North Dakota Rural Development v. USDOL, 85-JTP-4 (Sec'y Mar. 25,
1986)
DATE: March 25, 1986
Case No.: 85-JTP-4
IN THE MATTER OF:
NORTH DAKOTA RURAL DEVELOPMENT
CORPORATION,
Complainant
v.
UNITED STATES DEPARTMENT OF LABOR
Respondent
and
MINNESOTA MIGRANT COUNCIL,
Intervenor
FINAL DECISION AND ORDER
This case arises under the Job Training Partnership Act
(JTPA), 29 U.S.C. §§ 1501-1781 (1982), and the
regulations issued thereunder contained in Title 20 of the Cod of
Federal Regulations (1985). The Grant Officer, pursuant to
Section 166(b) of JTPA, 29 U.S.C. § 1576(b), filed
exceptions to the decision of the Administrative Law Judge
(ALJ)[1] and the Secretary asserted jurisdiction in this case on
September 26, 1985. The ALJ found the Grant Officer was
arbitrary and capricious in determining, pursuant to the
regulations at 20 C.F.R. § 633.204(a) (1983), that the North
Dakota Rural Development Corporation (NDRDC) was not responsible
to be a grantee of Federal funds for a JTPA Section 402, Migrant
and Seasonal Farmworkers Programs (MSFW) grant. 29 U.S.C. §
1672. The Grant Officer had designated the Intervenor herein,
Minnesota Migrant Council (MMC), as the North Dakota MSFW grantee
for the Program Year (PY) 1985, after he determined NDRDC to be
nonresponsible. The ALJ's decision, following a lengthy hearing
requested by NDRDC, reversed the determination of
nonresponsibility and remanded the case to the Grant Officer to
reconsider his designation of the grantee for the PY 1985.[2]
The responsibility review of grant applicants conducted by
the Grant Officer is independent of the competitive program
review of the respective applications. Applicants which fail the
responsibility review will not be selected as potential grantees
[PAGE 2]
regardless of their standing in the competitive process.[3]
NDRDC's request for a hearing concerned its nonselection as
grantee,[4] however, the parties agreed that the issue to be
decided by the ALJ was the validity of the Grant Officer's
determination that NDRDC was nonresponsible under the
responsibility review regulations at 20 C.F.R. §
633.204(a).[5] The ALJ concluded that there was no basis in the
record to support the Grant Officer's determination of NDRDC's
nonresponsibility to administer Federal funds.[6]
Upon review of the full record, including the hearing
transcript and exhibits and the extensive briefing submitted by
counsel for the parties, I find that there is support in the
record for the determination of nonresponsibility made by the
Grant Officer. Accordingly, the decision of the ALJ must be
reversed.
BACKGROUND
NDRDC is a private, non-profit organization which has been
providing services to migrant and seasonal farmworkers. It has
been a grantee of Federal funds from the United States Department
of Labor, under the Comprehensive Employment and Training Act
(CETA), 29 U.S.c. §§ 801-999 (Supp. V 1981), and JTPA;
the United States Department of Agriculture (Farmers Home
Administration); the United States Department of Health and Human
Services (Community Services Administration); and the United
States Department of Energy. It has operated its own programs
and entered into subgrants with other private, non-profit
organizations to support programs for migrant and seasonal
farmworkers.
On October 19, 1984, the Department of Labor (Department)
published a Solicitation for Grant Applications (SGA) for the
Migrant and Seasonal Farmworkers Program, Section 402, JTPA, for
Program Year 1985.[7] NDRDC submitted an application for this
grant, as did four other organizations[8] competing for the
program to be operated in the state of North Dakota. All five
applications were considered to be responsive to the program
requirements and a panel rated each application on a scale from
0-100. NDRDC received the highest score among the five
applicants.[9] The competitive standings were advisory to the
Grant Officer, and they were not binding on his selection.[10]
As required by Section 633.205(b) the Grant Officer's
determination that NDRDC was not responsible to administer
Federal funds pursuant to his responsibility review was
"independent of the competitive process" and, precluded further
consideration of NDRDC to be a potential grantee, "irrespective
of [its] standing in the competition."
DISCUSSION
NDRDC has challenged the appeal of the ALJ's decision as
[PAGE 3]
interlocutory because it did not decide NDRDC's complaint of
nonselection and remanded the selection issue to the Grant
Officer. However it is clear from both the hearing record and
the ALJ's decision that the sole issue before the ALJ was the
Grant Officer's determination that NDRDC was not responsible.[11]
As such, the decision was dispositive of the controversy herein
and not interlocutory.[12] The Grant Officer and the Intervenor
were correct to appeal under JTPA Section 166(b).
