Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Rural Day Care Association of Northeastern North Carolina
DATE: August 8, 1994
Docket No. A-94-38
Decision No. 1489
DECISION
The Administration for Children and Families (ACF) of the Department of
Health and Human Services (HHS) notified the Rural Day Care Association
of Northeastern North Carolina (RDCA) on December 1, 1993 that ACF
proposed to deny refunding to and terminate RDCA's Head Start grant.
RDCA requested a hearing under 45 C.F.R. 1303.14(c), 1303.15(b), and
1303.16(a). The Departmental Appeals Board (DAB) held a hearing in
Winton, North Carolina, beginning on April 11, 1994. The bases for
ACF's proposed action were specified in ACF's More Definite Statement
dated February 10, 1994 (provided by order of the DAB) and in the Notice
issued by the DAB before the hearing as required by 45 C.F.R.
1303.16(g). Those bases fall into several major areas: inadequacies in
fiscal management, failures in administration and program management,
repeated violations of federal labor law, problems with parent
involvement, and other findings of non-compliance.
RDCA presented evidence contesting the facts underlying some allegations
made by ACF. In regard to other allegations, RDCA did not contest the
facts but argued that ACF unreasonably interpreted the significance of
those facts. The evidence in the record, including the hearing
testimony, does not substantiate every assertion made by ACF. However,
we find overwhelming evidence of serious problems at RDCA, more than
sufficient to justify the action which ACF proposed.
Year after year, audits and fiscal reviews found that the accounting
records at RDCA were inadequate to show how federal funds were being
used. In the course of two years, at least seven different people ran
RDCA's fiscal office. Each one inherited a disorganized system already
in crisis and had to try to simultaneously catch up and do current
accounting tasks. None of these fiscal staff lasted more than a few
months. As a result, RDCA's records were continuously in chaos. The
overarching financial instability caused a number of fiscal
irregularities.
These fiscal problems were symptoms of larger administrative
mismanagement. The Board of Directors, dominated by one individual,
took over much of the supervisory role over the fiscal office assigned
by law to the Head Start Director. Moreover, RDCA's witnesses (its
Board Chair and its current Head Start Director) testified that the Head
Start Director from 1988 until early 1992 was "abusive," provided
"mediocre services," and was involved in numerous improprieties. His
successor was discovered to have misused RDCA's credit card for personal
purposes, and was then terminated. Staff members and parents described a
threatening and unstable work environment even under the current Head
Start Director. The Labor Department twice found that RDCA failed to
pay its workers overtime or minimum wages due them. Furthermore, the
parents on RDCA's Policy Council were not given the decision-making
power assigned to them by law. For example, RDCA's management did not
get Policy council approval in advance for all terminations of Head
Start employees. While RDCA accused ACF of relying on "hypertechnical
violations," these requirements go to the heart of a properly-run Head
Start program.
RDCA also argued that any failings by RDCA should be attributed to ACF's
inadequate technical assistance. In addition, RDCA suggested that other
grantees had experienced similar problems without facing termination, so
that ACF should not be permitted to single RDCA out for harsher
treatment. Finally, RDCA asserted that ACF was engaged in conspiracy to
attack RDCA. We find that RDCA did not provide persuasive evidence of
inadequate technical assistance, selective enforcement, or conspiracy on
the part of ACF, nor did RDCA prove that these charges, even if
substantiated, would compel ACF to continue funding a grantee that
failed to operate as required by law and by grant conditions. While
RDCA put the blame for its problems on former staff members, on the
government, and on everyone but itself, ultimately RDCA's management
must take responsibility for not hiring competent, honest staff and for
operating a program that did not meet legal requirements.
It is important to recognize that what is at issue before us is not
whether the communities involved will have a Head Start program, but
whether RDCA should continue to administer that program. Under the
regulations ACF must select a replacement grantee that "reasonably
promises the most effective and responsible Head Start program" from
among applicants, and also consider the extent to which those applicants
will provide for "continuation of services" to the children who have
been participating and to the target areas that have been served and for
"continued employment . . . of the qualified personnel of the existing
program." 45 C.F.R. 1302.10 and 1302.11; see also Transcript of
Hearing (Tr.) at 794-95.
For the reasons explained more fully below, we conclude that ACF has
established an adequate legal and factual basis for its determination
that RDCA's application for refunding should be denied and its funding
terminated. 1/ Therefore, we sustain it.
