Opinion ID: 711196
Heading Depth: 3
Heading Rank: 2

Heading: Interest Earned by CSU

Text: 24
25 The OIG's final audit determination was dated August 5, 1988. CSU filed its request for administrative review of the final audit on September 21, 1988. CSU's accounting abstract was submitted on December 30, 1988. The ALJ took the abstract into consideration in determining that the final audit was incorrect. The ALJ found that the section 668.116(e)(1)(ii), forty-five day time restriction for submitting evidence did not apply to the accounting abstract. The ALJ reasoned that the accounting abstract was based on records previously available to the Department, and therefore the abstract was not an underlying work paper, record, or material under 34 C.F.R. 668.116(e)(1)(ii). Reversing the ALJ's decision, the Secretary held that the abstract was submitted beyond the forty-five day time restriction, and thus the ALJ's consideration of the abstract was improper. 26 Under the authority of 20 U.S.C. Sec. 1094, the Secretary has promulgated regulations governing the institutions participating in the various federal programs for financial assistance for students, including the Pell Grant Program. As a condition of participation in the Pell Grant Program, the institutions must comply with the regulation which includes submitting to audits. 34 C.F.R. Sec. 668.12(a). Further, the regulations set forth the procedural requirements for appealing a final audit determination. Section 668.113 of the regulation states in relevant part: 27 (a) An institution seeking the Secretary's review of a final audit determination ... shall file a written request for review with the designated [Education Department] official.... 28 (b) The institution shall file its request for review and any records or material admissible under the terms of Secs. 668.116(e) and (f) of this subpart, no later than 45 days from the date it receives the final audit determination.... 29 34 C.F.R. Sec. 668.113 (1989). Section 668.116(e) provides: 30 (1) A party may submit as evidence to the administrative law judge only materials within one or more of the following categories: 31 (i) [Education Department] audit reports and audit work papers for audits performed by the United States Education Department Office of Inspector General. 32 (ii) Institutional audit work papers, records, and other materials, if the institution provide[s] those work papers, records, or materials to [the Education Department] no later than the date by which it was required to file its request for review in accordance with Sec. 668.113. 33 34 C.F.R. Sec. 668.116 (1989). 34 It is important to note that the term used by the ALJ, underlying work paper, is not a term found in the regulations. The regulations only refer to institutional audit work papers. The ALJ's interjection of the modifier, underlying, changes the meaning of the words, audit work papers. According to the ALJ, the abstract was admissible because it was merely a summary of the information in the records and materials previously available to the agency, and not new information. However, nowhere in sections 668.116 or 668.113 of the regulations does it state, or imply, that the time limits for submitting institutional audit papers to agency officials reviewing the final audit apply only to documents or records that were not previously available to the auditors. 35 The regulations set forth guidelines for institutions seeking review of final audits. As stated above, an agency's interpretation of its own regulations is given deference. Thomas Jefferson Univ. v. Shalala, --- U.S. ----, ----, 114 S.Ct. 2381, 2386, 129 L.Ed.2d 405 (1994). We defer to the Secretary's interpretation unless an 'alternative reading is compelled by the regulation's plain language or by other indications of the Secretary's intent at the time of the regulation's promulgation.'  Id. at ---- - ----, 114 S.Ct. at 2386-87, quoting Gardebring v. Jenkins, 485 U.S. 415, 430, 108 S.Ct. 1306, 1314, 99 L.Ed.2d 515 (1988). The Secretary rejected the ALJ's determination and found that the abstract was an institutional audit work paper and that it was not timely submitted under the regulations. We agree. The Secretary's interpretation of section 668.113 of the regulations was not arbitrary, capricious, or an abuse of discretion, and therefore, the untimely accounting abstract should have been disregarded. 36
37 The final issue is whether CSU earned any interest on the Pell Grant funds pending disbursement to the students, and if so, what is the amount of the interest. CSU argues that the Department's utilization of the month-end accounting method resulted in an inaccurate calculation of interest. In opposition to CSU's argument, the Department, citing Methodist Hosp. of Indiana, Inc., v. United States, 626 F.2d 823, 827, 224 Ct.Cl. 449 (1980), contends that the agency, in deciding which accounting method to use, need not select the method that yields the most accurate result. 38 The Department is correct in that the task of the reviewing court is not to determine whether the accounting method employed by the Secretary is better or more accurate than the method proposed by CSU, but rather, whether it is arbitrary, capricious, or contrary to law. Brooklyn Hosp. v. Schweiker, 596 F.Supp. 326, 337 (E.D.N.Y.1984). Nevertheless, the Department overstates the holding in Methodist. In Methodist, the hospital sought review of the decision by the Secretary of Health, Education, and Welfare (HEW) denying reimbursement for accrued pension plan costs in a fiscal year. The HEW denied the reimbursement based on the fact that although the accrual basis accounting method used by the hospital reflected that the costs were accrued, the reality was that the hospital did not actually incur those costs. In rejecting the hospital's argument that the costs should be reimbursed because the accrual basis accounting method was the most accurate method of determining costs, the court held that neither the statute nor the regulations required the Secretary to find that a cost is reasonable and actually incurred simply because it is an accrued liability for accounting purposes. Methodist, 626 F.2d at 826. 39 Therefore, Methodist does not support the Secretary's proposition that the Secretary does not have to select the most accurate accounting method in any case. Rather, Methodist holds that if utilization of an accounting method indicates debits which actually have not been paid out, then the Secretary is justified in withholding reimbursement until the costs actually have been incurred, where to do [otherwise] would produce a result that is antithetical to the controlling statute and regulations. Id. 40 The Department calculated interest by crediting itself with interest for a full month in which CSU had Department money on deposit on the last day of the month, as though that amount had been on deposit for the entire month. It ignored months in which, on the last day, the CSU account showed a negative balance because CSU was owed money. This method of accounting was arbitrary and capricious. It is not useful to determine how much interest CSU might have owed on Department advances. The only conceivable justification for it is ease of calculation, but that is much less significant than it would have been thirty years ago, before electronic calculators and laptop computers. The disadvantage is arbitrary and highly inaccurate calculations, and vulnerability to manipulation. Suppose, hypothetically, that the Department owes CSU $10 million for 10 days, they're square for twenty days, and CSU owes the Department $10 million for one day, in a 31 day month. At 5%, the Department owes CSU about $13,699 for the ten days, and CSU owes the Department about $1,370 for the one day, for a net entitlement in favor of CSU of $12,329. Yet the Department's method would enable it to collect interest on $10 million for 31 days, amounting to about $42,466. It is certainly arbitrary where a party entitled to collect $12,329 is made to pay $42,466 instead. 41 The above example is, of course, hypothetical. If the Department made available to California through letters of credit the amounts to which CSU was entitled, and negative balances in CSU accounts resulted from delays by California in drawing against the letters of credit, or by the California state treasury in disbursing to CSU, then CSU should not be permitted to use the negative balances to offset its positive balances on which it owed interest to the Department. The Secretary must recalculate interest in a nonarbitrary way on remand.