The ALJ properly stated the standard of review required to
be applied to the Grant Officer's determination:
Any applicant whose grant application is denied...may
request an administrative review as provided in Part 636,
with respect to whether there is a basis in the record to
support the Department's decision.[13]
The ALJ also properly recognized that this standard is similar to
that used in government procurement cases and that the challenges
to the Grant Officer's determination "must demonstrate that [the]
decision lacked any rational basis."[14] This is a difficult
standard and properly so, because there must be considerable
discretion exercised in determining the award of Department funds
among multiple grant applicants. When there is a basis in the
record for a Grant Officer's responsibility review determination,
neither an ALJ nor the Secretary may reverse the determination
merely because he might weigh the same information and call the
balance differently. The Supreme Court addressed this standard
in Bowman Transportation, Inc. v. Arkansas - Best Freight
System, Inc, 419 U.S. 281, 285-286 (1974): "Under the
'arbitrary and capricious' standard the scope of review is a
narrow one.... 'The court is not empowered to substitute its
judgment for that of the agency.' [citation omitted]...[W]e will
uphold a decision of less than ideal clarity if the agency's path
may reasonably be discerned." [citation omitted] The ALJ erred
in his application of this standard to the record in this case.
At the outset, the ALJ misconstrued the application of the
responsibility review regulations in Section 633.204(a).
Subsection (a) identifies 14 "responsibility tests" against which
the Grant Officer evaluates each application. The ALJ determined
that the 14 enumerated tests are "exclusive" and that the Grant
Officer's review "shall be based solely on the applicant's
performance relative to these 14 specific tests."[15]
The responsibility review provisions states:
(a) Prior to final selection as a potential grantee the
Department will conduct a review of the available records
to determine whether or not the organization has failed
any responsibility test. This review is intended to
[PAGE 4]
establish overall responsibility to administer Federal
funds. With the exceptions of paragraphs (a)(1) and
(a)(3) of this section, the failure to meet any one of the
tests would not establish that the organization is
irresponsible unless the failure is substantial or
persistent. The responsibility tests are as follows:[16]
At this point the respective tests are set out in the regulation.
To support his construction that the tests are exclusive,
the ALJ compared the responsibility review in the Department's
Solicitation for Grant Applications for Fiscal Year 1984[17] to
that of the final regulation just quoted which was in effect when
the solicitation for applications for PY 1985 was issued on
October 19, 1984.[18] The introduction of the 14 tests in the
1984 SGA was quite similar, although not identical, to subsection
(a) as finally adopted, one difference being the phrasing of the
last line: "[t]he following information will be taken into
consideration in making the final selection of an applicant as a
potential grantee."
The ALJ deemed that change in language "significant"
reflecting an intent to make the 14 tests "exhaustive".[19]
However, the ALJ misread the intent of the change. Section
663.204(a) as finally adopted was preceded directly not by the
1984 SGA language, but rather by Proposed Rules published for
comment in 48 Federal Register 33,210, July 20, 1983. The
introduction to subpart (a) in the Proposed Rules read:
(a) Prior to final selection as a potential grantee the
Department will conduct a review of the available records
to determine whether or not the organization has
responsibly administered Federal funds. This review is
intended to establish overall responsibility. The
following information will be taken into consideration in
making the final decision:
Both the 1984 SGA and the proposed rule contained the language
"[t]he following information will be taken into
consideration" which the ALJ found "significant."
However, the ALJ's theory underlying the rationale for the
modification is not supported by the preamble of the final Rules
and Regulations.[20] The preamble states:
Responsibility Review
Numerous comments were received on the "Responsibility
Review" contained at § 633.204. Objections were
raised to both the opening description regarding
application of the responsibility review and several of
the individual
[PAGE 5]
responsibility factors. The commentators did not object
to the concept of a responsibility review, but expressed
concerns that it may be applied in such a manner as to
deny selection as a potential grantee for inconsequential
problems. Since the intent of this section is to
establish overall responsibility for federal funds, the
language has been altered to make it clear that the
standard will be whether there is a substantial or
persistent record of failures. A change has been made to
the individual factors to clarify the existence of and use
of performance standards.
The 14 tests then follow.
The change in the language does not support an
interpretation of exclusivity of tests, but rather that the
determination of irresponsibility will be made for substantial
reasons.
While the areas identified in the tests must be considered
in the Grant Officer's review, both the proposed and the final
regulations begin by stating that "the Department will conduct a
review of the available records." This opens the Grant Officer's
inquiry to the whole of the administrative file to determine
whether the organization failed any of the specific tests in the
regulations, and if there was a failure, whether it was
substantial or persistent. Since the explicit purpose of the
review is to determine an organization's "overall responsibility
to administer Federal funds," to disregard information contained
in the files which relates to the tests and which can be analyzed
as to its probity and seriousness would undermine the stated
intent of the regulation.
