Source: https://openjurist.org/449/f3d/51/edmonds-ma-v-l-chao
Timestamp: 2020-01-25 20:06:05
Document Index: 735651386

Matched Legal Cases: ['§ 1574', '§ 627', '§ 1574', '§ 1578', '§ 1574', '§ 627', '§ 627', '§ 1574', '§ 1574', '§ 1574', '§ 1574', '§ 1574', '§ 1574', '§ 161', '§ 199', '§ 1511', '§ 1661', '§ 1518', '§ 627', '§ 1661', '§ 631']

449 F3d 51 Edmonds Ma v. L Chao | OpenJurist
449 F. 3d 51 - Edmonds Ma v. L Chao
449 F3d 51 Edmonds Ma v. L Chao
449 F.3d 51
Jane C. EDMONDS, Director, Commonwealth of MA Department of Workforce Development, Petitioner,
Elaine L. CHAO, Secretary of Labor; United States Department of Labor, Respondents.
The JTPA requires a state to comply with a host of rules in order to qualify for funding. The rules relevant to this case fall into two broad categories. On one side of the line, the JTPA imposes limitations on the uses to which federal funds may be put. These substantive regulations govern expenses incurred by regional agencies in providing employment training services. Among other requirements, the regulations prescribe that an agency spending JTPA funds can only incur costs that are "necessary and reasonable to the proper and efficient administration of the program." 29 U.S.C. § 1574(a)(2); 20 C.F.R. § 627.435(a). The agency must also classify its expenditures according to the categories prescribed by statute,5 and the statute and regulations prescribe maximum expenditures for certain categories — for example, the regulations specify that (depending on the program) administrative costs can amount to no more than fifteen or twenty percent of total expenditures.
In order to ensure compliance with these and other substantive limitations on expenditures, the statute and regulations place a heavy emphasis on financial management and accountability, and the other category of relevant regulations is the set of rules specifying the state and agency responsibilities to account for their use of funds. These oversight provisions specify the mechanisms through which states and their JTPA subrecipients must demonstrate to DOL that they are fulfilling their obligations under the substantive provisions of the Act. Among them is the requirement that "[e]ach State shall establish such fiscal control and fund accounting procedures as may be necessary to assure the proper disbursal of, and accounting for, Federal funds paid to the recipient under subchapters II and III of this chapter." Id., § 1574(a)(1). The statute goes on to specify that "[s]uch procedures shall ensure that all financial transactions are conducted and records maintained in accordance with generally accepted accounting principles applicable in each State." Id.
Although Massachusetts attempted to prove substantive compliance with the JTPA in lieu of presenting a clean audit, the Board concluded that the evidence it presented was not sufficiently "detailed, reliable, and extensive" to meet its burden. Our review of the final determination of the Board under the JTPA is deferential. We are bound by the Board's findings of fact so long as they are supported by substantial evidence. 29 U.S.C. § 1578(a)(3). While the statute grants us authority to review the legal determinations of the Board, see id., as a general matter we defer to "an agency's reasonable interpretation of a statute that it administers." P. Gioioso & Sons, Inc. v. Occupational Safety & Health Review Comm'n, 115 F.3d 100, 107 (1st Cir.1997) (citing Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct 2778, 81 L.Ed.2d 694 (1984); Strickland v. Comm'r, Me. Dep't of Human Servs., 96 F.3d 542, 547 (1st Cir.1996)). We similarly defer to an agency's reasonable interpretation of its own regulations (so long as those regulations and the interpretation are themselves reasonable given the statute), and will "respect an agency's interpretation of its own regulation as long as the interpretation meshes sensibly with the regulation's language and purpose." Id. (citing Martin v. Occupational Safety & Health Review Comm'n, 499 U.S. 144, 151, 111 S.Ct. 1171, 113 L.Ed.2d 117 (1991)).
As we have noted, the statute here commands that "[e]ach State shall establish such fiscal control and fund accounting procedures as may be necessary to assure the proper disbursal of, and accounting for, Federal funds paid to the recipient under subchapters II and III of this chapter." 29 U.S.C. § 1574(a)(1). It requires that those procedures "ensure that all financial transactions are conducted and records maintained in accordance with generally accepted accounting principles applicable in each State." Id. The regulations that implement these statutory provisions require inter alia that "[r]ecipients and subrecipients shall ensure that their own financial systems as well as those of their subrecipients provide fiscal control and accounting procedures." 20 C.F.R. § 627.425(b)(1). Among other things, these procedures must require the state to provide "[s]ource documentation to support accounting records." Id., § 627.425(b)(1)(iv).
What is more, the Board's position here is consistent with longstanding views in various courts that seeking repayment where faulty accounting makes it impossible to determine whether funds have been properly spent is an appropriate remedy to allow in the context of the JTPA and its predecessor statutes. Dealing with a similar circumstance under the CETA program, the Fourth Circuit held twenty years ago that "by failing to comply with the record-keeping requirements of CETA and its regulations, the County `misspent' federal funds within the meaning of the statute." Montgomery County v. Dep't of Labor, 757 F.2d 1510, 1513 (4th Cir.1985). This was because "[r]ecord keeping is at the heart of the federal oversight and evaluation provisions of CETA and its implementing regulations. Only by requiring documentation to support expenditures is the DOL able to verify that billions of federal grant dollars are spent for the purposes intended by Congress." Id. at 1513. See also La. Dep't of Labor v. United States Dep't of Labor, 108 F.3d 614, 618 (5th Cir.1997); City of Oakland v. Donovan, 703 F.2d 1104, 1107 (9th Cir.1983). Similarly here, rigorous record-keeping was essential to ensure that thousands of JTPA grant subrecipients used the money they received for its intended purpose.
