We just settled a potential discrimination lawsuit from former staff. Is the payment of the settlement an allowable expense under federal rules?

Ah, my favorite answer. It depends.

Was there a whistleblower component or might the individual claim there was? You clearly cannot use federal dollars to settle that sort of case because the specific accusation of wrongdoing is related to the waste, fraud or abuse of federal funds themselves.

Such costs are not allowed if the settlement:

(i) Relates to a violation of, or failure to comply with, a Federal, state, local or foreign statute, regulation or the terms and conditions of the Federal award, by the non-Federal entity (including its agents and employees); and

(ii) Results in any of the following dispositions:

(A) In a criminal proceeding, a conviction.

(B) In a civil or administrative proceeding involving an allegation of fraud or similar misconduct, a determination of non-Federal entity liability.

(C) In the case of any civil or administrative proceeding, the disallowance of costs or the imposition of a monetary penalty, or an order issued by the HHS awarding agency head or delegate to the non-Federal entity to take corrective action under 10 U.S.C. 2409 or 41 U.S.C. 4712.

(D) A final decision by an appropriate Federal official to debar or suspend the non-Federal entity, to rescind or void a Federal award, or to terminate a Federal award by reason of a violation or failure to comply with a statute, regulation, or the terms and conditions of the Federal award.

(E) A disposition by consent or compromise, if the action could have resulted in any of the dispositions described in paragraphs (b)(1)(ii)(A) through (D) of this section.

The circumstances seem to me to be related to (E), A disposition by consent or compromise. The question is whether the case itself is related to an allegation of fraud or failure to follow laws or regulations, or similar misconduct. It appears to me that the staff person was alleging misconduct in the form of discrimination against her as a protected class. If that is the case, the settlement cannot be paid with federal funds. If that is not the case, it may be allowed. Say, for example, the settlement was related to unclear policies on what accrued leave needs to be paid out. If there is no accusation of wrong doing, that would be allowable with federal funds.

This isn’t simple. Read the whole section if you are struggling with this. Your legal costs, for example, may or may not be allowed as well. Your attorney can help you parse through this complex section and identify where your case fits in this complex legal section.

45 CFR  75.435

We just settled a potential discrimination lawsuit from former staff…

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