IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Real Alternatives, :

Petitioner :

 :

v. : No. 106 M.D. 2017

 : Argued: June 8, 2017

Pennsylvania Department of the :

Auditor General and Department :

of Human Services, :

Respondents :

BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge

HONORABLE JULIA K. HEARTHWAY, Judge

HONORABLE DAN PELLEGRINI, Senior Judge

OPINION NOT REPORTED

MEMORANDUM OPINION BY

JUDGE COHN JUBELIRER FILED: July 3, 2017

Petitioner Real Alternatives (RA), a private, Section 501(c)(3)1non-profit 

corporation, is the recipient of a grant from the Department of Human Services 

(DHS) to administer a program that provides free alternatives to abortion services

to women in the Commonwealth. Respondents are the Department of the Auditor 

General (DAG) and DHS. Pursuant to the Grant Agreement, RA is to enter into 

general service provider agreements with its network of service providers and to 

reimburse the service providers, in full, for all direct services performed pursuant 

 

1

Section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3).
2

to a specific schedule of costs set forth in the Grant Agreement. RA has also 

entered into separate “secondary” “Program Development and Advancement 

Agreements” with its service providers, through which service providers agree to 

remit 3% of the service provider’s reimbursements to RA to use for non-grant 

related educational services and other expenses to advance alternatives to abortion 

services locally and nationally. RA deducts the 3% fee as an “offset,” deposits the 

3% fee into its corporate account, and reimburses the service providers for the 

scheduled cost of direct services less the 3% fee. DAG requested production of 

receipts and expenditure documentation related to RA’s spending of the 3% offset 

payments. RA admits it does not use the 3% funds for grant purposes and 

contends the funds are private, corporate funds. RA filed a Petition for Review in 

the Nature of a Complaint for Declaratory2and Injunctive Relief (Petition for 

Review), to which DAG and DHS filed a joint response in opposition. Both RA 

and DAG and DHS have filed cross Applications for Summary Relief, which are 

before the Court for expedited consideration.

3

 At issue is whether DAG and DHS 

can require the production of receipts and expenditure documentation related to 

RA’s spending of the 3% offset payments. 

These material facts are not in dispute. In July 2012, DHS awarded RA a 

grant to administer the statewide “Alternative to Abortion Services Program” 

 

2 RA seeks a declaratory judgment pursuant to the Declaratory Judgments Act, 42 Pa. 

C.S. §§ 7531-7541.

3 RA filed an Application to Expedite and for Oral Argument on April 21, 2017, citing a 

letter from DHS, in which DHS notified RA that it intends to disapprove expenditures to RA in 

the amount of 3% on the basis that RA has not been in compliance with the terms of the Grant 

Agreement and has refused to produce documents related to the 3% fee. (See DHS Letter to RA, 

Apr. 20, 2017 (attached to Application to Expedite).) DAG and DHS filed an Answer pursuant 

to this Court’s Order dated April 25, 2017. This Court granted the Application to Expedite via 

Order dated May 2, 2017.
3

(Program), which provides free alternatives to abortion to women in the 

Commonwealth. (Petition for Review, Ex. A, Grant Agreement Work Plan at 1.) 

The direct services4are administered through a network of 29 service providers 

which operate within the Commonwealth. The Program is funded in the form of a 

legislative grant to DHS,5 which awarded the $30,216,440 grant to RA to be 

administered over the course of five years, and which is set to expire on June 30, 

2017.

Under the Grant Agreement, RA receives the funds from DHS and 

reimburses the service providers on a contractual fee-for-service basis, pursuant to 

general service provider agreements, after all services have been performed. The 

Grant Agreement requires that RA “shall use the funds granted . . . to faithfully 

implement the conditions of th[e] grant and operate the [P]rogram” pursuant to a 

very specific schedule of costs, which is part of the Grant Agreement.

6

 (Id., Grant 

 

4

The direct services provided include counseling, adoption referral, temporary housing, 

and other services.

5

The Legislature appropriated these funds to DHS for “Expanded Medical Services.” 

