Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-01736/USCOURTS-ca10-87-01736-0/pdf.json

Parties Involved:
Colorado Department of Labor and Employment
Petitioner
Department of Labor
Respondent

Document Text:

PUBLISH F I 1, E D 

United States Court of Appoala 

IN THE UNITED STATES COURT OF APPEALS Tenth r.1rc::1.1it 

FOR THE TENTH CIRCUIT MAY 2 31989 

COLORADO DEPARTMENT OF LABOR 

AND EMPLOYMENT, 

Petitioner, 

v. 

UNITED STATES DEPARTMENT 

OF LABOR, 

Respondent. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

ROBERT L. HOECKER 

Clerk 

No. 87-1736 

APPEAL FROM THE UNITED STATES DEPARTMENT OF LABOR 

(CASE NO. 85-CTA-17) . 

Michael J. Steiner, Assistant Attorney General, Human Resources 

Section (Duane Woodward, Attorney General, Charles B. Howe, Deputy 

Attorney General, and Richard H. Forman, Solicitor General, with 

him on the briefs), Denver, Colorado, Attorneys for Petitioner. 

Vincent C. Costantino, Attorney (George R. Salem, Solicitor of 

Labor, Charles D. Raymond, Associate Solicitor for Employment and 

Training, and Robert J. Lesnick, Acting Counsel for Litigation, 

with him on the brief), U.S. Department of Labor, Office of the 

Solicitor, Washington, D.C., Attorneys for Respondent. 

Before LOGAN, McWILLIAMS and ANDERSON, Circuit Judges. 

ANDERSON, Circuit Judge. 

Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 1 
This dispute between a federal and a state agency concerns 

Colorado's expenditure of federal monies under the Comprehensive 

Employment and Training Act of 1973 ("CETA"), as amended, 29 

u.s.c. § 801, et~ (repealed 1982). The Colorado Department of 

Labor and Employment ("Colorado") was the "prime sponsor" of the 

state's CETA programs and received CETA funds for a variety of 

state initiated job training and public employment programs. The 

federal funds were to be expended in accordance with rules and 

regulations promulgated by the Department of Labor ("DOL"). A 

routine audit of fourteen CETA grants, performed for the period 

October 1, 1980 through September 30, 1982, questioned certain 

costs and recommended the disallowance of others, together 

totalling $628,007. The appropriate DOL Grant Officer adopted 

most of the audit findings and issued a Final Determination 

disallowing Colorado's expenditure of $563,271 of CETA funds. 

Through subsequent negotiations between the. parties, the 

disallowance was reduced to $405,659, leaving four findings of the 

Grant Officer still in dispute. 

The four separate disallowances at stake here involve the 

following amounts: (1) $126,763 (finding #7), (2) $4,973 (finding 

#1), (3) $234,861 (finding #2), and (4) $39,062 (finding #18). 

The first amount reflects Colorado's alleged failure to properly 

document $126,763 of expenditures in its financial status reports. 

The second disallowance is the amount of an unauthorized cost 

overrun of $4,973 that allegedly had been covered by the .federal 

government. The third, of $234,861, was for an alleged violation 

of 20 C.F.R. § 676.16 (c)(l)(v), i.e., for exceeding specified 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 2 
budget ceilings by more than fifteen percent without prior 

approval. Finally, the fourth, of $39,062, was for failing to 

request prior approval from the regional administrator or grant 

office~ for each purchase by a subrecipient of ~ideo equipment 

exceeding $500 per unit. 

Colorado appealed the $405,659 disallowance to DOL's Office· 

of Administrative Law Judges on November 4, 1984. A hearing was 

held on December 12, 1986, and on February 12, 1987 an 

administrative law judge ("ALJ") affirmed the decision of the 

Grant Officer and ordered the state to pay DOL the $405,659. 

Colorado appealed this decision to the Secretary of Labor, who 

exercised his regulatory authority to decline to review it. See 

20 C.F.R. 676.9l(f). The decision of the ALJ became the final 

decision, and Colorado filed a petition for review with this 

court, as authorized by section 107 of CETA, 29 u.s.c. § 817. 1 We 

affirm the decision of the ALJ with respect to all four findings. 

I • 

Dispute over the $126,763 disallowance figure centers on 

record-keeping. DOL regulations required that a grantee maintain 

records that adequately identify the source and application of 

funds. 20 C.F.R. § 676.34(a); 41 C.F.R. § 29-70.207-2(b)(c) and 

(g). The federal auditors reported that Colorado worksheets 

supporting its financial status reports ("FSRs") identified 

1 CETA 

( II JTPA II ) , 

September 

18l(e) of 

has been replaced by the Job Training Partnership Act 

29 u.s.c. § 1501, et.~- Cases commenced prior to 

30, 1984 continue to be adjudicated under CETA. Section 

JTPA, 29 U.S.C. § 159l(e). 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 3 
numerous amounts only as ''adjustments" without back-up materials 

documenting the adjustments. In addition, Colorado could not 

support unadjusted amounts listed on these worksheets for certain 

subrecipients. Complainant's Ex. C-4 at 18.(hereinafter cited as 

''Audit Report"). Armando Quiroz, the DOL Grant Officer who 

reviewed the Audit Report, ultimately determined that Colorado 

could not document some $126,763 out of $366,515 in questionable 

costs. The Audit Supervisor of Colorado's Office of Rural Job 

Training, Judy Wagner, who was responsible for presenting 

Colorado's position at the DOL hearing, testified that because of 

the general nature of the auditors' findings and the lack of 

specificity as to which particular contracts lacked documentation 

and during what time period, Colorado could not determine what 

documentation was missing and, therefore, could not retrieve it. 