INDEX PAGE
Background 4
1. Overview of Applicable Laws AND Regulations 4
2. The Appeals Procedures Governing This Case 6
3. RDCA's History and Structure 8
Analysis 9
1. Chronically Inadequate Fiscal Management 9 A. Findings of
Fiscal Reviews from 1988-1993 9 B. High Turnover and Chaos in
Fiscal Office 26 C. Miscellaneous Financial Issues
33
2. Overall Problems in Administration and Chaotic 45 Operating
Environment A. Board of Director's Supervision of Line Staff
47 B. Work Environment, High Rate of Turnover, and 51 Personnel
Problems
3. Repeated Violation of Federal Labor Laws 58 A. First DOL
Investigation 58 B. Second DOL Investigation
60
4. Overall Deficiencies in Parent Involvement 66 A. Role of the
Policy Council at RDCA 67 B. RDCA Responses on Parent
Involvement 75 C. Composition of the Policy Council
77 D. Integrity of the Policy Council Minutes 80 E. Policy
Council Role in Layoffs in Summer 1993 83 F. Failure to Obtain
Policy Council Approval for 88 Terminations
5. Failure to Submit a Fundable Application 93
6. RDCA Defenses 94 A. Selective
Enforcement 94 B. ACF's Alleged Failure to
Provide Adequate 99 Technical Assistance C. ACF's Alleged
Conspiracy to Destroy RDCA 106 D. Conclusion on RDCA Defenses
115
Conclusion 116
Appendix (showing disposition of issues in regulatory 1 notice)
Background
1. Overview of Applicable Laws and Regulations
The Head Start program is designed to deliver early developmental
intervention, along with comprehensive educational and supportive
services, to low income preschool children and their families. See 42
U.S.C. 9831 and 45 C.F.R. 1304.1-3 (1992). ACF provides funds to
grantees to serve as Head Start agencies within designated communities
and reviews their performance in meeting program and fiscal
requirements. See generally 42 U.S.C. 9846. Head Start grantees may
provide services directly or through delegate agencies. See 45 C.F.R.
1304.1-2(e). (RDCA did not employ delegate agencies during the relevant
time period.) Unless a waiver is granted for specified reasons, the
federal share of costs may not exceed 80% (i.e., the grantee must
provide a 20% matching share), and the costs expended for program
administration may not exceed 15% of the grantee's total costs. 42
U.S.C. 9835(b) and 9839(b). The law requires that in administering a
Head Start grant:
Each Head Start agency shall observe standards of organization,
management, and administration which will assure, so far as
reasonably possible, that all program activities are conducted in
a manner consistent with the purposes of this subchapter and the
objective of providing assistance effectively, efficiently and
free of any taint of partisan political bias or personal, or
family favoritism. Each such agency shall establish or adopt
rules to assure full staff accountability in matters governed by
law, regulations, or agency policy.
42 U.S.C. 9839(a); see also 45 C.F.R. 1301.30.
All Head Start grantees are required to "keep such records" as the
Secretary of HHS (Secretary) prescribes, including those which will
"fully disclose" the disposition of federal funds and "will facilitate
an effective audit." 42 U.S.C. 9842(a). The Secretary "shall have
access for the purpose of audit and examination to any books, documents,
papers, and records . . . that are pertinent to the financial assistance
received." 42 U.S.C. 9842(b). In addition, the Secretary is
authorized to prescribe regulations binding on all Head Start agencies.
42 U.S.C. 9839(c).
The Secretary has promulgated program performance standards covering the
education, health, social services, and parent involvement areas. 45
C.F.R. Part 1304. Generally, each grantee is required to develop, with
the advice and concurrence of its Policy Council, a written plan to
implement the performance standards for each component, and to update it
at least annually. 45 C.F.R. 1304.1-5. Each Head Start grantee is
required to have a Policy Council composed of at least 50% parents of
current Head Start children "plus representatives of the community."
45
C.F.R. Part 1304, Appendix B at Chart A. The parent involvement
standards require grantees to plan, with the participation of the Policy
Council, for a system of "two-way communication between staff and
parents" and for regular provision of staff support and information on
program operations to the Policy Council members. 45 C.F.R. 1304.5-4.
The performance standards also assign specific roles to the Head Start
Director, the Board of Directors, and the Policy Council in the
management and operation of the grantee agency's Head Start program.
See generally 45 C.F.R. Part 1304, Appendix B at Chart C.
The regulations governing the general administration of HHS grants
contain the provisions applying to the financial reporting, procurement,
and fiscal management of Head Start grants. 45 C.F.R. Part 74; 45
C.F.R. 1301.10. The requirements include: (1) "accurate, current,
and complete" financial reporting; (2) maintenance of accounting records
"which identify adequately the source and application" of grant funds;
(3) maintenance of internal controls that effectively account for all
grant funds and other assets and assure that all such property is
safeguarded and used only for authorized purposes; (4) comparison of
actual and budgeted amounts to exercise budgetary control; (5) adoption
of procedures to "minimize the time elapsing between the advance"
of
federal funds and their use by the grantee; (6) compliance with
applicable cost principles to assure that costs are allowable,
reasonable and properly allocated; (7) retention of source
documentation, such as paid bills, checks, payroll records, etc., to
support accounting records; and (8) systematic resolution of audit
findings and recommendations. 45 C.F.R. 74.61(a) through (h). Head
Start grantees must be audited annually by independent auditors subject
to certain government requirements. 45 C.F.R. 1301.12(a).
2. The Appeals Procedures Governing This Case
Pursuant to 42 U.S.C. 9841 and the Head Start regulations at 45 C.F.R.
1303.14(c)(2), 1303.15(b)(1) and 1303.16(a), a full and fair hearing
must be afforded to a grantee before its funding is terminated or its
application for refunding is denied. The Head Start regulations at 45
C.F.R. 1303.16 set forth procedures for the conduct of a hearing. To
the extent not inconsistent with these procedures, the hearing
procedures of the DAB at 45 C.F.R. Part 16 also govern. See 45 C.F.R.
1303.14(c)(2).
