DATE: DECEMBER 9, 1994
CASE NO.: 93-JTP-1
In the Matter of
CANDELARIA AMERICAN INDIAN COUNCIL,
Complainant,
v.
U.S. DEPARTMENT OF LABOR
Respondent.
DECISION AND ORDER
This matter arises under the Job Training Partnership Act (JTPA), 29
U.S.C. § 1501, etseq., and the regulations promulgated
thereunder at 20 C.F.R. Parts 632 and 636.
Procedural Background
By way of a letter dated September 24, 1992, Candelaria American
Indian Council (hereinafter "Candelaria"), requested an administrative
hearing with respect to the Final Determination of the U.S. Department of
Labor (hereinafter "Department") to disallow $65,163.00 of Candelaria's
JTPA grant charges for the period from July 1, 1988, through June 30, 1990
(program years 1988 and 1989). The undersigned held a brief hearing in
this matter on November 10, 1993, at which time the parties agreed that the
issues were not sufficiently developed for a full evidentiary hearing. The
parties agreed that the hearing should be continued and that they would
submit briefs on the Department's Finding No. 3.
In an Order dated January 12, 1994, the undersigned scheduled the
continued hearing for May 25, 1994. On January 31, 1994, the undersigned
received Candelaria's brief on the Department's Finding No. 3. On February
4, 1994, the undersigned received the Department's brief on Finding No. 3.
On May 23, 1994, the undersigned received a letter from counsel for the
Department stating that the parties had resolved all issues with the
exception of Finding No. 3 of the Department's Final Determination. On
June 8, 1994, the undersigned received a document entitled "Stipulation of
Dismissal With Prejudice" which appears to be signed by counsel for
Candelaria and the Department. By way of this document Candelaria and the
Department agree that Finding Nos. 1, 2, 4, and 5 of Case No. 93-JTP-1 be
[PAGE 2]
dismissed with prejudice. Thus, the parties have settled the issues in
this matter with the exception of the Department's Finding No. 3.
The Record
Prior to November 10, 1993, as part of the pre-hearing exchanges,
Candelaria submitted to the Office of Administrative Law Judges two volumes
of documents marked as groups A-K, and the Department submitted documents
marked as RX 1-12 (RX-1 being the administrative file). Neither Candelaria
or the Department explicitly requested that these submissions be admitted
into evidence. The undersigned opened the record in this matter at the
time of the brief hearing of November 10, 1993. However, no witnesses were
called, the parties did not request that exhibits be admitted into
evidence, and the undersigned did not admit exhibits into evidence. By way
of a letter dated May 31, 1994, Candelaria submitted exhibits marked as CX-
11 and CX-20,[1] and indicated that these were the exhibits which the
undersigned would need to resolve the remaining issue (Finding No. 3). The
Department did not submit additional exhibits subsequent to the pre-hearing
exchanges.
It is clear from Candelaria's letter dated May 31, 1994, that
Candelaria sought to have Complainant's Exhibits 11 and 20 be considered
as evidence for the resolution of Finding No. 3. The exhibits which
accompanied Candelaria's letter dated May 31, 1994, are hereby identified
as Complainant's Exhibits 11 and 20 and admitted into evidence.[2]
The Department has never formally requested that the documents which
it submitted as part of the pre-hearing exchanges be admitted into evidence
for the resolution of Finding No. 3. However, the Department's AMENDED
PREHEARING STATEMENT dated September 22, 1993, states the Department's
intent to rely on the administrative file, which the Department identified
as Exhibit 1, and on the documents which the Department submitted to
Candelaria and the Office of Administrative Law Judges as part of the pre-
hearing exchange, which the Department identified as Exhibits 2-12.
Further, the undersigned believes that the admission of these documents
into evidence is essential for a proper resolution of the issue at hand.
Therefore, the exhibits which the Department's AMENDED PREHEARING STATEMENT
lists are hereby identified as Administrative Law Judge Exhibits 1-12 and
admitted into evidence.
