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New Audit Rules Seen Limiting for Educators

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Washington--Education agencies accused of misusing federal funds will find the appeals process more hospitable next year under a new system mandated by the Congress.

But lawyers who lobbied for the audit-process reform have found fault with the Education Department's proposed rules for implementing it.

A section of the Hawkins-Stafford education reauthorization law, enacted in March, ordered the department to make major changes in the way it pursues grant recipients it believes have erred, including the creation of a new office to hear the appeals.

The regulations governing the changes were published in the Dec. 2 Federal Register, with comments to be accepted until Jan. 31.

The new system, which is aimed at giving defendants greater access to information and some financial and legal protections, will not be in place until the spring or summer, according to Barry Stevens, a senior attorney in the department's office of general counsel.

But the delay should not be a problem, he said, because department lawyers made an effort to resolve all the cases that were pending before the Hawkins-Stafford Act became effective on Nov. 28. Appeals will be heard under the old rules.

"I believe we completed everything that was under way," Mr. Stevens said. "I'm not aware that there has been a substantial number, or indeed any, disallowance notices sent out in the past few weeks."

Response to Bias Charges

The audit-reform provisions, which were vigorously opposed by department officials, require the department to replace the old Education Appeal Board with an office of administrative-law judges, who would be full-time employees with expertise in education law.

State and local education officials had complained that appeal-board members, who served at the pleasure of the secretary of education, were biased against defendants.

The new law also broadens defendants' ability to collect and present evidence, giving them greater access to department documents.

In addition, it restricts the amount of money that can be recovered in many cases and absolves recipients of responsibility in cases where they received erroneous guidance from department officials.

Under the proposed rules, however, restrictions would be placed on the use of that defense. In order to claim that they relied on guidance from the department, grant recipients would have to submit their questions in writing, by registered mail, and only to certain officials, to be designated later in a Federal Register notice.

Mr. Stevens said other department employees would not be discouraged from assisting grant recipients with questions. But the educators will have to be careful, he said, about whose opinion they rely on when there is a question about the legality of something they wish to do.

"There is no intent to limit dialogue between department staff and program officials," he said. "We just want to make sure that a request being submitted with [formal] guidance in mind is handled at the appropriate level."

Gail ImObersteg, director of federal liaison for the California education department, faulted this section of the regulations because it makes no provision for state and local program directors who need guidance now.

"Who do we ask in the interim, before they publish the list?" asked Ms. ImObersteg, who lobbied for the audit-reform provisions.

Motives Questioned

Michael Brustein, a Washington lawyer who has represented states in numerous audit cases, sees a dark motive in the decision to restrict the number of people authorized to give guidance, and in several other sections of the regulations.

"They're trying to interpret this so narrowly as to prevent it from being used," he said. "What I see is a consistency between the department's reluctance to accept the legislation and the rules it has promulgated."

Mr. Brustein pointed to statements in the regulations that department officials' duty to provide documents to recipients facing audit appeals may be limited by law as "a hint that they will use the nondisclosure rules to the fullest extent."

Both he and Ms. ImObersteg also cited as overly restrictive a section that allows recipients' lawyers to call witnesses and present oral arguments only if the administrative-law judge deems it "necessary" to have an oral hearing.

"Congressional intent was to have it available on request," Mr. Brustein said. "The idea was to allow a more complete defense."

Mr. Stevens argued that it was not a great burden on those being audited to have to show that a hearing is necessary.

"We are placing the responsibility for conducting a hearing on the administrative-law judge, where the statute invests it," he said. "We want this to be expeditious. The process cannot be fair if it is interminable."

'Proportional' Recovery

The regulations use fictional examples to illustrate how the department will apply the law's new concept of "proportionality."

The reauthorization law states that the department can only recover an amount of money "proportionate" to the offense committed. This means that if a recipient uses only part of a grant improperly, or if the infraction is small, the entire amount would probably not be forfeited.

The law also bars recovery in cases where "an identifiable federal interest" has not been thwarted, thus protecting recipients who make minor technical mistakes.

If a school district accepted a grant to run a program in which 40 percent of the students were required to be limited-English-proficient, but only 35 percent qualified, for example,4only the amount spent on ineligible children could be recovered.

The examples in its regulations indicate that the department will apply proportionality literally, however, determining mathematically what portion of a grant is subject to recovery.

Ms. ImObersteg said that she fears judges could rely on the published examples "as determinative of how a situation should be handled," even though, in her opinion, the conclusions in some are disputable.

In one example she noted, a Chapter 1 program uses federal funds to take eligible children to an amusement park, and is ordered to repay those funds because of the recreational nature of the activity. But, she noted, such trips have been found by some courts to be allowable uses of federal money in some instances.

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