Force Account Labor & Equipment Costs/Financial Accounting & Reconciliation/Section 705

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	1791
Applicant	Vidor Independent School District
Appeal Type	Second
PA ID#	361-1170C-00
PW ID#	4321
Date Signed	2023-03-03T17:00:00

Summary Paragraph

From September 7 to October 2, 2008, Hurricane Ike struck Texas with high winds, heavy rains, and storm surge. FEMA prepared and obligated Project Worksheet (PW) 4321 for $132,715,52 in FAL, FAE, and DAC associated with Category B emergency protective measures. On December 10, 2021, the Texas Division of Emergency Management (Recipient) submitted a financial compliance review (FCR) for closeout to FEMA recommending FEMA deobligate all the funds because the Applicant had not substantiated the costs. On January 11, 2022, the Recipient instead recommended FEMA approve the FAL costs but deobligate the FAE costs and the DAC. On April 7, 2022, FEMA issued a determination (closeout) letter deobligating all previously awarded project funding. FEMA stated that, in the absence of payroll support documentation, it could not determine whether the costs were reasonable or whether the Applicant had accomplished the purpose of the grant. The Applicant appealed, stating the Recipient was able to validate payment using alternative documentation. The Applicant also noted that the Recipient's delay in performing the FCR resulted in specific banking records not being available. FEMA denied the appeal, finding the Applicant did not provide adequate documentation to support the claimed costs. FEMA also found the Applicant did not demonstrate the work associated with the claimed labor and equipment costs eliminated or lessened threats to lives, public health, and safety. The Applicant submits a second appeal, arguing section 705(c) bars FEMA from deobligating funds.

Authorities and Second Appeals

• Stafford Act §§ 403(a), 705(c).
• 2 C.F.R. § 225 Appendix A(C)(1); 44 C.F.R. §§ 13.42, 206.206(a); 206.228(a)(4).
• PA Guide, at 40, 137-138.
• DAP 9525.7, at 1; 9525.9, at 2; FP 205-081-2, at 4-6.
• Lake Worth., FEMA-1545-1561-1609-DR-FL, at 10-12; Columbus Consol. Gov’t., FEMA-3218-EM-GA, at 6; City of Sweetwater, FEMA-1345-DR-FL, at 4.

Headnotes

• To be eligible, costs must be directly tied to the performance of eligible work.

• Here, the Applicant has not substantiated through documentation that the costs are directly tied to the performance of eligible work.

• An applicant is not liable for reimbursement or any other penalty for any payment made pursuant to the Stafford Act if the payment was authorized in the approved agreement specifying the costs, the costs were reasonable, and the purpose of the grant was accomplished.
  • Here, the Applicant did not maintain its financial and programmatic records for three years following submission of the Recipient’s final expenditure report, in violation of a post-award term or condition of the award. Because the purpose of the grant was not accomplished, section 705(c) does not prohibit FEMA from deobligating previously awarded funding.

Conclusion

FEMA finds that the Applicant has not substantiated through documentation that the costs are directly tied to the performance of eligible work. In addition, FEMA finds that it is not barred by section 705(c) of the Stafford Act from deobligating the previously awarded funds as the purpose of the grant was not accomplished.

Appeal Letter

Appeal Analysis

Background

From September 7 to October 2, 2008, Hurricane Ike struck Texas with high winds, heavy rains, and storm surge. FEMA prepared and obligated Project Worksheet (PW) 4321, awarding $132,715.52 for force account labor (FAL) and force account equipment (FAE) associated with Category B emergency protective measures completed from September 13 to 26, 2008 to protect the Applicant’s buildings from further damage.[1] FEMA also included $1,312.00 in to-be-completed direct administrative costs (DAC) in the approved costs. FEMA noted in the PW that pursuant to Title 44 of the Code of Federal Regulations (C.F.R.) § 13.42, the Applicant must maintain work-related records for three years from closure and that all records relative to this PW were subject to examination and audit by FEMA and must reflect work related to disaster- specific costs.[2]

The Applicant submitted a project completion and certification report (P4) on September 12, 2013, certifying all work and costs were eligible and all work was completed. On December 10, 2021, the Texas Division of Emergency Management (Recipient) submitted a financial compliance review (FCR) for closeout to FEMA recommending FEMA deobligate all funding because the Applicant had not substantiated the costs. On January 11, 2022, the Recipient rescinded the FCR recommendations and instead recommended FEMA approve the FAL costs but deobligate the FAE costs and the DAC. For the FAL costs, the Recipient stated that, although the Applicant was unable to provide a record of bank statements or copies of cancelled checks, the Applicant provided other documentation to support payment for the claimed FAL costs. Additionally, the Recipient stated the project was initially written at 99 percent completion and the final project amount is within the approved costs FEMA found to be reasonable at the time of project formulation. On April 7, 2022, FEMA issued a closeout letter deobligating all previously awarded project funding. FEMA stated that, in the absence of payroll support documentation, it could not determine whether the costs were reasonable or whether the Applicant had accomplished the purpose of the grant.

