DATE: August 31, 1992
CASE NO. 83-CPA-14
SPOKANE CITY-COUNTY EMPLOYMENT
AND TRAINING CONSORTIUM AND
CAREER PATH SERVICES,
v.
U.S. DEPARTMENT OF LABOR.
BEFORE: THE SECRETARY OF LABOR
FINAL DECISION AND ORDER ON REMAND
This case arises under the Comprehensive Employment and
Training Act (CETA), 29 U.S.C. §§ 801-999 (Supp. V
1981), [1] and its implementing regulations, 20 C.F.R. Parts
675-680 (1990). The grantee, Spokane City-County Employment and
Training Consortium, and one of the subrecipients, Career Path
Services (collectively referred to as the Petitioners), filed
exceptions to the Decision and Order (D. and O.) of the
Administrative Law Judge (ALJ) disallowing certain expended CETA
funds and ordering that they be repaid to the Department of
Labor. The Secretary declined to accept the case for review and
the ALJ's decision became the final decision of the Secretary.
20 C.F.R
§ 676.91(f). Petitioners appealed to the United States
Court of Appeals for the Ninth Circuit. While the case was
pending on appeal, the parties requested that the petition for
review be dismissed and the matter remanded to the Secretary.
Pursuant to the parties' agreement, the court remanded the case
for the Secretary to consider petitioners' request to "waive the
penalty imposed by the Department." Spokane City-County
Employment & Training Consortium v. U.S. Department of Labor,
No. 88-7312 (9th Cir. July 17, 1991).
BACKGROUND
The grantee entered into subrecipient agreements with Career
Path Services (CPS) and Spokane School District No. 81 (District)
to operate on-the-job (OJT) training programs on its behalf.
D. and O. at 2. Each subrecipient, during 1982, contracted with
Knickel Investments to provide the OJT services. Because of
[PAGE 2]
dissatisfaction with the services, the District terminated its
contract on December 6, 1982. Id. In September 1982, one
of the participants under the CPS contract complained that
training was not being accomplished. Id. at 3.
Thereafter, there were other indications of problems with the CPS
contract, culminating in the referral of the matter, on January
6, 1983, to the Office of the Inspector General, Department of
Labor, because of allegations of fraud on the part of Knickel
Investment's proprietor, Mr. Jerry Koller. Id. at 4. An
investigation revealed that Mr. Koller was operating a fictitious
business entity which provided participants with little or no
training and that he falsely billed the CETA program for training
not provided and salaries not paid. Id.
The Grant Officer found that $9,779.97 in CETA funds was
obtained fraudulently by Mr. Koller and disallowed that amount.
Id. at 5. The ALJ affirmed the disallowance of $9,779.97
and ordered that the grantee pay it to the Department of Labor,
subject to the Secretary's consideration of whether the right to
repayment should be waived. Id. at 8, 9. Following the
court's remand, the parties were given the opportunity to submit
briefs on the waiver issue, taking into account In the Matter
of Blackfeet Tribe v. United States Department of Labor, Case
No. 85-CPA-45, Sec. Dec., Dec. 2. 1991.
DISCUSSION
Waiver of the right to repayment of misspent CETA funds is
authorized, under certain circumstances, by CETA Section
106(d). [2] 29 U.S.C. § 816(d). To implement Section
106(d) the Department of Labor promulgated 20 C.F.R. §
676.88(c). [3] SeeBlackfeet, slip op. at 4 &
n.3. Section 676.88(c) states the general rule that where funds
have been misspent "the Grant Officer shall disallow the costs .
. . ." It provides an exception under which costs associated
with ineligible participants and public service employment
programs may be allowed [4] if the five specified criteria are
met.
Petitioners make no contention that this case falls within
the exception stated in Section 676.88(c). See
Petitioner's Brief (Pet. Br.) at 3-6. Instead, while
acknowledging the general rule stated in Section 676.88(c) that
the Grant Officer shall disallow the costs, the petitioners
allege that there is a distinction between disallowing costs and
requiring that the costs be repaid. Petitioners add that nowhere
in the regulations is there a requirement that disallowed costs
must be repaid. [5] Pet. Br. at 5, 6. Moreover, petitioners
argue that Blackfeet does not stand for the proposition
that waiver of repayment may not be considered in Section
106(d)(1) cases (those cases not involving public service
employment programs); rather, that section does not mandate
repayment, it merely provides for a
[PAGE 3]
right of repayment. Pet. Br. at 3, 5.
It is unnecessary to consider what Section 106(d)(1) allows
the Secretary to do regarding repayment because the Department
has promulgated regulatory Section 676.88(c) addressing that
issue, and the circuit within which this case arises has
concluded that the Department of Labor is required to follow its
own regulations. Chicano Education and Manpower Services v.
United States Department of Labor, 909 F.2d 1320, 1327 (9th
Cir. 1990). In Blackfeet, repayment of misspent funds was
found to be mandatory because the applicable language of Section
676.88(c) stated that the Grant Officer shall disallow the costs.
Blackfeet, slip op. at 6. The issue raised in this remand
is whether the directive to disallow costs is, as found in
Blackfeet, tantamount to requiring their repayment.
