U.S. DEPARTMENT OF LABOR
SECRETARY OF LABOR
WASHINGTON, D.C.
DATE: March 5, 1995
CASE NO. 92-JTP-12
IN THE MATTER OF
COMMONWEALTH OF PENNSYLVANIA,
DEPARTMENT OF LABOR AND
INDUSTRY,
COMPLAINANT,
and
NORTHWEST PENNSYLVANIA
TRAINING PARTNERSHIP
CONSORTIUM, INC.,
INTERVENOR,
and
SERVICE DELIVERY AREA # 28,
INTERVENOR,
v.
U.S. DEPARTMENT OF LABOR,
RESPONDENT.
BEFORE: THE SECRETARY OF LABOR
FINAL DECISION AND ORDER
This case arises under the Job Training Partnership Act
(JTPA or the Act), 29 U.S.C. §§ 1501-1791 (1988), and
the regulations issued at 20 C.F.R. Parts 626-638 (1992).[1] For
the reasons set out below, the decision of the Administrative Law
Judge (ALJ) is affirmed, dismissing the Complainant's and
Intervenors' appeals. The dismissal of these appeals affirms the
Grant Officer's Final Determination.
[PAGE 2]
BACKGROUND
The Grant officer issued a Final Determination on January
24, 1992, disallowing $557,897.77 in costs claimed by the
Commonwealth of Pennsylvania (State), pursuant to its JTPA
grants.[2] The disallowance was based on the State's audit
review of the Northwest Pennsylvania Training Partnership
Consortium, Inc. (NPTPC), a JTPA subrecipient. The audit
revealed that NPTPC misexpended Fiscal Year 1985 grant funds by
charging costs against these funds which were incurred in the
preceding JTPA Transition Year 1983-1984.[3] The State's
Reviewing Officer affirmed the State Audit Hearing Officer's
determination of NPTPC's misexpenditure, but determined that it
would be inappropriate to require NPTPC to repay the funds since
the misexpenditure "was not due to willful disregard . . . gross
negligence, or failure to observe accepted standards of
administration".[4]
The State subsequently requested approval from the Grant
Officer to forego collection of the debt and waive liability with
regard to the debt.[5] The Grant Officer denied the
State's request and issued a Final Determination requiring the
repayment of the disallowed amount. The State appealed the Final
Determination to the Office of Administrative Law Judges. NPTPC
and Service Delivery Area (SDA) # 28 requested leave to
intervene, which was granted.[6]
The presiding ALJ dismissed the State's, NPTPC's and SDA #
28's appeals of the Grant Officer's Final Determination after a
hearing on the merits. The ALJ concluded that NPTPC had
misexpended FY 1985 funds by shifting costs incurred in the
Transition Year to the subsequent Fiscal Year. The ALJ found
that NPTPC willfully violated JTPA's regulations because such
shifting of costs was prohibited by both Federal and State
regulations. The ALJ also concluded that the State failed to
demonstrate that it acted in accordance with the statutory
requirements that would allow the Secretary to waive repayment of
the debt. The ALJ determined that the Secretary was not
precluded from allowing the State permission to forego collection
of the debt from NPTPC as "inappropriate" pursuant to 20 C.F.R.
§ 629.44(d)(5). ALJ's Decision and Order (D. and 0.) at 20.
The State, NPTPC and SDA # 28 all filed exceptions to the
ALJ's decision, and the Secretary asserted jurisdiction on
October 14, 1994. The Secretary's assertion order specifically
limited the parties' review to "the Secretary's authority to
forego collection of the debt as inappropriate pursuant to 20
C.F.R. § 629.44(d)(4)..." (sic)[7]
DISCUSSION
[PAGE 3]
The ALJ concluded that: NPTPC misexpended its FY 1985 grant
funds by its inclusion of costs incurred in the 1983-1984
transition period; that NPTPC willfully disregarded JTPA
regulations by the unilateral modification of certain
subcontracts to get around the impermissibility of shifting costs
from one grant period to another; and that the State failed to
demonstrate that it substantially complied with the requirements
set forth in Section 164(e)(2)(A)-(D) of the Act.
