USDOL v. County of Essex, 85-CTA-71 (Sec'y May 25, 1994)
DATE: May 25, 1994
CASE NO. 85-CTA-71
IN THE MATTER OF:
UNITED STATES DEPARTMENT OF LABOR,
COMPLAINANT,
v.
COUNTY OF ESSEX,
RESPONDENT.
BEFORE: THE SECRETARY OF LABOR
FINAL DECISION AND ORDER
This case arises under the Comprehensive Employment and
Training Act (CETA), 29 U.S.C. §§ 801-999 (Supp. V
1981), the regulations at 20 C.F.R. Parts 675-689 (1990) and 29
C.F.R. Part 18 (1993).[1] The case results from the Grant
Officer's Final Determination disallowing certain costs claimed
by the County of Essex, New Jersey (County), a CETA prime
sponsor, pursuant to its CETA grants. The Grant Officer's action
was based on an audit of the County's CETA grants for the period
January 1, 1979 to September 30, 1982. Stipulations entered into
by the Grant Officer and the County reduced the original
disallowances from more than $2.8 million to $319,228 under
Finding 1 and to $8,938.62 under Finding 2.
The Administrative Law Judge's (ALJ) Decision and Order (D.
and 0.) substantially reversed the Grant officer's determination,
affirming a disallowance of $19,679 and allowing $299,549
pertaining to Finding 1, and affirming the whole disallowance in
Finding 2, for a total of $28,617.68 to be repaid by the County
to the U.S. Department of Labor.[2] D. and 0. at 12. The Grant
Officer excepted to the ALJ's decision and the Secretary asserted
jurisdiction in the case.
BACKGROUND
The audit of the County's CETA program encompassed nine
grants budgeted for almost $83 million and at least 11
subgrantees. Joint Exhibit 3, pp. 17-18, 57-58. Not all of the
County's necessary documentary back up was available for the
audit team during the time of the audit field work, which gave
rise to auditor questioned costs. In the intervening six years,
[PAGE 2]
from the audit report to the ALJ's hearing, the County and the
Grant Officer reduced the amount of the disallowed costs by
approximately $2.5 million. At the time of the hearing in
January 1989, six items pertaining to disallowed costs charged to
six grants still remained in dispute under Finding 1, and a
single item in Finding 2.
The hearing required a day and a half of testimony during
which numerous documents were entered in evidence by the parties.
The County's witnesses were the cognizant employee involved in
the County's financial administration of CETA and an expert
witness familiar with the audit process concerning CETA grants
and subgrants for the State of New Jersey. The Grant Officer's
witness was a senior auditor with the Department of Labor's
Office of the Inspector General.
DISCUSSION
The ALJ wrote an extensive opinion, summarizing the
testimony and evaluating the documentary evidence before him.
His decision set forth his findings on the disputed issues of
fact before him, detailed his conclusions and his reasons for
reaching them. 29 C.F.R. §§ 18.43(b);.57(b). Although
the Grant Officer contends that the ALJ misapplied CETA
regulations and the statute, Statement of Exceptions at 2, and
applied an inappropriate "relaxed level of review", Initial Brief
at 2, a close reading of the testimony in conjunction with the
pertinent evidentiary documents fails to uncover the egregious
"leap of logic" that the Grant Officer alleges. Initial Brief at
8.
It appears that the Grant Officer attempts to make his case
regarding his allegation that the ALJ erred in his review of the
factual evidence submitted by the County by referring to a
partial quote of the ALJ's decision which states "the audit
report in this case is not a model of clarity and in view of the
delay in issuing the same, greater latitude in accepting certain
records as ample documentation would be appropriate". Initial
Brief at 2. However, when that phrase is placed in context it is
apparent that the ALJ affirmed the importance of adequate
documentation to support CETA expenditures and did not relax the
standard of review to admit County's documents merely because of
the delayed issuance of the audit report by the Inspector
General. The ALJ says:
It is contended on behalf of the Grant Officer, in general,
that the costs remaining at issue in this case have been
disallowed because the Respondent could not substantiate
and/or document these costs as it is required to do so by
the Act...and the regulations.... In support of such
contention the Grant Officer cites...Montgomery County,
Maryland v. United States Department of Labor,...
[PAGE 3]
I agree in principle with the Grant Officer's contention.
(Emphasis supplied).
