Family Health Centers of San Diego, Inc., Claimed Unallowable and Inadequately Documented Costs for Health Resources and Services Administration Grants Under the Recovery Act

During calendar years 2009 and 2010, the Health Resources and Services Administration awarded Family Health Centers of San Diego, Inc. (Health Center), approximately $10.8 million in American Recovery and Reinvestment Act (Recovery Act) funds. Of the $7.2 million of the Health Center's costs that we reviewed for the period March 1, 2009, through June 30, 2011, $2.7 million was allowable in accordance with the terms of the Recovery Act grants and applicable Federal requirements. However, the Health Center claimed $114,000 in unallowable rental costs and related indirect costs and $4.4 million in inadequately documented salary and salary-related costs.

The Health Center claimed unallowable rental costs because its officials were unaware of the Federal requirement limiting rental costs under a "less-than-arms-length" lease to the amount that would have been allowable had title to the property vested in the Health Center. In addition, Health Center officials acknowledged that they had claimed salaries and wages on the basis of budget estimates and that the Health Center's policies and procedures did not comply with Federal requirements.

We recommended that HRSA (1) require the Health Center to refund to the Federal Government $114,000 for unallowable rental costs and related indirect costs, (2) either require the Health Center to refund to the Federal Government $4.4 million for inadequately documented salary and salary-related costs or work with the Health Center to determine whether any of the costs claimed were allowable, (3) educate Health Center officials on the Federal requirement limiting allowable rental costs under "less-than-arms-length" leases, and (4) ensure that the Health Center maintains personnel activity reports in compliance with Federal requirements.

In written comments on our draft report, the Health Center described how it had used its grant funding and stated that it had met or exceeded the Recovery Act grant objectives for all its grants. The Health Center also provided information in response to our finding on rental and related indirect costs and disagreed with our finding on salary and salary-related costs. HRSA concurred with our recommendations and provided information on actions that it planned to take to address our recommendations.