In other words, Colorado argued at the hearing that although it 

was told that it had supplied inadequate documentation, it was not 

told what documentation it needed to supply. The ALJ ruled that 

this did not excuse Colorado from keeping proper documentation in 

the first place and that it "had not met its burden of showing 

that these cost adjustments were proper, or that their financial 

management system was adequate." Decision and Order of February 

12, 1987 at s. 

Before this court, Colorado reiterates its argument that it 

was denied proper notice of its failings. We agree with the ALJ 

that this argument masks the underlying faqt that CETA regulations 

placed on grant recipients the responsibility of establishing, 

maintaining, and demonstrating an adequate accounting and 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 4 
financial management system in the first place. See 20 C.F.R. 

§ 676.34(a) and 41 C.F.R. § 29-70.207-2(b)(c) & (g). See also 

Montgomery County, Md. v. Dept. of Labor, 757 F.2d 1510, 1513 (4th 

Cir. 1985); City of Oakland v. Donovan, 703 F.2d 1104, 1107, 

modified, 707 F.2d 1013 (9th Cir. 1983). Additionally, and as the 

ALJ properly observed, CETA regulations placed on the party 

requesting the hearing the burden of establishing compliance with 

the CETA Act and regulations and its entitlement to the relief 

requested. 20 C.F.R. § 676.90(b). See Quechan Indian Tribe v. 

United States Dept. of Labor, 723 F.2d 733, 735 (9th Cir. 1984); 

Maine v. United States Dept. of Labor, 669 F.2d 827, 829 (1st Cir. 

1982). 

The original amount of questionable costs from unsupported 

worksheet figures amounted to $366,515. The schedule at page 111 

of the Audit Report breaks out the questionable costs by grant 

number and then gives the cost category within each grant, the 

amount of the questionable costs in that category, and the same 

description of the costs as that given on the Colorado worksheets. 

Audit Report at 111. Therefore, any vagueness in the description 

can be attributed to Colorado, not to the auditors. The original 

figure eventually was reduced to the current $126,763 after a 

subsequent, phase-down audit inadvertently found relevant 

documentation supporting some of the costs originally questioned. 

DOL Hearing at 56. 

The factual findings of the 

misspent funds are conclusive if 

evidence. Section 107(b) of CETA, 

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Secretary 

supported 

with respect to 

by substantial 

29 u.s.c. § 817(b). We 

Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 5 
conclude that the relevant findings and conclusions in the Audit 

Report constitute substantial evidence of Colorado's failure to 

maintain adequate control over its record-keeping systems. In 

effect, they establish a prima facie case against Colorado, and 

the ALJ was correct in then placing the burden of persuasion on 

Colorado to show that the $126,763 in questionable costs should 

have been allowed by DOL, a burden it was unable to meet. See 

Maine v. United States Dept. of Labor, 669 F.2d at 829. 

II. 

With respect to the $4,973 cost overrun, Quiroz testified 

before the ALJ that auditors find a cost overrun when costs 

actually spent by a grantee exceed the federally authorized budget 

amounts for a given program. Quiroz expressed his understanding 

that Schedule B-4 of the Audit Report, which showed a cost overrun 

of $4,973, was evidence of an actual overpayment by the federal 

government to Colorado. Wagner, in contrast, insisted that 

Colorado had not sought reimbursement for the cost overrun and, 

therefore, should not have been required to repay funds it had 

never received. The ALJ accepted Quiroz' view that the auditors 

would not have recommended disallowance of the $4,973 had not the 

federal government already disbursed it. 

As noted in Section I, the factual findings of the Secretary 

with respect to misspent funds are conclusive if supported by 

substantial evidence. The.possibility of reaching two different 

conclusions from the evidence does not prevent an administrative 

agency's findings from meeting the substantial evidence test. 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 6 
Consolo v. Fed. Maritime Comm'n, 383 U.S. 607, 620 (1966); Curtis, 

Inc. v. I.C.C., 662 F.2d 680, 685 (10th Cir. 1981). 

The best source of evidence as to the $4,973 cost overrun is 

the Audit Report itself, supplemented by interpretation of the 

Report provided by both Wagner and Quiroz. The cost overrun in 

question is with respect to grant# 08-1-155-32, a summer youth 

employment program. Audit Report at 8; DOL Hearing at 36. As 

reported in Schedule B-4 of the Audit Report, federal funds 

"authorized" for the period October 1, 1980 through September 30, 

1981 for this grant amounted to $1,444,542. Audit Report at 69. 