When, as here, regulatory terms are not given a specific
regulatory definition, they are to be interpreted according to
commonly understood definitions, considering the context in which
they appear. Colorado Department of Labor and Employment v.
United States Department of Labor, 875 F.2d 791, 797 (10th
Cir. 1989). In Chicano, the court noted that the
Secretary promulgated Section 676.88(c) to implement the "special
circumstances" language of CETA Section 106(d)(2) which concerns
waiver of repayment. 909 F.2d at 1326. The regulation, however,
does not mention waiving repayment. Instead, it refers to
allowing costs. Because Section 676.88(c) implements the
statutory section involving waiver of repayment, the concept of
allowing costs must be viewed as its functional equivalent.
Seesupra note 4. Conversely, under the general
rule stated in Section 676.88(c), where the Grant Officer is
instructed to disallow the costs, the implication is that there
can be no waiver of repayment.
This interpretation is consistent with a long line of cases
where costs have been disallowed and repayment ordered.
SeeFlorida Department of Labor v. United States
Department of Labor, 893 F.2d. 1319, 1320 (11th Cir),
cert.denied, 111 S. Ct. 49 (1990); Colorado
Department of Labor, 875 F.2d at 793; State of South
Carolina v. United States Department of Labor, 795 F.2d 375,
376 (4th Cir. 1986); Arizona Department of Economic Security
v. United States Department of Labor, 790 F.2d 782, 783 (9th
Cir. 1986); City of St. Louis v. United States Department of
Labor, 787 F.2d 342, 344 (8th Cir. 1986); Eastern Band of
Cherokee Indians v. Donovan, 739 F.2d 153, 155 (4th Cir.
1984). Petitioners have not cited, nor am I aware of, any cases
in which costs have been disallowed, within the meaning of
Section 676.88(c), without repayment being ordered. To disallow
costs without ordering repayment would unreasonably eliminate the
distinction between cases where costs are disallowed and those
[PAGE 4]
where they are allowed, and would undercut my Secretarial duty
under CETA to protect the public fisc. SeeCity of
Camden, New Jersey v. U.S. Department of Labor, 831 F.2d 449,
451 (3d Cir. 1987).
CONCLUSION AND ORDER
For the foregoing reasons, I decline to waive repayment of
misspent funds when Section 676.88(c) directs that they be
disallowed. The grantee, Spokane City-County Employment and
Training Consortium is therefore ordered to pay $9,779.97 to the
Department of Labor. This payment shall be from non-Federal
funds. Milwaukee County, Wisconsin v. Donovan, 771 F.2d
983, 993 (7th Cir. 1985), cert.denied, 476 U.S.
1140 (1986).
SO ORDERED.
_______________________________
Secretary of Labor
Washington, D.C.
OAA:TMORRISS:kmp:May 16, 1995
Room S-4309:523-9728
[ENDNOTES]
[1] CETA was repealed effective October 12, 1982. The
replacement statute, the Job Training Partnership Act, 29 U.S.C.
§§ 1591-1791 (1988), provides that pending proceedings
under CETA are not affected. 29 U.S.C. § 1591(e).
[2] Section 106(d)(1) provides in relevant part:
If the Secretary concludes that any recipient of funds
under this chapter is failing to comply with any
provision of this chapter . . . the Secretary shall
have authority to terminate or suspend financial
assistance in whole or in part and order such sanctions
or corrective actions as are appropriate, including the
repayment of misspent funds . . . .
29 U.S.C. § 816(d)(1).
Section 106(d)(2), which pertains solely to public service
employment programs, provides in part as follows:
If the Secretary concludes that a public service
employment program is being conducted in violation of
[enumerated sections of the Act], or regulations
promulgated pursuant to such sections, the Secretary
shall, pursuant to paragraph (1) of this subsection,
terminate or suspend financial assistance in whole or
in part, order the repayment of misspent funds . . .
(unless, in view of special circumstances as
demonstrated by the recipient, the Secretary determines
that requiring repayment would not serve the purpose of
attaining compliance with such sections) . . . .
29 U.S.C. 816(d)(2).
[3] Section 676.88(c) provides:
(c) Allowability of certain questioned costs. In
any case in which the Grant Officer determines that
there is sufficient evidence that funds have been
misspent, the Grant Officer shall disallow the costs,
except that costs associated with ineligible
participants and public service employment programs may
be allowed when the Grant Officer finds:
(1) The activity was not fraudulent and the violation
did not take place with the knowledge of the recipient
or subrecipient; and
(2) Immediate action was taken to remove the
ineligible participant; and
(3) Eligibility determination procedures or other such
management systems and mechanisms required in these
regulations, were properly followed and monitored; and
(4) Immediate action was taken to remedy the problem
causing the questioned activity or ineligibility; and
(5) The magnitude of questioned costs or activities is
not substantial.
[4] The regulatory concept of allowing costs has been equated
with waiving repayment as the Ninth Circuit has looked to the
five factors in Section 676.88(c) as the basis for waiver.
SeeChicano Education and Manpower Services v. United
States Department of Labor, 909 F.2d 1320, 1327 (9th Cir.
1990).
[5] Petitioners are not arguing that the Secretary lacks
authority to order repayment of the disallowed amounts, only that
the Secretary is not required to do so. Pet. Br. at 6.