(Petition for Review, Ex. A, Grant Agreement at 1.) RA also receives federal funding for the 

Program, which is included in the $30,216,440, through the Temporary Assistance for Needy 

Families (TANF) Block Grant, the funds of which DHS distributes to RA to be used in 

accordance with the current Pennsylvania TANF State Plan. (Id., Grant Agreement Work Plan at 

14; Budget Summary, Rider 3 at 1-2.) The TANF funds are to be used “for services to women 

whose gross family income is below 185% of the Federal Poverty Guidelines.” (Id., Grant 

Agreement Work Plan at 14 (internal quotation marks omitted).)

6 RA is required to reimburse service providers in accordance with the Payment 

Provisions set forth in Rider 1 of the Grant Agreement, RA’s Work Plan under the Grant 

Agreement, and the Estimated Annual Budget Summary set forth in Rider 3. (Petition for 

Review, Ex. A.) The Work Plan sets forth reimbursement rates, in pertinent part, as follows:

In accordance with the [] Service Provider Agreement, [RA] will reimburse the 

Service Provider for services provided to eligible clients at the rate of $1.05 for 

each minute of counseling and referral provided; $10.50 for each pregnancy test 

kit per client visit; $2.00 for each Food, Clothing or Furniture Pantry visit (not to 

(Footnote continued on next page...)
4

Agreement at 1.) The total amount of the Grant Agreement provides for both RA’s 

administrative costs and the service providers’ direct services costs. (See id., 

Budget Summary, Rider 3 at 1-2.) The Grant Agreement also provides that RA 

must comply with all federal and state audit requirements and further that it must 

maintain and preserve all books, records, and documents that are related to the 

Grant Agreement in the event an audit is deemed necessary. (Id., Audit Clause A.)

RA executes general, fee-for-service Service Provider Agreements with its 

service providers. In addition, RA enters into a separate “secondary” “Program 

Development and Advancement Agreement” with its service providers, the 

purpose of which is “to provide funding for the development and advancement of 

[RA’s] life-affirming programs and missions, both locally and nationally.” (RA’s 

Application for Summary Relief at 4-5; see also Petition for Review, Ex. B, RA 

“Program Development and Advancement Agreement” (RA agrees “to use the 

funds generated by the Program Development and Advancement fees received 

from all Service Providers for educational services and other expenses deemed 

necessary by [RA] to advance alternative to abortion services.”).) There is no 

reference to any separate Development and Advancement Agreement in the Grant 

Agreement. The Development and Advancement Agreements provide that the 

service providers will “remit to [RA] a Program Development and Advancement 

fee of three percent (3%) of the Service Provider’s reimbursement under the 

_____________________________

(continued...)

exceed 4 visits per client per pantry type) as long as each visit is accompanied by 

at least 20 minutes of counseling; $21.00 for each class per client taught; and 

$5.25 for administrative time spent completing a [] Billing Form only when 

funding levels permit . . . .

(Id., Grant Agreement Work Plan at 7-8.)
5

Service Provider Agreement . . . .” (Petition for Review, Ex. B, Development and 

Advancement Agreement.) RA deducts the 3% fees as offsets from the service 

providers’ monthly statements for services already performed under the Grant

Agreement and deposits the 3% fees directly into RA’s private corporate account. 

Monthly statements of payment show that service providers receive their monthly 

reimbursements “[l]ess the [Program Development and Advancement] fee (.03 x 

gross amount earned).” (Id., Ex. C, Monthly Statements of Payment.)

DHS’ Bureau of Financial Operations (BFO) conducted a performance audit 

of RA for the period of July 1, 2012, to June 30, 2015, during which DHS became 

aware of the 3% fee offset by RA.7 (Letter from Gov. Office of Gen. Counsel, 

Feb. 8, 2016.) DHS requested all documentation related to the collection and use 

of the 3% fee, which RA declined to produce. (Petition for Review, Ex. D, Final 

Report, App. A-B.) While the final audit report, issued April 25, 2016, found RA 

to be generally in compliance with the grant requirements, it stated that RA 

“collects the fee by reducing the service providers’ claim reimbursements; 

however, the total provider service claim amounts are invoiced to DHS as direct 

services.”8 (Id., Finding Nos. 1, 3.) The audit also noted that, during the course of 

the audit, RA stated that the 3% offset payments were “used to fund expenses that 

 

7

The BFO also made findings regarding inappropriate billing identified at service 

providers and internal control weaknesses at RA. (Petition for Review, Ex. D, Final Report, 

Finding Nos. 1-2.)