"Costs reported" by Colorado were $1,440,469, i.e., within the 

amount authorized. The auditors, however, after reviewing the 

financial worksheets for 

reflecting the auditors' 

the grant, made 

best judgment 

"audit adjustments," 

of actual costs. The 

calculation of the actual costs, i.e., "audited costs," produced a 

total figure of $1,449,515, an increase of $9,046. in costs 

attributed to the grant and creating costs of $4,973 in excess of 

the amount authorized. Id. In other words, the auditors judged 

that actual costs spent under the grant had been higher than those 

reported. 

that the 

government. 

Nonetheless, 

actual costs 

on its face, Schedule B-4 does not show 

had been reimbursed by the federal 

Colorado asserts that, regardless of a cost overrun, it never 

reported more than $1,440,469 as costs to be paid by the federal 

government. Wagner testified that Colorado "at no time submitted 

any kind of a revised close-out document with regards to this 

grant. We never asked for reimbursement of the costs that the 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 7 
auditors claimed to be attributable to this grant. I don't think 

it's appropriate that [Colorado] be required to refund costs that 

we never received." DOL Hearing at 37. Later on in her 

testimony, she reiterated the point. by stating that "we never 

amended our financial status reports to reflect the increase in 

total cost to the grant that the auditors claim. So we never 

reflected the total $9,046. Therefore, we never reflected the 

$4,973 that was disallowed." Id. at 43. Finally, Ms. Wagner 

explained the above statements by saying: 

"In order to make those statements, I have to be 

extremely certain about the FSRs, the financial status 

reports, and it turns out that the original ones [were] 

submitted by a predecessor .•. when it [sic] was due 

in '82 and then the final one sometime during the course 

of '83 when things were settled up. The audit wasn't 

finished until October of '83, and the reformatted 

report did not come out until well after March of 

1984. • • • At that point I was performing the 

functions of fiscal officer and I have not ever 

submitted a revised financial status report based on 

this report. And the office would not have submitted 

one if I had not prepared it." 

Id. at 45. 

Quiroz' testimony on the same point was as follows: 

"To the best of my knowledge, an auditor--and I refer 

[defer?] to the expertise of other witnesses--an auditor 

makes [audit] adjustments when he sees evidence of costs 

that were not previously reported. Sees evidence that 

some items were reimbursed ••• so he adds those and 

then he arrives at a total cost." 

Id. at 74 (emphasis added). 2 The DOL attorney questioned Quiroz 

thusly: 

"Q: So these 

were .actually 

audit 

spent 

adjustments then were monies that 

and already charged to the 

2 The only witnesses testifying at the hearing on this point 

were Wagner and Quiroz, so Quiroz' invitation to utilize the 

"expertis~ of other witnesses" created only limited possibilities. 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 8 
government or to the grant. Is that what your testimony 

is? 

A: It was my understanding that that was the case. 

Q: And if that's the case, that these were actual 

expenses, costs already charged to the government, then 

Colorado ••• would have received those funds. 

A: Yes. 

Q: Okay. Would have received the amounts that were 

disallowed. 

A: That's what the auditors were saying. That they had 

received those dollars. 

Q: And you've seen no evidence to the contrary. 

A: Well, I've heard a different position raised this 

morning, but prior to that, no." 

Id. at 76. 

Upon cross-examination, the following colloquy occurred: 

"Q: And how was [the $9,046 amount reflected in the 

audit adjustments] paid? 

A: ••• [Colorado] has a letter of credit and draws 

down as a result of that letter of credit. I would 

imagine that was the procedure at the time also. I 

can't be sure of that. I was not the grant officer at 

that time. 

Q: How do you know that 

costs [audited costs] 

reported] ••• was paid 

[Colorado]? 

the difference between auditing 

and the cost recorded [cost 

by the Department of Labor to 

A: It's stated in this report. The auditors' report. 

That particular column [referring to the audited costs 

column of Schedule B-4]. This is what the auditors' 

attesting to. 

Q: Do you have any documents or do you know of any 

documents that shows that [Colorado] specifically asked 

for the difference between the audit costs and the costs 

reported? 

A: That [Colorado] requested that from the federal 

government you mean? 

Q: Yes. 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 9 
A: No, I have no evidence that they did." 

Id. at 78-79. 

On the basis of the two divergent testimonies, the ALJ chose 

to accept Quiroz' view that the cost overrun had been paid by the 

federal government. While Schedule B-4 does not explicitly 

confirm Quiroz' view, indirect support that reimbursement had 

occurred comes from Schedule A and some of the conclusions of the 

Audit Report. Schedule A reports on the status of federal funds 

for the period from October 1, 1980 through September 30, 1982. 

It shows letter of credit drawdowns up through May 27, 1983 (after 

the end of the grant period) "rather than grant revenue per books 

since [Colorado's] records did not accumulate receipts by grant 

•••• " Audit Report at 62. Yet the auditors also concluded 

that Colorado "did not maintain financial records which adequately 

identified •.• letter of credit drawdowns against the grants 

subsequent to the end of the grant period." Id. at 19. Although 

Schedule A reports $1,440,469 as the amount of Colorado's 

drawdowns through May 27, 1983 for the grant in question, # 08-1-

155-32, nonetheless it also reports disbursements under the grant 

at $1,449,515, allowing the inference that federal monies from 

some CETA source had been spent to cover the cost overrun. See 

Id. 

