Allowable Costs and Reasonable Costs – Direct Administrative Costs and Management Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4273
Applicant	City of Richwood
Appeal Type	Second
PA ID#	067-68116-00
PW ID#	PW 986
Date Signed	2020-11-10T17:00:00

Summary Paragraph

Between June 22 and June 29, 2016, the City of Richmond (Applicant) experienced catastrophic flooding.  FEMA prepared multiple Project Worksheets (PW) including PW 986, which FEMA wrote for $398,853.00 to address emergency protective measures claimed for Incident Command Structure (ICS) team activities from June 22 through October 29, 2016.  However, FEMA denied all costs for PW 986, determining the length of time the ICS team was operational could not be justified when compared to the length of time taken by other local jurisdictions and by state agencies, and found that the ICS team acted egregiously (as described in a state audit report) and without oversight by the Applicant, and the Applicant failed to track time charged to specific eligible activities performed.  The Applicant appealed and acknowledged the need for further clarification and documentation, but argued that it did not believe the work and the hours claimed were erroneous or unnecessary.  The FEMA Region III Regional Administrator (RA) denied the appeal.  The RA determined the Applicant did not keep proper records of hours worked and could not demonstrate a difference between eligible and ineligible emergency work and costs per Title 44 of the Code of Federal Regulations (C.F.R.) §§ 206.223(a)(1) and 206.202(d).  FEMA also determined that the Applicant did not adequately document hours and did not act consistently with its own policies per 2 C.F.R. § 200.404(d)-(e).  Finally, FEMA noted direct administrative costs (DAC) could not be tied to a specific project as required and were ineligible.  In its second appeal, the Applicant asserts the PW should not be denied in its entirety and reiterates prior arguments.    

 

Authorities and Second Appeals

• Stafford Act §403(a)(3)-(4).
• 44 C.F.R. §206.225(a).

• PAPPG, at 23, 37, 42, 57, 61.
• Chambers Cty., FEMA-1791-DR-TX, at 7.
• Rocky Top Sports World, FEMA-4293-DR-TN, at 4.
• City of Atlanta, FEMA-4165-DR-GA, at 6.

Headnotes

• Stafford Act §403(a)(3)-(4) provides PA reimbursement for costs related to eligible emergency protective measures necessary to eliminate or lessen immediate threats to public health or safety.  Response activities conducted at EOCs are eligible provided they are associated with eligible work.  Costs must be tied to performance of eligible work, adequately documented, consistent with the Applicant’s internal policies, regulations, and procedures that apply uniformly to both federal awards and other activities, and necessary and reasonable to accomplish the work properly and efficiently.
  • The Applicant has failed to demonstrate that the ICS team performed eligible work and that costs were reasonable.
• Per FEMA policy, DAC is eligible when it is assigned to a specific project and are related to the development of that project for submittal.
  • The Applicant did not tie DAC incurred to a specific project.

Conclusion

FEMA cannot determine that the Applicant’s ICS team performed eligible emergency work, and finds the Applicant did not document reasonable costs for eligible emergency work, did not follow federal grant requirements, and did not tie claimed DAC to a specific eligible project.  Accordingly, the appeal is denied.

 

Appeal Letter

Appeal Analysis

Background

During the incident period June 22 through June 29, 2016, the City of Richwood (Applicant) experienced catastrophic flooding.  FEMA prepared multiple Project Worksheets (PWs) including PW 986, which FEMA wrote for $398,853.00 (reflecting straight-time and overtime labor costs and direct administrative costs (DAC)) to address Category B emergency protective measures claimed for Incident Command Structure (ICS) team activities from June 22 through October 29, 2016.  However, FEMA denied all costs for PW 986 on August 13, 2019, determining the length of time the ICS team was operational (four months and seven days) could not be justified when compared to the length of time taken by other emergency operations teams from nearby jurisdictions, and by the State Police and the West Virginia Department of Homeland Security and Emergency Management (Grantee).  FEMA’s Determination Memorandum cited to a State Auditor report[1] that found Applicant mismanagement and misuse of FEMA funds and expressed concerns about the ICS team structure, actions, conduct, and how members were paid:

…the Applicant deviated significantly from its standard practices, did not act with prudence in its responsibilities to the public and the Federal Government, did not provide documentation that tracked time charged to specific eligible activities performed, has not substantiated its need to continue ICS responsibilities more than two months after other [Emergency Operation Centers] in the area had discontinued, and has not provided documentation that would negate the findings of the State Audit Report.[2]

 

First Appeal

In its October 24, 2019 appeal, the Applicant acknowledged the need for further clarification and documentation, but argued that it did not believe the work and the hours claimed were erroneous or unnecessary.  The Applicant indicated that restaurants and stores remained closed from August to October 2016 and the ICS team addressed basic needs for food and supplies, in addition to working on PWs and requesting and accepting work bids.  The Applicant provided documentation including copies of City Council meeting minutes, letters, and emails to support its appeal.  The Grantee forwarded the Applicant’s appeal by letter dated November 27, 2019.

The FEMA Region III Regional Administrator denied the appeal on February 18, 2020.  FEMA found insufficient documentation prevented FEMA from validating the work claimed was eligible.  FEMA noted the Applicant did not keep proper records of hours worked, could not demonstrate a difference between eligible and ineligible emergency work and costs per Title 44 of the Code of Federal Regulations (C.F.R.) §§ 206.223(a)(1) and 206.202(d), and did not act consistently with its own policies.  FEMA also noted, according to the Applicant’s consultant,[3] DAC could not be tied to a specific project as required by FEMA and were ineligible.  Referencing the State Auditor report, FEMA stated:

This report documented several examples of mismanagement and misuse of FEMA funds, and cited serious concerns with the structure and pay of the ICS Team, as well as the overall actions and conduct of the team … [the Auditor Report] has relevance because it demonstrates that the State Auditor’s Office does not believe the Applicant has complied with its laws and/or regulations.[4]

 

Second Appeal

The Applicant’s April 17, 2020 second appeal asserts the PW should not be denied in its entirety and reiterates its position on first appeal, including noting that the county emergency management office provided no guidance on completing project worksheets, and that it was undergoing staffing and leadership changes at the time of the disaster.  The Grantee forwarded the second appeal in a letter dated May 1, 2020.

