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Federal Aid 'Blacklist' Policy Evolving With Caution

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Washington--In the 15 months since the creation of a governmentwide grants "blacklist" designed to prevent proven wrongdoers from receiving additional federal funds, the Education Department has apparently taken a cautious approach, placing on the list only individuals who had been convicted of criminal fraud.

Most of the cases involved student-aid fraud, but the 29 individuals listed by the department include a school superintendent and a director of special-education programs.

The ed policy on whom to list is still evolving, and officials in the two offices within the agency that are charged with implementing the program indicated that they are taking different approaches, with the office that handles financial-aid cases striking a more aggressive attitude.

Placement on the list, or "debarment," means the affected party is ineligible for all federal aid except entitlement programs such as welfare or Social Security. An individual's debarment also renders ineligible any organization that employs him in a high-ranking post.

Agencies were given the authority to determine how long someone would be debarred, and whether to reinstate them, although the rules specify that the maximum should "generally" be three years.

Debarments imposed by the Education Department range from one year to three years, with most lasting about two years.

The regulations generally gave4agencies wide discretion, allowing--but not requiring--debarment for improper use of federal funds or violation of a "public agreement," such as failure to produce a required report; failure to pay a "substantial" debt to a federal agency; knowingly doing business with a debarred organization or individual; or convictions for such offenses as fraud, theft, or embezzlement.

Critics Feared Political Use

Critics said the regulations could allow agencies to cut political enemies off from government aid, that worthy organizations could be debarred for the actions of individuals, and that people could be put on the list simply for associating with the wrong people. (See Education Week, June 15, 1988.)

But all 42 organizations and individuals the Education Department has debarred or proposed for debarment had been involved in a criminal conviction.

Another 21 parties have been temporarily suspended from aid eligibility, and all of them had criminal charges pending against them. Charges were dropped against four of them and the suspensions lifted.

Virtually all these cases involve student-aid fraud, and the bulk of the perpetrators are owners or employees of proprietary schools. Offenses include forging signatures on aid checks, creating false high-school transcripts for ineligible students, and failing to return money to students who dropped out.

At least 13 cases are related to the department's high-profile action against Wilfred American Educational Corporation, which owned more than 50 trade schools in several states.

Three suspensions involved other higher-education programs, and two debarments involved precollegiate administrators.

Public-School Officials

One of the two precollegiate officials, Winford I. Green, a former director for Special Services in the Topeka, Kan., public schools, pleaded guilty last year to charges that he embezzled $62,610 from a federally funded vocational-training program for handicapped students, according to Education Department documents.

He was sentenced to six months in a halfway house and five years' probation, and ordered to repay the money. Mr. Green was also debarred for two and a half years.

The other, Grady C. Etheredge, formerly superintendent of schools in Baker County, Ga., pleaded guilty to charges that he placed false invoices in school records to conceal the fact that he was the vendor of $14,285 in supplies the district bought with federal funds, according to department and court records.

He was sentenced to two years' probation and fined $2,000. The department debarred him for one year.

The judge also ordered Mr. Etheredge to resign his elected post, withdraw his bid for re-election, and refrain from running for the superintendency or a seat on the county board of education during his probation.

Had Mr. Etheredge won re-election, the school district would have been in a difficult position, as it could, under the debarment rules, have been barred from receiving federal aid while he was an officer--even though the district could not fire him.

But the Education Department would not have been forced to debar the district, as agencies were given virtually complete discretion both to establish their own policies and procedures generally and to decide specific cases.

Policy Emerging

Department officials decided that the deputy assistant secretary for student financial assistance would handle cases dealing with student aid, while all other cases are referred to the chief of the grants and contracts service.

The student-aid office has received 94 referrals and the grants office 7. Most come from the department's inspector general, but some have been referred by program offices.

Mary Jane Kane, a management analyst in the contracts office's policy division, said the office has debarred two people--Mr. Green and Mr. Etheredge--and suspended three, who were reinstated when charges against them were dropped. One case is still under consideration, and the seventh party escaped debarment.

According to department documents, the seventh party had been involved by a spouse in fraudulent activity and the agency decided not to debar the person after receiving evidence of a pending divorce and treatment for alcoholism.

Ms. Kane said there was no firm policy on whether all those convicted of a crime would be debarred, or which other offenses might provoke debarment.

"It's a case-by-case decision," she said. "There are no internal policy guidelines in addition to the regulatory standards in making these decisions."

In contrast, the student-aid office's policy is that "everyone who is convicted or indicted will be put on the list," said Ronald Lipton, chief of the program-compliance branch.

He said the office has acted on every referral it has considered, 58 in total, and the remaining 36 cases that have been referred there are under consideration.

All the referrals thus far have involved convictions or indictments, he said, but the office will soon begin taking action against school owners or administrators "who have a record of improper operation of programs."

"It's going to be hard to define it," Mr. Lipton said, "but good examples are schools where there's an investigation or an inspection and the person closed the school and left a mess behind."

"We certainly don't want them opening up new schools," he said.

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