DAB Decision 42
October 19, 1977 United States International University; Docket No.
76-12; Decision No. 42 Bernstein, Bernice L.; Malone, Thomas E. Mason,
Malcolm S.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel. Similar official summaries of earlier cases
appear in 45 CFR Part 16 Appendix.)
Grantee appealed disallowances of expenses incurred under the Office of
Education grants which grantee contended had been approved by the
Associate Commissioner of Education (Bureau of Libraries and Educational
Technology).
The agency had disallowed payments made to a consulting firm in which
the Associate Commissioner was a principal, as being unsupported by
documentation of program accomplishment and disposition of funds. The
Board found that the grantee had complied with the express terms of the
grant, which called for an unusual amount of involvement and direction
by the Associate Commissioner. The Board noted improprieties in the
making and administration of the grant, but found they were
substantially on the part of the agency and the Associate Commissioner
and not of the grantee, who appears to have acted in good faith, if
incautiously.
Grantee also appealed an item or foreign travel, disallowed as having
been incurred without prior approval. The Board noted that there was no
showing of properly adopted regulations requiring the prior approval or
identifying the official who could give it and held that under the
circumstances the agency had the burden of going forward to show the
binding effect of the rule relied on for disallowance, particularLy in
light of the Pucinski amendment. The agency failed to respond
adequately on these issues and the Board found in the grantee's favor.
The Board declined to rule on the allowability of certain additional
costs claimed by the grantee, apparently as offsets to the
disallowances, finding they had not been properly claimed, reviewed by
the agency, 3-3 disallowed, and thus were not properly before the Board.
DECISION
Grantee appeals from disallowances of expenses claimed under two grants
made to it by the Office of Education in June, 1971, for an Institute
for Training in Librarianship and a Center for the Advanced Study of
Technology Library, and Information Services under Title II-B of the
Higher Education Act of 1965. Grantee relies on approvals of the
expenses involved by the Associate Commissioner (Bureau of Libraries and
Educational Technology). The central and most troubling aspect of this
case is that it stems from the misconduct of a federal official. As a
result of the Associate Commissioner's actions in related matters, he
was prosecuted, pleaded guilty, and was sentenced. The issue is the
extent to which the grantee should be held financially accountable for
what it did pursuant to his instructions.
This case presents troubling alternatives. On each of the issues there
is a reasonable case for the grantee. The agency (Office of Education),
having been specifically directed to brief these difficult issues, and
warned that the burden of going forward rested on it, failed or
studiously avoided discharging that burden. This is not the first time
in a case in the education field we have had to comment on such
inadequate responses. In part because the agency has not
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addressed these issues and for the additional reasons stated below, we
rule for the grantee on each of the disallowances involved.
We have received and considered grantee's statement of its appeal and
the agency's response. The facts and issues as gathered from the file
were outlined in an Order to Show Cause and both parties were directed
to respond, correcting any inaccuracy or material omission, clarifying
certain questions specified in the Order and discussing any other issues
the parties believed material. Both parties responded, correcting in
some details the outline of facts as gathered from the file. Although
representation by counsel is not required, both parties appear, from the
tenor of their submissions, not to have consulted counsel and have
accordingly submitted responses that were less helpful to their position
and to the Board than the Board had hoped.
Neither response is satisfactory. The government response is
particularly disappointing. A government official may fairly be
expected to meet a higher standard of responsiveness and cooperativeness
than was shown here. See Point Park College, Docket No. 75-12, Decision
No. 16, May 20, 1976, pp. 3, 6.
Consultant Contract
Under Grant No. OEG-0-71-8527, grantee paid to a firm known as
Infonetics, Inc., $12,691 for consultants, $1,903 for instructional
supplies, and $8,752 for instructional materials, making a total direct
cost of $23,346, on which indirect cost was charged in the amount of
$1,868 for a total charge of $25,214. Grantee asserts that it made these
payments under oral instructions of Mr. Burton Lamkin, the Associate
Commissioner. The Audit Report states that Mr. Lamkin
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was also a principal in the Infonetics firm (Audit Report, Exh. B, p.
3). The agreements with Infonetics, Inc. had not been submitted to the
grants officer and approved by him in writing. The grantee asserts
without apparent challenge that the Associate Commissioner's normal
course of conduct, not only in this grant but generally, was to give
instructions orally without written confirmation. (Appeal, 6/4/76, p.
5-6).
The facts as set forth by the agency are that the Policies and
Procedures Manual containing grant terms and conditions was promulgated
by Mr. Lamkin and that Mr. Lamkin caused to be included in the proposed
budget funds for his specific use and caused to be included in the
proposal provisions which require the grantee to perform "in cooperation
with," "in consultation with," "as directed by," and
"as requested by"
the Associate Commissioner (BLET). Pursuant to such provisions grantee
made the payments in question to Infonetics, Inc., with the
understanding that this was a means for Mr. Lamkin to handle the money
and to keep it separate from his personal account.
