GAB Decision 565
Docket No. 84-10
August 28, 1984
Community Action Commission of Belmont County, Ohio;
Garrett, Donald; Teitz, Alexander Ford, Cecilia
The Community Action Commission of Belmont County, Ohio (Grantee)
appealed a decision by the Deputy Assistant Secretary for Finance of the
Department of Health and Human Services (Department), requesting that
the Grantee refund to the Department $83,052 received under a Community
Health Center grant awarded by the Public Health Service (PHS). /1/ The
decision involved two components: $59,915 which the Department
determined the Grantee withdrew in excess of the authorized grant award,
and $23,137 in funds unexpended during the sixth and final year of the
grant. We conclude that the Grantee must refund $59,915 in funds drawn
down in excess of the authorized grant award. We also conclude that the
record does not support a finding that the Grantee should refund an
additional $23,137. This decision is based on the written record.
How the Dispute Arose
The Grantee received funds from fiscal year 1971-1972 (Year 01)
through fiscal year 1976-1977 (Year 06) under a Community Health Centers
grant awarded by PHS. The total amount awarded for the six years was
$9,451,172. The Grantee distributed these funds to local clinics which
provided health services. The Grantee received the funds under a letter
of credit whereby it could draw down funds from a (2) local bank or
receive Treasury checks, in return for monthly cash requests. The
Departmental Federal Assistance Financing System (DFAFS), which is not a
part of PHS, acted as the fiscal intermediary between the Grantee and
PHS and recorded cash advances in its accounts. /2/
When the Grantee submitted a final expenditure report for a fiscal
year, the amount of the next year's grant award was to be adjusted to
reflect the actual funds available from the prior grant year. The
auditors concluded that this did not occur in an "adequate and timely"
manner. Audit Report (ACN (3) 05-31496), June 1983, pp. 2, 4. At the
end of Year 06, the Grantee had drawn down $9,511,087, an amount that
exceeded its total grant award of $9,451,172 by $59,915.00. /3/
DFAFS notified the Grantee at the end of Year 06 that it had
overdrawn its authorized grant award by $59,915 and requested that the
Grantee either submit a copy of PHS authorization for the additional
funds or refund the money. PHS Brief, Exhibit 2. The record contains
no indication that the Grantee responded. At least twice in 1978 DFAFS
again notified the Grantee of the overdraft (Grantee Appeal File,
Exhibits F and G), and one of those notices stated that the award was
not yet closed because the Grantee had not yet filed a final expenditure
report. In June 1979 DFAFS notified the Grantee that if it did not
repay the funds within 30 days, the Department would refer the matter to
the General Accounting Office (and the Department of Justice) for the
purpose of instituting suit to collect the money. Exhibit L. That
letter also informed the Grantee that the Department had not yet closed
the grant because the Grantee had not submitted a final expenditure
report.
The Grantee did not repay the money or submit a final expenditure
report and, in response to the 1979 letter, requested an audit to
resolve the matter. The Department's Office of Inspector General
performed an audit in September 1982 to determine the status of the
grant funds. The auditors examined grant awards, expenditure reports,
cash receipt records, and bank statements. The audit did not cover
claimed costs, which were audited separately. See Exhibits H, N, and R.
The auditors found that the Grantee and PHS did not take prompt
action to adjust the grant awards to reflect unobligated funds remaining
at the end of each grant year, and that this resulted in the Grantee
withdrawing $59,915 in excess of the authorized amount. The auditors
found (and the Grantee agreed) that at the end of the sixth year, the
Grantee had a cash balance of $23,137. The auditors, without knowing
how much the Grantee expended in Year 06, concluded that the Grantee
should refund $23,137 in addition to the $59,915 the Grantee drew down
in excess of the total amount of its authorized grant awards. The
auditors also concluded that, since the balance remaining in the account
at the end of the (4) sixth year was less than $59,915, the Grantee must
have overexpended its authorized grant award. Audit Report, p. 4.