On the basis of the Audit Report findings, and the ALJ's 

determination that Quiroz' testimony was more credible than 

Wagner's, we conclude that substantial, if somewhat inconclusive, 

evidence supports the ALJ's decision that the federal government 

had reimbursed Colorado for its cost overrun. Colorado was unable 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 10 
to meet its burden to establish DOL error, and we uphold the ALJ's 

finding on this point. 

III. 

The dispute over the third disallowance figure of $234,861 

centers on whether Colorado was required to report budgetary 

shifts exceeding fifteen percent of the budget ~or each of three 

annual plan subparts, and is a matter of regulatory 

interpretation. Each year Colorado was required to submit an 

Annual Plan for providing program activities and services to the 

eligible population. See 20 C.F.R. § 676.9(a)(2). Among other 

things, the Annual Plan was to describe Annual Plan "subparts." 

See 20 C.F.R. § 676.11. Both DOL and Colorado agreed that a 

subpart designates a CETA grant funded by title designation, e.g., 

Title II B-C, Title II D, Title VII, Title IV-Summer Youth 

Employment Program, Title IV-Youth Community Conservation and 

Improvement Projects, etc. See Section 676.ll(c)(6}. The CETA 

regulations required that certain kinds of modifications to the 

Annual Plan receive prior approval, including "[f]or Annual Plan 

subparts of over $100,000 the cumulative transfer among program 

activities or cost categories of $50,000 or more or 15 percent of 

the total plan budget, whichever is greater." 20 C.F.R. 

§ 676.16(c}(l}(v}. 

The parties disagree as to the meaning of the phrase "total 

plan budget" in the above provision, and, therefore, as to the 

proper base to use in calculating when budgetary shifts exceed 

fifteen percent. DOL focuses on the lead-in phrase "Annual Plan 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 11 
subparts," asserting that the context makes clear that the base 

for calculating budgetary shifts is each total subpart budget. In 

other words, under DOL's interpretation, Colorado needed prior 

approval to shift dollars among cost categories if those shifts 

exceeded $50,000 or fifteen percent of the total budget for a 

subpart. Quiroz' undisputed testimony explained that "cost 

categories" include such categories as wages, fringe benefits, 

training, and services. Quiroz also testified that the purpose of 

the prohibition on budgetary transfers in excess of the stated 

amount is to assure that the basic focus of a program will not be 

changed without approval from DOL. In his view, an oversight 

function could not be exercised responsibly were the fifteen 

percent figure to be calculated as a percent of a large annual 

plan budget that included a number of subparts. DOL Hearing at 

81-82. 

In contrast, Colorado interprets the contested provision to 

apply to its entire CETA budget, emphasizing the phrase "total 

plan budget." Colorado asserts that it need account for proposed 

expenditure shifts among categories within a given subpart only 

when they exceed fifteen percent of the total federal allocation 

for all Colorado CETA grants during a fiscal year. The ALJ found 

that Colorado's interpretation would severely impede DOL's ability 

to monitor changes in grant program foci, and he accepted DOL's 

interpretation that the regulation in question applied to 

budgetary shifts within individual subpart budgets. 

Although our review of the ALJ's legal interpretation is de 

novo, we nonetheless give considerable deference to an agency's 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 12 
interpretation of its own regulations. "In construing 

·administrative regulations, 'the ultimate criterion is the 

administrative interpretation, which becomes of controlling weight 

unless it is plainly erroneous or inconsistent with the 

regulation.'" United States v. Larionoff, 431 U.S. 864, 872 

(1977) (citations omitted). In determining whether an agency's 

interpretation is plainly erroneous or incbnsistent with the 

regulation, we follow the principle of regulatory construction 

that although "regulatory terms not given a specific regulatory 

definition are to be interpreted according to their commonly 

understood definitions," nonetheless a court '''cannot concentrate 

on individual terms and ignore a consideration of the context in 

which the term appears.·' 11 Shepherd Oil, Inc. v. Atlantic 

Richfield Co., 734 F.2d 23, 29-30 (Temp. Em. Ct. App. 1984) 

(quoting Citronelle-Mobile Gathering, Inc. v. Edwards, 669 F.2d 

717, 719 JTemp. Em. Ct. App.), cert. denied, 459 U.S. 877 (1982)). 

In construing the contextual meaning of "total plan budget," 

we examine subsections (c)(l) and (c)(2) of 20 C.F.R. § 676.16(c), 

which deal with substantive modifications to the Annual Plan. In 

their entirety, (c)(l) and (c)(2) read as follows: 

"(c) Modifications to the Annual Plan. 

approval is required to modify: 

( 1) Prior RA 

(i) The duration of the Annual Plan or subparts 

of the Annual Plan; 

(ii) The Annual Plan allocation; 

(iii) An increase or decrease of 15% or more in the 

cumulative number of individuals to be served, planned 

enrollment levels for program activities, planned placements, terminations or individuals to be served within 

significant segments; 

(iv) For Annual Plan subparts of $100,000 or less, 

a cumulative transfer of $15,000 among program activities or cost categories; 

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(v) For Annual Plan subparts of over $100,000, 

the cumulative transfer among program activities or cost 

categories of $50,000 or more or 15 percent of the total 

plan budget, whichever is greater; or 

(vi) Significant changes in program design. 