Candelaria has never requested that all the documents which it
submitted to the Office of Administrative Law Judges as part of the pre-
hearing exchanges be admitted into evidence for the resolution of Finding
No. 3. However, some of the documents submitted by Candelaria as part of
the pre-hearing exchanges are relevant and are not included in the other
groups of documents which have already been admitted into evidence.
Therefore, the documents contained in the two volumes submitted by
[PAGE 3]
Candelaria as part of the pre-hearing exchanges are hereby identified as
Administrative Law Judge Exhibits A-K and are admitted into evidence.
The record in this matter is hereby closed.
Issue
As a result of the parties' stipulation of dismissal, the remaining
issue is Finding No. 3 of the Department's Final Determination. In its
Finding No. 3 the Department accepted its auditors' position that
Candelaria had maintained excessive cash balances during program years 1988
and 1989 (ALJ-1 at 8). The Department determined that it should recover
the amount of $5,226.00 for interest costs related to Candelaria's cash
drawdowns (ALJ-1 at 8).
Findings of Fact and Conclusions of Law
Pursuant to 20 C.F.R. § 632.44(a) (1994), the sanctions which the
Secretary of Labor may impose upon a Native American grantee for violation
of the JTPA, the JTPA's regulations, or grant terms and conditions,
include:
(2) Determining the amount of Federal cash
maintained by the grantee or its subgrantee or contract
or [sic] in excess of reasonable grant needs,
establishing a debt for the amount of such excessive
cash, and charging interest on that debt.
This Department of Labor regulation was published on October 20,
1983, at 48 Fed. Reg. 48,763.
In the case at hand, the action taken by the Department as
described in Finding No. 3 of its Final Determination is the action
described at 20 C.F.R. § 632.44(a)(2). The Department's
auditors determined the average month-end cash balance of
Candelaria's JTPA funds to be $43,644.00 during Program Year 1989
and $23,460.00 during Program Year 1988. The Department's auditors
determined that Candelaria's average 3-day cash need for its JTPA
program was $3,388.00 during these same program years. Based on
these figures, the Department's auditors established debts
consisting of the average cash balances in excess of the average 3-
day cash need and calculated interest on these debts using the
approximate Treasury borrowing rate of eight percent. The
Department's auditors calculated the total interest for the debts
from both program years to be $5,226.00, which is what the
Department now seeks to recover. (ALJ-1 at 41-42). Candelaria
raises various arguments in opposition to the Department's Finding
No. 3.
[PAGE 4]
A. The Meaning and Validity of 20 C.F.R. §
632.44(a)(2)
Candelaria argues that the regulation at 20 C.F.R. §
632.44(a)(2) is invalid unless it is limited to charging
interest on excessive cash balances only in cases where a grantee
has received interest on the excess cash (CB at 6). Otherwise,
Candelaria contends, the regulation would be inconsistent with the
JTPA and would possibly raise constitutional issues of equal
protection (CB at 5-6).
The undersigned does not consider Candelaria's interpretation
of 20 C.F.R. § 632.44(a)(2) to be reasonable. The language of
the regulation simply does not state that the Department's ability
to establish a debt and charge interest on that debt depends on
whether or not the grantee received interest on its cash balance.
Based on the plain language of the regulation, the undersigned
interprets it to provide that when a grantee has maintained a JTPA
cash balance which is excessive for its program needs the
Department can establish a debt based on the excessive cash balance
and charge interest on that debt, regardless of whether the grantee
has received interest on the excessive cash balance.
