Texas Dept. of Commerce v. USDOL, 94-JTP-10 (ALJ Feb. 16, 1996)
DATE: February 16, 1996
CASE NO.: 94-JTP-10
In the Matter of
TEXAS DEPARTMENT OF COMMERCE,
Complainant
vs.
U.S. DEPARTMENT OF LABOR,
Respondent
APPEARANCES:
Annaliese Impink, Esq.
For the Respondent
Margo M. Kaiser, Esq.
For the Complainant
BEFORE: Richard D. Mills, Administrative Law Judge
DECISION AND ORDER
This case arises under Title II of the Job Training
Partnership Act ("JTPA" or "the Act"), 29 U.S.C. Section 1501 et
seq., and its implementing regulations at 20 C.F.R. Parts
627-630.
Pursuant to 29 U.S.C. Section 1511(a)(1) , the Governor of
Texas, through her designated agent, the Texas Department of
Commerce ("TDOC"), was required to allocate its JTPA funding
among its service delivery areas ("SDA"). TDOC allocated the
appropriate share of Title II JTPA funding to the Permian Basin
Consortium SDA ("Permian Basin").
The Office of the Regional Inspector General for Audit
("OIG"), performed a limited scope audit of the Permian Basin
On-the-Job ("OJT") training program. The OIG issued an audit
report on December 7, 1992 which questioned $135,576.00 in JTPA
expenditures. The OIG forwarded the audit report to the
Employment and Training Administration ("ETA") for resolution.
The Grant Officer forwarded the audit report to TDOC on December
16, 1992, with instructions to resolve the findings and submit
[PAGE 2]
its audit resolution report to ETA within 180 days.
On June 11, 1993, TDOC submitted its audit resolution report
to the Grant Officer, finding that all of the JTPA costs
associated with the Permian Basin OJT contracts were properly
incurred. At that time the State of Texas requested that the
Department of Labor ("DOL") waive the State's liability to repay
costs pursuant to 29 U.S.C. Section 1574(e)(2).
After reviewing the State's audit resolution report, the
Grant Officer issued an Initial Determination on September 3,
1993, disallowing $135,576.00. The State then submitted
additional comments and documentation to the Grant Officer in
response to the Initial Determination. On December 2, 1993, the
Grant Officer issued his Final Determination which allowed
$85,000 and disallowed $50,077. On December 21, 1993, TDOC
appealed the Grant Officer's Final Determination to the office of
Administrative Law Judges. Subsequent to the appeal, the Grant
Officer reduced the disallowance to $32,736. On March 22 and 23,
1995, a hearing was held in Austin, Texas to determine any
amounts to be disallowed.
STATEMENT OF FACTS
During June of 1989, the City of Big Springs ("Big Springs")
entered into a contract with the Federal Bureau of Prisons
("BOP") to operate a federal correction center which would be
known as the Big Springs Correctional Center ("BSCC"). (RX-1, p.
26). BSCC then entered into a fixed-unit price subcontract with
MIDTEX Detentions, Inc. Under its contract with Big Springs,
MIDTEX agreed to provide training for employees at the
correctional facility in accordance with the training criteria
set forth in the contract Big Springs had with BOP. (Tr. pp. 27,
347-348). The contract required that all new employees,
regardless of their affiliation with the JTPA program,
participate in a 24 hour orientation program prior to actual
employment, and 40 hours of additional training to be given
within the first year of employment. (Tr. pp. 27, 347-348, 402).
During May of 1989, the Permian Basin Service Delivery Area
entered into a contract with BSCC for On-the Job Training (OJT)
to be provided to Job Training Partnership Act (JTPA)
participants referred by Permian Basin. Under the contracts,
BSCC agreed to hire and train JTPA participants, referred by
Permian Basin, as correctional officers, supervisors, food
supervisors, cooks, cook foremen, accounting clerks,
administrative aides, receptionists, and record clerks. In
return, Permian Basin agreed to pay 50% of the JTPA participants'
wages for a particular period of time. At this time there was no
specific time limitation on OJT training either in the Act or the
regulations and it would differ depending on the nature of the
position. (Tr. pp. 52-53).
