Appeal Timeliness – Appeal Procedures – Support Documentation – Direct Administrative Costs – Reasonable Costs

Appeal Brief

Summary Paragraph

Florida experienced numerous disaster events from August 2008 through August 2013.  Under five disasters, the Florida Division of Emergency Management (Grantee) submitted 325 Category Z Project Worksheets (PWs) for direct administrative costs (DAC) related to Public Assistance grant management activities, including work performed by its contractor.  FEMA disallowed/deducted a portion of claimed costs when the Grantee could not substantiate they were reasonable or otherwise eligible.  The Grantee submitted 129 first appeals of 129 PWs, requesting that FEMA reinstate the disallowed/deducted DAC.  The Grantee’s aggregate amount in dispute totaled $1,713,445.06.  In general, the Grantee stated that FEMA’s disallowances were unfair, arbitrary and capricious, and based on undefined standards for reasonableness.  FEMA Region IV issued Requests for Information (RFIs) on March 6, 2017 and July 21, 2017, seeking: supporting documentation; explanations clarifying the documentation submitted; and, information to substantiate that each appeal was timely submitted.  The Grantee was unable to provide the information requested and asked for more time to comply with the requests.  On February 26, 2018, after not receiving any further response, the Regional Administrator (RA) for FEMA Region IV denied the first appeals, finding that 89 of the appeals were untimely, 28 were premature, and all appeals, including the 12 that were considered on their substantive merits, lacked supporting documentation to substantiate the amounts in dispute or the reasonableness of the disputed costs.  The Grantee submitted its second appeal on April 27, 2018, challenging FEMA’s interpretation of its timeliness regulations, disputing that appeals were premature, and noting that the Grantee had already submitted all supporting documentation prior to its first appeals.  FEMA issued a Final RFI because it still could not determine, by reference to the Grantee’s supporting documentation, the relevance of the information provided, how it applies to the eligibility of each appeal, and how the Grantee calculated its amounts in dispute.  The Grantee responded on July 19, 2019, with updated spreadsheets and additional invoices.

Authorities and Second Appeals

• Stafford Act § 423(a).
• 44 C.F.R. § 206.206(a); 2 C.F.R. pt. 225.
• DAP9525.9, Section 324 Management Costs and Direct Administrative Costs, at 3; PA Guide, at 40.
• Dep’t of Transp., FEMA-4068-DR-FL, at 5; City of Sweetwater, FEMA-1345-DR-FL, at 3, City of Atlanta, FEMA-4165-DR-GA, at 6, 9-10.

Headnotes

• The Stafford Act § 423 and 44 C.F.R. § 206.206 require appeals to be submitted within 60 days of a determination previously made after notification of the award or denial of award of assistance.
  • A number of the Grantee’s appeals were submitted more than 60 days after notice of a determination previously made, or alternatively prior to the award or denial of award of assistance. 
• With respect to the format and content of appeals, FEMA’s regulations require that an appeal specify the monetary figure in dispute and contain documented justification supporting the applicant’s position.
  • The Grantee has not identified, with specificity, the source of the amounts in dispute.
• Under DAP 9525.9, FEMA may reimburse reasonable and properly documented DAC if applicants provide information about each activity in sufficient detail so as to allow FEMA to assess employee skill level, the suitability of that skill level to the activity in question, and the level of effort required to complete the activity.
  • The Grantee has not provided documentation explaining why it exceeded agreed upon timeframes for DAC activities or demonstrating that all DAC was directly tied to eligible work.  However, the Grantee has provided documentation allowing FEMA to partially reimburse reasonable DAC based on a review of the suitability of employees’ skill levels to the activities performed.

Conclusion 

A number of the Grantee’s first appeals were untimely or premature.  For many PWs, the Grantee has not substantiated its amounts in dispute or demonstrated through supporting documentation that claimed DAC was reasonable and directly related to eligible work.  However, FEMA will reimburse some reasonable and properly documented DAC based on a review of suitability of employees’ skill levels to the activities performed.  Therefore, the second appeal is partially granted in the amount of $85,204.50.

Appeal Letter

Appeal Analysis

Background

The State of Florida experienced numerous disaster events from August 2008 through August 2013.  Major disasters declared during this period include the following:

• FEMA-1785-DR-FL:  Tropical Storm Fay, declared August 24, 2008.
• FEMA-1840-DR-FL:  Severe Storms, Flooding, Tornadoes, and Straight-line Winds,

declared May 27, 2009.

• FEMA-4068-DR-FL:  Tropical Storm Debby, declared July 3, 2012.
• FEMA-4084-DR-FL:  Hurricane Isaac, declared October 18, 2012.
• FEMA-4138-DR-FL:  Severe Storms and Flooding, declared August 2, 2013.