Neither does the undersigned accept Candelaria's contention
that if 20 C.F.R. § 632.44(a)(2) is interpreted to cover the
situation where the grantee has received no interest on an
excessive cash balance then the regulation is invalid. Candelaria
appears to argue that the language of the JTPA shows Congress'
intent that recipients not be sanctioned by making them pay money
to the United States which the recipients have not directly or
indirectly received from the United Sates (CB at 5). Based on this
reading of the statute, Candelaria argues that because Candelaria
did not receive interest on its cash balances it would be
inconsistent with the JTPA to sanction Candelaria in the manner
described in the Department's Finding No. 3 (CB at 5-6). The
Department does not dispute that Candelaria did not earn interest
on the cash balances in question (DB at 8). However, because the
JTPA specifically states that the remedies which it expressly
provides for "shall not be construed to be exclusive remedies," 29
U.S.C. § 1574(h), the undersigned reads the JTPA to reflect
Congress' intent to allow the Secretary discretion in promulgating
sanctions regulations. The undersigned considers the regulation
described at 20 C.F.R. § 632.44(a)(2), as interpreted to mean
that the Department can establish a debt and charge interest on
that debt even where the grantee did not earn interest on its
excessive cash balance, to fall within this discretion. Even
though Candelaria did not receive interest for the cash balance in
question, Candelaria did receive the money which created the cash
[PAGE 5]
balance from the United States. Upon requesting and receiving this
money, Candelaria deprived the United States of the opportunity to
earn interest with this money.
Candelaria also argues that 20 C.F.R. § 632.44(a)(2),
which is found in the regulations pertaining to Native American
JTPA grantees, might raise constitutional issues of equal
protection because "There is no corresponding provision for the
other Job Training Partnership Act programs" (CB at 5). However,
there is in fact a corresponding provision at 20 C.F.R. §
633.322(a)(2) (1994) for migrant and seasonal farmworker programs.
Native American and migrant and seasonal farmworker programs both
fall under Subchapter IV of the JTPA, the subchapter for federally-
administered programs. With respect to the programs of subchapters
II and III, the JTPA provides that "[e]ach State shall establish
such fiscal control and fund accounting procedures as may be
necessary to assure the proper disbursal of, and accounting for,
Federal funds." 29 U.S.C. § 1574(a)(1). The states act as
"administrator and conduit" of federal funds. U.S. v. Long,
996 F.2d 731, 733 (5th Cir. 1993). Because the Secretary's
regulation at 20 C.F.R. § 632.44(a)(2) does not make an
explicit classification based on a suspect trait, it seems to the
undersigned that in order for the regulation to receive heightened
equal protection scrutiny Candelaria would have to show that the
Secretary intended to discriminate on the basis of ethnicity in
promulgating the regulation.[3] Because the Secretary has
promulgated the sanction provision in question according to whether
a JTPA program is administered at the federal or state level, the
undersigned doubts that Candelaria would be able to show such
intent.[4] If the regulation received only "rational basis"
scrutiny, the difference in administration would appear to
constitute a rational basis for the Secretary's decision to
promulgate the regulation only for the federally-administered
programs.
In any event, the undersigned must base this Decision and
Order on the assumption that the JTPA regulations promulgated by
the Secretary of Labor are valid. As an administrative law judge
(ALJ), the undersigned would be able to disregard one of the
Secretary's regulations as invalid only if (1) administrative law
judges had the inherent authority to rule on the validity of the
Secretary's regulations; or (2) the JTPA or its regulations vested
administrative law judges with this authority. Gibas v. Saginaw
Mining Company, 748 F.2d 1112, 1117 (6th Cir. 1984),
cert.denied, 471 U.S. 1116 (1985). Unlike Article
III courts, administrative officers (such as administrative law
judges) do not have the inherent authority to rule on the validity
of the Secretary of Labor's regulations. Id. And, the JTPA
and its regulations do not
[PAGE 6]
expressly give administrative law judges this authority. In fact,
the JTPA provides that upon the timely request of a party
dissatisfied with an ALJ decision the Secretary of Labor may accept
the case for review. 29 U.S.C. § 1576. Because the JTPA
gives the Secretary the discretion to review ALJ decisions in JTPA
disputes, and because the JTPA and its regulations do not expressly
allow an ALJ to rule on the validity of the Secretary's
regulations, the undersigned lacks the authority to rule on the
validity of 20 C.F.R. § 632.44(a)(2) as interpreted above.