The regulations list nine grounds for which a Head Start grantee agency
may be terminated or have its refunding denied, specifically, when the
grantee (1) is "no longer financially viable," (2) has lost its
requisite legal status or permits, (3) "has failed to comply with the
required fiscal or program reporting requirements," (4) "has failed
to
meet the performance standards for operation of Head Start programs,"
(5) has violated enrollment or eligibility rules, (6) has "failed to
comply with the Head Start grants administration requirements," (7) has
"failed to comply with the requirements of the Head Start Act," (8)
has
been debarred, or (9) "fails to abide by any other terms and conditions
of its award of financial assistance, or any other applicable law,
regulations, or other applicable Federal or State requirements or
policies." 45 C.F.R. 1303.14(b) and 1303.15(c).
Regulations which provide generally for termination of HHS grant awards
state that an agency may terminate "for cause," when "a grantee
has
materially failed to comply with the terms of a grant." 45 C.F.R.
74.113; see also 45 C.F.R. 74.115. The Presiding Board Member asked
the parties to address whether this materiality test applied to
termination of Head Start grants, in light of the specific provisions
governing Head Start terminations. Tr. at 1193-94. ACF argued that it
was not required to prove that any violation was a material failure to
comply under Part 74, because the more specific Head Start termination
regulations (which, unlike Part 74, also expressly address denials of
refunding) should prevail over the general grant provisions. ACF Br. at
60-61. RDCA argued that the two provisions were not necessarily in
conflict and should be read together. RDCA Br. at 7-8. RDCA relied on
the scope of Part 74, which applies to all HHS grants except block
grants, "except where inconsistent with Federal statutes, regulations,
or other terms of a grant," to argue that the materiality standard
should be read in conjunction with the grounds for termination and
denial of refunding of Head Start grants. RDCA Br. at 9; 45 C.F.R.
74.4. RDCA went on to discuss the meaning of the term "material,"
and
concluded that applying the materiality standard would mean that Head
Start grants not be terminated or refunding denied unless the bases
found under 45 C.F.R. 1303.14(b) "are pertinent to the grantee's
ability to carry out its obligations under the grant." RDCA Br. at 10.
RDCA suggested that ACF would not logically wish to terminate a grantee
in substantial compliance or for an immaterial non-compliance. RDCA Br.
at 10-11. ACF's witness testimony indicated that termination was
unlikely to be considered except in cases of non-compliance in more than
one component over a significant period of time. Tr. at 837
(Alexander).
In this case, ACF argued that RDCA's violations were "both numerous and
serious," so that the determination of whether to apply the material
failure to comply standard to Head Start terminations would not affect
the outcome. ACF Br. at 60. In light of our findings below, we conclude
that the violations which were substantiated on the record would meet
any reasonable interpretation of materiality, and in particular are
pertinent to RDCA's ability to carry out its obligations under its grant
(the standard as defined by RDCA itself). Therefore, we need not
resolve the broader question of whether the "material failure" standard
of Part 74 directly applies to Head Start terminations.
As to the burden of proof in this case, ACF must establish a prima facie
case that RDCA did not meet the federal requirements to receive
continued federal funding for one or more of the reasons listed at 45
C.F.R. 1303.14(b). 45 C.F.R. 1303.15(c). The DAB provided guidance
to the parties about the applicable burden of proof during a telephone
conference. See Letter to the parties, dated February 1, 1994. To
establish a prima facie case, ACF must set forth reasons for its
decision which are legally adequate to support a termination and/or
denial of refunding and which provide sufficient specificity for the
grantee to respond to the substance of individual findings and for the
DAB to identify issues of material fact in dispute that require a
hearing. Once ACF establishes its prima facie case, a grantee has the
burden to provide evidence to show that ACF's position is wrong. The
DAB has long held that a grantee who receives federal funds has an
affirmative duty to document that those funds are used for the purposes
for which they were awarded. See, e.g., National Urban League, Inc.,
DAB No. 289, at 2 (1982); see also Head Start program administration and
documentation requirements cited above. Hence, RDCA could not prevail
by standing silent on the allegations raised by ACF in its prima facie
case. In regard to the standard of review which the DAB should apply in
considering ACF's proposed action, both parties agreed that the issue
before us is whether ACF has established an adequate legal or factual
basis for termination and denial of refunding. RDCA Br. at 13-14; ACF
Br. at 64.
The action which ACF proposed to take consisted of both terminating the
RDCA grant and denying refunding. Letter from ACF to RDCA, dated
December 1, 1993. The hearing provisions are essentially the same for
both kinds of action. Refunding may be denied for the reasons listed
above as grounds for termination. 45 C.F.R. 1303.15(c). The parties
agreed that no practical consequence arose in this case from any
distinction between the two actions. ACF Br. at 62-64; RDCA Br. at
11-12. We therefore do not distinguish between them further in this
decision, and any reference to either action includes both.
3. RDCA's History and Structure
RDCA is a non-profit corporation under the laws of North Carolina,
incorporated in 1980 after first organizing as an association in 1976.
Stipulations of the parties (Stip.) 18-20. RDCA currently receives Head
Start funds to operate centers serving 292 children from three to five
years of age in Hertford, Bertie, Northampton and Halifax counties in
North Carolina. Stip. 21. RDCA has been a Head Start grantee since
1984. Stip. 22. The RDCA Head Start program expanded rapidly in recent
years from serving 96 children in 1990 to the present size. ACF Ex. 38,
Tab 2, at 1 (amended). Federal funding for this expansion brought
RDCA's annual budget to approximately one million dollars. Id. Ms.