* * *
[The decision then distinguishes the facts in Montgomery
County wherein the subgrantee kept no records, from the
instant case where it had retained certain ledgers and
financial records pertaining to various grants].
* * *
Furthermore, I agree that the audit report in this case is
not a model of clarity and in view of the delay in issuing
the same, greater latitude in accepting certain records as
ample documentation would be appropriate. I note,
however in this regard that the delay, per se, would not
necessarily excuse a lack of documentation for CETA
expenditures. (Emphasis supplied). See State of South
Carolina v. United States Department of Labor, 795 F.2d 375
(4th Cir. 1986).
With the foregoing in mind, I will turn to making my
findings and conclusions for the individual grants.
D. and 0. at 9-10.
The ALJ delineated the issues of fact which gave rise to the
disallowances, related the pertinent testimony of the witnesses
and evaluated the evidence presented at the hearing and
subsequently submitted by the County. He set forth the reasons
for his determinations, deciding that the County failed to
substantiate adequately all of its claimed costs in two instances
of the six disputed disallowances in Finding 1, and partially
affirmed the Grant Officer's disallowances. In a third instance,
where the County admitted to no longer having the necessary
records, the ALJ affirmed the total disallowance, as he did with
the disallowance pertaining to Finding 2. D. and 0. at 11-12. In
this respect it is evident that his decisions were consonant with
the principles set forth in Montgomery County.
In the remaining three instances in Finding 1, the ALJ
reversed the Grant officer's determinations and allowed the
claimed costs. It is evident from the decision that the ALJ
relied on the evidence available to him, which in some instances
was not available to the auditors, as well as the testimony of
the witnesses. The Grant Officer speculates as to the
possibility of double billing of some of the costs in the
documents subsequently presented by the County. The County
responds by indicating that the final fiscal report reflected
amounts consistent with only the amount actually claimed. The
Grant Officer further raises his concern of the ALJ accepting
unaudited cost reports at face value. While one might always
[PAGE 4]
strive for certitude in fiscal matters, in these circumstances I
must defer to the ALJ as the trier of fact on the credibility of
the witnesses and weighing the evidence.
The County did not except to the ALJ's D. and O., but
requested in its submissions before me that repayment of the
disallowed costs be waived. The Secretary has narrowly construed
the CETA statutory and regulatory authority to waive disallowed
costs, and the courts have affirmed that construction. This case
does not fall within that purview. Chicano Education and
Manpower Services v. U.S. Dep't of Labor, 909 F.2d 1320, 1327
(9th Cir. 1990); Blackfeet Tribe v. U.S. Dep't of Labor,
Case No. 85-CPA-45, Sec. Dec., Dec. 2, 1991, slip op.
Furthermore, it is the stated policy of the Department of Labor
to require the repayment of funds based on unsubstantiated cost
claims. This policy is consistent with the Congressional mandate
evident in the reauthorization of the CETA program in 1978.
Montgomery County, Maryland v. U.S. Dep't of Labor, 757
F.2d 1510 (4th Cir. 1985).
ORDER
The ALJ's Order requiring the County of Essex to pay to the
United States Department of Labor the sum of $28,617.68 IS
MODIFIED to include $929.55 of miscalculated unsubstantiated
costs pertaining to grant 34-9-105-48, thereby increasing the
total to be paid to $29,547.23; with that modification, the ALJ's
Order IS AFFIRMED.
This payment shall be from non-Federal funds. Milwaukee
County, Wisconsin v. Donovan, 771 F.2d 983, 993(7th Cir.
1985), cert. denied, 476 U.S. 1140 (1986).
SO ORDERED.
ROBERT B. REICH
Secretary of Labor
[ENDNOTES]
[1] CETA was repealed by the Job Training Partnership Act, 29
U.S.C. §§ 1501-1791 (1988), on October 13, 1982, but
CETA administrative and judicial proceedings pending on that date
were not affected. 29 U.S.C. § 1591(e).
The last year that the CETA regulations were printed in the
Code of Federal Regulations was 1990.
[2] The ALJ apparently made an arithmetic error in calculating
the amount of the disallowance pertaining to Grant # 34-9-105-48,
understating the amount to be disallowed by $929.55. D. and 0.
at 7, 11. The actual amount of the affirmed disallowance based
on insufficient records should be $4,221.55.
