DAB Decision 82
February 22, 1980 Bloomfield College Cooperative Education Program;
Docket No. 78-4; Decision No. 82 DeGeorge, Francis; Malone, Thomas
Wilner, Irving
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 received three successive annual grants totalling 554,000 under
Part D, Title IV of the Higher Education Act of 1965 for its Cooperative
Education Program. The authorizing legislation contained a provision
requiring each grant applicant to expend on its program from its own
resources during the year not less than was expended on the program
during the previous year. An HEW Audit disclosed that grantee had
failed to meet this maintenance of effort provision as grantee had
included budgeted projections rather than actual expenditures on its
grant applications. Grantee appealed to the Board the Office of
Education's disallowance in the amount of 541,540, the difference
between the total budgeted by grantee for the three years and the amount
actually spent by grantee from its own resources on the program.
The Board rejected grantee's argument that the measurement of its
maintenance of effort should not be based on a year in which it received
a substantial grant from a private foundation to initiate its program.
The Board held that both the governing statute and the agency
instructions drew a clear distinction between federal and non-federal
sources, grants from private foundations falling in the non-federal
category. The Board also rejected grantee's argument that maintenance
of effort could be measured on a cost-per-student basis, stating that
the pertinent statute required the maintenance to be measured in fiscal
year dollar amounts.
The Board questioned the procedure used by 0E in determining the amount
of the disallowance, and considered several alternative formulas. A
percentage-based formula, reflecting grantee's contribution to the
program and taking into account grantee's stipulations on its
applications, was adopted by the Board, resulting in an affirmation of
the disallowance in the amount of $20,164.
DECISION
Bloomfield College, Bloomfield, N.J. ("grantee") appeals from a
determination by the Acting Deputy Director, Grant and Procurement
Management Division, U.S. Office of Education ("OE") of disallowance
of
certain expenditures of grant funds, for alleged failure of Maintenance
of Effort by grantee.
During the period July 1, 1970 through June 30, 1973, grantee had been
awarded three annual grants authorized under Part D, Title IV of the
Higher Education Act of 1965, P.L. 89-329, as amended by P.L. 90-575.
The purpose of the grants was to assist colleges in planning and
carrying out programs of cooperative education that alternate periods of
full-time academic study with periods of full-time public or private
employment to give students an opportunity to earn money and gain work
experience related to their field of study.
These Federal grants were in the amount of $15,000 for FY 1971, $19,000
for FY 1972, and $20,000 for FY 1973, for a total of $54,000.
The cited legislation authorizes the granting of Federal assistance for
Cooperative Education programs for not more than three years upon the
filing of a separate application for each fiscal year. Section 452(b)
(2) - 20 USC Sec. 1133a(b)(3) during the relevant period - stated that
"Each application...shall: provide that the applicant will expend during
such fiscal year for the purpose of such program or activity not less
than was expended for such purpose during the previous fiscal year."
It is agreed by the parties that the non-federal outlays provided for in
the applications filed by the grantee for the 3 grant years were $36,890
for 1971, $35,370 for 1972, and $27,769 for 1973. It is likewise agreed
that the amounts actually expended by the grantee during the applicable
period were $30,003 in 1970, $15,276 for 1971, $19,014 for 1972, and
$24,199 for 1973. Grantee asserts that the amounts set forth in its
grant applications as "maintenance of effort" cost, represent budgeted
projections rather than actual expenditures, and that they found their
way into the applications not for the purpose of misleading, but through
inadvertence due to inadequate and uncoordinated staffing in its
business office.
The Audit report of the HEW Audit Agency included findings to the effect
that the grantee's program applications contained significant inaccurate
or misleading
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data and that the expenditures from College resources fell below the
threshold needed for Federal monetary support. Accordingly, it
recommended a refund of the sum of $54,000, the total amount of grant
funds awarded for the 1971-73 fiscal years.
On January 9, 1978, upon a review of the Audit recommendations, 0E
communicated its formal determination of disallowance in the reduced
amount of $41,540 to the grantee. This figure represents the difference
between the sum of $100,029, the total budgeted by the grantee for the
three grant years, and the sum of $58,489 actually spent by the grantee
of its own resources during this period.
It should be noted that in its response to our Order to show Cause, the
0E appears to have reversed itself in that it reinstated the position of
the HEW Audit Agency that the amount it considered refundable is the
full amount of the Federal grants, or $54,000.
II.