Our Conclusions From the Audit Report and the Record
A. $59,915 Received in Excess of the Grant Award
The Grantee did not dispute the auditors' figures for the grant
award, the cash receipts, or the reported expenditures. By comparing
the total authorized grant award amounts ($9,451,172) to the cash
receipts, ($9,511,087), it is clear that the Grantee drew down $59,915
in excess of the authorized grant awards. The Grantee has not disputed
that fact, nor offered any explanation about why it was entitled to
receive those funds. The Grantee has presented certain arguments about
why it should not have to repay that amount, however, and we will
discuss those issues below.
B. $23,137 Cash Balance at End of Year 06
The auditors concluded that because the Grantee had $23,137 remaining
in unexpended funds at the end of Year 06, the Grantee should refund
$23,137 in addition to the $59,915 drawn down in excess of the
authorized awards. As described above, however, the Grantee drew down
$9,511,087, was authorized to spend $9,451,172 under its grant awards,
and had a cash balance of $23,137 at the end of year 06. There is no
indication in the audit report that the $23,137 represents anything
other than the unexpended portion of the total funds drawn down. Thus,
the only conclusion that can be reached is that the Grantee spent more
than it was authorized to spend but less than it drew down (which was
also more than it was authorized to draw down).
The auditors, however, deducted the unexpended cash balance from the
total authorized grant award ($9,451,172 - $23,137) rather than from the
total amount drawn down ($9,511,087) and concluded that the Grantee was
authorized to spend only $9,428,035. If the auditors had known the
total reported expenditures, and that amount was less than $9,451,172,
then the auditors could have reached the conclusion that the Grantee
must repay not only the amount in had drawn down in excess of the
authorized award, but also the difference between what it expended and
what it was authorized to expend. Thus, if the Grantee had reported
total expenditures of $9,428,035 ($9,451,172 - $23,137), the auditors'
conclusion would have been correct.However, the auditors did not know
how much the Grantee spent in Year 06 and, thus, in total, so it is not
possible to determine whether any of the (5) authorized funds remained
unexpended. /4/ The fact that the Grantee had $23,137 left in
unexpended funds does not, by itself, show that it must be required to
repay $59,915 and $23,137. /5/ Thus, based on this record, we can
conclude only that the Grantee must repay $59,915.
The Grantee's Obligation to Repay $59,915
The Grantee argued that a federal statute of limitations, 28 U.S.C.
2415, applies to the Department's action in disallowing the excess funds
drawn down by the Grantee, that the six year limitation set out in
section 2415 for bringing action has run, and that the Department is
barred from obtaining repayment. The Grantee also argued that the (6)
Department is estopped from demanding repayment of the funds because the
PHS regional staff failed to monitor the Grantee's activities to ensure
that excess funds were not withdrawn and that the Grantee submitted a
final expenditure report in a timely fashion.
Finally, the Grantee argued that it had acted in good faith, that the
money was spent for grant purposes -- to deliver medical services to
eligible persons -- and that the Grantee will be unable to repay the
funds without "financial disaster." Brief, p. 11.
A. The Application of 28 U.S.C. 2415 to the Department's Demand for
Repayment.
Section 2415 provides, in part:
(a) . . . Every action for money damages brought by the United
States or an officer or agency thereof which is founded upon any
contract express or implied in law or fact, shall be barred unless the
complaint is filed within six years after the right to action accrues or
within one year after final decisions have been rendered in applicable
administrative proceedings required by contract or by law, whichever is
later . . . .
(b) . . . Every action for money damages brought by the United
States or an officer or agency thereof which is founded upon a tort
shall be barred unless the complaint is filed within three years after
the right of action first accrues: Provided, That . . . an action to
recover for diversion of money paid under a grant program . . . may be
brought within six years after the right to action accrues. . . .
* * *
The Grantee did not indicate whether the Department's demand for
repayment should fall under section 2415(a) or 2415(b). We conclude
that section 2415(b) does not apply because the Department is simply
asking for repayment of money paid in excess of the grant award, and is
not asserting that the Grantee committed a tort by diverting the money.
See, e.g., United States v. City of Palm Beach Gardens, 635 F.2d 337
(5th Cir. 1981). Therefore, we eliminate section 2415(b) from further
consideration, and will discuss below whether section 2415(a) applies.
