DATE: FEBRUARY 19,1987
CASE NO. 84-CTA-32
IN THE MATTER OF
U.S. DEPARTMENT OF LABOR
V.
STATE OF OREGON DEPARTMENT
OF HUMAN RESOURCES
BEFORE: THE SECRETARY OF LABOR
DECISION AND REMAND ORDER
This case arose from an audit by the Department of Labor
Grant Officer of the expenditure of funds by a
prime sponsor, the Oregon Department of Human Resources, granted
under the Comprehensive Employment and Training Act (CETA), 29
U.S.C. §§ 801-999 (Supp. V 1981).[1] The Grant
Officer disallowed certain costs and the prime sponsor requested
a hearing. After a hearing, Administrative Law Judge (ALJ)
Edward C. Burch upheld the Grant Officer's determination in part
and reversed it in part. The Grant Officer filed exceptions to
the ALJ's decision and I asserted jurisdiction under 20 C.F.R.
§ 676.91 (f) (1985).
East Central Oregon Association of Counties auditcost[PAGE 60]
The Grant Officer disallowed ,345, the cost of an
audit of a portion of CETA funds of the East Central Oregon
Association of Counties, because it had been designated an
indirect cost but should have been designated a direct cost. The
ALJ reversed this determination because the Grant Officer's
representative conceded that, if it had been designated a direct
cost, it might have been allowed. The Grant Officer's
representative stated further at the hearing, however, that this
cost would have been allowed as a direct cost only if it did not
cause the administrative cost pool to exceed the allowable limit
that is 20% of the CETA annual plan allocation. 20 C.F.R. §
676.402(a) (1985).
The parties in their briefs essentially are battling
over who has the burden of going forward after this cost has
been disallowed for this particular reason. It seems reasonable
under the circumstances, however, to require the prime sponsor,
as the party with control of the relevant documents and most
familiar with all administrative costs under its CETA program, to
come forward and show what the total was and whether this cost
would have caused the total to exceed 20%. This issue will be
remanded to the ALJ for that purpose.
[PAGE 2]
Ineligible Participants of the Eastern OregonManpower Consortium
The Grant Officer found, and the prime sponsor does not
take issue with the finding, that certain participants enrolled
by the Eastern Oregon Manpower Consortium (EOMC), a subgrantee of
the prime sponsor, were ineligible to participatein CETA programs
for a variety of reasons. The prime sponsor made a request,
however, that the disallowance of costs for these participants be
waived by the Grant Officer under 20 C.F.R. § 676.88(c)
(1985). The Grant Officer denied the request and disallowed the
costs.
The regulations at 20 C.F.R. § 676.88(c) delegate
discretion to the Grant Officer, in cases where costs for
ineligible participants in public service employment programs
have been disallowed, to allow the costs if he finds that each of
five specified factors has been met. The Grant Officer found
here that one factor-"eligibility determination procedures, or
other such management systems and mechanisms required in these
regulations, were properly followed and monitored," 20 C.F.R.
§ 676.88(c)(3),-had not been met. He based that conclusion
on a finding that the eligibility determination system of EOMC
was "flawed".
Under the CETA regulations when individuals applied for
participation in CETA programs, they provided detailed
information about themselves, their income and economic status.
See 20 C.F.R. § ;676.75- 3(b)(1)(ii). The recipient
initially made a determination whether an applicant was eligible
based on the information provided by the applicant and his
attestation that it was true. 20 C.F.R §676.75-3(b)(1)(ii).
Within 30 days after enrollment, all applications had to be
reviewed by another person to determine whether, based on the
information on the application, the applicant was eligible and
the information provided was consistent and reasonable. 20 C.F.R.
§ 676.75-3(b) (2)(i). On a quarterly basis, the recipient
was required to take a random sample of participants to verify
their eligibility and to assure that the intake process was
screening out ineligible applicants. 20 C.F.R. §
676.75-3(b)(3).
When EOMC took its random sample of applications for
quarterly verification, it only reviewed one or two out of some
twenty elements of eligibility set forth in the regulations. 20
C.F.R. § 676.75-3(b)(1)(i). (Some of the elements have
several subparts, e.g. labor force status.) In effect, EOMC was
taking a sample of a sample, and EOMC has placed nothing in the
record to show how it chose the eligibility elements to review in
each case. The regulations permit sampling of up to 10 per cent
of the applications so that the recipient can concentrate its
resources on those [PA]and conduct a thorough, complete
review of all relevant eligibility elements in each sampled
application. I agree with the Grant Officer, therefore, that
EOMC's "system was insufficient to determine the credibility of
the eligibility determination]." Final Determination of Harry B.
Brown, Grant Officer, November 23,1983, at 14.
The prime sponsor argues, nevertheless, that the Grant
Officer's denial of its request for a waiver of the disallowance
of costs under 20 C.F.R. § 676.88(c) eligibility
determination system not only met but exceeded the requirements
of the regulation. EOMC conducted a review of 100 per cent of
the applications, although not required to do so, and discovered
some 15 ineligible or questionable participants.
I cannot agree with the ALJ that EOMC's verification
system was "even better than was required by CETA." EOMC only
decided to expand its verification beyond the quarterly
sample because its subcontractor, the Eastern Oregon Community
Development Council (which actually operated the CETA programs in
EOMC's area), had undergone a change in directors and other staff
in early 1979. Donald Calder, the Executive Director of EOMC,
was concerned that the new director and staff had little
background in manpower programs. He directed the EOMC
Independent Monitoring Unit (IMU), consisting of one person,
Barbara Ambrosek, to "do as thorough a job of monitoring as we
could to try and find not ineligibles . . . but where we might be
able to assist the [new staff] in providing training that would
help them bring these people up." Hearing Transcript at 93-94.