A review of the case record before me and the parties'
submissions confirms the ALJ's conclusions as fully supported by
the case record.. I therefore concur in his dismissal of the
Complainant's and Intervenors' appeals of the Final
Determination. I further find that under the facts of this case,
the Secretary does not have the statutory or regulatory authority
to waive the debt incurred by the State, or to permit the State
to forego its debt collection action against NPTPC.
I disagree with the ALJ's interpretation of the word
"inappropriate" in 20 C.F.R. § 629.44(d)(5), as it pertains
to the Secretary's authority to allow the State to forego
collection action against NPTPC and SDA # 28. When the Act and
implementing regulations are read in context, they require the
recovery of
misexpended program funds by the Secretary except when specific
requirements are met. These requirements were not met and
therefore, the Secretary is precluded from granting the State
permission to forego debt collection from NPTPC.
The Act provides for the waiver of the imposition of
sanctions against the State due to a subrecipient's
misexpenditure of JTPA funds, if the State can adequately
demonstrate that it substantially complied with the requirements
set forth in Section 164(e)(2). 29 U.S.C. § 1574(e)(3). To
meet these requirements the State must have acted with due
diligence in monitoring the subrecipient's contract and must have
taken prompt corrective action when it became aware of any
violations by the subrecipient. Although the State periodically
monitored NPTPC's operations during the transition period, it did
not uncover the impermissible shifting of costs until well into
the subsequent fiscal year. D. and 0. at 12. The State,
therefore, did not demonstrate substantial compliance with the
prescribed statutory requirements and the Secretary cannot waive
the sanction requiring the State to repay the misexpended funds.
The regulations at 20 C.F.R. § 629.44(d)(4) provide
that the Secretary may permit a State to forego collection of
misexpended funds from a subrecipient, where the subrecipient was
not at fault with respect to the liability requirements set forth
at Section 164(e)(2)(A)-(D) of the Act. In effect, the
regulations extend the waiver provision which pertains to
recipients in the Act, to subrecipients who might otherwise be
subjected to the
[PAGE 4]
recovery of funds due to the impermissible actions of its
subgrantees. The regulations cannot be read as foregoing the
collection of a debt that was incurred by the impermissible
actions of the subrecipient. This interpretation is supported by
the reference to paragraph (d)(3) in subsection 629.44(d)(4)
which provides for the Governor to describe and assess the
subrecipient's actions to collect the misspent funds from its
subgrantees. Therefore, within the context of the Act and the
pertinent regulations, the word "inappropriate," as it appears in
subsection (d)(5), pertains to a waiver of liability with regard
to a subrecipient insofar as a subgrantee misspent program funds,
provided the subrecipient acted in a manner consonant with the
Act at § 164(e)(2)(A)-(D).
The initial briefs of the State and Intervenors reviewed the
factual situation confronting NPTPC once it recognized that
funding had been substantially overcommitted for the transition
period. The common theme in these submissions was that NPTPC did
the best it could to minimize the potential dislocation to the
program's participants in an attempt to deal with overfunded
subgrants and contracts. State's Initial Brief at 7; NPTPC's
Initial Brief at 21; SDA's Initial Brief at 4. Although NPTPC's
action may have minimized the adverse impact on program
participants, NPTPC's overexpenditure problem was clearly of its
own making.
The ALJ's decision IS AFFIRMED. The Commonwealth of
Pennsylvania IS ORDERED to repay $557,897.77 from non-Federal
funds to the U.S. Department of Labor. Milwaukee County,Wisconsin v. Donovan, 771 F.2d 983, 993 (7th Cir. 1985).
SO ORDERED.
s/ Robert B. ReichSecretary of Labor
Washington, D.C.
[ENDNOTES]
[1] JTPA regulations were revised in 1992. The pertinent
regulations for this case were last published in the 1992 edition
of the Code of Federal Regulations.
[2] Administrative File (A.F.) at 11-14.
[3] A.F. at 165-178.
[4] A.F. at 190-98.
[5] A.F. at 79.
[6] SDA # 28 is the successor JTPA grant subrecipient for two of
seven counties originally administered by NPTPC. As such, it is
responsible for any disallowed costs attributable to those
counties.
[7] The citation to subsection (d)(4) was in error. The correct
citation is subsection (d)(5). The parties' submissions pursuant
to the Order reflected the correct subsection.