[PAGE 3]
In accordance with the OJT contracts, BSCC hired 44 JTPA
participants. The OJT contracts specified varying training
periods depending on the positions for which the JTPA
participants were hired. The OJT contracts provided for training
in excess of the BOP contracts, which provided for 24 hours of
orientation and 40 hours of additional training. Several of the
OJT contracts specified a training period of six months or less.
Other OJT contracts required a training period of nine months.
The Department of Labor ("DOL"), Office of the Inspector
General ("OIG") performed a limited scope audit of the Permian
Basin SDA OJT contracts for the period of May, 1989 through June
30, 1992. The purpose of the audit was to determine whether the
Permian Basin Consortium JTPA program, through contracts with the
city of Big Springs, had been charged for costs already paid by
the BOP's intergovernmental agreement with the city. The auditor
believed that there was evidence which indicated that the BSCC
received duplicate payment for the costs associated with training
new staff at the correctional facility. (Tr. p. 21).
Specifically, it was believed that the city of Big Springs was
receiving reimbursements for 50 percent of the salaries for those
individuals working under the OJT contracts while at the same
time the Department of Justice had paid the city of Big Springs
for those salaries. As a result of a review, the auditors
determined that the payments made under the OJT contracts were
duplicative of the payments made under the BOP contract with
respect to personnel costs. DOL then disallowed $7,306.00 in
costs paid by Permian Basin for OJT expenses.
The auditors also determined that amounts paid under the OJT
contracts were excessive because many of the training periods
were unreasonable based on the BOP criteria. (RX-1, p. 29).
The auditors reached this conclusion after reviewing the BOP
statement of work which required a total of 64 training hours
within the first year of employment for correctional officers and
an additional 16 hours of training for other staff. (CX-A, at Ch.
5). Despite the limited training requirements set forth in the
BOP contract, the OJT contracts provided for between six and nine
months of training for correctional officers. (RX-1, p. 29). In
coming to their conclusion, the auditors reviewed the personal
folders for both the JTPA OJT participants and the non-JTPA OJT
participants and found that there was no significant difference
in skill level and work history. (Tr. p. 29-30). The city of Big
Springs, in response to issues raised by the audit, stated that
the general difference was that the JTPA employees met the
qualifying criteria (economically disadvantaged) established by
the DOL. (RX-1, p. 42). The city also stated that it had never
done an analysis between the JTPA-eligible employees and the
non-JTPA employees. (RX-1, p. 42).
[PAGE 4]
On December 7, 1992, OIG issued its audit report to the
Employment and Training Administration (ETA). The audit
recommended a total disallowance of $135,576.00. The ETA Grant
Officer issued the audit report to the State of Texas with
instructions for it to resolve the findings with the SDA within
180 days. On June 11, 1993, the State of Texas submitted an
audit resolution report to the Grant Officer in which the State
disagreed with the auditors conclusion and determined that the
costs should be allowable. (RX-1 p. 59-60). The State also
requested a waiver of liability in the event that the Grant
Officer disagreed with its audit resolution report. (RX-1, p.
61). The Grant Officer disagreed with the State's audit
resolution report and issued his Initial Determination of
September 3, 1993, disallowing $135,576.00. The Grant Officer
gave the State of Texas a second opportunity to resolve the
findings before issuing his final determination. On December 2,
1993, after reviewing all documentation and explanation submitted
by the State during the informal resolution period, the Grant
Officer issued his Final Determination disallowing $50,077.00 in
costs.
Specifically, the Grant Officer disallowed $7,306.00 in JTPA
expenditures which represented one half of the cost of providing
the 24 hours of orientation and 40 hours of additional training
required under the BOP contract. (RX-1, p. 13). The Grant
Officer only disallowed one-half the cost of training because the
OJT contracts provided that the SDA would reimburse the BSCC for
one-half the cost of training JTPA employees at the correctional
facility. The Grant Officer stated "[t]his training was required
for all new employees, this training cannot be considered
extraordinary training needed by JTPA participants." (RX-1, p.
