State, Local Officials Applaud Plan To Reform Audits

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WASHINGTON--Besides extending 14 federal programs through 1993, the massive education bill approved recently by the House would place new limits on the Education Department's ability to reclaim allegedly misspent federal funds from state and local officials, who have complained for years that they are defenseless against overzealous department auditors.

"It's the culmination of years of bad feeling,'' said Jo-Marie St. Martin, minority counsel on the House subcommittee on elementary, secondary, and vocational education, and the aide most directly involved in drafting the audit provisions of HR 5. "There's a feeling in the states that the department holds all the assets in an audit.''

That feeling pervades a report issued last year by the National Association of State Boards of Education, which called for many of the revisions included in HR 5.

It was also vented in hearings before the House subcommittee in 1984, when a parade of state and local education officials described mistreatment at the hands of auditors and the Education Appeal Board, which decides cases in which audits are contested. Reforms were included in a bill passed by the House that year, but deleted by the conference committee that reconciled differences between the House and Senate versions of the measure.

The same fate could befall the current proposals. No similar legislation has been introduced in the Senate, where committees have barely begun work on reauthorization measures.

Process Defended

Education Department officials contend that the existing audit process is not as unfair as its critics claim, and that the bill's "reform'' language is dangerously vague.

"Over the last two years,'' Charles Kolb, a deputy general counsel for regulations and legislation in the department, said, "the department has made significant strides in improving the way the process works.'' He noted that a new chairman has been appointed to the Education Appeal Board, and that a backlog of cases has been eliminated.

"We would have preferred internal administrative efforts to respond to some of the concerns [addressed by HR 5] where appropriate,'' he said.

"There is an inherent tension between providing the accountability the Congress wants in regard to federal taxpayers' money, and the desire to implement federal programs,'' Mr. Kolb continued. "You can't have it both ways; if you want accountability, the department has to be in the business of making tough decisions.''

Under one of the more dramatic changes included in HR 5, the Education Appeal Board would be replaced with an office of administrative law judges, a move applauded by state officials who contend that appeals-board members are biased against state and local defendants.

Like those who serve other federal agencies, the judges would be full-time employees, and would have to pass rigorous scrutiny by the Office of Personnel Management before the department could hire them.

Currently, appeals-board members serve part-time, are not required to have any particular expertise, and can be appointed and dismissed at will by the Secretary of Education.

"We've found in many instances that the board rubber-stamps actions of the department, though this has begun to change'' under the new chairman, Ernest Canellos, said Michael Brustein, a former department official who has represented about 20 states faced with audits in the past seven years.

In addition, he said, the proposed changes would ensure that the judges have a greater expertise in education law. "In a lot of cases, we're really talking Greek to people who don't understand the issues,'' Mr. Brustein said.

Other Provisions

Other audit reform provisions of HR 5 would:

  • Grant state and local agencies wider access to documents and testimony compiled by department auditors in the preparation of their cases.
  • Require the department to establish a prima facie case--one that would usually prevail in the absence of contradictory evidence--when it issues a "preliminary departmental determination'' that investigations have shown cause to pursue the recovery of funds. The burden of proof, which is now entirely on the defendant agency, would shift to the accused only after a prima facie case has been established.
  • Prohibit the department from recovering funds in cases where recipients' actions stemmed from guidance they received from department officials or in judicial decrees, or where the department had failed to respond within 90 days to a written request for guidance.
  • Ensure that only an amount "proportional'' to a recipient's wrongdoing could be recovered.

Minor Technicalities

One of the most widespread complaints about the current audit process is that the Inspector General's office often pursues cases where recipients have violated only minor technicalities of the law.

Mr. Brustein said the best example of this problem is the way the department has interpreted a law requiring aid recipients to spend federal education funds by the end of the fiscal year following the year they are appropriated, a problem also cited by NASBE.

The Inspector General's office initiated numerous cases where recipients spent their money on time, but where state accountants failed to enter the expenditures in official ledgers before the deadline. The appeals board upheld these audits, although Secretary of Education William J. Bennett last year voided the policy. Mr. Brustein said the litigation involved many states and millions of dollars in federal funds--$20 million in California alone.

Under the proposed law, the department would have to prove that "identifiable federal interests'' were harmed to recover funds in such cases.

In other instances, what appears to be an overly harsh application of the law is caused by the way a statute is written, Mr. Brustein and Ms. St. Martin said.

One condition of some bilingual-education grants, for example, is that no more than 40 percent of the students in a class aided by federal funds can be proficient in English, Ms. St. Martin said.

If that figure were to rise to 41 percent, she said, the recipient agency could be forced to return its entire grant, while, under the proposed legislation, the department could reclaim only 1 percent.

Mr. Kolb of the Education Department said that the language in HR 5 requiring "proportional'' penalties is too vague, and that the provision could undermine grant eligibility requirements. "I'm not sure the problem is a real one and that this language fixes it,'' he said.

He said the provisions disallowing audits of recipients who relied on departmental guidance are also too ambiguous, and "the lack of clarity invites abuse and litigation.''

But, Mr. Brustein said, it is essential to protect agencies that obtain written approval for expenditures from department officials. "It's sad when they're told years later by an auditor that it's not O.K.,'' he said.

Vol. 06, Issue 36

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