(2) Prime sponsors may not modify their Annual 

Plan solely to adjust planned performance to meet actual 

performance." 

20 C.F.R. § 676.16(c)(l)(2). 

Subsection (c)(2) makes clear that the budgetary modifications in (c)(l}(iv} and (v} concern the prospective budget, i.e., 

the planning process, and not subsequent adjustments in the budget 

that reflect actual unbudgeted expenditures. Approval is to be 

received prior to the rebudgeting of funds in ways that modify 

budget categories by more or less than fifteen percent of the 

"total plan budget." Subsection (c}(2} helps to emphasize that 

prime sponsors are to keep relatively tight control over 

expenditures within budgeted categories and that if actual 

expenditures exceed the budget, the budget is not to be changed 

after the fact solely to reflect the actual unbudgeted 

expenditures. 

As for subsection (c}(l), we note that (c)(l)(iv} makes no 

reference to a total plan budget but refers to cumulative 

budgetary shifts of $15,000 in subpart budgets of $100,000 or 

less. While $15,000 represents a shift of fifteen percent in a 

$100,000 budget, it represents a shift of more than fifteen 

percent in budgets of less than $100,000. For instance, $15,000 

would be twenty-five percent of a $60,000 subpart budget. In 

other words, the provision calls for prior approval of shifts of 

fifteen percent or more but not for shifts of less than fifteen 

percent. 

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It is logical to assume that the subsequent provision, 

(c)(l)(v) was meant to parallel (c)(l)(iv) and call for prior 

approval of shifts of fifteen percent or more ($50,000 would be 

"more" in some cases). Were DOL to fundamentally change its base 

of calculation and not require approval of equivalent shifts in 

subpart budgets in excess of $100,000, it might no longer be in a 

position to monitor program foci. If it was concerned with 

budgetary shifts among cost categories within smaller subpart 

grants, logically it should be even more concerned with similar 

shifts where larger dollar amounts are at stake. Yet if it was 

concerned only when the cumulative transfers within larger subpart 

grants exceeded fifteen percent of an entire Annual Plan budget, 

fifteen percent in some cases would exceed an entire subpart 

budget. For instance, Colorado's FY 1981 total CETA grant budget 

approximated thirteen million dollars, and fifteen percent (1.95 

million dollars) exceeded five of its subpart budgets for that 

year. See Government's Ex. G-D (Notice of Fund Availability); 

Audit Report at a. 

It makes more sense to conclude that (c)(l)(v) is to be read 

in tandem with (c)(l)(iv): in both provisions DOL is establishing 

what it considers to be the indicator of significant changes in 

program foci for different-sized subpart budgets and determining 

what level of budgetary shifts would trigger the prior approval 

requirement. In short, we conclude that subsection (c)(l)(v) 

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Appellate Case: 87-1736 Document: 01019957921 Date Filed: 05/23/1989 Page: 15 
should be read consistently with (c)(l)(iv) and that the term 

"total plan budget" means "total subpart budget." 3 

We uphold DOL's interpretation of the regulatory provision in 

question. We also conclude that there was no evidence supporting 

Colorado's argument that the interpretation of the phrase "total 

plan budget" had changed with time. 4 We do view with some 

3 One explanation for the confusing use of 

plan budget" in subsection (c)(l)(v) was 

somewhat inadvertently, by Wagner at the 

testified that: 

the phrase "total 

actually suggested, 

DOL hearing. She 

"From what I've seen in fiscal year '82 ••• 

changed their computerized system •••• 

year '81, there was an annual plan for each 

fiscal year '82, there is one annual plan and 

is a subpart thereof." 

they [DOL] 

In fiscal 

title. In 

each title 

DOL Hearing at 52 (emphasis added). In other words, apparently 

prior to FY 1982, annual plan budgets consisted of only one 

subpart, and therefore use of the phrase "total plan budget" would 

be synonymous with the phrase "total subpart budget." If that was 

indeed the case, and there is no testimony to suggest that it was 

otherwise, then when various subpart budgets were combined into 

one annual plan, the regulatory language may not have been 

adjusted accordingly. Nonetheless, total plan budget still 

referred to a total subpart budget. 

We also note that the use of the word "total" to describe the 

budget does not indicate that the overall annual budget is being 

addressed. It simply clarifies that one is to take fifteen 

percent of whatever total budget is at stake, ai opposed to 

fifteen percent of the cost category or categories from which 

funds are being shifted. 