B. Whether the Cash Maintained by Candelaria Exceeded Its
Reasonable Grant Needs
Having found that the Department's action as described at
Finding No. 3 of the Final Determination is the action described at
20 C.F.R. § 632.44(a)(2), having concluded that this
regulation allows sanctioning even where the grantee did not
receive interest on its cash balance, and having concluded that the
regulation as so interpreted is either valid or at least must be
assumed valid by the undersigned, the next question is whether the
cash maintained by Candelaria exceeded its reasonable grant needs.
As described above, the Department adopted the view of its auditors
that the portions of Candelaria's average cash balances which
exceeded Candelaria's average 3-day cash needs for its JTPA program
were excessive (ALJ-1 at 8, 41-42). An implicit and integral
component of this determination is that Candelaria's 3-day cash
needs were equivalent to its reasonable grant needs. In other
words, the Department determined that on the average it would have
been reasonable for Candelaria to maintain enough cash to satisfy
its 3-day grant needs, and no more.
Candelaria's brief argues that "utilizing approved cash
drawdown procedures" it was "nearly impossible" for Candelaria to
limit its "cash on hand" to 3-day cash needs, and that there was no
regulatory requirement that Candelaria do so (CB at 1-2). The
undersigned agrees with Candelaria that during the 1988 and 1989
program years there was no express regulation to the effect that
grantees must maintain no more cash than that required for their 3-
day grant needs. However, the regulation at 20 C.F.R. §
632.44(a)(2) was in effect during these program years. This
regulation provides that the Department may establish a debt based
on cash maintained in excess of reasonable grant needs. Therefore,
if, on the average, Candelaria's reasonable grant needs were its 3-
day cash needs, then the Department's Finding No. 3 is correct. On
the other hand, if Candelaria reasonably needed to have more cash
on hand than that required for its 3-day grant needs, then the
Department's Finding No. 3 is incorrect.
[PAGE 7]
1. Candelaria's Arguments That It Could Not Maintain a 3-
Day-Needs Cash Balance
Candelaria's assertion that utilizing approved drawdown
procedures it was "nearly impossible" to limit its cash balance to
its 3-day cash needs must be examined. Candelaria asserts, "For
the period covered by the audit, July 1, 1988 through June 30,
1990, [Candelaria] utilized DOL-approved procedures to request
advances of JTPA funds, typified by Standard Form 270" (CB at 3).
Based on Candelaria's response to the Department's audit (ALJ-1 at
44), and the lack of evidence to the contrary, the undersigned
finds that beginning in late 1987 Candelaria began to request
federal cash through Standard Form 270. However, Candelaria has
failed to explain why it could not have used Standard Form 270 in
such a manner as to limit its average cash balance to its average
3-day needs. Standard Form 270 is entitled "REQUEST FOR ADVANCE OR
REIMBURSEMENT" (CX-11 at 99). As observed by Candelaria, the form
contains space for a statement of advances required for the next
three months, the form indicates that the amount requested shall be
based on the needs for the advance period which the grant recipient
has indicated on the form, and the form provides for adjustments to
account for previous advance requests and program outlays. None of
these characteristics of Standard Form 270 take away from the fact
that grant recipients have control over when and how often they
request advances with the form.
In fact, as part of the pre-hearing exchanges, Candelaria
provided the undersigned with a copy of the Department's DINAP
BULLETIN 85-24, which is dated June 30, 1986, and is addressed to
all Native American JTPA grantees (ALJ-F). This bulletin states,
"the recipient is required to request cash advances as close to the
time of disbursement as possible." The bulletin further states
that Native American grant recipients shall:
draw down only enough cash to cover the immediate cash
need as defined in Part 3 of this bulletin. This may
result in an increase in the number of drawdown requests.
This increase is acceptable since there are no
restrictions on the number of requests allowed, other
than the existing minimum drawdown requirement of $5,000
which remains in effect . . . . (ALJ-F).