It is the Grant Officer's responsibility to evaluate the
information he is considering and to discount any information
that is clearly contrary to his own knowledge and experience.
Certain elements are requisite for immediate disqualification,
such as the agency's inability to recover duly demanded debts, or
the applicant's failure to comply with a repayment plan, as in
test (a)(1); and established fraud or criminal activity, as in
test (a)(3). Other tests, determining "serious administrative
deficiencies" or "substantial failure to provide services,"
permit the Grant Officer to exercise his discretion as to what is
"serious" and what is "substantial failure." The tests indicate
the specific areas that command the attention of the determining
official. However, as long as the organization's overall
responsibility is being determined, the Grant Officer is to
consider other information that is int he official files of the
Department.
Section 402(c)(1) of JTPA, itself, indicated the intended
[PAGE 6]
breadth of a Grant Officer's inquiry into a potential grantee's
responsibility to administer MSFW funds: "[i] awarding any grant
or contract for services under this section, the Secretary shall
use procedures consistent with standard competitive Government
procurement policies." 29 U.S.C. § 1672(c)(1). At the time
of JTPA's passage, October 13, 1982, competitive Government
procurement policies were at Title 41, Code of Federal
Regulations, Public Contracts, Property Management, Chapter 1 -
Federal Procurement Regulations (1982), Subpart 1-1.12 --
Responsible Prospective Contractors. Section 1-1.1202
under General Policy stated in pertinent part:
(d) A determination of nonresponsibility shall be made by
the contracting officer if, after compliance with
§§ 1-1.1205 [Procedures] at 1-1.1206
[Subcontractor responsibility], the
information obtained does not indicate clearly
that the prospective contractor is responsible.
Recent unsatisfactory performance regarding either
quality or timeliness of delivery, whether or not
default proceedings were instituted, is an example of a
problem which the contracting officer must consider and
resolve as to its impact on the current procurement prior
to making an affirmative determination of responsibility.
Where a contracting officer has doubts regarding the
productive capacity or financial strength of a prospective
contractor which can not be resolved affirmatively, the
contracting officer shall determine that the prospective
contractor is nonresponsible. (emphasis supplied).
It is evident from this provision and those that follow that
a contracting officer, or as appropriate, a Grant Officer, was to
consider any problem regarding a contractor known to him, even if
there had not been a formal proceeding instituted with regard to
that problem. Thus, the "Procedures for determining
responsibility of prospective contractors" provided in §
1-1.1205-1(b) that:
Maximum practicable use shall be made of currently valid
information which is on file within the agency. Each
agency shall, at such level and in such manner as it deems
appropriate, maintain records and experience data which
shall be made readily available for use by contracting
officers in the placement of new procurement.
Section 1-1.1205-3 stated that:
Information regarding the responsibility of prospective
[PAGE 7]
contractors may be obtained from the following sources:
* * *
(c) Other information existing within the agency,
including records on file and knowledge of personnel
within the purchasing office making the procurement, other
purchasing offices, related activities, audit activities,
and offices concerned with contract financing;
* * *
(e) Other sources. These should include...Government
departments and agencies.
The scope of the information to be obtained by a contracting
officer to aid him in his responsibility review determinations
was as broad as possible, and not restricted to just that
information that could neatly fit into a test response. Using
"procedures consistent with standard competitive Government
procurement policies," 29 U.S.C. § 1672(c)(1), such as those
recounted above,[21] was clearly contemplated for MSFW grants
under JTPA. It is proper, therefore, for the Grant Officer to
search all of the records available to him and to consider all of
the information as to its reliability and weight in making a
determination on the responsibility of an applicant.
I now turn to the responsibility review in this case and the
Grant Officer's conduct of the review, including the 14 tests
under Section 633.204(a). The Grant Officer reached a negative
assessment of NDRDC's performance relating to six of the tests --
(2), (4), (5), (6), (9) and (10) which I will review in
sequence.d
Responsibility test (a)(2) is "[s]erious administrative
deficiencies identified in final findings and determinations --
such as failure to maintain a financial management system as
required by Federal regulations." The Grant Officer testified
that he was particularly concerned with NDRDC, because he was
aware of prior administrative difficulties with the organization.
He spoke to the previous Grant Officer, who had recommended
conditional funding of NDRDC's PY 1984 grant[22] and he reviewed
the correspondence in the Administrative File.[23]
The Grant Officer was additionally guided by the Employment
and Training Administration's policy statement, Employment and
Training Order No. 4-84.[24] Specifically the policy directs
Grant Officers to "[e]nsure that past and current performance
assessments, including audits, are considered in refunding."