4 Colorado asserts that, according to Wagner's testimony, DOL 

in the past had applied the fifteen percent limitation to 

Colorado's total CETA plan. Petitioner's Opening Brief at 10. To 

the contrary, however, Wagner's statement was that 11 [i]n the '77 

through '80 audit there was a line item overrun, and that was 

allowed on the basis that it did not exceed the total grant." DOL 

Hearing at 47. She then indicated that such overruns had been 

allowed several times "on the basis that they were not an overrun 

of the total grant budget." Id. at 48. These statements do not 

reveal whether or not the overruns exceeded fifteen percent of a 

cost category but simply indicate that they were compensated by 

decreases elsewhere so that the total grant budget was not 

(footnote continued on next page) 

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concern, however, the possibility that DOL may have had 

inconsistent approaches over time to enforcement of the provision. 

The undisputed allegation that DOL had overlooked Colorado's 

failure to seek the requisite prior approval for certain budgetary 

shifts during previous fiscal years and then unexpectedly changed 

the ground rules suggests that DOL's approach to federal-state 

relations may have been a bit cavalier. While we think DOL has a 

right to insist on compliance with its regulations and to tighten 

its enforcement when it finds it desirable, we think that a state 

should be clearly informed of major DOL shifts in enforcement 

approaches. If enforcement is left to the discretion of 

individual Grant Officers, or if department-wide changes in 

enforcement policy are not signalled, grant recipients are subject 

to DOL inconsistencies which, in our view, should be eliminated. 

IV. 

The fourth disallowance figure involves expenditures by a 

subrecipient, i.e., the Northwest Colorado Council of Governments 

("NWCCOG"), which contracted with Colorado to produce video tapes 

and which purchased expensive video equipment with some of the 

CETA funds. The contract terms were ambiguous and could be 

(footnote continued from previous page) 

exceeded. Furthermore, by specifying one of the "grant" budgets 

as an Indian CETA grant and another as a Migrant CETA grant, 

Wagner evidenced that she was not using the term "grant budget'' to 

refer to the total Colorado CETA plan budget for a fiscal year. 

See Id. Wagner then testified that, in the past, failure to 

obtain prior approval had not resulted in cost disallowances where 

the costs were relevant and otherwise allowable. Id. at 50. This 

comment speaks to the question of enforcemen-t-of the prior 

approval requirement, rather than to a change in the 

interpretation of the term "total plan budget." 

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construed to permit those equipment purchases, although Colorado 

insisted that use, rather than purchase, of equipment for video 

production was all that was intended under the contract. See 

Complainant's Ex. C-3 at 4 ("$40,850 will be used for equipment"). 

Under DOL regulations, such purchases required prior appro~al when 

unit costs exceeded $500. See 41 C.F.R. § 29-70.216-l(a) and 

§ 29-70.216-?(a), as modified by 41 C.F.R. § 29-70.215-5. Such 

approval was not obtained. Colorado apparently discovered the 

equipment purchases after the fact. It sought assurance of 

NWCCOG's understanding that CETA funds were intended for the use 

rather than the purchase of equipment. Government's Ex. G-C at 1. 

The NWCCOG Executive Director responded that NWCCOG was "aware of 

your intent to support the use of equipment in developing your 

product" and that, unfortunately, NWCCOG's accountant (fiscal 

officer) had not been fully informed "and was under the impression 

that the funds were to be used to directly purchase equipment." 

Id. at 2 (emphasis in original). Colorado expressed its hope that 

it could avoid an audit exception by modifying NWCCOG's closeout 

package to reflect more clearly the intent of the contract not to 

allow purchase of equipment. 5 Id. at 1. Sometime later, Colorado 

asked the NWCCOG accountant "why he had not made a prior period 

adjustment" to reflect the intended use of the CETA funds and to 

correct what Colorado saw as essentially an accounting error. DOL 

5 It is difficult to see how such a clarification would have 

avoided the audit exception, however, because under CETA and its 

regulations, the prime sponsor was responsible for the 

noncompliance of subrecipients regardless of who was initially at 

fault. See 29 U.S.C. § 816(d}(l); 20 C.F.R. § 676.37(a)(l) and 

( 5) • 

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Hearing at 30. According to Wagner's testimony, the accountant 

''did not wish to deal with it" because the books were closed and 

he was in the process of leaving the NWCCOG. Id. 

At the hearing, the ALJ observed that Colorado was 

iesponsible for the actions and omissions of its subrecipients and 

determined that since Colorado was to receive reimbursement from 

NWCCOG, requiring Colorado to reimburse the federal government 

would not impose too harsh a penalty. Additionally, the ALJ found 

that although funds had been spent on the programs for which they 

were intended, and although Colorado had not intentionally 

defrauded the federal government, nonetheless Colorado's recordkeeping system was flawed, known violations had not been remedied, 

and some of them could have been avoided in the first place by 

simply obtaining prior approval. He found repayment to be an 

equitable sanction under the circumstances. 

With respect to the ALJ's determination, Colorado asserts 

before this court that the record does not reflect any 

reimbursement from the NWCCOG and that, in the interests of 

equity, DOL should have waived repayment. Colorado insists that 

the problem arising with the NWCCOG had nothing to do with a 

flawed Colorado record-keeping system and was simply an error 

internal to the NWCCOG, for which Colorado should not be punished. 