Thus, pursuant to this bulletin Native American grantees can make
drawdown requests as often as necessary so long as the $5,000.00
minimum is requested. Standard Form 270 is merely a tool available
to grant recipients for requesting advances. The fact that the
[PAGE 8]
form is DOL-approved does not absolve grantees of their
responsibility to use the form in such a manner as to minimize
their cash balances.
Candelaria makes the following arguments:
The [Candelaria] JTPA program accrues expenses in
general categories such as rent, salaries, equipment,
etc. CX 20, p. 172. Though the expenses are accrued on
a particular date, the cash outlay occurs at a later date
due to delays in billing and check cashing. Though
[Candelaria] could accurately estimate its expenses for
a three-month period for the purposes of Standard Form
270, its cash outlays did not occur within three days of
receiving its cash advances. The program has
subsequently switched to an electronic fund transfer
system which assures there is virtually no "float" for
JTPA program funds, but for the period in question, that
system was not available and, utilizing the system which
was available, it was impossible to achieve a three-day
cash needs goal.
While these arguments describe Candelaria's general expenses and
the general accounting and billing processes for these expenses,
they include no facts which substantiate Candelaria's assertion
that it could not have met a 3-day cash needs goal utilizing
Standard Form 270. The assertion that Candelaria's "cash outlays
did not occur within three days of receiving its cash advances" is
precisely the reason for the Department's Finding No. 3. Because
Candelaria had control over its requests for cash advances, it was
Candelaria's responsibility to request cash advances in such a
manner as to minimize its cash balance.
Candelaria has submitted into evidence the November 18, 1991,
audit report of Francis Billedeaux, CPA (CX-20). This report
appears to cover only Program Year 1989, and not Program Year 1988
(CX-20 at 185). This report states that in the opinion of Francis
Billedeaux Candelaria's major federal financial assistance programs
were in compliance with laws and regulations pertaining to claims
for advances and reimbursements during the year ended June 30, 1990
(ALJ-20 at 179-80). This opinion could be construed as an opinion
that the Department's Finding No. 3 is incorrect. However, I find
this opinion unpersuasive. The Francis Billedeaux report does not
address the key question of whether Candelaria could have
maintained, on the average, a cash balance limited to its 3-day
needs. Nor does the report state that Francis Billedeaux
considered Candelaria's obligation to maintain only the cash
[PAGE 9]
balance necessary for its reasonable grant needs. The Francis
Billedeaux report does not contradict the Department's findings as
to Candelaria's average cash balances and average 3-day cash needs
during the relevant program years.
Also as part of the pre-hearing exchanges, Candelaria
submitted to the undersigned an audit report of Farber & Hass,
Certified Public Accountants, dated January 15, 1993 (ALJ-A). This
report specifically addresses and disputes the Department's Finding
No. 3. However, the report does not address the question of
whether Candelaria could have maintained a 3-day-needs cash
balance. Rather, the report questions the Department's Finding No.
3 on the grounds that Candelaria did not earn interest on its cash
balance, there was no regulation explicitly requiring a 3-day-needs
cash balance, and the eight percent approximate Treasury rate used
in determining Candelaria's liability was higher than interest
rates available at banks. (ALJ-A). The first two of these grounds
have already been addressed and rejected above. The last will be
addressed below.
2. Evidence that Candelaria Could Have Maintained a 3-Day-
Needs Cash Balance During Program Years 1988 and 1989
There is evidence on the record to the effect that, on the
average, Candelaria could have maintained its cash balance at the
level of its 3-day needs during program years 1988 and 1989.
First, OMB Circular A-110, Attachment G, states that the
sponsoring agency may "require [recipients] to report in the
'Remarks' section [of the Report of Federal Cash Transactions,
Standard Form 272] the amount of cash advances in excess of three
days' requirements . . . and to provide short narrative
explanations of actions taken by the recipients to reduce the
excess balances." (Attachment G at 3(b)(3); CX-11 at 93).