(DX-16 at 4). This policy statement, drafted after the effective
[PAGE 8]
date of the responsibility review regulations, does not restrict
the Grant Officer to considering only final findings and
determinations (F&D), but rather, uses the broad term, "audits."
Using other than final documents requires that a reviewing
official be cognizant of subsequent issuances that might
significantly alter the information contained in and relied upon
in an earlier determination. Failure to take such alterations
into account or to reconsider a determination if later revisions
significantly alter the relied upon source might constitute a
breach of the Grant Officer's discretion. But this is not what
occurred in this case.
Here, NDRDC had been the subject of two audits which were of
concern to the Grant Officer in his responsibility review. The
first, by Rodriquez, Roach & Assoc., reviewed NDRDC's federally
funded activities from November 1, 1979, through September 30,
1981.[25] Its findings were subsequently incorporated in a
final F&D on March 1, 1983.[26]
The second audit, by Petersen, Sorensen and Brough,[27] was
a financial and compliance review for the period from October 1,
1981, through December 31, 1983. The study also reviewed NDRDC's
internal accounting controls from January 1, 1984, through May
31, 1984. The initial report was released on July 13, 1984, to
the agency and NDRDC.[28] NDRDC responded to the report on
December 7, 1984.[29] On March 15, 1985, as documented by a
memorandum to the files, the Grant Officer determined that NDRDC
was not responsible to administer Federal funds.[30] The Grant
Officer testified that he had a copy of the final audit report at
the time he made his determination.[31] Although strenuously
challenged by NDRDC's counsel, the Grant Officer persisted in his
testimony that he had the benefit of the final Petersen audit
report which included the comments of NDRDC to the criticisms.
The findings of initial and final audit, however, were virtually
identical.
Whether he had the final report or not, the Grant Officer
had information concerning the manner in which NDRDC operated its
previous CETA programs which he could assess. Some of the most
serious allegations of administrative deficiencies were not
convincingly repudiated by NDRDC's December 7, 1984, response to
the initial audit, which was int he Grant Officer's file as part
of the final audit package.[32]
The ALJ's constricted view of test (a)(2) was that only
information based on final findings and determinations could be
used in determining whether NDRDC was experiencing serious
administrative deficiencies. A final F&D is a distillation of
the findings and conclusions and comments derived from a final
audit determination. The ALJ's reading of test (a)(2) would bar
the Grant Officer from using the underlying audit, responses,
[PAGE 9]
etc., which ordinarily provide a much fuller picture than the
final F&Ds. To prohibit use of those "available records,"§
633.204(a), taunts common sense and the purpose of this
regulation which is to assure that grant recipients are
indeed "responsible" to be entrusted with Federal funds to
effectuate JTPA's purpose in the MSFW programs. If the Grant
Officer may not consider all "available records" in his
consideration of the respective tests, then the term is a
nullity. I reject that construction and find that the Grant
Officer properly considered all available records in his
determination of NDRDC's responsibility review. Thus it is
incumbent upon me to review the incidents considered to determine
if they demonstrate a rational basis in the record to find NDRDC
nonresponsible.
NDRDC'S RELATIONSHIP TO FIESTA ENTERPRISES
NDRDC's board of directors formed a new, non-profit entity,
Fiesta Enterprises, Inc., (Fiesta) and then entered into a series
of business arrangements with Fiesta. These activities were
violative of the conflict of interest regulations governing
Federal grantees.[33] The record contains two instances that
presented significant breaches of a proper relationship between
NDRDC and Fiesta.
The first concerned a classroom training contract let by
NDRDC to Fiesta, whereby six participants were to be trained in
carpentry skills while refurbishing a number of house trailers in
which Fiesta had a financial interest. NDRDC paid for the
participants' allowances, training materials, a site supervisor,
and paid Fiesta for instructional fees.[34] The contract
between Fiesta and NDRDC was sole source, but without prior
approval from the Department as required by 41 C.F.R. §29-
70.216-9(d)(2) (1982). Statements from the instructor elicited
that contrary to the regulatory definition of classroom
training,[35] there was very little classroom training.[36]
Further, Fiesta failed to train the contracted number of
participants; several of those enrolled failed to complete the
program; and none of the enrollees was placed in unsubsidized
employment as a result of the program. Moreover, Fiesta had a
financial interest in the trailers being refurbished and the
Executive Director of NDRDC at the time of this contract was a
board member of Fiesta.[37]
The second incident concerned a computer and software
package purchased by Fiesta at a cost of approximately $15,000.