Under these five disasters, the Florida Division of Emergency Management (Grantee) submitted 325 Category Z Project Worksheets (PWs) for direct administrative costs (DAC) related to Public Assistance (PA) grant management activities performed by the Grantee and its contractor.  Each Category Z PW documented the grant management activities for a separate applicant across all of that applicant’s projects in a disaster, as well as the DAC associated with compiling that Category Z PW. 

The Grantee and FEMA agreed to guidelines for reasonable DAC hours based on the type of administrative activity being performed and the complexity of the project.  The guidelines established a range of acceptable hours for staff to complete various tasks.  FEMA agreed not to scrutinize DAC submissions that fell within this range.  However, if DAC submitted to FEMA for initial review exceeded the established time limit parameters or otherwise appeared ineligible, FEMA notified the Grantee of potential denials with a written explanation.  The Grantee then had an opportunity to provide further explanation and supporting documentation to justify those costs before FEMA officially awarded or denied funding. 

In total, FEMA obligated $15,101,272.86 in DAC but disallowed/deducted a portion of claimed costs when the Grantee could not substantiate the reasonableness or eligibility of these costs. 

First Appeal

The Grantee submitted 129 first appeals between February 8, 2016 and September 16, 2016, requesting that FEMA reinstate the disallowed/deducted DAC specific to each Category Z PW.  The Grantee’s aggregate amount in dispute totaled $1,713,445.06. 

In general, the Grantee stated that FEMA’s disallowances were unfair, arbitrary and capricious, and based on undefined standards for reasonableness.  The Grantee also stated that state governments should be afforded more leeway than other types of applicants in determining cost-reasonableness, based on each state’s unique role and partnership with FEMA.  Therefore, instead of FEMA closely examining all claimed costs line by line, the Grantee proposed that FEMA should apply deference and avoid taking deductions for the Grantee’s DAC as long as the costs were tracked, charged, and accounted for directly to a specific project.  The Grantee also disputed FEMA’s individual bases for each deduction, but generally did not reference any specific facts or circumstances related to the deducted DAC.

FEMA Region IV issued Requests for Information (RFIs) on March 6, 2017 and July 21, 2017, seeking:

• supporting documentation;
• explanations clarifying the relevance of the information provided, how it applies to the eligibility of each appeal, and how the Grantee calculated its amounts in dispute; and
• information to substantiate that each appeal was timely submitted. 
   

The Grantee cited project application summaries and email submissions to demonstrate the timeliness of certain appeals but was otherwise unable to provide the information requested and asked for more time to comply with the requests.[1]  The record does not indicate that the Grantee provided any further documentation or written response to FEMA’s requests after August 28, 2017.

On February 26, 2018, the Regional Administrator (RA) for FEMA Region IV denied the first appeals, finding that 89 of the appeals were untimely, 28 of the appeals were premature, and all appeals, including the 12 that were considered on their substantive merits, lacked supporting documentation to substantiate the amounts in dispute or the reasonableness of the disputed costs.

Second Appeal

The Grantee submitted its second appeal on April 27, 2018, challenging FEMA’s interpretation of its timeliness regulations, disputing that appeals were premature, and noting that the Grantee had already submitted all supporting documentation prior to its first appeals and that these documents should have been part of the administrative record. 

Upon review, FEMA determined that certain PWs identified as untimely or premature for review on first appeal were at least partially timely and appealable.  Additionally, FEMA agreed that it had access to much of the supporting documentation requested.  However, FEMA still could not determine, by reference to the Grantee’s supporting documentation, the relevance of the information provided, how it applies to the eligibility of each appeal, and how the Grantee calculated its amounts in dispute.  Therefore, FEMA issued a Final RFI providing the Grantee a final opportunity to respond to specific requests for clarification.  The Grantee responded on July 19, 2019, with updated spreadsheets and additional invoices, but did not provide any written response to the questions posed in the RFI.

Discussion

Appeal Timeliness

Section 423 of the Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act, as implemented by Title 44 Code of Federal Regulations (44 C.F.R.) § 206.206(c), requires that an applicant file an appeal within 60 days of receipt of the notice of the action being appealed.^[2] 

On first appeal, the RA determined that 89 of the Grantee’s appeals were untimely, as they were submitted more than 60 days after the Grantee received notice of the denials or deobligations.  FEMA reached this determination by comparing the dates of the Grantee’s first appeals with the dates on which the Grantee uploaded FEMA’s notices of the appealed determinations to its own web-based project management system.  However, in some instances, FEMA mistakenly referenced uploaded determinations that were not the determinations being appealed.