Granted, the drafters of this statement almost certainly did not
have the specific circumstances of Candelaria in mind.
Nonetheless, the statement does suggest that most recipients of
federal grants can, on the average, maintain cash balances at the
levels of their 3-day cash needs. If most grant recipients can do
this, and if there is no evidence that Candelaria was under some
handicap during program years 1988 and 1989 which precluded or
significantly hindered achievement of this goal, it would follow
that Candelaria's reasonable grant needs during program years 1988
and 1989 were equivalent to its 3-day cash needs.
Candelaria's brief argues that an electronic funds transfer
system was not available to Candelaria during program years 1988
[PAGE 10]
and 1989 (CB at 3-4). Thus, it appears to be Candelaria's position
that the unavailability of an electronic funds transfer system
during program years 1988 and 1989 was a handicap which caused
Candelaria to maintain more than 3-days needs of cash on hand. One
difficulty with this argument is that Candelaria has submitted no
evidence in support of the proposition that it could not have
utilized an electronic funds transfer system during program years
1988 and 1989. As of March 12, 1987, Candelaria's business address
was 2635 Wagon Wheel Road, Oxnard, California (ALJ-1 at 64).
Recent documents in the ALJ file indicate that this address remains
current as of this Decision and Order. The undersigned takes
administrative notice that Oxnard, California, is a city with a
population of more than 100,000 people. The undersigned also takes
administrative notice that Oxnard is approximately 50 miles from
Los Angeles, California. Given these circumstances, it seems
likely that there was a financial institution within a reasonable
distance from Candelaria during program years 1988 and 1989 which
could have received federal funds by electronic transfer if
Candelaria had sought to make such arrangements. Candelaria
concedes that it has subsequently commenced receiving JTPA funds
through electronic funds transfer (CB at 3-4). The language of
DINAP BULLETIN 85-24, dated June 30, 1986, indicates that the
Department encouraged the use of electronic funds transfer at least
two years before the commencement of Program Year 1988 (ALJ-F). As
Candelaria states in its brief, there is "virtually no 'float'" for
JTPA funds with such a system (CB at 4).
Further, it seems to the undersigned that Candelaria could, on
the average, have maintained a 3-day-needs cash balance during
program years 1988 and 1989 utilizing Standard Form 270. The
Department's DINAP BULLETIN 85-24, which was quoted from above,
does not state that grantees using Standard Form 270 would on the
average be able to maintain their cash balances at their 3-day-
needs levels. However, the bulletin does state that Native
American grantees shall "draw down only enough cash to cover the
immediate cash need as defined in Part 3 of this bulletin," and
that this might require an increase in the number of advance
requests. Part 3 of the bulletin states, "Those recipients whose
banks do not receive their EFT [electronic funds transfer]
drawdowns directly from the Treasury Department should determine
the average number of days it takes from their request for funds to
their receipt of the funds, and request funds that number of days
prior to expected disbursements." (ALJ-F). It seems to the
undersigned that if a grantee which utilized Standard Form 270
followed the procedure suggested by this bulletin the grantee would
be able to maintain average cash balances at average 3-day-needs
levels.
[PAGE 11]
Because the Department's auditors based Candelaria's cash
balance debt on the average cash balances in excess of Candelaria's
average 3-day cash needs (ALJ-1 at 41-42), it was obviously the
opinion of these auditors that Candelaria could, on the average,
have maintained its cash balance at the level of its 3-day needs
during program years 1988 and 1989. However, the Department's
auditors failed to state why they believed that Candelaria could do
so, which weakens the evidentiary value of their opinion.
