86ct006a.htm

DATE:  September 29, 1993
CASE NO. 86-CTA-6


IN THE MATTER OF

U.S. DEPARTMENT OF LABOR,

          COMPLAINANT,

     v.

YA-KA-AMA INDIAN EDUCATION
AND DEVELOPMENT, INC.,

          RESPONDENT.


BEFORE: THE SECRETARY OF LABOR


                         FINAL DECISION AND ORDER

     This case arises under the Comprehensive Employment and
Training Act (CETA or Act), 29 U.S.C. §§ 801-999 (Supp.
V 
1981), [1]  and the implementing regulations at 20 C.F.R. Parts
675-80 (1990).
                             BACKGROUND
     Before me for review is the Administrative Law Judge's (ALJ)
Decision and Order (D. and O.) of March 25, 1988, wherein he
waived repayment of $164,277.00 in disallowed costs claimed by
the Respondent, Ya-Ka-Ama Indian Education and Development, Inc.
(Ya-Ka-Ama or Grantee) pursuant to its CETA grant. [2]   The
disallowed costs were the result of Ya-Ka-Ama's inability to
reconstruct missing organizational records and the Department's
auditors' determination that most of the available records were
unauditable.  The ALJ found that Ya-Ka-Ama was unable to provide
documentation to support the eligibility of certain CETA
participants; that Ya-Ka-Ama employed a relative of a member of 
[PAGE 2]
the Board of Directors in violation of the anti-nepotism
regulation; and the chaotic state of Ya-Ka-Ama's books and
records was indicative of improper accounting methods and
maintenance of records to insure that grant funds were expended
for grant purposes.  All of these objective findings were in
contravention of the pertinent regulations.  D. and O. at 3.      
     The ALJ concluded that because the auditors did not allege
any findings of fraud during the audit period, he had the
authority to waive recoupment of the disallowed costs by the U.S.
Department of Labor.  D. and O. at 5.  The ALJ relied in part, on
the general prescription in the Ninth Circuit Court of Appeals'
remand decision in Quechan Indian Tribe v. U.S. Dep't of
Labor, 723 F.2d 733 (1984), "to consider the 'equities'. . .
prior to ordering the repayment of disallowed or questioned
costs", as well as the authority, found in the regulations at 20
C.F.R. § 676.88(c), to allow otherwise misspent funds.  D. and O.
at 4. The Grant Officer timely excepted to only that part of the
ALJ's decision waiving repayment of the debt. 
                                DISCUSSION
     The courts have held that CETA section 106(d) [3] 
authorizes the Secretary the discretion to waive the Department's
right to recoup disallowed CETA costs or to order repayment as a
sanction, provided such discretion is exercised in accordance
with the Act and the implementing regulations.  This conditional
authority is likewise vested in the ALJ as the Secretary's
delegate.  See  Action, Inc. v. Donovan, 789
F.2d 1453, 1459-60 (10th Cir. 1986); In the Matter of
Worcester CETA Consortium, Case No. 82-CETA-A-166, Sec. Final
Dec. and Order, June 24, 1992, slip op. at 3-5.      The
regulations at 20 C.F.R. § 676.88(c) implementing CETA
section 106(d) provides that disallowed costs associated with
ineligible participants and public service employment programs
may be allowed if the Grant Officer determines that five
conditions are present. [4]   Chicano Education and Manpower
Services v. U. S. Dep't of Labor, 909 F.2d 1320, 1327 (9th
Cir. 1990).  (Secretary promulgated 20 C.F.R. § 676.88(c) to
implement the "special circumstances" language of Section
106(d)(2).  An agency is required to follow its own
regulations, particularly insofar as the exception to the
statutory presumption in favor of repayment is narrow, and the
Secretary need not go beyond the factors covered by the
regulation); Blackfeet Tribe v. U.S. Dep't of Labor, Case
No. 85-CPA-45, Sec. Final Dec. and Order, Dec. 2, 1991, slip op.
at 4; U.S. Dep't of Labor v. Rockingham/Strafford Employment
and Training Consortium, Case No. 81-CTA-363, Sec. Dec. and
Order of Remand, Mar. 11, 1991, slip op. at 3-4.  
     Only $12,733 of the disallowed costs pertain to questioned
participant eligibility and are subject to the waiver provision. 
Joint Exhibits 1 and 2.  The balance of the disallowed costs are 
[PAGE 3]
attributable to Ya-Ka-Ama's inadequate administration and
management of the program and the nepotism charge, and are beyond
the purview of the recoupment waiver provision.
     The ALJ waived recoupment of all of the disallowed costs for
there were no allegations of fraud by the auditors with
regard to Ya-Ka-Ama's inadequate record keeping.  He also found
