OIG Audit – Reasonable Costs – Support Documentation

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	FEMA-1909
Applicant	Nashville-Davidson
Appeal Type	Second
PA ID#	037-52004-00
PW ID#	3551, 4654, 5540
Date Signed	2018-10-15T00:00:00

Summary Paragraph

During the incident period of April 30 through May 18, 2010, severe storms, flooding, straight-line winds, and tornadoes caused damage throughout the Applicant’s jurisdiction.  As part of emergency protective measures, the Applicant used force account labor and equipment to patrol flooded and vacant areas.  FEMA reimbursed the Applicant using the hourly rate for the hours documented for this project.  The Office of Inspector General (OIG) questioned costs obligated and found that the use of the hourly rate was unreasonable based on the documentation available.  On first appeal the Applicant argued that police vehicles contain electronic equipment that must remain running to complete job duties and that Stafford Act § 705(c) bars FEMA’s recovery of the funds.  The Applicant provided a complete log of the hours police vehicles were used during the emergency period.  On first appeal, FEMA found that the Applicant did not substantiate with enough specificity that the use of the hourly rate was reasonable and as such Stafford Act § 705(c) would not bar recovery.  On second appeal, the Applicant again argued the importance of having police vehicles running during a shift and that it relied on FEMA’s assurances that the hourly rate was reasonable.

Authorities and Second Appeals

• Stafford Act § 705(c).
• 2 C.F.R. pt. 225, app. A § C.1.a.-j.
• 44 C.F.R. § 206.228(a)(1).
• PA Guide, at 34, 48.
   

Headnotes

• OMB Circular A-87 requires that for a cost to be allowable and therefore reimbursable, under a PA award, the cost must be, among other requirements, reasonable and adequately documented.
  • The Applicant provided a complete record of hourly vehicle usage to substantiate that FEMA’s hourly rate for use of police vehicles was reasonable.

 

Conclusion

The Applicant has provided documentation to demonstrate that FEMA’s hourly rate for the use of police vehicles was reasonable in this case.  Accordingly, the appeal is granted.

Appeal Letter

Appeal Analysis

Background

 

During the incident period of April 30 through May 18, 2010, severe storms, flooding, straight-line winds, and tornadoes caused damage throughout Nashville-Davidson County (Applicant). As part of emergency protective measures to protect against an immediate threat to life, public health, and safety, the Applicant used force account labor and equipment to patrol flooded and vacant areas.  The police blocked flooded streets, re-routed traffic, assisted stranded motorists, and performed swift-water and air rescue.  FEMA prepared Project Worksheets (PWs) 3551, 4654, and 5540 to document costs associated with emergency protective measures performed by the Applicant’s police department.

 

FEMA reimbursed the Applicant at $18.00 per hour for the documented police vehicle equipment hours, in accordance with FEMA’s Schedule of Equipment Rates for police automobiles, stationary with the engine running.  On July 15, 2016, the Department of Homeland Security, Office of Inspector General (OIG) issued the audit report, OIG-16-112-D, FEMA Should Recover $2.2 Million in Public Assistance Grants Funds Awarded to Nashville-Davidson County, Tennessee, for May 2010 Flood Emergency Work, questioning the costs associated with emergency protective measures.[1]  The OIG found that the costs for police vehicle usage for PWs 3551, 4654, and 5540 were unreasonable and recommended that FEMA deobligate those funds.

 

The OIG relied on documentation from the Applicant that listed daily information on the number of hours claimed for each police officer’s vehicle.  Documentation also generally included a description of the equipment, vehicle number, operator’s name, dates of use, location, disposition activity code, mileage start and end, and total hours used.[2]  The documentation, however, did not list vehicle mileage data in every case.  The OIG obtained a mileage summary report from the Applicant’s fleet department for all police vehicles used during the time period the PWs covered.  Using this report and relying on testimony from the Applicant, the OIG estimated that the police officers drove their assigned vehicles an average of 50 miles per day.[3]  The OIG used this information and FEMA’s equipment rate of $0.63 per mile for police vehicles (with patrolling activities) to determine that the Applicant’s costs should have been $2,022,296.00 less than the amount it claimed using FEMA’s equipment hourly rate for police vehicles (stationary with engine running).  FEMA concurred with the OIG’s findings, and agreed to review PWs 3551, 4654, and 5540 to determine if the claimed equipment costs were reasonable for the work performed.[4]  On March 10, 2017, FEMA deobligated a total of $2,022,296.00 from PWs 3551, 4654, and 5540.[5]  

 

First Appeal

 

The Applicant filed a first appeal via letter dated March 17, 2017, requesting that FEMA reimburse $2,022,296.00 in funding deobligated from PWs 3551, 4654, and 5540 for equipment costs associated with emergency protective measures performed by its police department.  The Applicant stated that an equipment rate of $0.63 per mile inaccurately represents the true cost of the police work since the OIG only allowed for miles to and from a specific patrol location.  It argued the OIG’s method did not account for the costs incurred while the cars were stationary with the engine running or operating, which the Applicant asserted was the case for police vehicles that performed emergency safety and security actions. 