Grantee states that it persistently requested receipts for expenditures
and reports of accomplishments and received some with an indication that
more would be forthcoming. While the reports were incomplete, grantee
was satisfied that the funds were used for proper grant purposes, and
worthwhile accomplishments were being achieved (id. p. 14):
contribution to the publication of "Black Information Index", a relevant
resource for Black Libraries, and meetings of Black Library leaders held
by Mr. Lamkin in Washington, D.C. for the "purpose of working out better
organizational patterns of sharing sources and effecting stronger
library services" (grantee letter 10/26/73, p. 15).
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It might be possible to argue that written approval of the agreement
with Infonetics and inclusion in the contract of provisions assuring
grantee control are required by the Policies and Procedures Manual,
assuming it to be effective notwithstanding the Pucinski amendment (see
below), and by 45 CFR 132.32 promulgated after the award of the grant.
The agency, however, has expressly conceded (Response to appeal, 12/6/
76, pages 3-4) that Mr. Lamkin was supervisor of the grants officer (Mr.
Ray N. Fry) and did in fact approve all project work before it was
undertaken (id. p. 3 par. (e)) and, moreover, that approval of the
contract was in fact not required: "The question of approval of
contract by the Government is a non-issue.... Lack of approval of
contracts is not considered a basis for disallowing this cost. This is
sufficient to distinguish this case from Southern University, our Docket
No. 29, Decision No. 24, June 29, 1976, which turned on grantee's
failure to obtain required written approval. The agency relies on a
concept of the grantee 5 responsibility as total, neither divisible nor
assignable. In another context this view would be persuasive. A
grantee will not readily be permitted to shed responsibility by passing
it downstream to a subgrantee. But that is not what the grantee claims
here. Here the responsibility was raised upstream by the grantor, a
very different matter.
The grant award expressly incorporates a budget which provides $11,250
under the heading "Lecturers and Consultants: ... Assoc. Comm.'s Spec.
Proj." and an additional $11,000 under the heading "Instructional
Supplies: ... *Assoc. Comm. Sp. Projects" (footnote: "*Reviewing BLET
objectives and developing projections to meet future needs"). This
accounts for $22,250 out of the $23,346 direct cost disallowances under
this grant. The remaining $1,096 is less than 5, of the
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amount involved and is justified by the grantee on grounds of
permissible budget flexibility. That some excess in a line item might
be justified under flexibility rules was expressly noted by the Board's
Order to Show Cause and not questioned by the agency's response. The
Policies and Procedures Manual, while calling for line items to be
computed as precisely as possible, acknowledges that "the budget is
always an estimated budget made in advance" (p. 22). Material changes
require a written request but "(m)inor deviations of specific amounts of
expenditures among categories from those estimated in the budget set
forth in the grant award document will not require revision of such
application." (p. 40; cf. 45 CFR 132.11, August 14, 1971, after the
date of the grant award, but to the same effect, and General Provisions
for OE Programs, 45 CFR 100a.29(b), still later, but reflecting
continuation of a persistent and reasonable policy). We conclude that
no disallowance is justified by the minor deviation involved if the
expenses are otherwise warranted.
In paying the funds on Mr. Lamkin's direction to Infonetics for the
Associate Commissioner's Special Projects, grantee complied with the
express terms and apparent intent of the grant.
The plan of operation incorporated in the grant award specified, in
addition to other similar provisions, that:
(10) Evaluation. The project will be evaluated ultimately by the
Associate Commissioner, BLET. To the degree that the project
satisfies the requirements of the Library Institutes Program as
specified and interpreted by the Associate Commissioner, BLET,
objectives will be considered satisfactorily under attainment....
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It is certainly bad practice for an agency to infringe so strongly as
this grant does on the autonomy and hence the responsibility of the
grantee. This is a grant award that should not have been made and
presumably would not have been made by a professional trained grant
staff such as is contemplated in the Secretary $ announcement of May 18,
1977 of a program to improve the level of grant administration. The
impropriety, however, although real, was engaged in by the Associate
Commissioner and by the agency and should not be visited on the grantee
who appears to have conducted itself in good faith, if somewhat
incautiously. While the grant was improvident in its terms, it does not
appear that grantee by performing the grant according to its terms acted
irresponsibly. Cf. County of Alameda v. Weinberger, 520 F. 2d 344, 351
(C.A. 9, 1975).
It appears that Mr. Lamkin acted improperly in this case and criminally
in related matters. There is, however, nothing in the file to support
any actual notice by the grantee of impropriety by Mr. Lamkin. It is
understandable that the agency feels defensive about what occurred here
but this effort to shift the blame to grantee is unwarranted. It may be
that the grantee acted with less Caution than it should have exercised.
Nevertheless, it appears to be a fact that the grantee in so acting
complied with the terms of the grant and relied on the instructions of
an official of high rank in the Department authorized to make the grant,
dictate its terms and evaluate grantee's performance.
"Even though the courts commonly assert without qualification that
equitable estoppel does not apply to governmental units, and even
though numerous holdings are based upon such assertions, still the
number of holdings in which governmental units are estopped is
substantial and growing, both in the federal courts and in the
state courts." Davis, Administrative Law Treatise, Sec. 17.09.