8

The BFO also listed a number of observations regarding why it questioned the 3% fee, 

including that: there is no language in the agreements between RA and the service providers 

suggesting that the fee is voluntary; two of three service providers interviewed did not agree that 

the fee was voluntary; the fee is automatically deducted from the reimbursements; RA invoices 

DHS for the total claim amounts as a direct service, and, as such, it overstates the amount it paid 

for direct services; RA refused to allow BFO to audit the expenses funded by the fee; and RA 

could not produce any documentation showing that it received DHS’ permission to assess the 

fee. (Petition for Review, Ex. D, Final Report at 5.) 
6

are not permitted under the Grant Agreement, such as travel and other expenses to 

support advancement of the program in other states.” (Id., Final Report at 5; see 

also DAG/DHS Response in Opposition, Ex. B, Declaration of Alexander 

Matolyak, Director of the Division of Audit Review, BFO, dated Apr. 3, 2017 

(stating that “RA reiterated its position at the audit closing conference on 

November 19, 2015, also noting that the money generated by the 3% fee was used 

for activities not covered by the grant.”).) Accordingly, the BFO recommended 

that DHS’ Office of Social Programs (OSP) determine whether the collection and 

use of the 3% fee is appropriate.9 (Id. at 6.)

On September 13, 2016, DHS requested that DAG perform an audit of RA. 

(DAG/DHS Response in Opposition, Ex. C, DHS Letter to DAG, dated Sept. 13, 

2016.) While specifically acknowledging that “[a]ccording to RA, the three 

percent fee ‘is used to fund expenses that are not permitted under the Grant 

Agreement[,]’” the letter also stated that the “denial by RA [regarding the 

documentation about the 3% fee] prevented DHS from determining if the revenues 

deducted from provider payments were used for payment for direct services per 

our [G]rant [A]greement and solely to benefit the Pennsylvania program.” (Id.) 

DAG responded that it would conduct a performance audit of DHS with regard to 

 

9

The BFO recommended the following regarding the 3% fee:

 If it is determined to be appropriate, OSP should redefine the expense 

categorization and specify the potential uses of the fee in the Grant 

Agreement.

 If it is determined to be inappropriate, OSP should either recover the funds 

from RA or require RA to refund the fees to the service providers, and 

revise the Grant Agreement to prohibit such fees . . . .

(Petition for Review, Ex. D, Final Report at 6.) 
7

the Grant awarded to RA, the relevant objective of which would be to “[r]eview 

the expenditures and expenditure documentation for the three percent fee (3%) that 

[RA] assesses its service providers and determine whether this fee is an appropriate 

use of funds in accordance with the [G]rant [A]greement.” (Id., Ex. D, DAG 

Letter to DHS, dated Sept. 23, 2016.) “[I]n order for [DAG] to complete [its] audit 

objective of ensuring that all of the state grant funding was appropriately spent and 

used in accordance with the [G]rant [A]greement,” DAG asked DHS to request 

from RA “all supporting documentation.” (Petition for Review, Ex. E, DAG 

Information Request to DHS, dated Jan. 26, 2017.) DHS forwarded the request to

RA, requesting, “[i]n connection with the audit objective. . . [,] documentation 

showing the use of the three percent fee . . . .” (Id., DHS Letter to RA, dated Feb. 

3, 2017.) 

RA retained counsel, who initially informed DAG through a series of emails 

that RA would produce the documents. (DAG/DHS Response in Opposition, Ex. 