Fiesta leased the computer and software package to NDRDC under
terms whereby in only 18 months, NDRDC paid Fiesta almost
$19,000.[38] Although the hourly usage rate of $12 appeared
reasonable, no documentation apart from a summary of hours of use
was available to support the presumed heavy use by NDRDC.
Coincidently, the Board minutes of Fiesta indicate concern that
the low usage on the computer was not generating sufficient
[PAGE 10]
income to meet the loan payments Fiesta was required to make on
its purchase of the computer: "[t]he Economic Development
Coordinator for NDRDC (Executive Director at Fiesta) '...assured
members he would make sure that in the future rent would cover
loan payments.'" (AF at 76, excerpting the December 4, 1981,
minutes of the Fiesta Board of Directors meeting). This
arrangement violated the allowable costs associated with lease
payments between related parties which are limited to 6-2/3% of
the acquisition cost per annum.[39] NDRDC's disregard of the
applicable government regulations resulted in an overpayment of
almost $17,000 in the 18 month period. Although, following the
Department's challenge of this arrangement, Fiesta transferred
title in the computer to NDRDC, the overpayment was not
compensated by the belated transfer, and the relationship between
the organizations and their failure to establish necessary
separation was demonstrably indicative of questionable
administrative practices.
UNAUTHORIZED ENROLLMENT PRACTICES BY NDRDC.
Apart from its relationship with Fiesta, NDRDC also engaged
in a dubious administrative activity when it posthumously
registered a deceased farmworker in the CETA program in order to
use federal funds to ship the remains from North Dakota to Texas.
A farmworker who previously had been enrolled in NDRDC's MSFW
program was automatically terminated from the program rolls, as
were all other participants, at the beginning of the new program
year on July 1, 1984. The farmworker died in late July. A
surviving son "was extended signature authority" by the widow to
reenroll the deceased man in the program.[40] The reenrollment
was devised with the knowledge and cooperation of NDRDC[41] to
use Federal funds to ship the remains to Texas. Since the
enrollee was dead at the time of his purported reenrollment,
there can be no serious suggestion that he was eligible to
"obtain or retain employment, to participate in other program
activities leading to their eventual placement in
unsubsidized...employment,"[42] which is the purpose of the
Migrant and Seasonal Farmworkers Program.
NDRDC's role in this matter is fully revealed in the
Administrative File, which the Grant Officer testified was his
working file at the time of his determination of NDRDC's
nonresponsibility. While the ALJ characterized this instance as
"a compassionate and charitable act,"[43] it does not overcome
NDRDC's blatant disregard for the purpose of the statute and the
organization's failure to recognize and meet its responsibility
to dispense JTPA funds only as authorized.
In sum, these several instances make clear that there is
rational support in the record for the Grant Officer's
determination on test (a)(2).
The Grant Officer determined that NDRDC failed test (a)(4):
[PAGE 11]
"[w]illful obstruction of the audit process." The record
indicates[44] the difficulty that the Department's Office of
Inspector General (OIG) experienced in attempting to arrange a
time to review documents relating to a Community Services
Administration (United States Department of Health and Human
Services) grant which was being reviewed under the comprehensive
audit being conducted by Petersen, Sorensen and Brough. The
delay, ad adduced by a memorandum in the OIG materials,[45]
however, does not have the appearance of willful obstruction so
much as a sense of dilatoriness and a failure by NDRDC to make
completion of the review a priority. While there was delay, it
was not lengthy and the OIG determined to issue its final report
without reviewing the materials which NDRDC had identified in
defense of its position. Since, as the Grant Officer testified,
he had timely access to a pre-released copy of the final audit
report, the consequences of the delays were not substantial.
Thus, it appears that the record does not support a finding of
failure on test (a)(4).
The Grant Officer also concluded that NDRDC failed test
(a)(5): "[s]ubstantial failure to provide services to applicants
as agreed to in a current or recent grant or to meet performance
standard requirements as provided at § 633.321 of this
subpart." This test was used as an example by the ALJ to show
the unfair bias of the Department's officials toward NDRDC. At
issue was NDRDC's performance in providing employment related
services to its participants. Performance was measured by a
number of statistical reviews and then compared to planned
outcomes. A number of the performance indices were deemed to be
below an acceptable standard by the Grant Officer.[46] The ALJ
determined that the Department's interpretation of the
performance statistics was skewed to show NDRDC in the worst
possible light.[47]
The Grant Officer testified that NDRDC might have passed the
performance test "mathematically" (TR at 1089) but maintained
that the passing or failing of this test was not the sole basis
on which he made his determination of nonresponsibility (TR at
1089). Other applicants that had demonstrably less favorable
outcomes against plan than did NDRDC were not disqualified based
on their poor performance. The Grant Officer explained that this
was warranted by the conditions within which other applicants had
operated their MSFW programs. Because NDRDC had been
conditionally funded by the Department for PY 1984[48] and in
the context of the other administrative deficiencies that the
Grant Officer found in NDRDC's operation, the Grant Officer did
not choose to give NDRDC the benefit of the situation as he did
other applicant. A review of the record concerning the
performance statistics and the explanation concerning the
performance tests
[PAGE 12]
does not demonstrate a rational basis for the Grant Officer's
finding of failure of this test. The Grant officer's testimony
at 1089-1090, indicates that the performance test would have been
passed had that determination been made in isolation.