The Department's brief asserts that the Department designated
Candelaria with a letter of credit which permitted Candelaria to
draw down funds from the U.S. Treasury (RB at 5). If this were
true it would mean that Candelaria was able to draw down funds
through a Federal Reserve bank and Candelaria's commercial bank
(OMB Circular A-110, Attachment I at 2(a); CX-1 at 103). This
capacity would establish Candelaria's ability to maintain an
average cash balance at average 3-day need levels. However, the
Department has submitted no evidence in support of its assertion
that it provided Candelaria with a letter of credit, nor asserted
the date that it provided Candelaria with this letter.
3. Conclusion as to Candelaria's Reasonable Grant Needs
During Program Years 1988 and 1989
The Department has met its burden, 29 C.F.R. § 636.10(g)
(1994), of producing evidence to support the determination that
Candelaria could, on the average, have maintained its cash balance
at the level of its 3-day needs during program years 1988 and 1989.
It became Candelaria's burden to persuade the undersigned that
Candelaria could not have done so. Id. Considering all the
evidence, the undersigned views the evidence that Candelaria could
not, on the average, have maintained its cash balance at the level
of its 3-day needs as unpersuasive. Therefore, the undersigned
finds that with reasonable effort Candelaria could have maintained,
on the average, its cash balances at the level of its 3-day needs
during program years 1988 and 1989. Therefore, the cash balances
which Candelaria did in fact maintain were in excess of its
reasonable grant needs during the program years 1988 and 1989.
Further, as Candelaria has produced no evidence contradicting the
amounts which the Department determined to be Candelaria's average
cash balances and Candelaria's average 3-day needs, the undersigned
accepts the amounts of the program year debts as determined by the
Department.
C. The Interest Rate[PAGE 12]
As stated above, the Department adopted the view of its
auditors that interest for the established debt of Finding No. 3
should be calculated at the approximate U.S. Treasury borrowing
rate of 8 percent, which resulted in a total of $5,226.00 for both
program years (ALJ-1 at 8, 42). The audit report of Farber & Hass,
Certified Public Accountants, questions the Department's Finding
No. 3 in part on the ground that the eight percent approximate
Treasury rate used in determining Candelaria's liability was higher
than interest rates available at banks (ALJ-A). Candelaria's brief
does not contest the use of this interest rate or the Department's
calculations. The undersigned agrees with the Department that the
approximate U.S. Treasury borrowing rate was appropriately used
since Candelaria's excessive cash balances denied the U.S. Treasury
the use of the excessive cash balances. In the absence of evidence
to the contrary, the undersigned accepts the Department's auditors'
calculation of the $5,226.00 amount.
D. Equity Considerations
Candelaria argues that a consideration of the equities in this
matter supports a waiver of sanctions, as there is no allegation of
fraud or gross negligence, Candelaria has not enjoyed improper
benefit, and the situation has been corrected (CB at 6).
Candelaria also argues that while Candelaria used JTPA funds to
temporarily cover other program costs, these other programs were
United States Department of Labor programs (CB at 2). Therefore,
according to Candelaria, Candelaria's use of JTPA funds to
temporarily cover other programs actually saved interest for the
U.S. Treasury (CB at 2-3).
Candelaria cites Chicano Education and Manpower Services v.
United States Department of Labor, 909 F.2d 1320 (9th Cir.
1990), and Quechan Indian Tribe v. United States Department of
Labor, 723 F.2d 733 (9th Cir. 1984), for the proposition that
equities should be considered in this matter. Both of these cases
involved Comprehensive Employment and Training Act (CETA) grants.
In Chicano, the Ninth Circuit relied on Quechan and
held that provisions in the CETA (at § 106(d)(2)) and the
Secretary of Labor's CETA regulations (at 20 C.F.R. §
676.88(c) (1979)) required the Secretary to consider certain
equities in CETA sanctions cases. Both of these provisions applied
generally to public service employment programs and allowed that
where certain conditions were met repayment could be waived despite
statutory and regulatory violations. Chicano at 1325-27.
In 1982, Congress replaced CETA with the JTPA. 29 U.S.C.