We begin our discussion of the merits of the Appeal with the aspect last
hereinabove noted. Grantee's Appeal is from the determination of
January 9, 1978, calling for a refund of only $41,540. It is that
determination which established our jurisdiction in this matter and
which set the direction for the subsequent proceedings herein. In view
of this we regard OE's revival of the more extreme position in the Audit
report, a position which it knowingly refused to adopt in its initial
determination, not as a re-determination but merely as legal argument
outlining a maximal scope of entitlement. The assertion that $54,000,
or the total Federal grant funds, should be ordered refunded, rests on
the premise that grantee "could not possibly have qualified (for Federal
grant assistance) in FY 1972, and 1973," if grantee had recorded the
amounts actually expended in its applications. Acknowledging the wide
discretion possessed by OE in granting, withholding, and specifying the
amount of grant assistance for Cooperative Education programs, we find
nothing in the pertinent legislation or regulations which would have
made it mandatory for OE to decline funding for grantee in any amount
for 1972 or 1973, had the true facts been fully made known. As a matter
of fact there does not appear to be any doubt but that grantee did
evidence a consistent commitment to the program, and that the Federal
grant funds were applied in furtherance of the program. Equally, while
the record does not contain any reasonable explanation for grantee's
dereliction in failure to inform 0E, after the event, that the stated
amounts for maintenance of effort in the applications represented
budgeted, rather than actual, expenditures, it does not require a
conclusion that those figures were induced by a deliberate effort to
mislead, as contended.
One of the grantee's arguments before the Agency and in its appeal has
to do with the propriety of using the year 1970 as a "base year" by
which to measure
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the adequacy of its maintenance of effort during a subsequent year.
Admitting that it spent $31,003 in furtherance of cooperative education
in FY 1970, it urges that fully $24,000 of this amount was derived from
a non-recurring Ford Foundation grant. It is said that, because of the
non-recurring and extraordinary nature of this grant, the sum of $24,000
applied by it to the program in 1970 should not be viewed as part of its
normal resources for the purpose of calculating the scope of its
maintenance of effort for the FY 1971.
We see no merit in this argument. Both the Statute and OE's Instruction
for Submitting Applications merely direct that the applicant "will
expend..." without qualification as to the source of the funds expended
and the latter, even more convincingly, contains the phrase "from other
than Title IV-D funds." Reinforcement for this conclusion is found in
the form of the Application itself which describes grantee's financial
contribution to the program in terms of expenditure "from its own
sources" without further elaboration. The Maintenance of Effort
Regulation, 45 CFR 182.13, also speaks of "sources other than this
part." It is hard to maintain that money expended on cooperative
education is any less part of grantee's "own resources" or that it
constitutes less than money "from other than Title IV-D funds" merely
because its source was that of the Ford Foundation. Elimination of such
funds from grantee's institutional resources for the purpose of weighing
the scope of maintenance of effort is no more logical than to suggest
that funds obtained by a college from a non-recurring capital gain
distribution to it as a shareholder, or from a testamentary gift should
not be included for such purpose.
Grantee also argues that if cost-per-student rather than total dollar
amounts be used for determining maintenance of effort, it will be found
that there occurred no diminution in its financial contribution to the
program during the relevant period. Admittedly, the cost-per-student
yardstick is infirm and unrepresentative in that the rate would vary in
inverse proportion to the number of students enrolled during a given
year. While "maintenance of effort" has on occasion been considered
as
satisfactorily established in terms of per-student cost in respect to 0E
programs, it was due to a choice allowed by the authorizing statute.
See, e.g. the General Education Provisions Act, 20 U.S.C Sec. 1232-1;
the Adult Education Act, 20 U.S.C. Sec. 1206(b), or the Vocational
Education Act of 1963, 20 U.S.C. Sec. 1803(a)(11).
In contrast to the foregoing, the Act creating the authority for
Cooperative Education grants does not provide alternative methods for
defining maintenance of effort. In view of the fact that Congress had
manifested an awareness of the two methods, the absence of the
cost-per-student criterion in Sec. 452(b), and its statement of the
requirements in terms of annual expenditures, fairly lead to the
conclusion that the test for determining whether, and the degree to
which, grantee has fulfilled the maintenance of effort requirement is
that of fiscal year dollar amounts.
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Examined in terms of fiscal-year dollar amounts, it is readily seen that
grantee's annual expenditures viewed singly or in the aggregate, and
depending upon the fixing of the base year as a standard of comparison,
do not disclose compliance with the maintenance of effort requirement.
The extent of the default, therefore of the refund, will depend upon the
selection of a formula which reasonably takes cognizance of time
sequences and relevant amounts.
It may conceivably be argued that grantee's performance through the
years 1971-73 should be weighed against the amount it had expended in
the year, 1970, immediately prior to the first grant. In that year
grantee has expended the sum of $31,003, hence this might be regarded as
establishing the measure of its "effort" for 1971, the first grant
year.
If grantee be held to this standard for 1972 and 1973, the total dollar
amount it should have expended would be $93,009. Since it actually spent
only $58,489, it leaves $34,520 as the possible disallowance figure. But
this approach must be discarded because each of the three grants herein
must, as prescribed in the Statute, be treated as separate and distinct.
Furthermore, the Statute and the implementing regulation express
grantee's obligation in any grant year with reference to its non-Federal
expenditure in the previous fiscal year.