Venetta Grant has served as Chair of the Board of Directors since 1989
and was the organizer of the Board. Stip. 26; Tr. at 1132-33. Ms.
Judy Hines is both the Executive Director of RDCA, and the Head Start
Director. Stip. 25; Tr. at 832, 934.
Analysis
1. Chronically Inadequate Fiscal Management
ACF charged that RDCA failed to meet the essential financial management
requirements for operation of a Head Start program. ACF Br. at 23-46.
As discussed in detail below, audits and reviews by independent
auditors, ACF staff, and outside consultants over the course of five
years (from 1988 through 1993) resound with repeated findings of
inadequate record keeping and reporting, expenditure claims without
supporting documentation, inability to account properly for grant funds
and assets, inadequate internal controls, and inadequate budgetary
controls, among other problems. RDCA failed to correct the problems or
resolve the audit findings although it had ample notice and opportunity
to do so. Throughout the relevant period, RDCA's fiscal office was
constantly in flux, with high turnover of staff, repeated changes in
computer systems, and considerable evidence of chaotic conditions and
recurring crises. We first discuss the various audits and on-site
reviews in chronological order and then discuss the effects of crises
and turnover in the fiscal office.
A. Findings of Fiscal Reviews from 1988-1993
As early as September 1988, an independent Certified Public Accountant
(CPA) from Western Kentucky University, Mr. Joseph Philhours, instructed
the bookkeeper at RDCA that it was "absolutely necessary" to record
and
post checks and receipts and to reconcile bank accounts regularly having
found that they had not been properly maintained since January of that
year. ACF Ex. 23, Tab 4 at 2. He had visited RDCA to provide technical
assistance in financial management at the request of ACF. ACF Ex. 23,
Tab 4, at 10. He found that he could not reconcile the accounts or
determine the cash balances because they were out of balance by various
amounts because of unlocated errors. He also found "major errors"
in
the preceding two quarterly federal financial expenditure reports. He
left written instructions on how to complete these tasks properly, and
warned that the failure to keep these procedures up to date created
"significant weaknesses in the financial controls of this program."
Id.
at 3, 5-6. Yet, over and over in succeeding years, the posting and
reconciling of records were found to be months out-of-date and the
federal expenditure reports were unsupported by the accounting records.
The first audit in the record is for the fiscal year ending October 31,
1990. ACF Ex. 23, Tab 1 (1990 Audit, dated May 8, 1991). 2/ The 1990
audit noted two material weaknesses in RDCA's internal control systems:
3/
In our testing of federal financial assistance reports for one
period, data submitted on the reports could not be reconciled to
the general ledger. 4/
The fixed asset inventory was not complete as it did not include
current additions, retirements or vehicles.
1990 Audit at 17. In regard to the first problem, the auditors state
that the data could not be reconciled to the ledger, "due to inadequate
records maintained by the bookkeeper." Id. In regard to the second,
the auditors state that changes in assets by addition or retirement of
assets after the annual inventory had not been recorded and vehicles
were not included in the inventory. Id. 5/ The auditors' testing
disclosed five findings of conditions at RDCA which did not comply with
federal requirements:
(1) as also noted among the material weaknesses in internal
controls, data in federal financial assistance reports could not
be traced to the general ledger;
(2) vans purchased with Head Start funds were used by employees to
commute;
(3) proper enrollment procedures were not followed to rank
eligibility for Head Start services;
(4) in-kind contributions were not properly calculated; and
(5) RDCA did not meet its requirement for matching funds (because
expansion funds were received late in the year).
1990 Audit at 24-25. 6/ The auditors also advised management to adopt
procedures to assure that (1) incoming checks are endorsed by the person
opening the mail, (2) employees who handle cash get bonded, (3) payroll
checks are distributed by a different person than the preparer, (4)
invoices are properly authorized for payment, (5) invoices are defaced
when paid, (6) fundraiser income and expenses are separately recorded,
(7) tax withholding forms are checked to prevent "stiff penalties,"
and
(8) the fixed asset inventory is updated. 1990 Audit at 27.
While some of these findings may appear technical in nature, real
dangers could arise from them for the ability of the program to know how
much money it had left to spend and where its money was going, with some
concrete consequences that we discuss later. For example, sudden
shortfalls in cash on hand may contribute to staff layoffs and shortages
of such basic supplies as crayons and paper towels. If it failed to
keep accurate records of in-kind contributions, the program risked not
having received enough contributions from non-federal sources to meet
the required matching share and might lose some of its Head Start
funding as a result. Without controlling its invoices, the program
might risk paying twice for purchases or paying for purchases that never
arrived. If incoming checks were not promptly endorsed and recorded,
they could be lost or misused. Failing to reconcile general ledger
entries and bank accounts posed the same risk as writing checks on an
account which has not been balanced in months, i.e., the possibility of
overdrafts. If fiscal staff were not bonded, the program might not be
protected in the event of any loss of money as a result of their
misconduct. While no allegations were raised here of embezzlement or
theft, the failure to have adequate internal controls and to keep track
of assets exposed the program to unnecessary risk of losses.