13). Also, the Grant Officer found that the training had already
been paid for under the BOP contract. (RX-1, p.29). Second, the
Grant Officer disallowed $42,771.00 in OJT training costs because
he determined that several of the OJT contracts provided for
training periods which exceeded the recommended training time set
forth both in the BOP contract and in the Dictionary of
Occupational Titles ("DOT").
The DOT provides for a three to six month training period
for correctional officers. The DOT is a reference guide
published by DOL that contains lists of various kinds of jobs and
provides descriptions of the jobs, the qualifications necessary,
and the range of the approximate time needed to train for a
specific job. (Tr. pp. 58-59). The job description for
correctional officer indicates that the job is a low skilled one
which does not require an extensive work history or educational
background. In addition, the Grant Officer determined that,
according to the audit report, there was no apparent difference
[PAGE 5]
in qualifications between the JTPA employees and the non-JTPA
employees.
Subsequent to the Final Determination, the Grant Officer
reviewed his calculations and reduced the total disallowance to
$32,736.00.
DISCUSSION
The first cost to be examined is the $7,036.00 disallowed by
the Grant Officer. Under the OJT contracts between the City of
Big Springs and the correctional facility, the SDA agreed to pay
50% of the salaries paid to the JTPA employees. (Tr. p. 26). The
city of Big Springs also had a contract with the BOP in which the
BOP paid for 24 hours of initial orientation and 40 hours of
training to be received within the first year for all employees
who had close and continuing contact with the inmate population.
(RX-1, p. 29).
OJT payments are designed to reimburse the employer for the
extraordinary costs associated with training JTPA participants.
Here, the orientation and training required in the Big Spring/BOP
contract was required of all new employees regardless of whether
they were JTPA employees or not. Since all employees were
required to receive this set amount of training, there were no
extraordinary training costs which needed to be covered by OJT
payments. In this phase of training, JTPA employees were treated
the same as non-JTPA employees and their training expenses were
already covered by a contract between the BOP and Big Springs.
Thus, the OJT payments submitted to cover these training costs
were duplicative of the payments made by the BOP.
JTPA provides that such duplicative payments are prohibited:
Funds provided under this Act shall not be used to
duplicate facilities or services available in the area
(with or without reimbursement) from Federal, State, or
local sources, unless the plan established that alternative
services or facilities would be more effective or more
likely to achieve performance goals.
29 U.S.C. Section 1551(h).
It is clear that Permian Basin knew, or should have known of
the existence of two federal contracts which granted funds for
the same expenditure. They also knew, or should have known, even
without the clear prohibition under the Act, that two contracts
granting funds for the same costs was not proper and was contrary
to the purpose of the Act. Thus, the $7,306.00 was properly
disallowed by the Grant Officer.
The next issue to be analyzed is the $25,430.00 in JTPA
funds that was disallowed by the Grant Officer for excessive
[PAGE 6]
training periods. The critical element here is the length of
training period which can be considered excessive. First, it is
clear that JTPA is set up in order to benefit those who are
disadvantaged and may need longer training periods than people
who do not have these disadvantages. JTPA, through "On the Job
Training," will reimburse an employer for 50 percent of the wages
for a period of time as compensation for their presumed lower
productivity or longer length of time needed for them to become
fully functioning in a job. (Tr. p. 52). JTPA is set up in order
to provide incentives, or at least eliminate disincentives, for
employers to hire disadvantaged individuals. In essence, JTPA is
set up in order to aid those who may need longer training periods
in order to become fully functional in their job. Thus, the
average training periods needed to train individuals who are not
disadvantaged cannot always be applied to JTPA individuals.
However, they may serve as a guideline or a starting point in
trying to assess when a training period becomes excessive.