The Grant Officer also determined that NDRDC failed test
(a)(6): "[f]ailure to correct deficiencies brought to the
grantees' attention in writing as a result of monitoring
activities, reviews, assessments, etc." The Grant Officer's
consideration of final findings and determinations from the
Rodriguez audit report[49] which listed certain administrative
deficiencies as well as various monitoring reports and the report
of the Petersen audit appear to be the bases of the determination
that NDRDC failed this test. There is a pattern of recurring
identification of administrative needs for improvement. The
problems listed in the Rodriguez audit F&Ds included: "Financial
management system controls need to be followed." "Intake
procedures need to be strengthened." "Property management system
needs to be improved."[50] In the subsequent Petersen audit,
the problems identified are very much the same: inadequate
management of subgrants;[51] need for improved eligibility
determination system;[52] recommendation that NDRDC establish
procedures to account for non-expendable personal property,
obtain proper approval of capital expenditures and maintenance of
approved plans of disposition.[53] These findings do not
demonstrate that the noted problem areas had been addressed and
corrected, as required by the test. There is, therefore, a basis
in this record for the Grant Officer's determination of failure
on test (a)(6).
The Grant Officer determined that NDRDC failed test (a)(9):
"[f]ailure to properly report and dispose of government property
as instructed by DOL." The final Rodriguez audit (AF at 157) and
the Petersen audit (AF at 81-J) both indicated weakness in
NDRDC's property management. One instance cited in the Petersen
audit was the acquisition using Federal funds of a pick up truck
by one of NDRDC's subgrantees, Utah Rural Development Corporation
(URDC). The truck had been disposed of but neither NDRDC nor
URDC had documents to support the transactions as required by OMB
Circular A-122. In a colloquy with the ALJ, the Grant Officer
seemed to acquiesce that this instance by itself might not
be sufficient grounds to determine an applicant as
nonresponsible. However, the Grant Officer properly considered
this additional instance of failure by NDRDC to adhere to
explicit applicable regulations for situations involving Federal
funds and NDRDC property.
Finally, the Grant Officer found that NDRDC failed test
(a)(10): "[f]ailure to have maintained cost controls resulting
in excess cash on hand." NDRDC accrued an excess cash balance
[PAGE 13]
apparently in anticipation of close out costs that would come due
after the termination of the CETA program. Since CETA program
costs could not be satisfied by funds from the successor JTPA
program, the appropriateness of setting aside some amount of CETA
funds is not contested.[54] However, the record shows that
NDRDC used more than $18,000 of that amount as loans to non-
Federal entities, and advanced funds without authorization to
subgrantees. At the time of the audit report, the repayment of
that money to NDRDC appeared unlikely.[55] Although technically
the problem is the excess cash that NDRDC drew down from its
grant, the unauthorized use to which they put those funds is
additionally questionable. The significant amount of excess cash
that NDRDC accumulated and the questionable use of these funds
was a legitimate concern for the Grant Officer, and another
instance of questionable judgment and practice properly examined
in his responsibility review.
The ALJ's decision was blunt concerning his disregard for
the testimony of the Government Authorized Representative (GAR)
which he considered not credible. However, the Grant Officer
testified that he placed "very little" reliance on
subordinates in conducting the responsibility review.[56]
Throughout his testimony, the Grant Officer emphasized that he
took the information from his file, (although the original
documents could have originated in the program office), weighed
it, and drew his own conclusions. The Administrative File
provided the Grant Officer with a great deal of information about
the Complainant apart from the Responsibility Review Checklist
prepared by the GAR. The transcript is replete with statements
by the Grant Officer in reply to questions by counsel and the ALJ
that he recognized his responsibility to make the responsibility
determination and he did it considering all of the information
available to him.[57] The key to the determination of
nonresponsibility was the determination of the Grant Officer, and
his testimony substantiates that he reached his decision from the
available records.