§ 1591. Upon reviewing the JTPA, the undersigned finds no
general
[PAGE 13]
provision for waiver of sanctions. There is only a provision which
makes waiver of sanctions against a recipient possible where the
violations occurred at the subgrantee level. 29 U.S.C. §
1574(e). Similarly, the only waiver provisions in the regulations
which implement the JTPA are those addressing the waiver of
sanctions against a recipient for violations at the subgrantee
level. E.g., 20 C.F.R. § 632.44. Because the matter
at hand arises under the JTPA rather than CETA, and because the
JTPA does not contain general waiver provisions such as the CETA
provisions which the Ninth Circuit interpreted to compel
administrative consideration of equities, the Ninth Circuit's
holdings in Chicano and Quechan do not require
consideration of equities here. In fact, in light of the
requirement that U.S. Department of Labor administrative law judges
follow the "regulations and rulings of the statute or regulation
conferring jurisdiction," 29 C.F.R. § 18.57(b), and the JTPA
regulation at 20 C.F.R. § 632.44(a)(2), which authorizes the
Department's Finding No. 3, the undersigned appears to lack the
authority to rule against the Department's Finding No. 3 on the
basis of equities.
However, even assuming that the undersigned has the authority
to consider Candelaria's equities arguments, the undersigned does
not find these arguments persuasive. The undersigned agrees that
there is no fraud or gross negligence involved in the Department's
Finding No. 3. However, Candelaria's failure to maintain its cash
balance at reasonable levels is Candelaria's fault. Regulations
promulgated prior to program years 1988 and 1989, such as those at
20 C.F.R. § 632.44(a)(2), and 41 C.F.R. § 29-70.207-2(e),
and the specific advisement of DINAP BULLETIN 85-24, gave
Candelaria adequate notice of the need to minimize its JTPA cash
balance. Further, the Department's auditors state in their report
that Candelaria had failed to maintain appropriate cash balances in
previous years, that the auditors had discussed this problem in the
previous audit report, and that Candelaria had acknowledged the
problem in its response (ALJ-1 at 43). Yet, Candelaria did not
remedy the problem for the program years 1988 and 1989 (ALJ-1 at
43).
Candelaria's argument that it saved the U.S. Treasury interest
by using JTPA funds to temporarily cover other Department programs
is unpersuasive. Candelaria was presumably not authorized to spend
federal funds on these other programs until such time as it
received funds earmarked for these programs. Certainly, JTPA funds
should not have been used to pay for other programs. 41 C.F.R. 29-
70.207-2(c), made applicable by 20 C.F.R. § 632.31.
ORDER[PAGE 14]
It is HEREBY ORDERED:
1. Complainant, Candelaria American Indian Council, shall
pay Respondent, the United States Department of Labor, the amount
of $5,226.00 in interest costs in satisfaction of Finding No. 3 of
the Department's Final Determination in this matter.
2. Per the stipulation of dismissal entered into between
Complainant and Respondent, the issues presented by Finding Nos. 1,
2, 4, and 5 of the Department's Final Determination are dismissed
with prejudice.
Entered on this 9th day of December 1994, at Long Beach,
California.
_______________________
SAMUEL J. SMITH
Administrative Law Judge
[ENDNOTES]
[1] The following abbreviations will be used:
CX = Complainant's exhibit
ALJ = Administrative law judge exhibit
CB = Complainant's brief
RB = Respondent's brief
[2] It is noted that Complainant has not sought to have any
exhibits identified as Complainant's Exhibits 1-10 and 12-19
admitted into evidence, and that no exhibits marked as such have
been submitted to the undersigned.
[3] Under the suspect class branch of current equal protection
doctrine, laws that have disproportionate impact on fully-suspect
or quasi-suspect classes escape heightened scrutiny if no
discriminatory purpose is found. Washington v. Davis, 426
U.S. 229, 239-45 (1976).
[4] Where there is no explicit classification, discriminatory
purpose may be difficult to prove. Gerald Gunther, Individual
Rights in Constitutional Law 359 (4th ed., 1986).
