Administrator denied the appeal on March 20, 2023. FEMA found that the Recipient did not demonstrate that the $3,743,866.77 in DAC were reasonable or eligible. FEMA stated it could not determine whether the activities at issue were reasonable, necessary, and appropriate for specific projects because task descriptions lacked sufficient details and the Recipient did not provide any other documentation to substantiate eligibility. FEMA also noted tasks generally not related to grant administration for a specific PW, which were therefore associated with indirect costs.

Second Appeal

The Recipient’s May 19, 2023 second appeal reiterates its first appeal arguments. The Recipient states the appeal should be approved based on provisions of the Office of Management and Budget’s Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, and FEMA Disaster Assistance Policy 9525.9, Section 324 Management Costs and Direct Administrative Costs. It states that these policies require the application of consistent standards to ensure that cost allowability determinations throughout all FEMA Regions are treated consistently. 

Discussion

To be eligible, all costs must be necessary and reasonable for the performance of the federal award and adequately documented.^[4] DAC includes costs incurred that can be tracked, charged, and accounted for directly to a specific project.^[5] Eligible DAC is limited to actual reasonable costs incurred for a specific project.^[6] Examples of eligible DAC include, but are not limited to: staff’s time to conduct an initial inspection, prepare and submit a PW, and make interim and final project inspections.^[7] The burden to substantiate appeals with documented justification falls exclusively to the applicant and hinges upon the applicant’s ability to not only produce its own records, but to clearly explain how those records support the appeal.^[8]

The information the Recipient provided to support the eligibility of the DAC at issue, as recorded in the DAC spreadsheets, is generic in nature and does not include specific descriptions of the administrative tasks claimed. Included with its March 23, 2022 Determination Letter, FEMA attached more than 300 spreadsheets with entries that did not adequately describe the tasks performed. For example, in a spreadsheet the Recipient submitted in support of PW 2282, for an entry the Recipient assigned to PW 776, the Recipient listed the administrative task as “pw review & Final Approval” with an accompanying administrative activity description of work performed, of “PW Processing.”^[9] Similarly, in a spreadsheet submitted for PW 2283, an entry assigned to PW 1644 listed the administrative task as “Project Description Development,” with an accompanying administrative activity description of “Activities related to developing the detailed site-specific damage description component of one specific project worksheet.”^[10] In a spreadsheet submitted for PW 2884, for an entry assigned to PW 882, the administrative task states, “Activities related to the close-out process of a one specific project worksheet” and only provides “Advance closeout in GMS” as the narrative.^[11] Finally, in the spreadsheet for PW 2285, an entry assigned to PW 864 described the administrative task as “Data Collection and Dissemination” and the accompanying work as “Activities to collect damage data, invoices, estimates, and support [documentation] related to one specific project,” with a narrative that stated the Recipient “Worked to upload documentation into grant management system.”^[12] The descriptions are broad and do not offer details on actual tasks performed. Without knowing what the actual work performed was, FEMA cannot determine if the work is eligible and the costs reasonable. The descriptions do not demonstrate the costs are directly tied to performance of administrative activities that were necessary and reasonable, and accounted for directly to a specific eligible project.^[13]

The Recipient states that, based on its analysis of line items identified as ineligible costs, it could not determine whether FEMA applied a consistent methodology to determine eligibility. The Recipient points to costs for each PW under appeal that were disallowed for lack of detail, asserting that the narrative descriptions provided were sufficient, and arguing that it could not provide the additional detail. Similarly, the Recipient refers to other recipients’ DAC PWs. However, none of these examples demonstrate the eligibility of the denied DAC on appeal here.

Conclusion
The Recipient has not demonstrated the costs were necessary, reasonable, and accounted for directly to a specific eligible project. Accordingly, the claimed costs are not eligible as DAC. Therefore, this appeal is denied.