[PAGE 3]
But, as discussed above, the EOMC quarterly verification
system was inadequate. The state IMU report itself found that
a. None of the verifications reviewed in the sample were
complete or adequate. Only one or two elements
of eligibility were generally verified which is not
sufficient to determinethe credibility of the
eligibility determinationsystem.
b. There is no adequate procedure in existencefor collecting the amount of verification mate-
rial necessary to do complete verifications
onthe quarterly sample.
Solicitor's Exhibit 1, paragraph C (emphasis
supplied).The state IMU recommended that:
a. The EOMC develop an adequate procedure for collecting
verification documentation.
b. Do verification on all eligibility items so the data can
be sued [sic] to determine the credibility of the
eligibility system.
There is no evidence in the record that these recommendations
were carried out or that the review of all applications
by the EOMC IMU was more than a one time exercise to assist and
train its subcontractor.[2] I find that the Grant Officer was
well within his discretion in disallowing these costs and denying
the request for allowance of the costs under 20 C.F.R. §
676.88(c). Costs associated with ineligible participants
incidentally discovered by EOMC is a reasonable measure of the
amount to be a disallowed in this case without regard to whether,
absent this violation, costs should have been allowed for
particular participants under 20 C.F.R. §676.88(c) for
technical, de minimus violations of the regulations.
[PAGE 62]
Overpayment by East Central Oregon Associationof Counties for classroom study time
Under Title 11-B of CETA, 29 U.S.C. §§
846-851, the East Central Oregon Association of Counties (ECOAC)
made allowance payments to CETA participants in classroom
training programs for classroom hours and study hours at the
Federal minimum wage. The grant agreement with the Department of
Labor provided that the grantee could make such payments for two
hours of study time for each hour of classroom time, the
combination of which was not to exceed 40 hours per week. ECOAC,
however, automatically increased the total to 40 hours if the
combination of actual classroom and study time was less than 40.
The Grant Officer calculated the permissible allowance
payment based on the 2 for 1 policy and disallowed the remainder.
The ALJ apparently believed that a retroactive change in the
rules of Oregon Balance of State to limit allowance payments to
one hour of study time for each hour of classroom time accounted
for the amount disallowed. But the Grant Officer stated in his
final determination that he was allowing $7,032 "based upon the
2:1 study time policy" and disallowed $2,997. The amount
disallowed, therefore, was not based on limiting payments to a
1:1 ratio, but was because ECOAC improperly increased hours to 40
per week even if the participants had not put in such hours.
[PAGE 4]
The Grant Officer also suggested in his initial
determination "that the prime sponsor might seek further relief
of the $2,997 [disallowed] per 29 C.F.R. § 95.34(k) (1984)."
That regulation provided:
(k)Repayments. Prime sponsors shall require
participants to repay the amount of any overpayment
of allowances under this part, except if the
overpayment was made in the absence of fault on the
part of the participant, in which case repayment
shall be waived where such recovery would be against
equity and good conscience or would otherwise defeat
the purposes of the program.
The prime sponsor assumed that, by making this
suggestion, the Grant Officer would be receptive to a request
for an allowance of the $2,997. In view of the language of the
regulation, which speaks to the relationship between the prime
sponsor and its participants, I find nothing in the Grant
Officer's suggestion to imply a promise to waive the costs if a
request were made. Since the disallowed costs were for payments
clearly exceeding those authorized in the grant agreement, I find
the Grant Officer's refusal to waive them was within his
discretion.
Participant Fraud
The Grant Officer disallowed $533 because of participant
fraud and refused to waive the disallowance under 20 C.F.R.
§ 676.88(c). The ALJ ordered that these costs be allowed
because the prime sponsor discovered the fraud and the frauds
were reported to the Department of Labor, which took no action at
that time. In addition the ALJ noted that the prime sponsor
attempted to recover the funds and was not negligent in
supervising these participants.
However, the Grant Officer has no discretion to allow
costs under 20 C.F.R. § 676.88(c) if the activity was
fraudulent. 20 C.F.R. § 676.88(c)(1). The factors
considered by the ALJ are simply not relevant to a finding
under that section if there has been fraud. Furthermore, I find
this result reasonable. By definition, where there has been
fraud, someone has been misled into believing something is a fact
which is not. It is reasonable to place the risk of loss from
that misconduct on the party in the best position to prevent it
or uncover it before it causes further damage. Here, that
is the prime sponsor.
Interest
The ALJ ordered the Department of Labor to pay interest
on the amounts he found should have been allowed, from the date
his order became final. The prime sponsor objected to this part
of the ALJ's decision on the grounds that interest should be
awarded from the the date the prime sponsor paid the disputed
amount to the Department of Labor, December 29, 1983. The Grant
Officer excepted on the grounds that there was no authority to
award interest at all in these circumstances. With the exception
of the first item (the audit cost of ECOAC CETA funds) which is
being remanded, this issue is moot since I have upheld the Grant
Officer's disallowance of other costs. I would note, however,
that in the absence of a specific provision in a statute or by
agreement, interest may not be assessed against the United
States. See United States v. Thayer-West PointHotel Co., 329 U.S. 585 (1946).
Accordingly, for the reasons discussed above, the ALJ's
decision in this case is vacated and reversed in part and
remanded in part.
[PAGE 5]
SO ORDERED
[ENDNOTES]
[1] CETA was repealed effective October 12, 1982. The
replacement statute, the Job Training Partnership Act, 29
U.S.C. §§ 1501-1781 (1982), provided that pending
proceedings under CETA were not affected. 29
U.S.C. § 1591 (e).
[2] While it is true that the Grant Officer's representative at
the hearing could not provide any basis for the Grant
Officer's determination that the system was "flawed", there was
ample documentary support for that conclusion in
the record.