The Department contended that section 2415 applies only to judicial
actions for money judgments and not to administrative audit
disallowances. The Grantee asserted that the language of section 2415
does not specifically say, "judicial action."
(7) The Grantee further asserted that the action barred by section
2415 is the Department's demand for repayment in the disallowance letter
dated September 7, 1983.
We think section 2415 applies only to actions brought in federal
court. /6/ Title 28 of the United States Code is entitled, "Judicial
Code and Judiciary," and the entire title is devoted to the federal
courts and actions brought in federal courts. Section 2415 is found in
Part VI, "Particular Proceedings," and within Chapter 161, "United
States as Party Generally." Thus, section 2415 need not specifically say
"judicial" action in order to apply only to such actions, and there
is
no reason to believe that section 2415 contemplated that an
administrative demand for repayment of money owed would be barred by the
statute of limitations. The legislative history of section 2415 states
that it refers to civil actions in court. Sen. Rept. 1328, 89th Cong.,
1st Sess., June 24, 1966.
The Grantee also argued that the statute would eventually bar
recovery because the Agency's right to recover began to accrue at the
close of the grant year in which the excess funds were drawn down (Year
05), or at the latest, three months later when the final expenditure
report was due. Therefore, the Grantee argued, the six-year limitation
had already run prior to institution of this proceeding before the Board
and eventual judicial action by the Agency would be barred anyway. The
Department argued that if section 2415 did apply to the disallowance,
the right to disallow accrued at the date of the audit.
The question of whether the statute has run for a future judicial
action is properly decided at such time as the Agency files an action in
federal court.Nevertheless, we note that, in cases previously decided by
federal courts about when the right of action accrues for purposes of
section 2415, the point of accrual varied depending on when the court
found the final determination of liability to have occurred. /7/ Here
the Grantee failed to file a final (8) expenditure report, continued to
express uncertainty about the amount owed, and then requested an audit
two years after the Agency had initiated demands for repayment. We
think a determination that the right of action could not have accrued
prior to the audit would be consistent with the case law. Moreover, the
statue provides a two-pronged limitation and specifically states that
the time runs from whichever occurs later -- the accrual of the right of
action or the applicable administrative proceeding. Here, the Grantee
had the right, which it exercised, under 45 CFR Part 16, Appendix A, to
appeal to this Board from a final written determination requiring return
of funds received. Thus, section 2415 provides one year from the
Board's final decision in which the Agency could bring an action. See
Community Health and Counseling Services, Decision No. 557, August 2,
1984; United States v. Withrow, supra, at 806.
Thus, we conclude that the Department is not barred from demanding
repayment of the excess funds drawn down by the Grantee.
B. The Application of the Doctrine of Equitable Estoppel to the
Department's Actions
The Grantee charged that PHS "affirmatively contributed" to the
situation by acts of "commission and omission." Brief, p. 9. The
Grantee pointed specifically to the failure to obtain a final
expenditure report before "closing" the grant.
While it appears both parties failed to properly fulfill required
responsibilities, it can not be overlooked that Respondent actually
terminated the entire program by closing the grant, only to open it to
the surprise of the Appellant.
The Grantee also pointed to the audit report's conclusion that the
withdrawal of excess funds resulted from the failure of PHS regional
staff to monitor the cash withdrawals and to promptly adjust grant
awards to reflect unobligated balances shown by final expenditure
reports.
The doctrine of equitable estoppel precludes a party from
establishing an essential element of its claim because of its own
misrepresentations, on which the opposing party relied to its own
detriment. Thus, the Grantee must establish the basic elements of
equitable estoppel:
(1) the Department must have known the facts; (2) the Department
must have intended that the Grantee act on the Department's conduct; (3)
the Grantee must have been ignorant of the true facts; and (4) the
Grantee must have relied on the Department's conduct to the Grantee's
injury.
(9) See Montana Department of Social and Rehabilitative Services,
Decision No. 171, April 30, 1980 and cases cited therein.
