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841

Findings of Fact

that basis (13.65 percent of $15,959.78). The Board thus determined a cost of $2,177.76 for operation and maintenance applicable to the camera repair course, and, using the enrollment factor of 71,235.75 student hours, arrived at a rate of $0.0306 per student hour.

By applying actual enrollment of 53,272 student hours, the rate would be $0.0409 per student hour.

TAXES AND INSURANCE

36. Plaintiff's total taxes and insurance for the year ended April 30, 1950, was $4,770.53, and for the year ended April 30, 1951, covering the contract in suit, was $6,045.59. The rates claimed on the basis of actual enrollment were $0.0182 per student hour in the first year and $0.0293 for the second year.

The Board allowed plaintiff's actual cost as claimed for the first year at the rate of $0.0182 per student hour for contract V-837. The Board also allowed this rate for the year ended April 30, 1951, covered by contract V-899, on the premise that the substantial decrease in enrollment could not justify any increase in the normal costs of taxes and insurance. This item was treated by the Board in the same manner as the determination made for the cost of instruction in findings 19 and 20 herein.

Plaintiff's increase of $1,275.06 for taxes and insurance during the year ended April 30, 1951, resulted in part from increases of $364.52 for payroll taxes and insurance. The largest increase was in state franchise tax, which was $79.21 for the year ended April 30, 1950, and $763.53 for the year ended April 30, 1951. The remaining increase was from greater payments for business taxes and protection services.

The Board ignored the increases other than those based on payrolls. The defendant failed to verify them. The plaintiff failed to explain or justify the increase in these items of cost for the year ended April 30, 1951, over the prior year, but furnished them pursuant to the Board's order. The fair and reasonable basis for the allocation of these items of cost is in proportion to the student hours of attendance for each course. If all taxes are allowed the amount allocable to the camera repair course is 25.8 percent

636700-63- -56

Findings of Fact

150 Ct. Cl.

of $6,045.59, or the sum of $1,559.76. The tax and insurance cost arrived at is $0.0219 per student hour determined upon the minimum enrollment factor of 71,235.75 student hours.

ADMINISTRATIVE EXPENSES

37. Plaintiff claimed administrative expenses of $42,945.80 for the year covered by contract V-899, here in suit, of which $1,000.00 was claimed as a direct charge against the camera repair course. Based on a student-hour ratio of 25.8 percent and using actual student hours of 53,272, plaintiff arrived at a rate of $0.02268 per student hour. In plaintiff's proposed findings it now claims as fair and reasonable a rate of $0.2013 which was computed as above, after making a deduction of $5,243.31 from the total administrative expenses.

38. The Board allowed plaintiff a tuition rate item of $0.0553 for administrative expenses which was the same rate allowed on the previous contract V-837, and was the amount allowed by the Veterans Administration in arriving at its original tuition rate of $0.406 per student hour for instant course. This rate was based on a "conversion formula," which allowed 18 percent of the total amount allowed for teaching personnel, consumable supplies, operation and maintenance, taxes and insurance, depreciation, rent, and advertising, less other income, based on cost data for the nine-month period from March 1, 1949, to November 30, 1949.

The Board found the plaintiff failed to bear its burden of proof in justifying the administrative expenses in the amount claimed and failed to satisfy the Board that all of the expenditures were either necessary or reasonable. The Board noted that student-hour costs for the camera repair course increased, in the contract year in suit, over the previous year, despite the decrease in enrollment of over 20 percent for all courses, and over 25 percent for the camera repair course. The Board cited its previous decision in West Coast University v. Administrator, VEAB No. 115, December 15, 1954, in which it reviewed administrative allowances in a number of prior decisions. The Board noted that in cases considering administrative costs for rate purposes, the Board averaged allowances of $0.044 per student hour in the years 1951 through 1953, and slightly lower in 1954, and noted that

841

Findings of Fact

"administrative expense is a type of expense that does not ordinarily depend on the type of course." The Board found plaintiff had not shown any problems peculiar to the courses offered which imposed a greater administrative burden than ordinarily would accompany the teaching of other courses, and found the allowance of $0.0553 adequate. With respect to accounting fees, the Board found no evidence was adduced to show services rendered, or the basis for these charges. The Board also rejected plaintiff's claim of $2,831.79 for interest in the period covering contract V-899 as untenable, and found that the interest paid by the school was the result of insufficient working capital, and that plaintiff would have needed a bank loan regardless of whether there was a delay by the Veterans Administration in payment of vouchers submitted. The Board made no further attempt to take up additional expenditures, on the ground that plaintiff failed in its burden of proof to justify these expenditures. The Board, in rejecting plaintiff's petition for a rehearing, stated, with regard to administrative expenses, *** the principle of decreasing cost comes into play as courses are added * * * "9

39. The Board's finding of $0.0553 per student hour is based on (1) the Veterans Administration's so-called "conversion formula" for a different cost period, (2) previous average rulings by the Board, and (3) a holding that plaintiff failed to bear its burden of proof for the costs claimed.