Under Section 106 of CETA, 29 U.S.C. § 816, DOL is given 

broad authority to determine the sanctions for CETA violations; it 

is also given authority to waive the right to recoupment. 6 In 

6 Section 106(d)(2) of 

pertinent part, provides 

CETA, 29 U.S.C. § 816(d)((2), in 

that when "a public service employment 

(footnote continued on next page) 

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reviewing the exercise of agency authority, "courts give great 

deference to agency determinations of sanctions; absent an abuse 

of discretion, the agency determination will be affirmed. The 

sanction imposed must, however, have some relationship to the 

violation found by the agency.'' City of Oakland v. · Donovan, 703 

F.2d at ·1107 (citations omitted). Here, there is no dispute over 

whether reimbursement for each unauthorized equipment purchase 

exceeding $500 bears a direct relationship to the violation. 

Instead, the dispute is over what reasons, if any, must be given 

for failure to grant a waiver sought by a CETA recipient. 7 

(footnote continued from previous page) 

program" is conducted in violation of various CETA statutory 

provisions or regulations, repayment is required ''unless, in view 

of special circumstances as demonstrated by the recipient, the 

Secretary determines that requiring repayment would not serve the 

purposes of attaining compliance with such sections ••.• " 

7 Some uncertainty exists regarding whether (1) 29 u.s.c. 

§ 816(d)(2) requires the Secretary to consider the equities in 

every case, (2) the Secretary must consider the equities only when 

special circumstances are raised by the plaintiff, or (3) whether 

the Secretary's exercise of discretion to waive repayment is 

limited to those circumstances specifically mentioned in 20 C.F.R. 

§ 676.88(c). Some cases suggest that the Secretary need not ever 

consider the equities. In City of St. Louis, Mo. v. United States 

Dept. of Labor, 787 F.2d 342, 349 (8th Cir. 1986), the court held 

that "the Secretary is not required to consider the equities" but 

"must impose sanctions" where violations have occurred. See also 

Illinois Migrant Council, Inc. v. United States Dept. ofLabor°; 

773 F.2d 180, 183 (7th Cir. 1985), holding that DOL has broad 

powers to impose sanctions and is not required to consider all the 

equities. In contrast, several other cases take the position that 

the equities are to be considered at least when raised by the CETA 

recipient or subrecipient. See Action,Inc. v. Donovan, 789 F.2d 

1453, 1460 (10th Cir. 1986) (where substantial argument for 

exercise of discretion is made, "Secretary must respond, setting 

forth the reasons for his exercise or lack of exercise of 

discretion"); Onslow County, N.C. v. United States Dept. of Labor, 

774 F.2d 607, 614 (4th Cir. 1985) (Secretary neglected to perform 

mandatory duty to consider waiver in view of any "special 

circumstances" that might be shown). Cf. Maine v. United States 

Dept. of Labor, 669 F.2d at 832 (since Maine failed to ask for 

(footnote continued on next page) 

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Under our ruling in Action, Inc. v. Donovan, the Secretary 

need not consider waiver of recoupment if plaintiff does not raise 

"substantial equitable considerations." Action, Inc. v. Donovan, 

789 F.2d 1453, 1460 (10th Cir. 1986). "Because waiver of 

recoupment is within the Secretary's discretion, the Secretary 

need not address this issue in every case before him. The 

Secretary is not required to respond to every frivolous or 

unsupported argument that he should exercise his discretion to 

waive repayment of disallowed costs." Action, 789 F.2d at 1459-

60. We assume, without deciding, that for purposes of the 

following discussion Colorado's arguments raised substantial 

equitable considerations. 

The ALJ's primary reason for denying a waiver seemed to turn 

on his view that NWCCOG had agreed to reimburse Colorado for its 

$39,062 equipment purchases. The ALJ found that "considering the 

(footnote continued from previous page) 

exercise of discretion, failure to make ruling was not error under 

Administrative Procedures Act); Quechan Indian Tribe v. United 

States Dept. of Labor, 723 F.2d at 736 (case remanded to Secretary 

to "consider all the equities;" no indication that plaintiff 

sought consideration of the equities or that equity issues were 

limited to those circumstances specified in§ 676.88(c)). 

The Secretary takes the position that recent Supreme Court 

decisions on related matters strengthen his position that he need 

consider the equities only in circumstances spelled out under 20 

C.F.R. § 676.88(c), which lists five equitable factors to guide a 

decision to waive recoupment in situations where funds have been 

misspent on ineligible participants and public service employment 

programs. Dicta in City of Camden, N.J. v. United States Dept. of 

Labor, 831 F.2d 449, 452 (3d Cir. 1987) (Secretary promulgated 20 

C.F.R. § 676.88(c) to implement 29 u.s.c. 816(d)(2)) also may 

support this position. We need not analyze this split of 

authority or construe the scope of our holding in Action because 

the ALJ, whether he needed to or not, did address the equities of 

recouping costs for excessive purchases without prior DOL 

approval. 

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equities," Colorado's repayment "should not be too severe since 

NWCCOG has agreed to reimburse the Grantee for these 

expenditures." Decision and Order of February 12, 1987 at 6. 