First Appeal

The Applicant appealed on April 29, 2022, noting the Recipient was able to validate payment using alternative documentation and requested FEMA do the same. The Applicant stated that because FEMA wrote the project based on actual costs incurred at the time of project formulation, it is reasonable to conclude that FEMA was able to substantiate the costs at the time of obligation. The Applicant also noted that the Recipient’s delay in performing the FCR resulted in specific Applicant-banking records no longer being available. The Applicant stated that cancelled checks and bank records from 2008 were no longer available due to a change in bank ownership and a 2019 flood that destroyed the Applicant’s copies of those documents. The Applicant stated it provided sufficient alternative documentation in the form of timesheets and payroll registers which included payroll names, employee numbers, pay periods, banking numbers, check numbers, check dates, and net payment amounts for each employee, along with Wage and Tax Statement (W-2) forms to substantiate the hourly labor amounts claimed. The Applicant provided a document retention policy, records of data shredding in 2019 and 2020 with notes on records destroyed by the 2019 flood, and electronic correspondence from the banking institution stating the records were no longer available. The Recipient supported the appeal.

In a September 26, 2022 decision, the FEMA Region 6 Regional Administrator denied the appeal, finding that the Applicant neither provided adequate documentation to support the claimed costs, nor demonstrated the work associated with the claimed FAL and FAE costs eliminated or lessened threats to lives, public health, and safety, or threats of additional damage to improved property. FEMA stated that standards for financial management pertain to all grant-related accounting records and source documentation, including FAL costs. FEMA also noted that applicants are required to retain project records for three years from the day the Recipient submits its final expenditure report. FEMA stated that applicants are required to provide physical evidence to verify work was completed, therefore, the Applicant must support its accounting records through source documentation. FEMA found the Applicant’s documentation provided only generic descriptors that did not link the date of work with activities performed, type of work performed by date, and the equipment used for each activity with associated costs. With regard to DAC, FEMA found the Applicant did not provide documentation to establish the claimed DAC was tied to the performance of eligible emergency protective measures.

Second Appeal

The Applicant submitted a second appeal on November 25, 2022, reiterating the arguments it made in its first appeal. The Applicant also states it retained the cancelled checks and bank statements for a reasonable amount of time. Additionally, the Applicant claims that in FEMA’s first appeal decision, the Agency introduced new cost eligibility issues that were not addressed in FEMA’s closeout letter. The Applicant also states that section 705(c) of the Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act bars FEMA from deobligating previously awarded funds because the Applicant has met all three of its statutory conditions. The Recipient transmitted the appeal on December 9, 2022, along with a letter of support.

 

Discussion

Force Account Labor & Equipment Costs/Financial Accounting & Reconciliation

FEMA is authorized to provide Public Assistance (PA) funding for emergency protective measures that eliminate or lessen immediate threats  to lives, public health or safety; or of significant additional damage to improved public or private property through cost-effective measures.[3] To be eligible for PA funding, costs must be directly tied to the performance of eligible work.[4] The cost of straight-time salaries and benefits of an applicant’s permanently employed personnel is not eligible in calculating the cost of eligible emergency work.[5] FEMA will reimburse DAC incurred by applicants that are properly documented and directly chargeable on a PW for a specific project.[6] It is critical that the applicant establish and maintain accurate records of events and expenditures related to disaster recovery work, and the documentation must describe the “who, what, when, where, and how much” for each item of disaster recovery work.[7] Applicants must maintain their financial and programmatic records for three years following submission of the recipient’s final expenditure report.[8] The burden to fully substantiate an appeal with documented justification falls exclusively on the applicant and hinges on the applicant’s ability not only to produce its own records, but to clearly explain how those records support the appeal.[9]

The Applicant acknowledged it did not have all the documentation requested due to a flood and change in bank ownership, but nevertheless asserted the previously provided documentation supported its appeal. However, the Applicant has not explained how the documentation provided supports the costs in dispute. Here, the Applicant provided timesheets and payroll registers which included payroll names, employee numbers, pay periods, banking numbers, check numbers, check dates, and net payment amounts for each employee, along with W-2 forms to substantiate the hourly labor amounts claimed. However, the documentation the Applicant provided does not establish the date of work with activities performed and the equipment used for each activity with associated costs. The timesheets, payroll registers, and equipment logs contain generic descriptors of the work such as transporting and patrolling but contain no details on what type of work each employee performed. For instance, the entries do not describe the “who, what, when, where, and why, and how much” for each item of disaster recovery work nor do they demonstrate how the actions eliminated or lessened threats to lives, public health and safety, or threats of additional damage to improved property. In addition, the Applicant’s documentation shows that more than 90 percent of the Applicant’s claimed FAL costs are for ineligible straight-time labor costs, rather than for overtime costs.[10] Finally, similar to the FAL and FAE costs discussed above, due to missing documentation for the claimed DAC, the Applicant did not provide documentation that establishes those costs are tied to the performance of eligible work.