The following year, the same auditors found again the same material
weaknesses referenced in the 1990 audit, i.e., that "data submitted on
the federal financial assistance reports could not be traced to
supporting documents" and that assets acquired after the inventory were
not added to the listing. ACF Ex. 23, Tab 2, at 17 (1991 Audit, dated
December 3, 1991). The auditors found additional problems in internal
controls in 1991, including bank reconciliations that did not agree with
the general ledger, a lack of segregation of duties, unrecorded interest
on one account, failure to designate a civil rights official, and a
general ledger that did not balance for the Head Start fund at year end.
Id. The auditors recommended correcting each of these conditions in the
future. RDCA management's response was to concur with all of the
recommendations except to comment that complete segregation of duties
was not possible because of the lack of available personnel. 1991 Audit
at 18. In regard to compliance with federal laws, the auditors found a
material noncompliance in RDCA's intended payment of Christmas bonuses.
1991 Audit at 20. The auditors' testing disclosed six findings of
conditions at RDCA which did not comply with federal requirements:
(1) as also noted among the material weaknesses in internal
controls, data in federal financial assistance reports could not
be traced to supporting documentation;
(2) vans purchased with Head Start funds were used by employees
to commute;
(3) proper enrollment procedures used to rank eligibility were
not followed;
(4) in-kind contributions were not properly calculated;
(5) improper Christmas bonuses were scheduled to be paid to
employees (which was also noted as a material noncompliance with
federal law); and
(6) penalties and interest were improperly paid with Head Start
funds.
1991 Audit at 25-26. Notably, the first four findings on the 1991
schedule were identical to those found in 1990. The only finding not
repeated was the lack of adequate matching funds in 1990, which the 1990
audit had tied to an expansion grant too late in the year for sufficient
matching funds to be accumulated. However, two new findings were added
in 1991, improper payment of Christmas bonuses and of interest and
penalties. The auditors also provided a management letter in 1991,
which again advised RDCA to bond its fiscal staff (specifically
recommending a $10,000 bond for the fiscal officer), to deface paid
invoices (and noting invoices that were missing or not approved), and to
document the review of bank reconciliations. 1991 Audit at 28-29. The
auditors' letter also warned of problems found in the records of travel
reimbursements.
Without citing to the record or providing an explanation, RDCA asserted
here that "except for one item, all of the deficiencies cited in the
previous [1990] audit were corrected," that the 1991 recommendations
concerned "different areas," and that the 1991 report "evinces
substantial progress." RDCA Br. at 47. A comparison of the findings of
the two audits summarized above demonstrates the inaccuracy of these
assertions. The 1991 audit nowhere mentions any resolution of a prior
finding or any correction of a pre-existing problem. On the contrary,
new areas of concern were added to continuing inadequacies and, while
the 1991 audit reported that management had again indicated its
intentions of future compliance, the subsequent history of reviews
reveals no better results.
RDCA used a different audit company to review its 1992 performance, but
nevertheless was found to have many of the same reportable conditions.
ACF Ex. 23, Tab 3 (1992 Audit, dated June 28, 1993). Among the material
weaknesses found were (1) bank reconciliations that "did not agree with
the general ledger for all months," (2) data on federal financial
assistance reports that could not be traced to supporting documents, and
(3) "a high rate of turnover for the fiscal officer which resulted in
misstatements in the general ledger." 1992 Audit at 18. The auditors
further recommended that "only qualified personnel should be hired"
to
minimize turnover and promote accounting continuity. 1992 Audit at 19.
We discuss in the next section the serious problems which RDCA had in
retaining qualified fiscal staff, but note here that the effects of the
continuing turnover were apparent to the auditors as early as the 1992
fiscal year. Once again, RDCA management concurred in the findings and
promised again to do what it had promised to do in the preceding two
years, to reconcile its bank accounts to its general ledger and to
submit timely federal financial reports that agreed with accounting
documents. The auditors' testing disclosed six findings of conditions
at RDCA which did not comply with federal requirements, including:
(1) improper payment of Christmas bonuses;
(2) incorrect eligibility rankings;
(3) incorrect calculation of in-kind contributions;
(4) data submitted in federal financial reports that could not
be traced to supporting documents;
(5) use of vans purchased with Head Start funds by employees to
commute; and
(6) excess cash drawdowns (causing cash management problems in
one instance).
1992 Audit at 26-34. It is clear that most of the problems found by the
auditors recurred from the preceding years, despite the repeated pledges
of management to use more care and to institute new practices. Finally,
a management letter was attached which made further comments and
recommendations as in the other years. The auditors' tests revealed
invoices without purchase orders, invoices without approvals, a check
that was voided but not defaced to prevent reuse, a major asset purchase
without evidence of price quotations, no operating procedures developed
for cash management and federal financial reporting, and problems with
travel reimbursement records (as mentioned in 1991). 1992 Audit at
36-37. In addition, the auditors reported that, during their "testing
of payroll, [RDCA] . . . could not produce time and attendance records,
and a salary distribution report for the period selected." 1992 Audit at
36. 7/
RDCA's only argument in regard to the 1992 audit was that the auditors
found no material non-compliance in a number of areas. Thus, RDCA
quoted the following language:
In our opinion, except for those instances of noncompliance with
the requirements applicable to major program Head Start identified
in the accompanying schedule of findings and questioned costs,
[RDCA] . . . complied, in all material respects with the
requirements governing types of services allowed or unallowed;
eligibility, matching, level of effort [etc.]. . . .