The Commonwealth makes a secondary argument that even if the Board permissibly construed the statute and regulations to mean that a failure to make a proper accounting would result in a repayment obligation unless the state made a sufficient alternative showing that it complied with the substantive regulations at issue, its determination that the state did not make such a showing here was improper. Our review under the substantial evidence standard, however, is limited even in the general case, and we are the more reluctant to second-guess agency accounting policies in areas where the agency must oversee vast and complex programs and its experience with such oversight presumably informs those policies. Tracking and authenticating the numerous retail-level transactions that implementing the JTPA requires is a mammoth task, and "[i]n such an area `(m)atters of accounting, unless they "be the expression of a whim rather than an exercise of judgment, are for the agency."'" Cheshire Hosp. v. New Hampshire-Vermont Hospitalization Serv., Inc., 689 F.2d 1112, 1117 (1st Cir.1982). The Board determined that, without direct evidence in the form of source documentation to back it up, the state's evidence that funds were properly spent was unreliable guesswork and there remained reason to be concerned that the funds disbursed to Lynn SDA had not been spent on procuring JTPA-related services. The state complains that its evidence was good enough, but without a terribly strong showing indicating that the Board's evaluation and rejection of the proffered evidence was pure caprice, we could not conclude that the evidence compelled a contrary decision.
The state's final argument is that even if DOL was within its rights in disallowing the costs at issue in the first place, the Secretary of Labor was authorized to waive the repayment obligation and abused her discretion in not doing so. Where the Board has determined that a state grant recipient may be charged for misspent funds, the statute grants the Secretary discretion to forgive the repayment obligation. See 29 U.S.C. § 1574(e)(3). The statute does not give the Secretary unbounded discretion, however. In relevant part, the statute permits the Secretary to forgive repayment obligations only where the recipient state has demonstrated that it has: (A) established and adhered to an appropriate system for the award and monitoring of contracts with subgrantees which contains acceptable standards for ensuring accountability;
Id., § 1574(e)(2). DOL's position is that, because Massachusetts continued making payments to Lynn SDA for two years, a period during which it either overlooked or chose to look past Lynn SDA's faulty record-keeping, it was wasting the federal government's money. While the ultimate exercise of discretion is committed to the Secretary, we can review the agency's predicate factual and legal determinations — but we accord those determinations the usual deference.
Massachusetts had to meet all four criteria specified in the statute in order to qualify for waiver consideration, and a supportable finding by the Board that it did not meet any one of those criteria dooms the state's claim. The Board determined that the efforts that Massachusetts made to staunch the flow of unaccounted-for funds to Northshore did not merit waiver consideration because Massachusetts failed to meet three of the four criteria. Specifically, Massachusetts had not "established and adhered to an appropriate system for the award and monitoring of contracts with subgrantees which contains acceptable standards for ensuring accountability" under § 1574(e)(2)(A) because it had not adhered to the system it had established; had not acted with the requisite diligence under § 1574(e)(2)(C) in monitoring Northshore; and had not responded with the requisite alacrity under § 1574(e)(2)(D) in taking appropriate measures to correct the developing problem with Northshore once it was detected.
The statutory requirement is that the state take "prompt and appropriate corrective action" once it detects a problem. It seems sensible to think that whether an action taken was "appropriate" should be determined by looking to information available at the time, which is to say that retroactively declaring Massachusetts not to have taken "appropriate corrective action" because its plan did not work in the end might well be an unreasonable approach to take under § 1574(e)(2)(D). Massachusetts suggests that the agency made such an error here, arguing that "[t]he fact that Lynn did not adequately implement the corrective measures imposed on it by the Commonwealth does not support the conclusion that the Commonwealth itself was not diligent in its actions" and that "[t]he Board erred in holding otherwise." This pure legal argument does not have any basis in the Board's decision, for the Board did not rely on the corrective program's failure in determining that the state moved with less than the necessary speed.
The JTPA was enacted in 1982 and took effect July 1, 1983. Pub.L. No. 97-300, §§ 161-172 (Oct. 13, 1982), 96 Stat. 1347. It was repealed by statute in 1998, and the repeal became effective July 1, 2000. Pub.L. No. 105-220, Title I, § 199(b)(2), (c)(1)(B) (Aug. 7, 1998), 112 Stat. 1059
Title II authorized distribution only through the SDAsSee 29 U.S.C. §§ 1511 & 1514. Title III authorized distribution to other classes of administrative entities in addition to the SDAs, see id., §§ 1661-1661c, but this case involves only distribution through the SDAs themselves.
For some Title II funds in the programs at issue here, the funds must be expended either on 1) administration, 2) what are called training-related services/supportive services, or 3) direct training services. 29 U.S.C. § 1518(b); 20 C.F.R. § 627.440(d)(1)-(5). Title III funds must be categorized as related to 1) rapid response services, 2) basic readjustment services, 3) retraining services, 4) needs-related payment and supportive services, and 5) administration. 29 U.S.C. § 1661c(a); 20 C.F.R. § 631.13(a)(1)