The Grantee has not alleged that either PHS or DFAFS made any
misrepresentations or that the Department intended for the Grantee to
rely on PHS or DFAFS to ensure that the Grantee fulfilled its
obligations to account for federal funds. Nor has the Grantee alleged
that it inferred from the PHS conduct that it need not submit a final
expenditure report, or that it could retain funds drawn down in excess
of the grant awards. The Grantee did not allege that it had been misled
about how much money it had obtained, could spend, or had spent. The
Grantee had the responsibility to account for federal funds, had access
to the true facts in its own accounts, and has not shown that it was
misled by the alleged failure to check the Grantee's accounts more
closely. The Grantee has not proved that the Department actually
"closed" the grant or even that the Grantee believed that the grant
was
closed. In fact, the record shows that as late as 1979 the Department
still asserted that the grant had not been closed because the Grantee
had not submitted a final expenditure report. Exhibit L. These
requests by the Department for repayment of excess funds received and
submission of the financial expenditure report were part of normal
closeout procedures. See 45 CFR 74.111. Thus, the Grantee has not
established the traditional elements of estoppel.
Finally, even if the Grantee had established the traditional elements
of estoppel, federal courts have never unanimously agreed that the
doctrine of equitable estoppel may be invoked against the federal
government. State of New Jersey v. DHHS, 670 F.2d 1284 (3rd Cir.
1982). The Supreme Court has stated that "it is well-settled that the
Government may not be estopped on the same terms as any other litigant."
Heckler v. Community Health Services of Crawford County, U. S. , 104
S. Ct. 2218, 2224 (1984). Some of the lower courts have held that at
the very least affirmative misconduct is necessary to invoke estoppel
against the government. United States v. Harvey, 661 F.2d 767, 775 (9th
Cir. 1981); New Jersey v. DHHS, supra, at 1298. These courts have
described affirmative misconduct as intentional misrepresentation or
wrongful concealment of a material fact, and have indicated that
negligence will not suffice. New Jersey v. DHHS, supra, at 1297. See
also INS v. Miranda, 103 S. Ct. 281, 283 (1982).
Here, we have no evidence of affirmative misconduct on the part of
the Department, but simply the auditors' conclusion that PHS regional
staff did not monitor the Grantee's cash flow. Moreover, there is no
evidence that the Department "closed" the grant. Nor do we think the
Grantee can assert that it was surprised, since the Department has been
corresponding with the Grantee about this matter since July 1, 1977.
(10) Thus, we conclude that the Department is not estopped from
taking this disallowance; even assuming that PHS regional officials
failed to properly monitor the cash flow, this is not sufficient to
exculpate the Grantee from the consequences of its own failure to
properly monitor its cash flow and its expenditures.
C. The Grantee's Good Faith and Hardship as a Bar to the
Disallowance
The Grantee argued that it spent federal funds in good faith. We do
not think that the Grantee's failure to submit a final expenditure
report and failure to account for the funds drawn down in excess of what
it was authorized to spend is evidence of good faith.Although the
Grantee may incur hardship in returning the funds, it is accountable for
the money. PHS may have had authority during the grant award period to
award supplemental funds, but it is unclear whether it could authorize
at this time expenditures which were in excess of the grant award.
Moreover, it does not appear that the Grantee can even show how those
funds were spent, so justification of the expenditure might be difficult
at this point in time. Appellant's Brief, p. 9. Nor does the Board
have authority to waive the Grantee's obligation to repay funds it
received in excess of the grant award, or to make what is in effect a
supplemental award. Pinellas Opportunity Council Inc., Decision No. 80,
February 6, 1980; Ohio Department of Mental Retardation and
Developmental Disabilities, Decision No. 405, April 7, 1983. Thus,
there is no legal basis for reversing the disallowance.
