DATE: June 26, 1991
CASE NO. 83-CTA-288
IN THE MATTER OF
U.S. DEPARTMENT OF LABOR,
v.
CITY OF TACOMA, WASHINGTON.
BEFORE: THE SECRETARY OF LABOR
FINAL DECISION AND ORDER
This case arises under the Comprehensive Employment and
Training Act (CETA or the Act), 29 U.S.C. §§ 801-999
(Supp. V 1981),[1] and promulgated regulations. The Grant
Officer filed exceptions to the Decision and Order (D. and O.) of
the Administrative Law Judge (ALJ) reversing the Grant Officer's
disallowance of various CETA expenses. The case was accepted for
review as provided under the applicable regulations.
BACKGROUND
On July 27, 1983, the Grant Officer issued his final
determination disallowing approximately $18,366 in costs under
four subgrants. Joint Exhibit (JX) 1B at 10. The grantee, City
of Tacoma, requested a hearing on the amounts disallowed under
three of the subgrant audits. JX 1A. The ALJ, on the merits,
affirmed the Grant Officer's disallowances totaling $14,063.59.
D. and O. at 6. He concluded, however, based on City of
Edmonds v. United States Department of Labor, 749 F.2d 1419
(9th Cir. 1984), that he was required to reverse the
disallowances because the Grant Officer lost jurisdiction by
failing to make a final determination within 120 days after
receiving the audit.
After the case was accepted for review, the Grant Officer
requested a stay pending the Supreme Court's resolution of the
issue decided in Edmonds. In Brock v. Pierce
County, 476 U.S.
[PAGE 2]
253, 266 (1986), the Court held that the Secretary does not lose
the power to recover misused CETA funds after the expiration of
the 120-day period. The Secretary thereafter lifted the stay and
established a briefing schedule. The Grant Officer moved to
remand, stating that because the only exception filed was his own
contesting the ALJ's jurisdictional holding, there was no need
for a briefing schedule and the case should be remanded "for
appropriate action." The Secretary denied the motion, concluding
that the case was properly before her for review and allowing the
parties to brief the merits of the ALJ's decision disallowing
specified CETA expenses.[2]
DISCUSSION
A. Procedural Issues
The grantee continues to argue that the ALJ's decision
reversing the disallowed CETA expenses became final thirty days
after service of the ALJ's decision. Memorandum of the City of
Tacoma (Mem.) at 2. This contention was considered and rejected
in the Order Denying Motion to Remand at 3 n.2. That decision
constitutes the law of the case and I will not consider it
further. In re Easebe Enterprises, Inc., 900 F.2d 1417,
1421 n.3 (9th Cir. 1990); United States v. Mills, 810 F.2d
907, 909 (9th Cir.), cert.denied, 484 U.S. 832
(1987).
The grantee next contends that, under the terms of the
April 17, 1985, Order Accepting Case for Review, the ALJ's
decision became final when the Edmonds court denied the
Grant Officer's petition for rehearing. Mem. at 2-3. This
contention is rejected because once a case is accepted for
review, as here, there can be no final decision until the
Secretary issues an order. 20 C.F.R. § 676.91(f).
Additionally, the grantee makes several allegations that the
Grant Officer improperly delayed the proceedings to seek the
benefit of a favorable ruling in Pierce County. Mem. at
3-4. The record reflects that the grantee was served a copy of
the Grant Officer's request to await the decision in Pierce
County before deciding the instant case and the grantee did
not oppose the request. I therefore conclude that the grantee
has waived its right to contest the order staying the
proceedings.
B. Disallowed CETA Expenses
As noted by the ALJ, 20 C.F.R. § 676.34 requires that
all CETA recipients establish and maintain a financial management
system which meets the standards of 41 C.F.R. § 29-70.207
(1984).[3] That section requires that the system established:
"provides for adequate control of grant or agreement funds and
other assets; ensures the accuracy of financial data; and
provides for operational efficiency and for internal controls to
avoid conflict of interest situations and to prevent irregular
transactions or activities." 41 C.F.R. § 29-70.207-2. It
[PAGE 3]
further requires that records be maintained "which identify
adequately the source and application of funds for grant or
agreement supported activities" and that these records be
supported "with source documentation." 41 C.F.R. § 29-
70.207-2(b), (g). The recipient's responsibility to assure that
subrecipients also adopt these standards is explicit. 41 C.F.R.
