STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HUMAN RESOURCES CENTER, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 83-1967

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in the above case before the Division of Administrative Hearings, by its duly designated Hearing Officer, Donald R. Alexander, on September 7, 1983, in Daytona Beach, Florida.

APPEARANCES

For Petitioner: Wayne L. Hogenboom, Esquire

Post Office Box 4319

South Daytona, Florida 32021

For Respondent: Joseph L. Shields, Esquire

Department of Health and Rehabilitative Services

Building One, Room 406 1323 Winewood Boulevard

Tallahassee, Florida 32301 BACKGROUND

This matter was initiated when petitioner, Human Resources Center, Inc., requested a hearing to contest the audit findings of respondent, Department of Health and, Rehabilitative Services (DHRS), for Volusia County Drug Council, Inc. (VCDC) for fiscal years ending June 30, 1980 and June 30, 1981. Petitioner is the successor to VCDC after the two entities merged on February 1, 1982. In the audit findings, the Department contended that petitioner owed respondent

$28,305.

The matter was referred by respondent to the Division of Administrative Hearings on June 22, 1983 with a request that a Hearing Officer be assigned to conduct a hearing. By Notice of Hearing dated August 1, 1983 the final hearing was scheduled for August 29, 1983 in Daytona Beach, Florida. At the request of petitioner, the case was rescheduled to September 7, 1983 at the same location.

At the final hearing petitioner presented the testimony of Charles David Hood, Jr., Jeffrey L. Weber, Dr. Barbara J. Heller, Harry A. Smith, Sam Cook, Robert O. Wallace, Jr., John C. Hodnette, Steven A. Yordon, and Johnathan M.

Cherry and offered petitioner's exhibits 1 through 12; all were received into evidence.

There was no transcript of hearing prepared in this proceeding. Proposed findings of fact and conclusions of law were filed by the parties on September

28 and October 4, 1983 and have been considered by the undersigned in the preparation of this order. Findings of fact not included in this order were considered irrelevant to the issues, immaterial to the results reached, or were not supported by competent and substantial evidence.

The issue herein is whether petitioner owes respondent $28,305 in drug abuse funds received from the State during fiscal years ending June 30, 1980 and June 30, 1981.

Based upon all of the evidence the following findings of fact are determined:

FINDINGS OF FACT

1. On or about July 1, 1979, the Volusia County Drug Council, Inc. (VCDC) entered into a contract with respondent Department of Health and Rehabilitative Services (DHRS), wherein DHRS agreed to fund VCDC for contract services rendered pursuant to the 409 Drug Program. The contract expired on June 30, 1980. Under the 409 program, DHRS administers federal grant monies to contractors such as VCDC for drug abuse prevention.

   
   

2. On or about July 1, 1980, a second contract was entered into by VCDC and DHRS wherein DHRS agreed to fund VCDC for contract services pursuant to the

   410 Drug Program. This contract expired on June 30, 1981 and involved federal grant monies for drug abuse treatment.

   
   

3. Because of impending insolvency, VCDC merged with petitioner, Human Resources Center, Inc. (HRC) on February 1, 1982. Under the merger agreement, HRC agreed to assume all liabilities of VCDC, including those owed to DHRS.

   
   

4. The two contracts were modified from time to time by various addenda which have been received in evidence as petitioner's exhibits 1 and 2.

   
   

5. Prior to the merger, representatives of VCDC met with representatives of DHRS seeking advice on the desirability of such a merger. Because of the financial crisis, only three alternatives were available: (a) insolvency, a merger with another entity, and (c) reorganization of the existing organization. The DHRS District 4 alcohol and drug abuse mental health supervisor recommended a merger as being the most feasible alternative and one that was least disruptive to the continued provision of services to the community. Although some members of VCDC's board of directors were under the impression that DHRS would forgive it for all liabilities if a merger occurred, there was no representation by DHRS that such liabilities would be forgiven.

   
   

6. A field audit of VCDC was conducted by DHRS field auditors in the latter half of 1981 for both fiscal years, 1980 and 1981. The audit entailed a review of approximately 4,000 items and was completed with great difficulty due to the poor state of the records of VCDC. Because of this, the results of the audit were not finalized until after the merger occurred.

   
   

7. Pursuant to Rule 10E-14.03(2), Florida Administrative Code, an exit conference was held on January 21, 1983 by representatives of DHRS ,and HRC for

   the purpose of discussing the various adjustments. They reflected a liability of $28,305 on the part of VCDC. HRC requested and was given an opportunity to file additional documentation to satisfy and counter the adjustments. However, it merely filed a letter and a schedule on March 18, 1983 which generally stated HRC's position and asked several questions. DHRS did not respond to the letter or the questions. DHRS later formalized its audit report without any changes and noted that HRC was liable to the State in the amount of $28,305. That prompted the instant proceeding.

   
   

8. The principal item in dispute for fiscal year 1980 involved an expenditure of $24,417 under a contract with the University of Miami. The contract was executed, allegedly funded and certified forward in fiscal year 1979, but the actual expenditure was not made nor work performed there until fiscal year 1980. The contract term was subsequently extended on September 28, 1979 from June 30 to September 30, 1979 by the Sixth Addendum to the agreement. The funding of the contract was not provided by DHRS to VCDC until September 28, or two days before the contract was to expire. Because of DHRS's extension of the agreement, and tardiness in providing the funds which made it impossible for VCDC to perform during fiscal year 1979, the expenditure was properly recorded in fiscal year 1980.