Actually, the record does not substantiate the ALJ's statement 

that the NWCCOG had agreed to reimburse Colorado for the 

disallowed expenditures. It shows only that the modified contract 

between NWCCOG and Colorado required the NWCCOG to provide 

Colorado with a "production schedule and rates which will allow 

for the return of the total CETA investment either through 

utilization and/or cash reimbursement." Complainant's Ex. C-3 at 

4. This statement does not indicate that NWCCOG did, would, or 

was required to reimburse Colorado for its investment of CETA 

funds; instead it simply reveals intent language that NWCCOG was 

to set rates that would "allow" a return on the funds advanced, 

either in terms of utilization by CETA of the videotapes produced 

under the grant or by cash reimbursement, or a combination of the 

two. The language of the modified contract states that "$40,850 

[of the CETA monies] will be used for equipment, and the $68,781 

balance will pay for staff who will develop and produce pilot 

projects, purchase equipment and market the tapes generated by the 

program." Id. From this language and Wagner's testimony 

acknowledging that CETA funds were advanced for the production of 

videotapes, DOL Hearing at 25, one can conclude that the funds 

were obviously not going to be used at that point to pay for 

Colorado's actual utilization of the videotapes. The contract 

language suggests that while NWCCOG might use CETA funds to 

acquire equipment (through lease or purchase) to make the 

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videotapes, its books would reflect the use of CETA funds as a 

user's fee. Alternatively or additionally, NWCCOG might fully or 

partially reimburse Colorado with cash after collecting fees from 

other users of the tapes. In either event, Colorado anticipated 

but did not require some kind of "return on its inv~stment." In 

fact, the record shows that Colorado had received copies of some 

of the finished tapes. DOL Hearing at 18. Although giving 

Colorado copies of the tapes is indeed giving it something for its 

money, it is not the same as returning to Colorado its CETA money 

so that it can pass the money on to DOL. We conclude that there 

was no evidence establishing an agreement to fully reimburse 

Colorado for the $39,062 in disallowed costs. Nonetheless, we do 

not view the ALJ's misstatement as a serious problem, because, as 

we discuss below, the ALJ cites independent grounds sufficient to 

support his conclusion that waiver was not required. 

The ALJ's reasons for denying a waiver went beyond those 

addressing NWCCOG's authorized equipment purchases. In fact, the 

ALJ seemed to consider the fairness of waiver for all four of the 

disallowance figures, even though Colorado sought waiver only of 

the disallowance for the NWCCOG equipment purchases. 

stated: 

The ALJ 

"[T]he Grantee knew of some of these violations even 

prior to the audit but failed to remedy them and •.• 

the Grantee failed to fulfill important statutory and 

regulatory duties, especially in maintaining an adequate 

record-keeping system. Although the Grantee committed 

no intentional fraud and did spend the funds on programs 

for which they were intended, the Grantee merely had to 

acquire the Grant Officer's approval to avoid many of 

these violations." 

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Decision and Order of February 12, 1987 at 6. Although this 

language is broader than is required to address the equipment 

purchase situation, we conclude that it covers that situation as 

well. The ALJ's reference to the grantee's failure to acquire 

Grant Officer approval in multiple situations can be read as 

appropriately making Colorado bear the responsibility for the fact 

that its contract terms with NWCCOG were ambiguous and were 

interpreted by the NWCCOG accountant to allow CETA funds to be 

used for the purchase of equipment. In other words, contained 

within the ALJ's statement is the view that Colorado knew or 

should have known that NWCCOG would purchase equipment with the 

CETA funds, and that, therefore, Colorado should have seen to it 

that NWCCOG obtained prior approval for the purchases rather than 

seeking to have NWCCOG reflect the CETA contributions on the books 

as payment of fees for utilization of the completed videotapes. 

There is no question but that Colorado can be held liable for 

violation of the regulations by a subrecipient. 29 u.s.c. 

§ 816(d)(l); 20 C.F.R. § 676.37(a)(l) and (5). See San Diego 

Regional Employment and Training Consortium v. United States Dept. 

of Labor, 713 F.2d 1441, 1444 (9th Cir. 1983); Kentucky Dept. of 

Human Resources v. Donovan, 704 F.2d 288, 297 (6th Cir. 1983); 

Milwaukee County v. Peters, 682 F.2d 609, 612 (7th Cir. 1982). As 

Quiroz testified, "[Colorado] is reponsible for assuring that its 

sub-recipients understand fully the terms of their contracts, and 

that the budget items are fully understood by both parties." DOL 

Hearing at 71-72. Where contractual terms are ambiguous and lead 

to noncompliance with CETA regulations, the failure to waive 

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recoupment serves the purposes of attaining compliance, has no 

detrimental effect on Colorado's management of CETA programs, and 

creates an incentive for Colorado to more closely monitor its 

subrecipients and to write its contracts more clearly. 

In conclusion, assuming that Colorado presented a substantial 

argument for a waiver and that some articulation of DOL's reasons 

for not ~aiving repayment was necessary, we think the ALJ's 

discussion of the equities was sufficient to indicate that he had 

considered the special circumstances involved in this case and 

found no good reason to waive repayment. 

We AFFIRM the findings of the ALJ in all respects. 

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