§ 29-70.207-3.
1. Tacoma Indian Center Subgrant
In sustaining, pursuant to Audit Control No. 2186, the Grant
Officer's disallowance of $921 for administrative expenses, the
ALJ applied the criteria in 20 C.F.R. § 676.88(c), for
allowing certain questioned CETA costs.[4] The ALJ concluded
that the grantee had "not met its burden of proving that there
was an adequate and properly operating financial management
system in place during the administration of the program." D.
and O. at 4.
The grantee does not dispute that Tacoma Indian Center's
financial management system was inadequate, see Transcript
at 58, but instead argues that the responsibility for
establishing an adequate and properly operating system "is on the
subgrantee, not the City." Mem. at 6. This contention must
fail. Section 676.88(c)(3) allows for waiver of questioned costs
only when management systems and mechanisms required in the
regulations are properly followed. Section 29-70.207 requires
that subgrantees have an adequate financial management system and
places responsibility on the grantee to "maintain effective
control over and accountability for all project funds,
property, and other assets." 41 C.F.R. § 29-70.207-2(c).
(Emphasis added).
Moreover, it is well established that a grantee is responsible
for the CETA violations of its contractors and subgrantees.[5]
29 U.S.C. § 816(k); Chicano Education and Manpower
Services v. U.S. Dept. of Labor, 909 F.2d 1320, 1328 (9th
Cir. 1990); San Diego Regional Employment and Training
Consortium v. Donovan, 704 F.2d 288, 293 (9th Cir. 1983).
Inasmuch as the grantee has failed to satisfy all of the criteria
of Section 676.88(c), there is no discretion to allow the
questioned costs under this subgrant. In the Matter of
Louisiana Department of Labor, Case No. 82-CPA-32, Sec. Dec.
Aug. 23, 1990, slip op. at 3-4. See also 41 C.F.R. §
29-70.207-3.
2. Tacoma-Pierce County OpportunitiesIndustrialization Center Subgrant
Under this subgrant, the ALJ noted that, pursuant to Audit
Control No. 2199, the Grant Officer disallowed $2,994.72 in
administrative expenses based on a lack of supporting
documentation as required by 20 C.F.R. § 676.41. The ALJ
concluded that the grantee attempted to establish that audit
reports from the previous year demonstrated that satisfactory
records were maintained. Because no evidence was introduced,
[PAGE 4]
however, he found that the Grant Officer properly disallowed
these costs. D. and O. at 4-5.
The grantee contends that testimony[6] demonstrates that
audit reports of the questioned year established that
satisfactory records were maintained. Mem. at 7. There are at
least two problems with this contention. First, Section 676.41
requires documentation of expenses, not testimony that such
documentation exists. Second, the documentation referred to in
the testimony, as the ALJ noted, D. and O. at 4, pertains to an
earlier year and not the year in question.
The grantee also argues that it should not be responsible
for this amount as there was no reason it should have been
alerted to any impropriety in the administration of the program.
Mem. at 7. This contention is rejected because the grantee is
responsible for CETA violations of its subgrantees.
Chicano, 909 F.2d at 1328. I therefore affirm the
disallowance of $2,994.72 in administrative expenses.
Also under this subgrant, a total of $5,811.13[7]
representing rent, telephone and operational expenses, JX 2 at
24, was disallowed based on possible duplicate billing to other
grants. Although the grantee claimed no knowledge of the
multiple billing, the ALJ found that, in light of the grantee's
failure to produce adequate documentation, the Grant Officer
properly disallowed these expenses. D. and O. at 5.
Alleging that it has no authority to audit contracts with
other agencies, the grantee contends that it had no opportunity
to discover the alleged multiple billings. The grantee expresses
particular frustration at this ruling in that the expenses were
something over which it had no knowledge or control. Mem. at
8-9.
Notwithstanding that control over a subgrantee's
expenditures may sometimes be difficult to achieve, the
regulations impose that responsibility on the grantee. 41 C.F.R.