On second appeal, FEMA verified that 24 of the previously identified 89 appeals were in fact untimely, as there were no timely appealed determinations in any of those PWs.[3]  In its Final RFI, FEMA requested that the Grantee provide supporting documentation demonstrating that it filed its first appeal for any of those 24 PWs within 60 days of receiving notice of the appealed determinations.  The Grantee did not provide any such response, and therefore FEMA concludes that those 24 first appeals were untimely.

Appeal Procedures

The Stafford Act and its implementing regulations allow an applicant to appeal any determination previously made after notification of the award or denial of award of assistance.^[4] 

On first appeal, the RA determined that 28 of the Grantee’s appeals were premature.  The RA’s first appeal decision explained that the Grantee utilized a 12-step procedure for review of DAC claims.  In general, as a part of this 12-step procedure, the Grantee submitted DAC claims to FEMA for initial review, and if the costs appeared unreasonable or otherwise ineligible, FEMA notified the Grantee that it would be disallowing the claim, with a documented rationale for the disallowance.  However, these determinations were preliminary and premature, as the Grantee still had an opportunity to respond and provide supporting documentation to justify its DAC before FEMA prepared a version of the PW to officially award or deny assistance. 

On second appeal, FEMA verified that 10 appeals were premature because all appealed determinations only appeared in preliminary notifications; the PW versions containing these determinations are pending and have not been obligated.  Therefore, the Grantee maintains its appeal rights for these 10 PWs, upon notice of FEMA’s determinations.[5]

Support Documentation – Amount in Dispute

With respect to the format and content of appeals, FEMA’s regulations require that an appeal specify the monetary figure in dispute and contain documented justification supporting the applicant’s position.^[6]  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.^[7] 

FEMA is unable to determine the amounts in dispute for some PWs because the Grantee has not shown with specificity how the individual amounts in dispute correspond to the determinations made in the PWs.  For example, the Grantee’s first appeal of PW 1173 (FEMA-4068-DR-FL) disputes 16 deductions totaling $5,128.75, related to costs that FEMA purportedly denied on the basis of excessive time spent on administrative activities.[8]  However, on second appeal, FEMA has not identified 16 deductions or $5,128.75 in denied costs in an obligated or draft version of PW 1173 that relate to excessive time.

In addition, many of the appealed PWs contain a mix of timely, untimely, and prematurely appealed determinations.  In numerous PWs, some (but not all) of the appealed determinations were made in an earlier PW version, and the Grantee’s appeal rights for those determinations lapsed, while other appealed determinations are still pending. 

Because of this commingling of determinations and PW versions, and lack of specificity regarding the individual amounts in dispute, FEMA informed the Grantee in its Final RFI that it was unable to determine the actual amounts in dispute on second appeal.  FEMA identified numerous PWs with these issues and requested specific clarifying information.  In response, the Grantee provided a spreadsheet for each disaster identifying appealed and uncontested deductions, with at least one spreadsheet exceeding 100 pages.  The Grantee, however, did not provide a written response explaining how FEMA should interpret those records, and the spreadsheets themselves did not clearly identify the Category Z PWs associated with each appealed item.  Therefore, in a number of PWs on appeal, the Grantee has not met its burden to substantiate its amount in dispute with documented justification.

Support Documentation – Direct Administrative Costs/Reasonable Costs

Under FEMA Disaster Assistance Policy 9525.9, FEMA will reimburse DAC incurred by grantees that are properly documented in such a way that FEMA can determine whether the costs are reasonable.^[9]  A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.[10]  To allow FEMA to evaluate DAC, grantees and applicants must provide information about each activity performed in sufficient detail so as to allow FEMA to assess the skill level of each person performing the activities, the suitability of that skill level to the activity in question, and the level of effort required to complete the activity.^[11]

1. Excessive Time

The Grantee and FEMA agreed to guidelines for reasonable DAC hours.[12]  In accordance with this agreement, FEMA denied numerous DAC items because the amount of time claimed was excessive and unreasonable for the task performed, or the descriptions of the Grantee’s activities did not include enough information for FEMA to determine reasonableness. 

In reviewing the second appeal documentation, FEMA has determined that the Grantee exceeded the reasonable timeframes it agreed on (or did not provide enough information to determine if agreed upon timeframes had been exceeded), and FEMA offered the Grantee sufficient opportunity to justify the costs.  However, the Grantee often provided vague or generalized explanations for the amount of time spent.  When the Grantee did provide sufficiently detailed explanations, FEMA often granted previously denied costs. 