F, Emails.) However, on March 15, 2017, RA filed its Petition for Review and 

Application for Summary Relief with this Court and informed DAG that it would 

“not be producing any receipts or expenditure documentation related to how [RA] 

spends the private 3% offset payments it receives from its service provider[s] . . . .” 

(RA Br., Ex. A, Letter from RA Counsel to DAG, dated Mar. 15, 2017.)

In resolving the cross-applications for summary relief, we are aware that, 

pursuant to Rule 1532(b) of the Pennsylvania Rules of Appellate Procedure, Pa. 

R.A.P. 1532(b), the Court may grant summary relief “where the moving party 

establishes that the case is clear and free from doubt, that there exist no genuine 

issues of material fact to be tried and that the moving party is entitled to relief as a 
8

matter of law.” Dep’t of Auditor Gen. v. State Employees’ Ret. Sys., 860 A.2d 206, 

210 (Pa. Cmwlth. 2004). 

RA does not dispute that both DAG and DHS have the authority to audit 

receipts and expenditure documentation related to the use of the state grant funds. 

RA argues that DAG does not have the authority, under the express terms of the 

Grant Agreement or the Fiscal Code,10 to compel the production of, or audit, the 

documents related to the 3% fee because such documents are “private corporate 

records” and concern the use of “private corporate funds” that RA receives from its 

service providers pursuant to secondary Development and Advancement 

Agreements. RA admits that the funds it collects from the 3% fee are not used to 

pay for services under the Grant Agreement, (RA Application for Summary Relief

at 14), and that “it could not use state grant funds to develop and advance its 

pregnancy support programs nationally . . . .” (RA Answer in Opposition at 12.) 

DAG and DHS argue that, consistent with the Pennsylvania Constitution,11

the Fiscal Code, and the express terms of the Grant Agreement, DAG has the 

authority to conduct a performance audit of a DHS-awarded grant and to access all 

documentation related to the expenditure of grant money to assure that it is being 

spent in accordance with the terms of the Grant Agreement. The Grant Agreement 

requires that the grant funds be used “to faithfully implement the conditions of 

th[e] grant and operate the [P]rogram . . .” and that RA reimburse the service 

providers pursuant to a specific schedule of costs. (See n.6 above.) Despite those 

 

10 Act of April 9, 1929, P.L. 343, as amended, 72 P.S. §§ 1-1805.

11 Article VIII, Section 10 of the Pennsylvania Constitution provides, in pertinent part, 

that: “[t]he financial affairs of any entity funded or financially aided by the Commonwealth, and 

all departments, . . . [and] agencies, . . . of the Commonwealth, shall be subject to audits made in 

accordance with generally accepted auditing standards.” Pa. Const. art. VIII, § 10. 
9

express terms, DAG and DHS contend that RA is not spending the grant money in 

accordance with the terms of the Grant Agreement because only 97% of the 

contractually specified amounts ever reach the service providers.12

In accordance with the Letter from DAG to DHS, the audit is to be 

conducted “under the authority of Sections 40213 and 403 of The Fiscal Code[,]”

which set forth the Auditor General’s powers and duties. (DAG/DHS Response in 

Opposition, Ex. D, DAG Letter to DHS, dated Sept. 23, 2016.) Section 403 of the 

Fiscal Code, 72 P.S. § 403, provides, in relevant part, as follows:

The Department of the Auditor General shall have the power, and its 

duty shall be, to audit the accounts and records of every . . . 

corporation, and public agency, receiving an appropriation of money, 

payable out of any fund in the State Treasury . . . as far as may be 

necessary to satisfy the department that the money received was 

expended or is being expended for no purpose other than that for 

which it was paid. Copies of all such audits shall be furnished to the 

Governor.

If at any time the department shall find that any money received by 

any . . . corporation, or public agency, has been expended for any 

purpose other than that for which it was paid, it shall forthwith notify 

the Governor, and shall decline to approve any further requisition for 

the payment of any appropriation . . . to such . . . corporation . . . until 

an amount equal to that improperly expended shall have been 

expended for the purpose for which the money improperly expended 

was received from the State Treasury.