   
   

9. A large number of items were disallowed by DHRS auditors on the ground such expenditures were "undocumented". In so doing, DHRS relied upon OMB Circular A-122 as authority for disallowing the same. That circular was adopted by the Office of Management and Budget and contains cost principles applicable to federal grant dollars. As such, it applies in the case at bar. As is pertinent here, Attachment A, Section A.g. of the Circular provides that in order for costs to be allowable, they must "[b]e adequately documented." HRC submitted various cancelled checks to support the expenditures in question. However, cancelled checks alone are insufficient auditing evidence since invoices must also be provided. Indeed, the petitioner's own expert agreed with this principle. Therefore, the disallowance of items in fiscal years 1980 and 1981 for being "undocumented" was proper.

   
   

10. Petitioner has agreed that the adjustments related to health insurance, miscellaneous expenses, and IRS penalties and interest were proper. Respondent has agreed that the "amount received" ($323,430) on the statement of participation for fiscal year 1981 was overstated and should be reduced by

    $4,796.

    
    

11. The record is unclear as to whether the offset used by DHRS for 410 grant expenditures for both fiscal years was in accordance with the formula prescribed in Section 394.76, Florida Statutes. The statement of participation should be restated in accordance with that formula.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes.

    
    

13. This is yet another proceeding where poor recordkeeping and a lack of communication between the parties have given rise to the necessity of a hearing. Had the parties openly communicated with one another, or utilized discovery tools, most of the controversial items might have been resolved.

14. In the present posture of the case, petitioner generally claims (a) that DHRS is estopped from seeking reimbursement from HRC based upon its representations to VCDC and HRC prior to the merger of the two entities, (b) that DHRS's failure to respond to its letter and "documentation" of March 18, 1983 is a violation of Rule 10E-14.03(4), Florida Administrative Code, (c) that the disallowance of the expenditure related to the University contract was improper, (d) that the cancelled checks are sufficient documentation to support the expenditures that were disallowed for being "undocumented", and (e) that the statement of participation prepared by DHRS is incorrect in various aspects. In short, it contends that nothing is owed the State.

    
    

15. Estoppel has no application to the case at bar. In order for estoppel to lie, there must first be a representation by the State as to a material fact that is contrary to a later- asserted position. Salz v. Department of Administration, 432 So.2d 1376, 1378 (Fla. 3d DCA 1983). There being no evidence of the same, petitioner's argument must fail.

    
    

16. Petitioner next contends that under Rule 10E-14.03, Florida Administrative Code, DHRS was bound to respond to its letter of March 18, 1983, and having failed to do so, the additional documentation that it provided must be considered as being satisfactory to reverse the disallowed expenditures. Subsections (3) and (4) of the rule read in pertinent part as follows:

    
    

    1. Following the exit conference,

       the contractor and affected subcontractor have thirty calendar days to submit docu- mentation or other evidence to contest any disallowed expenditures or other ad- justments. The time for submission may

       be extended by the Department upon request and for good cause .......

    2. The Department, within 30 days

       of receipt of the additional documentation, will advise the contractor and affected subcontractor in writing of the receipt

       and specify a plan of action to be taken by the Department on the information sub- mitted on the audit findings cited at the exit conference. If no response is trans- mitted to the contractor or subcontractor

       within 30 days of receipt of the additional documentation by the Department, the additional documentation shall be considered approved as satisfactory documentation to reverse the decision to disallow the expen- diture. (Emphasis added.)

       
       

       Petitioner's "documentation" and "evidence" merely consisted, attached thereto. As such, it did not constitute documentation or evidence contesting the adjustments and no reply was required on the part of DHRS. Therefore, petitioner's reliance on the rule is misplaced. Parenthetically, it is noted, however, that common courtesy would have dictated that either a written or telephonic acknowledgment be given by DHRS to petitioner to respond to its inquiry.

       
       

17. The latter three contentions of petitioner relate to specific adjustments or findings made in the audit report. The evidence reveals that the

expenditures related to the University of Miami contract were properly reflected in the 1980 fiscal year, that insufficient documentation was furnished to justify those items disallowed on the ground they were "undocumented", and that the statement of participation for fiscal year 1981 should be restated in accordance with the formula prescribed in Section 394.76, Florida Statutes.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's liability to respondent for fiscal years 1980

and 1981 be recalculated in accordance with the specific findings and conclusions herein. All other relief should be DENIED.

DONE and ENTERED this 9th day of November, 1983, in Tallahassee, Florida.

DONALD R. ALEXANDER,

Hearing Officer

Division of Administrative Hearings 2009 Apalachee Parkway

Tallahassee, Florida 32301 904/488-9675

Filed with the Clerk of the Division of Administrative Hearings this 9th day of November, 1983.

COPIES FURNISHED:

Wayne L. Hogenboom, Esquire Post Office Box 4319

South Daytona, Florida 32021

Joseph L. Shields, Esquire Department of Health and

Rehabilitative Services Building One, Room 406 1323 Winewood Boulevard

Tallahassee, Florida 32301

Alicia Jacobs, Esquire General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

David H. Pingree, Secretary Department of Health and

Rehabilitative Services 1321 Winewood Boulevard

Tallahassee, Florida 32301

Docket for Case No: 83-001967

Orders for Case No: 83-001967