The ALJ purported to estop the Department from using any of
the Rodriguez audit final determinations based on a statement
which the ALJ quoted as follows:
If, after this date, you demonstrate to the Office of
Special Targeted Programs that appropriate corrective
action has been taken...the fact of earlier deficiencies,
now corrected, will not be considered adversely in future
decisions regarding your relationship with ETA.[58]
The full two sentences read:
If, after this date, you demonstrate to the Office of
Special Targeted Programs that appropriate corrective
action has been taken, that office will so notify us in
[PAGE 14]
writing. Your organization's name will be then be
removed from our list and the fact of earlier
deficiencies, now corrected, will not be considered
adversely in future decisions regarding your
relationship with ETA. (emphasis supplied).[59]
The reference to the "list," omitted from the ALJ's
quotation, is significant. The Department maintained a "list of
organizations which still have uncorrected administrative
problems" and NDRDC was being placed on that list concurrent with
the final audit determination.[60] The context of the
statements concerning no future adverse considerations related to
removal from the list if deficiencies were corrected. Such a
commitment should not preclude a future Grant Officer from taking
notice that NDRDC had been plagued by certain administrative
deficiencies in the past, proposed a plan to correct them,[61]
and might be experiencing similar difficulties at a later time.
In any case, the deficiencies uncovered in the Petersen audit are
substantial and as such are disqualifying without having to be
persistent, as well.
CONCLUSIONS
A Grant Officer must use available records in his
determination of the responsibility of potential grantees. The
information must also be valid. The fourteen tests in Section
633.204(a) are inclusive and must be taken into consideration.
In addition, the tests are indicative of the areas in which a
Grant Officer must look to determine which operational areas are
critical. They are not, however, exclusive. If other serious,
substantial or persistent failures of a grantee come to the Grant
Officer's knowledge, he cannot disregard them in making his
determination of responsibility to administer Federal funds. The
responsibility review is designed to protect Federal programs,
and ultimately the targeted beneficiaries, from indifferent and
irresponsible administration. The national priority to conserve
our fiscal resources demands no less.
A potential grantee is protected from an arbitrary and
capricious decision by a Grant Officer by putting the reasons for
disqualification to a "substantial or persistent" standard.
Further, the requirement that a disqualifying failure must be
substantial or persistent protects a potential grantee from being
debarred because of a single, inconsequential occurrence. It
cannot be claimed on the record here that NDRDC's involvement
with fiesta was inconsequential. The favorable classroom
training contract and the lucrative computer leasing contract
expended thousands of dollars with little tangible gain for the
participants in the MSFW programs.
The posthumous enrollment of a former participant in an
attempt to have Federal funds used where either private funds or
[PAGE 15]
NDRDC's non Federal funds should have been used goes beyond
improper eligibility or enrollment processes and begins to edge
upon fraud. The ALJ's hierarchial rating of some of the tests,
even with the tacit agreement of the Grant Officer, is
inappropriate and is not provided for under the regulations.
Indeed, the regulation requires disqualification if any one of
the tests was either substantially or persistently failed.
The Grant Officer testified that he comprehended a pattern
of wrongful actions by NDRDC when it was operating its MSFW
programs. Competent auditors reviewed NDRDC's program compliance
against accepted accounting norms. Practices and procedures were
revealed which the Grant Officer found were questionable in
themselves and convincing in their combination that NDRDC should
not be entrusted with the administration of Federal funds. The
attack on his determination was not that his facts were wrong,
but rather, the form in which he received them was improper.
There was no evidence that NDRDC did not pay $19,000 for the
undocumented use of a $15,000 computer package; there was no
evidence that the trailer refurbishing project was conducted in a
classroom setting, and that the instruction was provided at a
satisfactory level; or that it was proper to enroll a deceased
farmworker in the MSFW program. What was shown was
administrative sloppiness in the Department's timely processing
of documents, and witnesses who had not prepared fully to respond
to reasonably anticipated questions at the hearing. While a
casual review of the transcript may explain the ALJ's negative
view of the Department's support staff, the record strongly
supports the Grant Officer's determination that NDRDC was not
responsible to be considered as a potential grantee.
ORDER
Accordingly the decision of the ALJ is reversed. The Grant
Officer's determination of NDRDC's nonresponsibility as a
potential grantee of Migrant and Seasonal Farmworker Programs is
AFFIRMED.
WILLIAM E. BROCK
Secretary of Labor
[ENDNOTES]
[1] Decision and Order (D. & O.), North Dakota Rural
Development Corporation v. United States Department of Labor and
Minnesota Migrant Council, Case NO. 85-JTP-4, August 27,
1985.
[2] D. and O. at 19.
[3] 20 C.F.R. § 633.204(b)(1985).