 

The Applicant argued that police vehicles are mobile offices with electronic equipment installed; vehicles parked with flashing lights need engine power; turning off a car means powering down all equipment; and restarting a vehicle means rebooting equipment resulting in delays.  In addition, the Applicant argued that air conditioning in the vehicle assists uniformed officers with climate control and safety; and a running vehicle aids in an officer’s quick response to a call or security threat.  The Applicant claimed that a rate of $18.00 per hour better reflects the actual costs incurred because its police vehicles used during the emergency flood period were stationary with their engines running throughout each shift.

 

The Applicant also contended that Stafford Act § 705(c) bars FEMA from deobligating the funds at issue because all three prongs of the subsection were satisfied.  According to the statute, a state or local government may not be liable for penalty if: (1) payment was authorized by an approved agreement specifying the cost, (2) the costs were reasonable, and (3) the purpose of the grant was accomplished.  The Applicant argued that payment was authorized by an approved agreement specifying the costs when FEMA obligated funding for the approved PWs’ eligible scopes of work and specified force account equipment costs.  It also asserted that the costs were reasonable because FEMA used its own equipment rates.  Lastly, the Applicant insisted that the purpose of the grant was accomplished because it completed each project’s eligible scope of work.

 

FEMA sent a Final Request for Information (RFI) to the Applicant via a letter dated November 28, 2017, requesting documentation to support the hourly rate requested, such as equipment logs, timesheets, and/or mileage records.  The Grantee forwarded the Applicant’s response dated December 21, 2017, in which the Applicant maintained that the hourly rate of $18.00 for stationary use better reflects the actual costs incurred as opposed to the OIG recommended $0.63 rate per mile for patrolling.  The Applicant reiterated its previous arguments and emphasized that FEMA originally used the hourly rate cost code for police automobiles that are stationary with the engine running during project formulation.

 

The Applicant believed that the OIG’s use of FEMA’s cost code for vehicle patrolling based on mileage does not accurately reflect the costs of vehicle equipment, gas, and high maintenance costs incurred while a vehicle is stationary and in use during a shift.  The Applicant also attached an article by a law enforcement publication describing the difference between costs per hour and cost per mile for police vehicles, and explaining why idling vehicles in operation generate costs.[6]  The article stated that Ford Fleet determined that one hour of idling is equal to the engine wear of driving 33 miles, which the Applicant asserted was the case for its vehicles. 

 

The Applicant submitted, as additional support, FEMA’s Schedule of Equipment Rates for disasters declared on or after May 1, 2008, police vehicle hours captured in real time by FEMA Project Specialists, and a memorandum prepared by the Metropolitan Nashville Police Department Strategic Development Division which described customary police vehicle operations during an officer’s shift.[7]  The memorandum stated that during a shift, the police emergency vehicle serves as the officer’s work station and is occupied by the officer for much of the shift while stationary, and much of the equipment the officer needs during his tour of duty is contained within the vehicle, is electronic, and requires charging throughout the shift to maintain a state of readiness.[8]

 

The FEMA Region IV Regional Administrator (RA) issued a first appeal decision on February 8, 2018, finding that the Applicant had not sufficiently demonstrated that an hourly rate more accurately reflects the type of work performed than the appealed mileage rate.  The RA stated the mileage rate is the less costly of the two, and therefore, the more reasonable rate for reimbursement of the approved work.  The RA based her findings on Public Assistance (PA) policy guidance that states FEMA may reimburse a subgrantee for vehicle usage on the basis of mileage if less costly than hourly rates.[9]  While the Applicant provided logs documenting the number of hours each police vehicle was in use during emergency operations, the RA explained that the vehicle logs do not specify the type of work performed and whether at any given time the vehicles were used for patrolling versus stationary. 

 

In a discussion about Stafford Act § 705(c), the RA held that absent the requisite information supporting the type of work performed with the patrol vehicles, the RA is not able to determine the ratio of stationary work to patrol work in order to determine cost reasonableness of the hourly rate.  Without the documentation needed to determine which rate was more reasonable, FEMA applied the less costly of the two rates and made deductions to the PWs.  Because the reductions made were related to the reasonableness of the equipment costs claimed, the RA found that FEMA was not prohibited by Section 705(c) from making the adjustments.

 

Second Appeal

 

In its second appeal, dated April 6, 2018, the Applicant reiterates its previous arguments that its claimed equipment costs were reasonable and adequately documented, that FEMA previously confirmed supporting documentation as adequate, and that Stafford Act § 705(c) bars recovery of the funds.  The Applicant did not discuss any new arguments.