RDCA Br. at 49, quoting from 1992 Audit at 25 (quote repeated only in
part). RDCA highlighted the indication that it complied in all material
respects, but the essential point made by the auditors was that RDCA had
failed to comply in the instances which they identified. 8/ RDCA
somehow concluded from reading these audits that it "has consistently
followed the suggestions of the independent auditors and improved its
fiscal department accordingly." RDCA Br. at 49-50. An objective
reading of the audits, and consideration of the corroboration in the
other reviews discussed next, leads inexorably to the opposite
conclusion, i.e., RDCA consistently failed to correct problems
identified by its auditors and its fiscal department deteriorated
accordingly.
RDCA also argued that the audit findings should not be a reason to
terminate it because any "organization has potential fiscal weaknesses,
that's why audits are performed!" RDCA Br. at 49-50. We see two flaws
in this reasoning. First, the audits here did not just find potential
weaknesses. The most consistent theme in the three audits is that RDCA
repeatedly submitted to the federal government reports of its
expenditures of federal funds which were not traceable to supporting
documentation. Such findings go to the heart of the relationship
between a grantee and a federal agency which must rely on the grantee
having systems to assure that federal funds are used efficiently and
only for their intended purpose. If a grantee cannot account accurately
for those funds, it is impossible to verify that they have been properly
expended. 9/ While the audit findings did not involve large
disallowances of funds, they evidence persistent inadequacies in
recordkeeping that undercut the reliability of the program's financial
reporting and the responsibility of its fiscal management. Second,
annual audits are required by federal law for more than one purpose.
Certainly, the recommendations of auditors benefit organizations by
identifying problem conditions so that they can be corrected to prevent
future fiscal harm. However, audits also monitor the responsible use of
funds and alert funding sources to any fiscal irresponsibility. There
is nothing inappropriate in ACF following up on audit findings or
considering, in deciding to terminate a grantee, the grantee's failure
to resolve audit findings and recommendations as required by 45 C.F.R.
74.61(h).
On June 15, 1992, in the middle of fiscal year 1992, Ms. Grant (RDCA
Board Chair) wrote to ACF on behalf of RDCA requesting a "Fiscal
Management Review [FMR], performed by your staff," as well as permission
for a special audit 10/ due to concerns about "questionable unauthorized
expenditures" made by Mr. Carl Speller (a former Head Start Director
whose tenure is discussed in more detail below). ACF Ex. 29, Tab 1.
ACF agreed to both requests and scheduled its FMR for August 1992. ACF
Ex. 29, Tab 2. 11/
Mr. Sheppard conducted the FMR and issued a report dated September 4,
1992 which placed RDCA on "high risk" status until RDCA had corrected
the deficiencies in the FMR report and completed a year with no findings
or questioned costs in an audit. ACF Ex. 29, Tab 3, at 1, 11 (1992 FMR
Report). 12/ ACF reviewers found "extremely weak financial procedures
and lack of documentation," such that ACF reserved the right to act on
any other problems that might be identified later. 1992 FMR Report at 1.
The report found $25,599 in unallowable costs (for certain renovations,
payment of penalties and interest, Christmas bonuses and associated
payroll taxes, and personal travel and expenses, which are discussed
individually in a later section). 1992 FMR Report at 2. (The 1992 FMR
also reported a number of other instances of specific financial
improprieties which ACF cited among the bases for its actions here. We
deal with these individually in a later section.) The reviewers looked
at the issue raised by the auditors of RDCA's inability to reconcile
federal financial reports to records and agreed that there "were not
supporting schedules, work papers, reconciliation sheets or any other
form of documentation to clearly show where the expenditure amounts . .
. came from." 1992 FMR Report at 5. Of eight requirements listed in 45
C.F.R. 74.61 (as summarized above), the reviewers found RDCA failed to
meet four of them (financial reporting, accounting records, budgetary
control, and source documentation). The report plainly warned RDCA that
this non-compliance was "a serious financial deficiency and should be
corrected immediately." Id. 13/
Mr. Philhours, who provided technical assistance in 1988, returned to
RDCA at ACF's request in November of 1992 to provide technical
assistance to help RDCA make these urgently needed improvements. ACF
Ex. 23, Tab 4, at 7; Tr. at 471. Ms. Kaye Lowe had recently been
appointed fiscal officer after several turnovers (discussed in more
detail in the next section of the analysis). ACF Ex. 23, Tab 4, at 7.
He found her more experienced than previous staff. He noted that the
1992 audit had found deficiencies in bank reconciliations, balancing
general ledger accounts, and tracing federal expenditure reports to
accounting documents. He reported that Ms. Lowe was trying to update
the accounts again and had arrived at July 1992. He also reported the
efforts he had made, after consulting with the auditor who would be
doing the special audit and providing additional technical assistance,
to provide assistance to respond to "critical agency needs." Id.
Although he was not there to provide an independent review, the fact
that he saw a need to prepare a chart of accounts and explain
transactions to be entered in each is some corroboration of conditions
consistent with those reported by the auditors. Among other tasks, he
prepared a list as a training manual to inform any future personnel of
the proper accounting steps to follow.