The defendant made no effort to audit or analyze any of the costs claimed by plaintiff in the contract year now in

suit.

40. Plaintiff claimed total administrative expenses of $44,940.73 for the year ending April 30, 1950, and $42,945.80 for the year ending April 30, 1951. Plaintiff appealed the 15 percent limitation of administrative expenses requirement by letter dated June 5, 1950.

The legal fee of $1,000, which was listed as a direct charge to the camera repair course should not be included in the determination of a fair and reasonable tuition rate, since this amount is for the prosecution of the instant claim and is a nonrecurring expense.

Findings of Fact

150 Ct. Cl.

41. Plaintiff listed two full-time and two part-time bookkeepers in its cost data schedules submitted. In addition, plaintiff had three outside accountants during the pertinent period performing accounting work for the school. Herman Miller & Co. was the regular accounting firm and was paid at a rate of $135 per month. This firm also received $1,100 from plaintiff for assisting in the preparation of cost data and attending conferences. This was $230 more than this firm received the previous year. Plaintiff paid accountant Litman Kraus for services, including preparation of cost data, for which he received $2,000. This was $1,000 more than he received the previous year. A third accountant received $300. He had not been employed the previous year.

It is reasonable to conclude that the increased accounting expenses were incurred by reason of the various additional items of cost data submitted at the request of the Veterans Administration during protracted negotiations, and would not be recurring.

42. Interest is a normal business expense which is an allowable item under the Veterans Administration regulations in computing administrative expenses (Veterans Administration Manual 7-5, as amended by Change 4, supra). The amount of $2,831.79 was deemed excessive by the Board. Plaintiff's balance sheet for the fiscal year ending July 31, 1950, reveals $133,162.59 in accounts due from the Veterans Administration, of which $16,313.04 was assigned to the bank. Additional loans amounted to $63,600.00. Plaintiff's balance sheet for the fiscal year ending July 31, 1951, reveals an amount due from the Veterans Administration of $62,167.84. Loans from the bank and others totaled $33,902.01. The $62,167.84 was due plaintiff from the Veterans Administration after plaintiff's contracts had been negotiated and in effect for almost a year. Plaintiff's gross income for that fiscal year was $250,054.34, so that the amount owed by the Veterans Administration would be about 25 percent of gross. It appears that the amount of $2,831.79 claimed by plaintiff as interest expense was due largely to failure of the Veterans Administration to pay vouchers promptly.

43. Since it was found that a space basis would be more accurate in the determination of rent, operation and mainte

841

Findings of Fact

nance, and amortization of leasehold improvements, these expenses, as they pertain to the administrative office space, should be allocated to administrative expense. During the period in dispute, the school used 875 square feet of space, or 7.65 percent of the total of 11,430 square feet for the administrative offices. The following additional expenses should be included in the total administrative expense:

Item

Rent, 7.65% of $13,399.92--

Operation and Maintenance, 7.65% of $15,959.78_ Amortization of Leasehold Improvements, 7.65% $2,403.66__

Total added to administrative expense_-.

Amount $1,025. 09

1,220.92

of

183.88

$2, 429. 89

The amortization of leasehold improvements does not include charges directly assignable to the various courses. The amortization of $2,403.66 represents 20 percent of $12,018.30 not otherwise assignable to photographic courses.

The total administrative expense computed herein was $38,602.38, which, when allocated on a student-hour ratio of 25.8 percent, is equivalent to $9,959.41 for the camera repair

course.

When computed on actual student hours for the year, the tuition rate is $0.1869 per student hour for the camera repair course. By applying the minimum enrollment factor of 71,235.75 student hours, the tuition rate equals $0.1398 per student hour.

The evidence supports a finding that the plaintiff's fair and reasonable administrative expenses for the year ended April 30, 1951, are as follows:

Administration and clerical salaries____

Accounting fees

Telephone and telegraphic expense.

Casual clerical help-----

Stationery and postage.......

Interest and bank charges

Dues, licenses, and permits_
Convention expenses----
Alumni association expense-.
Tax Stamps--

Signs

$25, 746. 05 3,490.00 1, 194. 40

323. 05

2, 231.92 2, 831. 79

211. 00

72.00

63.57

75.00

43.84

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