For example, in PW 175 (FEMA-4084-DR-FL), FEMA deducted $375.00 in costs in a preliminary determination consistent with the 12-step process described above, because the Grantee exceeded the established timeframe for the type of task listed.  However, prior to the PW’s obligation, the Grantee explained in detail why the particular task took longer than normal to complete, and FEMA accordingly awarded the $375.00 in costs in Version 0 of the PW.  In contrast, when FEMA subsequently questioned other claimed costs in the PW for similar reasons, the Grantee responded by repeating the following standard form language: “The activity selected does not encompass all actions performed; additionally, FEMA policy has not established a maximum allowable time for this activity.”[13]  Therefore, FEMA denied those costs.

In its Final RFI, FEMA requested that the Grantee provide or identify detailed, cost-specific explanations to justify DAC that was denied due to unreasonable or excessive time, or denied because the Grantee did not provide enough information to determine reasonableness.  The Grantee did not provide or identify any such explanations, and therefore FEMA upholds those deductions.

2. Tasks Inconsistent with Job Titles

FEMA reviews DAC to ensure that employee skill levels are appropriate for the activities performed.[14]  Here, FEMA found that numerous billed DAC activities were inconsistent with the jobs and hourly rates of the employees performing those activities and reduced costs accordingly.  On second appeal, FEMA confirmed that the documentation in the record often did not demonstrate that employees’ skill levels were suitable for the DAC activities they performed.  FEMA also confirmed that the Grantee often requested DAC based on employee hourly rates that were not commensurate with the level of effort or skill required for the task.

In its Final RFI, FEMA requested that the Grantee provide or identify detailed, cost-specific explanations for DAC that was denied because the activities billed were inconsistent with the job titles or hourly rates of the employees performing those activities.  The Grantee did not provide or identify any such explanations.

Additionally, FEMA requested that the Grantee identify hourly rates for the individual employees that normally performed the listed tasks, in the event FEMA determined it could award reasonable costs for DAC previously denied due to excessive hourly rates.  The Grantee responded by submitting invoices from its contractor for four of the disasters at issue in this appeal. 

Based on a review of the record and the invoices submitted, FEMA has identified numerous previously denied DAC that may be partially granted.  For certain DAC, where FEMA previously determined that an employee did not have the requisite skill level to perform the listed tasks, FEMA is fully granting the requested costs based on additional information about those employee positions contained in the submitted invoices.[15]  For other DAC, where FEMA determined that an employee was overqualified and had excessive hourly rates for the task performed, FEMA has awarded reasonable costs on second appeal based on the contracted hourly rates of employees better suited for those tasks.[16]  

However, FEMA has upheld certain denials where: 1) the record still indicates that an employee did not have the requisite skill level for the claimed DAC activity; 2) the denied cost was not timely appealed; 3) the denied cost is still premature for review because it was contained in a PW that has not been obligated; or 4) FEMA could not verify the claimed amounts in dispute or locate deductions taken because of the rationales described in the Grantee’s appeal.[17]

Based on the foregoing analysis, FEMA is partially granting appealed costs totaling $85,204.50.  A detailed accounting of the approved amounts is included as an Appendix to this decision.

3. DAC Tied to Ineligible or Undocumented Work

Generally, costs that can be directly tied to the performance of eligible work may be eligible for

PA funding.^[18]  DAC, if incurred and properly documented, is only eligible for funding if the associated work is eligible.[19]

FEMA previously reduced DAC: 1) associated with PWs that were ultimately deemed ineligible, withdrawn, or never awarded; 2) associated with the costs of compiling a Category Z PW for projects whose underlying DAC was reduced or found ineligible; 3) unsupported by employee timesheets showing dates and times of work performed; and 4) inconsistent with the documented timeline of events for the relevant PW’s processing and approval, and therefore not associated with any eligible administrative work in the PW. 

In its Final RFI, FEMA requested that the Grantee substantiate the eligibility of the underlying work and costs for which FEMA deducted DAC.  The Grantee did not do so, and therefore FEMA upholds these deductions.

4. Kickoff Meeting – Indirect Costs

FEMA considers kickoff meeting costs to be indirect rather than direct costs.^[20]  Some DAC deductions on appeal relate to costs associated with a kickoff meeting or travel to that meeting.  The Grantee challenged these deductions in instances where only one PW was discussed in a kickoff meeting.  However, FEMA’s applicable guidance explicitly states that kickoff meeting costs are indirect costs, and the guidance does not draw any distinctions based on the number of PWs discussed during a kickoff meeting.  Therefore, FEMA upholds these deductions.

Conclusion

A number of the Grantee’s first appeals were untimely or premature.  For many other PWs, the Grantee did not substantiate all amounts in dispute or demonstrate through supporting documentation that all claimed DAC was reasonable and directly related to eligible work.  However, FEMA has determined it may reimburse some reasonable and properly documented DAC that was previously denied, based on a review of the suitability of employees’ skill levels to the activities performed.  Therefore, the second appeal is partially granted in the amount of $85,204.50.