Just before ACF was to conduct an On Site Performance Review (OSPRI) at
RDCA's request, 14/ RDCA hired Ms. Dorothy Foster, the finance director
of another Head Start grantee, to provide it with technical assistance
and a review of its compliance. Tr. at 47, 50-51. She visited for two
days and submitted a report dated December 30, 1992. ACF Ex. 23, Tab 5.
She reported that the internal controls of RDCA were "weak," which
she
attributed to "a lack of adequate staff and staff turnover." Id. at
4.
She reported, as had the auditors, that the data reported on the latest
federal financial report "could not be traced to the program's
accounting records." Id. She found that the staff did not know about
current federal procurement requirements and had purchased equipment
without required prior ACF approval and a vehicle without following
accepted bidding procedures. Id. at 4-6. Specifically, she found that
"[t]he financial records are not being maintained in a consistent and
timely manner. No transactions have been posted since October 31, 1992.
Records not being maintained could affect budgetary controls. . . ."
Id. at 5 (emphasis omitted). She observed a conflict of interest in
Board members employed in the program and "signing checks for the
program and themselves." Id. She found that RDCA still did not have
fidelity bonds for the appropriate staff (despite this recommendation
having been made in all the audit reports). Id. She found that the
amounts attributed to in-kind contributions were arrived at without a
proper method of valuation. She noted that interest on federal funds
ought to be reported. Id. at 17. She made a series of recommendations
for RDCA to address all of these problems, beginning with the immediate
hiring of qualified fiscal staff. Id. at 7-9. She also expressly
pointed out that "[d]eficiencies still exist" from both the 1991 and
1992 audits and that RDCA needed "to comply with corrective actions."
Id. at 12.
Ms. Foster's report is particularly damning because it contradicts
RDCA's claims that ACF willfully overlooked RDCA's successful correction
of the findings made in the 1990, 1991, and 1992 audits and because she
was not under ACF's control but made an independent review. Furthermore,
Ms. Foster ran fiscal operations at another Head Start program and
therefore cannot be accused of imposing expectations unreasonable in the
context of the real world circumstances of such programs. RDCA made no
answer to the substance of Ms. Foster's findings. It merely commented
that her report came only 35 days after Mr. Philhours' second visit, so
use of her findings is "misplaced," because "it is unlikely that
a
program can reasonably resolve the entirety of its fiscal problems in"
35 days. RDCA Br. at 53. We fail to see why Mr. Philhours' efforts to
provide technical assistance a month earlier would invalidate Ms.
Foster's review in any way. Nor did RDCA explain why some, if not all,
of RDCA's fiscal problems could not have shown improvement in either the
years since they were identified in the audits and the FMR, in the month
since Mr. Philhours directed attention to them, or, for that matter, in
the month between Ms. Foster's recommendations and the OSPRI visit. As
we discuss below, none of these visits found any evidence whatsoever of
any substantial improvement. Further, RDCA complained that three on-site
reviews within three months is "unquestionably excessive," showing
ACF's
"mission to gather as much negative information" against RDCA as
possible. Id. The last comment completely overlooks the facts that (1)
Mr. Philhours' visit, as RDCA pointed out itself, was not intended
primarily as an independent review but rather as a response to RDCA's
frequently-expressed need for technical assistance, (2) Ms. Foster's
review was performed at RDCA's request, not ACF's, and (3) the 1993
OSPRI was conducted ahead of the normal schedule for such reviews at
RDCA's express request for "a site visit in late December, 1992 or early
January, 1993, at which time they [ACF staff] would review our progress
and give such technical assistance as is requested/required." ACF Ex.
29, Tab 4. While these three visits, being close in time, would not by
themselves show the persistence of RDCA's fiscal weaknesses over a long
period of time, they corroborate each other as to the accuracy of their
respective findings about conditions at RDCA as well as earlier audit
reports, and other evidence demonstrates the long-standing nature of
RDCA's problems.
In the 1993 OSPRI, which was conducted on January 26-29, 1993, Mr.
Alexander from ACF led a team of reviewers. Tr. at 51; ACF Ex. 38, Tab
2, at 1. The fiscal area was reviewed by Mr. Sheppard and Ms. Sandra
Taylor, who was a staff member of another grantee in South Carolina.
(Thus, as with Ms. Foster, she could be expected to have a realistic
perspective on what can reasonably be expected from a Head Start
grantee.) The fiscal component had the greatest number of standards
found out of compliance (eight), in the following areas:
(1) RDCA lacked a "financial management system that ensures budget
management, maintains control over current operations, and provides
timely, accurate, current and complete disclosure of financial
matters;"
(2) the possible risk existed of interfund loans because RDCA used
a single bank account and did not allocate the majority of its
transactions among its programs (approximately 7% of its budget was
from non-Head Start funding in fiscal year 1993, see ACF Ex. 38,
Tab 2, at 1 (amended));
(3) allocation of costs among programs was inadequately documented;
(4) federal financial reports did not agree with accounting data
for the "past 32 months" based on the audits (although the
reviewers noted that procedures were adopted in the last two months
to assure future compliance);
(5) administrative costs could not be assured to be within the
required ceiling, because no process was in place to allocate to
administration any costs beside salaries, such as space, supplies,
etc.;
(6) the source, use and accounting for non-federal funds was not in
compliance because no non-federal match information had been
entered in the accounting system since June 1992, and a matching
fund shortage of $51,000 was found for the fiscal year ending
October 31, 1992 and a shortage of up to $75,000 was projected for
the following fiscal year as of February 1993;
(7) interest was not being reported to the federal government, and
the reviewers found that Head Start funds accounted for 61% of the
cash on hand (suggesting that RDCA's request to allocate 25% of its
interest earned to Head Start, without supporting documentation,
was unreasonable); and
(8) the procurement procedures were inadequate, because a check of
paid vouchers showed that most lacked purchase orders and purchase
orders were not properly handled (despite proper instructions in
the fiscal manual) and because RDCA entered into a less-
than-arm's-length lease (citing Rural Day Care Association of
Northeastern North Carolina, DAB No. 1384 (1993) (RDCA I)).