Conclusion
We conclude that the Grantee must repay to the Department the sum of
$59,915 received in excess of the authorized grant award. We also
conclude that the record does not support a finding that the Grantee
owes any additional money as unexpended grant funds. /1/ The Grantee's
appeal was originally docketed as 83-199. The Department's
counsel stated that the appeal should have been presented initially to
the Public Health Services Grant Appeals Board under 42 CFR Part 50,
Subpart D, which provides an informal review of post-award disputes over
decisions of PHS officials about PHS grants. The Board closed the case
to permit PHS review; however, PHS rejected the appeal and referred it
back to the Board because the disallowance at issue was taken by the
Deputy Assistant Secretary for Finance rather than by a PHS official.
The Board reopened the case and assigned a new docket number.
/2/ We provide the following chart as background information. The chart
lists the incremental amounts awarded and the total; cash drawn down
each year (receipts) and the total; the reported expenditures and the
tentative total; and the yearly account balance. We calculated the
figures in the column showing the account balance by deducting the
reported expenditures from the cash on hand (cash receipts plus or minus
the prior year's account balance). Account Balance Grant
Cash Reported Unobligated Year Award Receipts
Expenditures Overobigated) 01 $1,256,757 $1,256,757
$1,184,491 $72,266 02 $1,380,000 $1,380,000 $1,414,888
$37,378 03 $1,400,000 $1,338,210 $1,372,338 $3,250 04
$1,849,415 $1,720,769 $1,774,872 ($50,853) 05 $1,800,000
$2,050,351 $1,967,041 $32,457 06 $1,765,000 $1,765,000
$1,718,814 ? Total $9,451,172 $9,511,087 $9,432,444
? E The auditors were unable to determine the total expenditures for
Year 06 (and thus for the total six years). They were able to
determine, however, the expenditures for two of the three programs
funded by the Grantee in Year 06. The amount shown here in the Reported
Expenditures column for Year 06 is the amount identified by the auditors
as the expenditures for two programs, but is not necessarily the total
amount expended. /3/ The Grantee included in its Appeal File, as
Exhibit D, a request submitted to PHS in 1977 for a supplemental grant
of $127,366. Nothing in the record shows that a supplemental award was
made. Nor does the Grantee explain the relevance of this Exhibit to its
arguments. /4/ The record indicates that, as a result of
separate audits, PHS disallowed some costs claimed by the Grantee.
Exhibits N, P (Grantee Response to Audit Report) and R. The auditors,
however, did not include in this audit report information about what
amount of the reported expenditures had been disallowed or the basis for
the (disallowances). The record also indicates that the Grantee has
repaid $21,799 of the $23,137 cash balance, seeking to apply it against
the costs disallowed by PHS. Exhibit P, Grantee Response to Audit
Report. The Department, however, argued that unexpended grant funds
cannot be used to repay costs disallowed under a grant, and that the
Grantee must use non-program funds to repay the disallowed costs.
Although that issue is not directly before the Board in this appeal, the
Grantee has attempted to avoid repayment of the excess funds by arguing
that it has already returned the money to the Department. See Exhibit
R. We agree that unexpended grant funds cannot be applied to repayment
of disallowed costs. That would be tantamount to forgiving the
disallowance and authorizing expenditure of federal funds for those
costs. The record here does not show that there is an overlap between
the $59,915 drawn down in excess of the authorized grant awards and the
costs previously disallowed by PHS (i.e., that the costs were disallowed
because they were in excess of the authorized grant awards). Therefore,
the Grantee still owes the Department $59,915. /5/ The auditors
reported that the Grantee expended at least $9,432,444. See fn. 2.
This record does not show that the Grantee has accounted for the
remainder of the authorized grant award ($9,451,172 - $9,432,444 =
$18,728), although it may in fact have done so through the audits of the
Grantee's claimed costs. See fn. 4. /6/ There also may be a
question about whether an action in federal court based on these facts
would be one for "money damages . . . founded upon (a) contract,"
for
purposes of section 2415; however, it is not necessary to address this
question to resolve the issues presented by the parties. /7/
United States v. Gravette Manor Homes, 642 F.2d 231 (8th Cir. 1981);
United States v. Withrow, 593 F.2d 802 (7th Cir. 1979); United States
v. White House Nursing Home, 484 F. Supp. 29 (M. D. Fla. 1979).
JANUARY 08, 1985