that the Department of Labor did not provide sufficient guidance
to the directors in the requisite accounting procedures.  D. and
O. at 4.  
     However, the ALJ implicitly found that Ya-Ka-Ama failed to
meet the requisite condition to maintain and monitor the
management systems and mechanisms necessary to adequately
administer its CETA program.  Id.at 3.  In addition, since
Ya-Ka-Ama did not remove the ineligible participants or take
immediate action to remedy the problem causing the questioned
activity, it did not meet two other conditions requisite to allow
disallowed costs.   See Rockingham/Strafford, slip
op. at 4-5; Central Tribes of the Shawnee Area, Inc. v. U.S.
Dep't of Labor, Case No. 85-CPA-17, Sec. Final Dec. and
Order, Dec. 14, 1989, slip op. at 3-5; California Indian
Consortium, Case No. 85-CTA-124, Sec. Final Dec. and Order,
Oct. 25, 1988, slip op. at 6.  
     The ALJ determined that the "special circumstances" language
in Section 106(d)(2) obligated him to consider such special
circumstances in this case.  D. and O. at 4. The ALJ erred in
this regard, since the "special circumstances" phrase pertains
only to costs arising under public service employment programs
specified in Section 106(d)(2), and such consideration is not
obligatory with regard to other instances which result in
disallowed costs. See Chicano, 909 F.2d at 1326. 
     A CETA grantee's failure to secure and maintain adequate
program and financial records for review by Government auditors
may appropriately result in a determination that the grant funds
were misspent.  See City of Oakland v. Donovan, 703
F.2d 1104, 1107, modified 707 F.2d 1013 (9th Cir. 1983)
(where a CETA grantee can only show the results of a program and
can not provide adequate evidence to show how and where the grant
monies were spent, this failure supports a determination that the
Act was violated); Montgomery County, Maryland v. U.S. Dep't
of Labor,757 F.2d 1510 (4th Cir. 1985) (the burden of
producing documentation to support its CETA expenditures is on
the grantee).
     After reviewing the case record, I am persuaded that there
is no reason to excuse Ya-Ka-Ama's failure to maintain the
organization's program and financial records.  The records were
apparently either misplaced or taken when the organization
underwent personnel changes.  The security of an organization's
records in times of change are not an unusual responsibility for 
[PAGE 4]
an organization's administration.  There is nothing in the record
to suggest that to do so was beyond the control of Ya-Ka-Ama's
Board of Directors, or of the program managers.  The Department
cannot be faulted for the sorry state of Ya-Ka-Ama's records,
even if I accept the ALJ's determination that there was an
untimely delay in transmitting a copy of the audit report to the
Grantee.  The mishandling of the records occurred long before the
audit took place, let alone the issuance of the report.
                               ORDER
     That part of the ALJ's order of March 15, 1988 waiving
repayment of $164,277.00 is REVERSED.  The Ya-Ka-Ama Indian
Education and Development, Inc. is ordered to repay to the U.S.
Department of Labor $164,277.00 from non-Federal funds. 
Milwaukee, Wisconsin v. Donovan, 771 F.2d 983, 993 (7th
Cir. 1985).
     SO ORDERED.



                              ______________________________
                              Secretary of Labor

Washington, D.C.


OAA:SBLOOM:cl:05/16/95
Room S-4309:FPB:523-9728



[ENDNOTES]
           
[1]  CETA was repealed effective October 13, 1982 and replaced by
the Job Training Partnership Act, 29 U.S.C. §§ 1501-
1781 (1982), but CETA administrative or judicial proceedings
pending as of that date were not effected. 29 U.S.C. §
1591(e) (1988). 

[2]   Ya-Ka-Ama did not appeal the disallowance and therefore the
ALJ's decision on that issue is the Secretary's final action in
this case.  20 C.F.R. § 676.91(f).

[3]   The applicable portion of Section 106(d) provides:  "If the
Secretary concludes that any recipient of funds under this
chapter is failing to comply with any provisions of this chapter
. . . the Secretary shall have authority to 
. . . order such sanctions or corrective actions as are
appropriate, including the repayment of misspent funds. . . ."  

29 U.S.C. § 816(d)(1) (emphasis added).

[4]   Providing as follows:

     (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 the
          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 the questioned costs is
          not substantial.
(Emphasis added).