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Having in mind the general doctrine (and its qualifications) that a
federal officer can act only within the scope of his actual authority,
we asked the agency to brief the scope of Mr. Lamkin's authority, but it
declined to do so. We are therefore constrained in this case (without
prejudice to other cases where the issue may be briefed) to rule against
the agency on this branch of the case.
The agency sought to base its disallowance on provisions of the Policies
and Procedures Manual, later codified in 45 CFR 132. (Response to Show
Cause Order, April 18, 1977). The relevance of the provisions referred
to is not clear and is not articulated although we had asked for
briefing, nor is there any explanation of the effect of the Pucinski
amendment on which we also asked for briefing (see below). Because we
find that grantee complied with the requirements of the grant and
nothing in the policies or regulations appears to override the grant
terms, it is not necessary for us to decide the question of the extent
to which these provisions would otherwise be binding.
Foreign Travel
Under Grant No. OEG-0-71-8401, grantee has appealed an item of foreign
travel, direct cost $708, indirect cost $57, total $765, out of a total
disallowance of $1,716, part of which grantee has accepted.
Grantee's employee traveled to Europe at his own expense. While there,
he traveled within Europe to visit various experts in the field in which
he was working. The costs for the travel within Europe were charged to
the grant. Grantee claims that the travel had been orally approved by
Mr. Burton Lamkin, then Associate Commissioner (BLET). (Response to
Order to Show Cause, 4/15/77, pp. 7, 8).
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The disallowance is based on the failure of the grantee to obtain prior
written approval for the foreign travel. Audit Report, Exhibit A, p.
4. This position is based, however, on OMB circular A-21, J.44, which
does not in its terms require prior written approval, but specific prior
approval. A-21, moreover, is not directly binding on the grantee. It is
an admonition to the agency. Cf. Opinion of Antonin Scalia, Assistant
Attorney General, Office of Legal Counsel (to Harold S. Trimmer,
General Counsel, GSA) May 6, 1975, p. 4.
It was incumbent on the agency to show the basis for attributing a
binding effect to this rule (whether simply on the ground of knowledge
in fact, for which the agency should show the evidence, or on the ground
of a published statement of policy or regulation known to have been
actually communicated to the university prior to the grant or made
binding by Federal Register publication or otherwise). Cf. Decision of
the Hearing Examiner, Appeal of City of Arnold, Michigan, Environmental
Protection Agency, Grant Appeal, Docket No. 76-1, June 30, 1977, esp.
7-8, 10.
Because an Office of Education grant is involved, it was particularly
incumbent on the agency to show whether reliance on A-21 is consistent
with the Pucinski amendment (one version of which is PL 91-230, Title
IV, sec. 401(a) (10), enacted April 13, 1970). The Pucinski amendment
has been interpreted as barring agency reliance on rules not published
in the Federal Register even when actual notice is shown. See Sky,
Rulemaking in the Office of Education, 26 Admin. L. R. 129, 131 (1974);
Sky, Rulemaking and the Federal Grant Process in the United State Office
of Education, 62 Va. L.R. 1017, 1019
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n.7 (1976). L.R. 1017, 1019 n.7 (1976). Further, it was incumbent on the
agency to show whether the requirement of A-21, if binding at all, is
not met by an oral communication.
The agency also contended that the established policy at OE had been
that authority to approve rests with the grant officer, who was Mr.
Albert Riskin, or with his superiors in the organization, which did not
include Mr. Lamkin (p. 2, Response to Appeal, 12/6/76). Mr. Riskin is
reported as stating that he did not provide clearance for this foreign
travel and the grantee does not claim the contrary. It is, however,
incumbent on the agency to show whether its "policy" as to the officer
authorized to give such approval was merely an internal policy or was
made binding on grantees either by publication in the Federal Register
or specific communication to the grantee or otherwise.
The Order to Show Cause pointed out, without there deciding the
appropriate ultimate outcome, that the burden of going forward on these
issues is with the agency and that, failing a satisfactory explanation
by the agency of the matters just noted, a decision in favor of the
grantee on this item appeared to be called for. Since no adequate
response has been received from the agency we are now constrained to
hold for the grantee on this disallowance.
Costs Incurred After the Grants Expired
In its appeal (6/4/76), grantee asserts, apparently by way of set-off,
three items of costs occurring after termination of the grants. The
agency asserts that these costs are not allowable because incurred after
the expiration of the grant and not at the request of the government and
also because some of these costs
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may already be included in the indirect cost pool. The Board requested
clarification by the government of its statement of position. The
agency chose not to clarify. Nevertheless we note that these items had
not been claimed by grantee for reimbursement and were not among the
items disallowed by the determination appealed from (Appeal, Attachment
B, 8/8/76). We rule that these items are not properly before us,
without any indication as to how we would have ruled had they been
claimed, disallowed and properly included in the appeal.
Conclusion
With respect to the Infonetics contract and the foreign travel, grantee
has complied with the requirements of its grants and these items are
allowed. There were clear improprieties in the making and administration
of the awards but these are substantially on the part of the government
rather than on the part of grantee. The government has not sustained
the burden, of which it was explicitly put on notice, of showing
violations of binding requirements especially in the face of the
improper action of its own senior official. We do not pass on the items
of costs incurred after the grants expired.
May 7, 1992