 

12 DAG and DHS have concerns that by only reimbursing service providers 97% of what 

they are owed and withholding the 3% fee from the contractually specified reimbursements due, 

the service providers will begin, or are already, providing lower quality or less service to women 

in the Commonwealth under the Program. Further, other entities that receive state funds may be 

incentivized to enter into secondary agreements to withhold even more than 3% of their state 

funds received. 

13 Section 402 generally provides DAG authority to audit the affairs of departments, 

boards and commissions of the executive branch of government. 72 P.S. § 402.
10

Id. (emphasis added). 

The objective of DAG’s audit is to “[r]eview the expenditures and 

expenditure documentation for the three percent fee (3%) that [RA] assesses its

service providers and determine whether this fee is an appropriate use of funds in 

accordance with the [G]rant [A]greement.” (DAG/DHS Response in 

Opposition, Ex. D, DAG Letter to DHS, dated Sept. 23, 2016 (emphasis added).) 

However, RA “readily admits the 3% offset payments are not used by [RA] for 

purposes described in the Grant Agreement; instead, they are used, as agreed to by 

the service provider vendors, to develop and advance [RA’s] life-affirming 

programs and missions, both locally and nationally.” (See RA’s Answer in 

Opposition at 6.) DHS, when requesting the audit, acknowledged to DAG that, 

“[a]ccording to RA, the three percent fee ‘is used to fund expenses that are not 

permitted under the Grant Agreement.’” (DAG/DHS Response in Opposition, Ex. 

C, DHS Letter to DAG, dated Sept. 13, 2016.) Thus, there is no dispute that RA is 

not spending these funds for purposes described in the Grant Agreement. It is, 

therefore, not clear how DAG’s objective, determining whether the fee is an 

appropriate use of funds in accordance with the Grant Agreement, requires 

auditing the use of the 3%, which is admittedly used to fund expenses that are not 

permitted under the Grant Agreement. At oral argument before this Court, when 

asked, DAG could provide no reason as to why it is necessary to audit the 

documentation relating to the 3% fee to achieve DAG’s objective. The Fiscal 

Code grants DAG “the power . . . to audit . . . as far as may be necessary to 

satisfy the department that the money received [by RA from DHS to operate the 

Program] was expended or is being expended for no purpose other than that for 

which it was paid.” 72 P.S. § 403 (emphasis added). Under these facts, there is no 
11

evidence in this record that the proposed audit of RA’s documentation relating to 

the 3% fee falls within the authority asserted by DAG in support of the audit. 

Accord, Stilp v. Commonwealth, 898 A.2d 36, 42 (Pa. Cmwlth. 2006) (holding that 

DAG does not have legal authority to audit the General Assembly under the 

Constitution or any provisions of the Fiscal Code), aff’d on other grounds sub nom. 

Stilp v. Commonwealth, Gen. Assembly, 940 A.2d 1227 (Pa. 2007); see also

Section 1001 of The Administrative Code of 1929, 71 P.S. § 311 (DAG “shall 

exercise its powers and perform its duties as provided in the Fiscal Code and 

other applicable laws.”) (emphasis added). 

Accordingly, we deny the cross-applications for summary relief.

14

_____________________________________

RENÉE COHN JUBELIRER, Judge

 

14 We do not reach issues relating to the public and private nature of the funds or the 

permissibility of the 3% fee, as the record before us is not sufficient for such determinations, nor 

are they necessary to resolve whether, on the undisputed facts before us, the law is clear that 

summary relief is appropriate. 
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Real Alternatives, :

Petitioner :

 :

v. : No. 106 M.D. 2017

 :

Pennsylvania Department of the :

Auditor General and Department :

of Human Services, :

Respondents :

O R D E R

NOW, July 3, 2017, upon consideration of the cross-applications for 

summary relief filed by Real Alternatives and the Pennsylvania Department of the 

Auditor General and the Department of Human Services, in the above-captioned 

matter, the cross-applications are DENIED. 

_____________________________________

RENÉE COHN JUBELIRER, Judge