[4] Administrative File (AF), at 5-12, admitted in evidence as
DX-1, Hearing Transcript (TR) at 69.
[5] D. and O. at 3; TR at 59-60.
[6] D. and O. at 19.
[7] 49 Fed. Reg. 41,188 (1984).
[8] Applications were also received from Minnesota Migrant
Council (MMC), Center for Employment and Training-California
(CET), Quad County Community Action Agency, and Proteus
California.
[9] The point scores awarded by the panel were: NDRDC, 84; MMC,
77; CET, 76; Quad County, 74; and Proteus, 63.
[10] 49 Fed. Reg. 41,118 (1984).
[11] TR at 32, 60, 2064-2071; D. and O. at 3.
[12] See Black's Law Dictionary 988 (5th Ed. 1979).
[13] 20 C.F.R. § 633.205(e); D. and O. at 3.
[14] D. and O. at 3.
[15] D. and O. at 5.
[16] 20 C.F.R. § 633.204(a).
[17] 48 Fed. Reg. 23,933 (1983).
[18] 49 Fed. Reg. 41,118 (1984).
[19] D. and O. at 6 quoting Northwest Rural Opportunities,
Inc., 84-JTP-3, Decision and Order at 10, (1984).
[20] 48 Fed. Reg. 48,748 (1983).
[21] On April 1, 1984, the Federal Procurement Regulations were
replaced by the Federal Acquisition Regulations, codified at
Title 48, C.F.R. Subpart 9.1 (1985). The recodified procurement
policies do not contain the detail of the earlier regulations,
but there is nothing inconsistent with, or contradictory to, the
earlier version. See e.g., 48 C.F.R. §§
9.103(b), 9.104-1(d), 9.105-1(a)(c) (1985).
[22] Testimony of Robert D. Parker, Grant Officer, Transcript
(TR) at 883.
[23] Id. at 912-917.
[24] Exhibit DX-16, Management of Procurements Administered by
the ETA National and Regional Offices, June 4, 1984.
[25] Exhibit CX-42.
[26] AF at 153-164.
[27] Final Audit Report, AF at 33-125.
[28] Transmittal letter of Petersen, Sorensen & Brough, dated
July 13, 1984, AF at 40.
[29] AF at 90.
[30] AF at 23-24.
[31] Parker, TR at 936.
[32] AF at 61-81Q.
[33] 20 C.F.R. § 676.62(a) and (b) (1985) provides:
§ 676.62 Conflict of interest.
(a) No member of any council under the Act shall cast a
vote on any matter which has a direct bearing on services to be
provided by that member or any organization which such member
directly represents or on any matter which would financially
benefit such member or any organization such member represents
(section 121(h)(2)). However, members of the PIC may vote on the
title VII Annual Plan subpart even if that subpart provides funds
to the PIC.
(b) Each recipient and subrecipient shall avoid
organizational conflict of interest, and their personnel shall
avoid personal conflict of interest and appearance of conflict of
interest in awarding financial assistance, and in the conduct of
procurement activities involving funds under the Act, in
accordance with the code of conduct requirements for financial
assistance programs set forth in 41 CFR 29-70.216-4 (section
123(g)).
[34] AF at 71.
[35] See 20 C.F.R. § 676.25-1 (1985):
(a) This program activity is any training of the type
normally conducted in an institutional setting, including
vocational education, and it is designed to provide individuals
with the technical skills and information required to perform a
specific job or group of jobs.
[36] AF at 74.
[37] AF at 70.
[38] AF at 82.
[39] OMB Circular A-122, Attachment B, paragraphs 9(d) and 42(c)
(1980).
[40] AF at 134-135.
[41] The intake form was signed by an NDRDC "Interviewer" and
approval indicated. AF at 136.
[42] JTPA, § 402(c)(3), 29 U.S.C. § 1672(c)(3) (1982).
[43] D. and O. at 8.
[44] AF at 38.
[45] AF at 38-39.
[46] A full recitation of the disputed interpretation of the
performance statistics can be found int he parties' briefs and in
the D. and O. at 8-10.
[47] D. and O. at 8-9.
[48] AF at 32.
[49] AF at 153-160.
[50] AF at 157.
[51] AF at 68.
[52] Id. at 81-Q.
[53] Id. at 81-J.
[54] Grant Officer's Reply Brief, October 7, 1985, at 39.
[55] Parker, TR at 1599; AF at 81F, 81G.
[56] TR at 916.
[57] TR at 960, 965, 966-968, 974, 1001, 1040, 1504-5, 1509,
1544-5, 1547-8.
[58] D. and O. at 16, citing AF at 157.
[59] AF at 157.
[60] Id.
[61] CX-11.