FEMA finds that the Applicant has not substantiated through documentation that the costs are directly tied to the performance of eligible work.[11] As a result, the requested costs for FAL, FAE, and DAC are not eligible for assistance.

Section 705                                                                                         

Section 705(c) of the Stafford Act provides that a state or local government is not liable for reimbursement or any other penalty for any payment made pursuant to the Stafford Act if: (1) the payment was authorized by an approved agreement specifying the costs; (2) the costs were reasonable; and (3) the purpose of the grant was accomplished.[12] FEMA typically determines whether the purpose of the grant was accomplished during the closeout process.[13] FEMA considers that the purpose of the grant was accomplished if the scope of work is completed as described in the obligated PW and supporting documentation, and post-award terms and conditions are met.[14] Where an applicant fails to provide adequate documentation to support claimed costs, the purpose of the grant is not accomplished.[15]

FEMA requires the Applicant to maintain financial and programmatic records for three years following submission of the Recipient’s final expenditure report.[16] FEMA reiterated this condition in the PW, noting the Applicant was required to maintain work-related records relative to the PW. However, as noted above, the Applicant did not substantiate through documentation that the costs are directly tied to the performance of eligible work. Although the Applicant explained that it does not have certain financial records due to: (1) the delay in performing closeout for this project; (2) a 2019 storm that destroyed much of the Applicant’s financial records; and (3) changes in bank ownership that resulted in the bank records not having been retained, these challenges do not excuse the Applicant not complying with 44 C.F.R. § 13.42, a post-award requirement. Because the purpose of the grant was not accomplished, section 705(c) does not prohibit FEMA from recovering the previously awarded funds.[17]

 

Conclusion

FEMA finds that the Applicant has not substantiated through documentation that the costs are directly tied to the performance of eligible work. In addition, FEMA finds that it is not barred by section 705(c) of the Stafford Act from deobligating the previously awarded funds as the purpose of the grant was not accomplished. Therefore, this appeal is denied.

 

 

[1] FEMA originally approved $182,715.52, but after insurance reductions, approved a total award of $132,715.52.

[2] Project Worksheet 4321, Vidor Independent Sch. Dist., Version 0, at PDF 3 (Mar. 18, 2009).

[3] The Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act, § 403(a)(3), Title 42, United States Code (42 U.S.C.) § 5170b(a)(3) (2006); Title 44 Code of Federal Regulations (C.F.R.) §§ 206.225(a)(1), (3) (2007).

[4] 2 C.F.R. § 225 Appendix A(C)(1) (2008); Public Assistance Guide, FEMA 322, at 40 (June 2007) [hereinafter PA Guide].

[5] 44 C.F.R. § 206.228(a)(4); Disaster Assistance Policy (DAP) 9525.7, Labor Costs, Emergency Work, at 1 (Nov. 16, 2006).

[6] Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, at 2 (Nov. 13, 2007).

[7] PA Guide, at 137.

[8] 44 C.F.R. § 13.42; PA Guide, at 138.

[9] 44 C.F.R. § 206.206(a); FEMA Second Appeal Analysis, Lake Worth, FEMA-1545-1561-1609-DR-FL, at 4 (Sept. 12, 2022).

[10] See Project Worksheet, Vidor Independent Sch. Dist., Version 2 (Mar. 11, 2022), Attachment 22-1-72175_DR1791TX_VidorISD_ PW04321_FCR (noting $162,045.83 in straight-time costs and $14,447.12 in overtime costs for a total of $176,492.94 in force account labor costs).

[11] Although FEMA acknowledges there was a Recipient-delay in performing closeout for this project and the Applicant’s statements that a storm destroyed much of the Applicant’s financial records, FEMA nonetheless denies this appeal. See FEMA Second Appeal Analysis, Columbus Consol. Gov’t., FEMA-3218-EM-GA, at 5 (Mar. 8, 2018) (finding that FEMA correctly deobligated funds when the Applicant did not provide documented justification to support its appeal, despite the fact that the Applicant no longer retained the records due to staff turnover and the passage of time).

[12] Stafford Act § 705(c), 42 U.S.C. § 5205(c); FEMA Policy (FP) 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 4 (June 2, 2021).

[13] FP 205-081-2, at 6.

[14] Id. at 5.

[15] FEMA Second Appeal Analysis, City of Sweetwater, FEMA-1345-DR-FL, at 4 (Aug. 15, 2017) [citing FEMA Second Appeal Analysis, City of Vero Beach, FEMA-1545/1561-DR-FL, at 1, 6 (Nov. 21, 2016) (“the purpose of the grant is not fulfilled if the Applicant fails to provide supporting documentation for its claims”)].

[16] 44 C.F.R. § 13.42. 

[17] See FP 205-081-2, at 6 (stating that if FEMA determines the applicant failed to comply with a post-award term or condition of the award, the purpose of the grant was not accomplished and section 705(c) does not prohibit FEMA from recovering payments as a remedy).