The BOP contract required a total of 64 training hours
within the first year of employment for correctional officers and
an additional 16 hours of training for other staff. (CX-A, at Ch.
5). The DOT training period for correctional officers is 3 months
up to and including six months. (Tr. p. 60-61). The costs
disallowed were those that were paid to the Big Springs
Correctional Center for training that occurred beyond the six
months.
While it would be consistent with the purpose of the Act to
allow JTPA employees longer training periods than for non-JTPA
individuals, OJT periods past six months can be nothing but
excessive. First, it is noted that the job of correctional
officer is one which is a low skilled job and requires little in
the way of education or background. The description of the job
is as follows:
Performs specific correctional duties in accordance to
established policies and procedures and as stipulated in
Post Orders. Rotates on a monthly bases from one post and
shift assignment to another as assigned by the
Administrative Supervisor. Supervises inmates in living
quarters, work details, recreation, and other areas by
maintaining consistent control and discipline. Makes
frequent patrols of living quarters, work areas, and
instructs inmates on proper housekeeping and sanitation
requirements. Conducts counts of inmates at specified and
irregular intervals. Initiates and participates in
searches of inmate housing units, non-housing units, and
all other inmate activity areas. Counsels with inmates
regarding facility rules and regulations and informs them
[PAGE 7]
of changes in operating procedures affection the inmate
population. Becomes familiar with policies, procedures,
guidelines, and directives...Maintains and demonstrates
proficiency in the use of firearms, application of force,
use of restraints, and unarmed self-defense. Remains alert
for signs of disorder and tension and reports such
observations...Prepares reports connected with position
responsibilities...Must be able to effectively communicate,
verbal and written, with inmates...
(CX-B (BSCC correctional officer position description)).
From the above job description it is difficult to imagine
anyone qualified for the position needing nine months of OJT
training in order to be fully functional in a job mainly
consisting of supervising inmates and patrolling the correctional
center grounds.
The Grant Officer determined, based on the documentation
provided by the auditors and TDOC, that there was no apparent
difference in qualifications between the JTPA employees and the
non-JTPA employees. In finding that there were no apparent
differences, the Grant Officer found that the costs for training
periods past six months were unnecessary and unreasonable. In
support of his position, the Grant Officer cited 20 C.F.R.
Section 629.37(a), which provides:
To be allowable, a cost must be necessary and reasonable for
proper and efficient administration of the program, be
allocable thereto under these principles, and, except as
provided herein, not be a general expense required to carry
out the overall responsibilities of the Governor or
subrecipient. Costs charged to the program shall be
consistent with those in nonfederally sponsored activities
and with applicable State and local law, rules or
regulations, as determined by the Governor.
The regulations are clear in that costs must be necessary
and reasonable. It is also clear that extra costs for a select
group of employees where all the employees have similar
qualifications would be unnecessary and unreasonable. However, a
comparison of qualifications is necessary.
It is first noted that the city of Big Springs, in response
to issues raised by the audit, stated that the general difference
was that the JTPA employees met the qualifying criteria
established by the DOL by being economically disadvantaged,
whereas the non JTPA employees did not. RX-1, p. 42). This
would appear to be an admission that the only differences between
the JTPA and the non-JTPA employees were economic. If this is
the case, there would be no basis for providing longer training
[PAGE 8]
periods to JTPA employees and incurring those costs associated
with the periods. Thus, the longer training periods would be
unnecessary and unreasonable.
In reading through the qualifications between the JTPA and
the non-JTPA individuals, the overriding difference was that
almost all of the JTPA eligible individuals were economically
disadvantaged. While it is true that many of the non-JTPA
individuals had excellent qualifications such as military and law
enforcement experience, there were many non-JTPA individuals who
lacked this sort of experience. Their qualifications were
strikingly similar to those individuals who were JTPA eligible,
with the exception of the economically disadvantaged status.
This can only lead to the conclusion that the main difference
between the two groups was economic, and, as stated before, this
is not a legitimate reason for providing extra training and
incurring the costs associated with that training. Therefore,
the $25,430.00 was properly disallowed by the Grant Officer.