Discussion

 

FEMA provides PA funding for the use of applicant-owned equipment.[10]  Costs for the use of automobiles may be reimbursed on the basis of mileage if less costly than hourly rates.[11]  The FEMA Schedule of Equipment Rates serves as the basis for reimbursement in all cases where an applicant does not have established equipment rates.[12]  However, for a cost to be allowable and therefore reimbursable under a PA award, the cost must be, among other requirements, reasonable and adequately documented.[13]  Documentation that establishes cost reasonableness might include similar work done in the past, average costs for similar work in the area, published unit costs from national cost estimating databases, or FEMA cost codes.[14] 

 

FEMA reviewed the Applicant’s documentation of claimed costs and found them to be reasonable during the formulation of PWs 3551, 4654, and 5540.  Based on the information that the Applicant provided related to the work performed by the police department during the project period and the use of the vehicles directly related to that work, FEMA determined that use of the hourly rate provided on FEMA’s Schedule of Equipment Rates was appropriate and reasonable. 

 

However, in its audit report, the OIG questioned the costs submitted by the Applicant and found that they were not reasonable given the circumstances of the project.[15]  The OIG’s concern was that the hourly rate may have grossly overestimated the amount of funding needed to reimburse the Applicant for the work performed.  The report stated that the Applicant kept a complete record of all hours claimed for each vehicle but did not keep complete records documenting the mileage data in every case.  Because of the lack of complete mileage records, the OIG relied on testimony from the Applicant which estimated that the police officers drove their police vehicles an average of 50 miles per day.[16]  The OIG then used this average, along with the FEMA equipment rate of $0.63 per mile for police patrolling, to determine that the use of the mileage rate for reimbursement was reasonable given the circumstances.  

 

After the OIG issued its audit report, the Applicant provided FEMA with a memorandum prepared by the Metropolitan Nashville Police Department Strategic Development Division which explained, in detail, customary police vehicle operations during an officer’s shift.  The memorandum, which was provided in response to FEMA’s Request for Information, stated that during a shift, the police emergency vehicle serves as the officer’s work station and is occupied by the officer for much of the shift while stationary.[17]  Most of the equipment the officer needs during his tour of duty is contained within the vehicle, is electronic, and requires charging throughout the shift to maintain a state of readiness.[18]

 

The OIG, however, developed its estimation without the benefit of the subsequently submitted memorandum in which the Applicant explained its customary police vehicle operations during an officer’s shift.  When the memorandum is considered in conjunction with documentation previously submitted by the Applicant, in particular the logs documenting the number of hours each police vehicle was in use during emergency operations, the documentation as a whole satisfactorily establishes the hours and type of work performed.  The emergency work necessarily required officers to spend some time driving to different work locations; however, for the majority of the shifts the vehicles remained stationary to serve as mobile work stations.  Given these circumstances, reimbursement based on an hourly rate for the vehicles is more appropriate and reasonable than reimbursement based on an estimation of mileage, which does not accurately reflect how the vehicles were used during the emergency operations.

 

Conclusion

 

Documentation substantiating the hours and type of work performed by the Applicant’s police officers justifies reimbursement based on the hourly equipment rate for police vehicles.[19]  Accordingly, the second appeal is granted.

 

[1] U.S. Dep’t of Homeland Sec. Office of Inspector Gen. (OIG), 16-112-D, FEMA Should Recover $2.2 Million in Public Assistance Grants Funds Awarded to Nashville-Davidson County, Tennessee, for May 2010 Flood Emergency Work, at 3-5 (2016).

[2] Id. at 4.

[3] Id.

[4] Memorandum from FEMA Reg’l Adm’r to Dir. E. Reg’l Office, Office of Disaster Assistance Oversight, at 1 (Oct. 11, 2016).

[5] FEMA deobligated $843,383.00 from PW 3551, $654,557.00 from PW 4654, and $524,356.00 from PW 5540.

[6] Hours… or Miles?, Herndon Media Group,  (Mar/Apr 2006), http://www.hendonpub.com/resources/article_ archive/results/details?id=3788 (last visited on Aug. 16, 2018).

[7] Memorandum from Strategic Development Div., to Metro. Nashville Police Dep’t. Fiscal Div. (Dec. 16, 2017) [hereinafter MNPD Vehicle Memo].

[8] Id. at 1.

[9] Public Assistance Guide, FEMA 322, at 48 (June 2007) [hereinafter PA Guide].

[10] 44 C.F.R. § 206.228(a)(1)(iii) (2009).

[11] PA Guide, at 48.

[12] Id.

[13] 2 C.F.R. pt. 225, app. A § C.1.a.-j.

[14] PA Guide, at 34.

[15] OIG-16-112-D, at 3-5.

[16] Id. at 4.

[17] Memorandum from Metro. Nashville Police Dept., Strategic Development Div. to Metro. Nashville Police Dept., Fiscal Div., at 1 (Dec. 16, 2017).

[18] Id.

[19] The issue of whether Stafford Act § 705(c) prohibits FEMA from recouping PA funding is moot and not further discussed because the appeal is granted on substantive grounds.