 

Discussion

Allowable Costs and Reasonable Costs

Pursuant to Section 403(a)(3), of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), FEMA may provide Public Assistance reimbursement for costs related to eligible emergency protective measures necessary to eliminate or lessen immediate threats to public health or safety.[5]  Response activities conducted at Emergency Operation Centers are eligible provided they are associated with eligible work.[6]  Costs must be: tied to the performance of eligible work; adequately documented; consistent with the Applicant’s internal policies, regulations, and procedures that apply uniformly to both federal awards and other activities; and necessary and reasonable to accomplish the work properly and efficiently.  For unbudgeted or temporary employees performing emergency work, both straight-time and overtime labor are eligible.[7]  The burden to substantiate appeals with documented justification falls exclusively on the applicant, and hinges upon the applicant’s ability to produce not only its own records but to clearly explain how those records are relevant to the appeal.[8]  Historically, FEMA has denied labor costs for emergency work when an applicant’s supporting documentation, consisting of labor expense reports and employee timesheets, “provides no description of activities or locations of actual work performed” and does not “describe any specific eligible emergency protective measures its personnel performed in connection with claimed costs.”[9]

According to the Applicant’s consultant, the ICS team was comprised of 22 temporary full-time employees.[10]  However, the documentation provided by the Applicant does not show ICS team members performed eligible emergency work.  For example, job descriptions for the Floodplain Administrator and Safety Director and for the Incident Commander positions mention safety-related concerns, but the Applicant did not provide documentation describing specific eligible measures that employees in these positions, or any other position, performed to eliminate or lessen immediate threats to public health or safety.  The documentation the Applicant submitted also could not be used to track hours of eligible work that may have been performed.  For example, the Applicant indicates the ICS team addressed basic needs for food and supplies, but it provided no documentation FEMA could use to track the work.  Additionally, it appears that food distribution costs were covered elsewhere; FEMA wrote PW 223 for the food distribution center to cover costs for temporary employees for both regular and overtime hours, to reimburse for rental equipment, and for contract services for work completed as of September 2, 2016, and work to be completed from September 3, 2016 to December 31, 2016.    

Regarding cost reasonableness, the Applicant has not demonstrated that the ICS team performed eligible work, or that it could adequately document the hours and costs tied to specific activities.  Further, a letter to the Internal Revenue Service acknowledged liberties taken in hiring “with the thought that the [Applicant] would be reimbursed by FEMA for any and all expenses incurred,”[11] demonstrating that the Applicant incurred costs that were inconsistent with the Federal grant process and thereby unreasonable.

 

Direct Administrative Costs and Management Costs

Per FEMA policy, if the Applicant incurs administrative costs that it tracks, charges, and accounts for directly to a specific eligible project, the costs may be eligible as DAC.”[12]

Here, a proprietary program tracked DAC on a proportional basis.  Costs were not identified and separated into specific projects as required under FEMA policy.[13]  The Applicant did not tie the claimed DAC to a specific project, therefore the DAC is ineligible. 

 

Conclusion

FEMA cannot determine that the Applicant’s ICS team performed eligible emergency work, and finds the Applicant did not document reasonable costs for eligible emergency work, did not follow federal grant requirements, and did not tie claimed DAC to a specific eligible project.  Accordingly, the appeal is denied.

 

[1] W. Va. State Auditor Report of Investigation, City of Richwood (March 29, 2019).

[2] FEMA Eligibility Determination, City of Richwood, FEMA-4273-DR-WV, at 6 (Aug. 13, 2019).

[3] Simmons Consulting, Damage Description and Dimensions/Scope of Work Data Package, City of Richwood, at 7 (Sept. 13, 2017) [hereinafter Data Package].

[4] FEMA First Appeal Analysis, Richwood, FEMA-4273-DR-WV, at 2.

[5] Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act § 403(a)(3)-(4), 42 U.S.C. §5107b(a)(3)-(4); Title 44 Code of Federal Regulations (44 C.F.R.) §206.225(a) (2015); Public Assistance Program and Policy Guide, FP 104-009-2, at 42, 57 (Jan. 1, 2016) [hereinafter PAPPG].

[6] PAPPG, at 61.

[7] PAPPG, at 23.

[8] FEMA Second Appeal Analysis, Chambers Cty., FEMA-1791-DR-TX, at 7 (May 26, 2017). 

[9] FEMA Second Appeal Analysis, Rocky Top Sports World, FEMA-4293-DR-TN, at 4, (Jul. 24, 2018); see also FEMA Second Appeal Analysis, City of Atlanta, FEMA-4165-DR-GA, at 6 (Oct. 17, 2017) (finding Force Account Labor costs ineligible when an applicant’s documentation did not detail the work performed by its employees and did not correlate claimed emergency overtime work with specific, eligible emergency protective measures).

[10] Data Package, at 2.

[11] Letter from Acting Mayor, City of Richwood to CCP-LU, Internal Revenue Serv., at 2 (June 29, 2018).

[12] PAPPG, at 37.

[13] Data Package, at 7.