The TDOC contends that the Grant Officer improperly
established a debt of $32,736.00 before he determined whether the
TDOC was eligible for a waiver of liability for that amount
pursuant to Section 164(e)(2), 29 U.S.C. Section 1574(e)(2).
Here the Governor of Texas has delegated the authority to
administer the JTPA program to TDOC. Therefore it is TDOC
responsibility to ensure that its subgrantees comply with the
law. TDOC must also take whatever action appropriate to recover
funds spent in violation of the law. Section 164(e)(2) gives the
Secretary the discretion to waive a State's liability for the
actions of its subrecipients in instances where the State can
demonstrate that it has met four specific criteria:
In determining whether to impose a sanction authorized by
this section against a recipient for violations by a
subgrantee of such recipient under this Act or the
regulations under this Act, the Secretary shall first
determine whether such recipient has adequately demonstrated
that it has--
(A) established and adhered to an appropriate system for the
award and monitoring of contracts with subgrantees which
contain acceptable standards for ensuring accountability;
(B) entered into a written contract with such subgrantee
which established clear goals and obligations in unambiguous
terms;
(C) acted with due diligence to monitor the implementation
of the subgrantee contract; including the carrying out of
the appropriate monitoring activities (including audits) at
[PAGE 9]
reasonable intervals; and
(D) taken prompt and appropriate corrective action upon
becoming aware of any evidence of a violation of this Act or
the regulations under this Act by such subgrantees.
29 U.S.C. Section 1574(e)(2).
This section is clear in that it requires the Secretary to
determine whether the recipient of JTPA funds is eligible for a
waiver of liability for disallowed costs. Such a determination
will only be made after the recipient (TDOC) has demonstrated
that it has met the criteria for the waiver. The regulations at
Section 627.704 set forth the process the recipient must follow
before a waiver may be considered:
(a) A recipient may request a waiver of liability as
described in section 164(e)(2) of the Act. Any such request
shall be made no later than the informal resolution period
as described in Section 627.606(b) of this part.
(b) A waiver of the recipient's liability can only be
considered by the Grant Officer when:
(1) the misexpenditure was not a violation of section 164(e)
of the Act, or did not constitute fraud;
(2) the misexpenditure of JTPA funds occurred at a
subrecipient level;
(3) the recipient has issued a final determination which
disallows the misexpenditure, the recipient's appeal process
has been exhausted, and a debt has been established; and
(4) the recipient requests such waiver and provides
documentation to demonstrate that it has substantially
complied with the requirements of section
164(e)(2)(A),(B),(C), and (D) of the Act.
(c) The recipient shall not be released from liability for
misspent funds under the determination required by section
164(s) of the Act unless the Grant Officer determines that
further collection action, either by the recipient or
subrecipient, would be inappropriate or would prove futile.
20 C.F.R. Section 627.704 (1993).
Here TDOC has failed to issue a final determination which
[PAGE 10]
disallowed the expenditure. TDOC also failed to provide
documentation to demonstrate that it has substantially complied
with section 164(e)(2). The regulations are clear that the Grant
Officer may not even consider a waiver unless the above
conditions are met. For the Grant Officer not to consider a
waiver was proper under the governing regulations.
Accordingly, I enter the following ORDER:
I find and conclude that the record supports the Grant
officer's determination that $7,306 in JTPA expenditures were
improperly incurred, under 29 U.S.C. Section 1551(h), by the TDOC
because they were duplicative of funds already received under a
separate contract. I further find and conclude that the record
supports the Grant officer's determination that $25,430 in JTPA
expenditures were improperly incurred through unreasonable and
unnecessary training which is contrary to 20 C.F.R. Section
629.37(a).
Therefore, the decision of the Grant Officer is AFFIRMED and
the state of Texas is ordered to repay to the Department of
Labor, from non-federal funds, the amount of $32,736.00.
RICHARD D. MILLS
Administrative Law Judge