Another approach would be to ignore the figures grantee recorded on its
applications, and to consider only the expenditures it actually
incurred: $31,003 for 1970, $15,276 for 1971, $19,014 for 1972, and
$24,199 for 1973. This would show that, except for FY 1971, grantee's
yearly expenditures from its own sources, have not only been maintained
as compared with the previous year, but that they have increased. It
would follow that grantee was in non-compliance only in FY 1971, and the
disallowance should be for no more than the difference between the
amount expended in 1970 ($31,003) and the amount actually spent in 1971
($15,276), i.e., $15,727.
The difficulty with this formula is that it reads section 452(b) (2) as
if it provided for no more than the previous year's expenditures as the
absolute measure of maintenance of effort. On the contrary, that
section seems to adopt the previous year's expenditure as a minimum
("not less"), and, in this connection, it is noteworthy that the
exaction of this minimum is not merely a substantive condition for
eligibility, but is something to be reached through the application
process. Thus, this section opens with the statement "Each
application...shall..." Stated directly, to comply with the maintenance
of effort requirement it is not sufficient to show that grantee has, in
fact, spent during a fiscal year not less than what he had spent during
the previous year, but it must be shown that this commitment had been
expressed in the application, as well.
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A consideration of the regulatory scheme pursuant to 452(b) (2), makes
clear the significance of the application under this section.
45 CFR 182.3 provides for the submission of an application by an
educational institution. The following section makes assistance
provided under this part subject to applicable provisions contained in
"subchapter A of this chapter" relating to fiscal, administrative,
management, and other matters.
45 CFR 100a. 10 makes regulations under this part applicable to ...(25)
Cooperative Education programs under Title IV-D of Higher Education Act
of 1965.
45 CFR 100a. 16 reads: "the application shall describe...(c) the
facilities and resources that will be made available; (d) justification
of the amount of Federal funds requested; (e) the portion of the cost
of the project proposed to be contributed by the applicant; (f) a
proposed budget; and (g) such other information and assurances as the
Commissioner may require" (emphasis added).
45 CFR 100a .26 enumerates in detail the factors considered by the
Commissioner in reviewing the application including (5) reasonableness
of estimated cost in relation to anticipated results; (7) sufficiency
of size, scope and duration of the project (emphasis added).
45 CFR 100a.27 makes a grant subject to terms and conditions set forth
in "App. A to this subchapter pursuant to section 100a. 290." Paragraph
2 of the terms and conditions provides, under "scope and duration of the
project"... "the project to be carried out thereunder shall be
consistent with the proposal as approved..."
It is obvious that if the normal exercise of discretion by the
Commissioner of Education in his administrative decision-making in the
area of grant awards and enforcement of their terms is to possess any
viability they must rest upon an assumed integrity of an institution's
representation when applying for a grant. In the matter under
consideration, the Federal support for grantee's cooperative education
program, and the amounts thereof, were induced by the representation in
the application, including representations as to amounts budgeted in
previous years as required by official Instruction. A formula which
ignores the effect accorded to the application in the statute and the
implementing regulations is clearly inadequate as a measure of grantee's
compliance with the maintenance of effort requirement.
It seems to us that a supportable criterion by which to judge grantee's
duty to make refund is one which is reasonable in that it takes
cognizance of the grantee's substantial contribution to the effectuation
of the statutory purpose; which takes account of what grantee had
stipulated in the application to be the scope of its contribution, and
which gives effect to the
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distinct character of the three consecutive annual grants.
The record shows that grantee had projected maintenance expenditures in
the sums of $36,890, $35,370 and $27,769 for fiscal years 1971, '72 and
'73, respectively. During this period, OE grants were $15,000 for 1971,
$19,000 for 1972, and $20,000 for 1973. Since the projected
expenditures were set forth as budget items in the grant applications
for the relevant years, it must be assumed that the grants awarded for
these years were made, inter alia, in consideration of the proferred
non-Federal contributions. It is thus seen that the percentage of the
grant to the grantee's projected maintenance expenditure was .406 for
1971, .537 for 1972, and .720 for 1973.
Amounts actually expended by grantee from other than Federal sources are
shown as $15,276 for 1971, $19,014 for 1972, and $24,199 for 1973. The
record is without evidence as to what the ratio of the grants might have
been if these expenditures had been disclosed in the grant applications.
To avoid speculation and to accomplish substantial justice, we assume
the ratio applicable to the reduced, actual maintenance of effort
expenditures to be identical with that applicable to the projected
expenditures. Thus applied the grants would have been $6,202 for 1971,
$10,211 for 1972, and $17,423 for 1973, for a total of $33,836. Since
the aggregate sum of the grants for 1971-3 amounted to $54,000, grantee
is properly chargeable with the duty to refund the difference, i.e.,
$20,164.
We accordingly affirm the determination of disallowance and refund in
the amount of $20,164. D11 May 21, 1992