§§ 29-70.207-2(c), and 29-70.207-3. The regulatory
scheme takes into account that states and municipalities receive
large sums of federal money under CETA programs in exchange for
federal regulation whose purpose is to assure that the money is
properly expended. SeeCommonwealth of Kentucky,
Department of Human Resources v. Donovan, 704 F.2d 288, 298-
99 (6th Cir. 1983). Because there is no documentation properly
allocating these costs among the various grants, I affirm the
disallowance of $5,811.13. See 20 C.F.R. §
676.41(a), (c).
3. Puyallup Indian Tribe Subgrant
The Grant Officer disallowed $4,336.74 in wages, fringe
benefits, and administrative costs, pursuant to Audit Control No.
[PAGE 5]
2206, based on the grantee's failure to produce the required
documentation and to establish and maintain an adequate financial
management system. JX 1B at 10; D. and O. at 5. The grantee
contended that Section 676.88(c) should have been invoked to
allow ,680.75 of the above amount representing administrative
costs. The ALJ, however, found the amount properly disallowed
because the grantee failed to show that an adequate and properly
operating financial system was in place.
In contesting this disallowance, the grantee merely alleges
that each element of Section 676.88(c) has been satisfied and
that there was no evidence or testimony at the hearing that the
system was not adequate and properly operating. Mem. at 9.
Because the ALJ's finding that there was not an acceptable
financial system in place is supported by the audit and not
contradicted by any other evidence, however, it is affirmed.
SeeOptimal Data Corp. v. United States, 17 Cl. Ct.
723, 727 (1989). This finding precludes relief under Section
676.88(c), see discussion at page 5 supra, and
requires that I uphold the disallowance of ,680.75.
As to the remaining $2,655.99, representing wages and fringe
benefits, the grantee alleged the existence of new supporting
documentation. The ALJ found those documents were copies of time
sheets previously considered by the Grant Officer and that the
amount was properly disallowed for inadequate documentation. D.
and O. at 5.
The grantee continues to assert new documentation, arguing
that had it been available at the time of the audit, it is
unlikely that these costs would have been questioned. Again, the
grantee has failed to identify the evidence referred to,
see note 6 and accompanying text supra, and has not
challenged the ALJ's finding that new documentation was
considered by the Grant Officer. Accordingly, there is no basis
for me to disturb those findings and the disallowance of
$2,655.99 is affirmed.
ORDER
The ALJ's decision reversing the disallowances based on loss
of jurisdiction is vacated. The grantee, City of Tacoma, is
ordered to pay $14,063.59 in disallowed costs to the Department
of Labor. This payment shall be from non-Federal funds.
SeeMilwaukee County, Wisconsin v. Donovan, 771
F.2d 983, 993 (7th Cir. 1985).
SO ORDERED.
Secretary of Labor
Washington, D.C.
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OAA:TMORRISS:cl:May 16, 1995
Rm. S-4309:FPB:523-9728
[ENDNOTES]
[1] CETA was repealed effective October 12, 1982. The
replacement statute, the Job Training Partnership Act, 29 U.S.C.
§§ 1501-1791 (1988), provides that pending proceedings
under CETA are not affected. 29 U.S.C. § 1591(e).
[2] The Grant Officer elected not to file a further brief.
[3] The regulations in 41 C.F.R. Part 29-70 were last published
in C.F.R. in 1984. They have been superseded, but remain
applicable to all contracts, such as the grants here, entered
into prior to April 1, 1984. 41 C.F.R. Subtitle A [Note].
[4] Section 676.88(c) states:
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.
[5] The only exception to this rule of which I am aware, and
which does not apply in this case, is where the Department of
Labor selected and directly supervised a subgrantee. U.S.
Department of Labor v. New York City Department of
Employment, Case No. 82-CTA-343, Sec. Dec. Sept. 29, 1987,
slip op. at 6-8.
[6] The grantee provides no record cite. It seems the
referenced testimony is at page 40 of the transcript.
[7] This amount is mistakenly referenced by the ALJ, D. and O.
at 5, and the grantee, Mem. at 7, as $5,811.34. See JX 1B
at 7.