ACF Ex. 38, Tab 2, at 11-16. The reviewers' comments on RDCA's
financial system included the following:
o the "majority of checks and check request forms . . . were missing
purchase orders and several did not have invoices attached," 15/
o the "majority of vouchers lacked information on program accounts
for allocation purposes,"
o financial reports did not include "[b]udgetary controls to . . .
avoid overexpenditures by grant, line item, or program account,"
o the turnover in the fiscal office was disruptive,
o excessive cash balances were permitted to accumulate ($52,000 on
hand on November 30, 1992 and $83,000 on hand on December 31,
1992), and
o certain costs relating to entertainment expenses and allocation of
rental costs were questioned.
Id. at 13. 16/ The risk of interfund loans raised concern because the
reviewers found cash shortages for two other programs for which funds
may have come from Head Start monies. Id. at 14. 17/ In addition, the
reviewers noted under this item that payments for penalties and interest
which are required to be paid with non-federal funds were made to the
Internal Revenue Service in the period ending October 31, 1992 from the
common account. Id. Among the recommendations which the reviewers made
to improve financial management were the immediate hiring of a fiscal
officer, training of fiscal staff employees, installation of accounting
software, and "appropriate segregation of duties between the bookkeeper
and fiscal officer." ACF Ex. 38, Tab 2, at 11-12.
Obviously, the 1993 OSPRI echoed many of the findings of prior reviews
and audits and reiterated many of the same recommendations. Most
significantly, the need to bring the fiscal office under stable
management, the need to correct backlogs and omissions in the accounting
systems, and the importance of establishing credible documentation in
many areas were highlighted once again.
At various times, RDCA complained about the conduct of the 1993 OSPRI.
For example, Ms. Hines wrote in a letter to ACF in August 1993 that an
ACF staff member (apparently Mr. Sheppard) distributed his business
cards to employees inviting them to call him directly about any problems
and thereafter the cards were being circulated by "disgruntled staff
members" to solicit "unfavorable letters about" RDCA to ACF.
RDCA
Notice of Appeal, Attachment L. Mr. Sheppard testified that he had
never had business cards and knew of no ACF staff person who distributed
any such cards during the OSPRI (Mr. Alexander being the only other ACF
staff person on the reviewing team). Tr. at 55-56. RDCA did not
produce any business cards nor any witness who claimed to have received
one.
In another letter signed by a member of the RDCA Board and sent to ACF,
Mr. Sheppard and Mr. Alexander were accused of "conducting a clandestine
search of files" of terminated employees and "rifling through fiscal
material" under tables. RDCA Request for Congressional Hearing,
Attachment A-1, at 1. Mr. Sheppard explained that fiscal records were
spread among file cabinets, boxes, tables, and the floor and he was
"looking through these records" to find checks, invoices, etc. Tr.
at
57. (The credibility of this description is bolstered by testimony of
Ms. Kaye Lowe who said that RDCA's records were out of order in various
boxes and cabinets. Tr. at 466.) He also explained that he might well
have looked at files of terminated employees, because personnel records
are normally reviewed in a fiscal review and 65% of RDCA's budget is
comprised of personnel costs. Tr. at 58. For example, a reviewer might
look at a termination date to verify that the employee did not later
appear on a payroll. Id. (The credibility of this assertion is
supported by references in audits to the testing of payroll records as
part of that fiscal review. See, e.g., ACF Ex. 23, Tab 3, at 36.)
Finally, we find farfetched the description as "clandestine" of a
record
search by a federal official entitled by regulation to access the
grantee's records, during a review requested by the grantee itself (and
described by Mr. Sheppard as occurring in an office with two doors open
and RDCA staff present for almost the entire time). Tr. at 57; cf. Tr.
at 929-30.
The Board member's letter also characterizes the OSPRI review staff as
unprofessional, biased, uncommunicative, and dishonest generally. RDCA
Request for Congressional Hearing, Attachment A-1, passim. This overall
characterization is contradicted in a letter dated the day following the
Board member's letter and signed by RDCA central office staff
representing most of the components reviewed in the OSPRI except fiscal
(social services, nutrition and health, education and disability). ACF
Ex. 22, Tab 4. This letter states that the OSPRI was "done in a well
conduct[ed] and professional manner." Id. at 1. Both Mr. Sheppard and
Mr. Alexander testified that the conduct of the OSPRI at RDCA was not
unusual in any way. See Tr. at 59, 840-43. We find that RDCA did not
substantiate any improprieties in the 1993 OSPRI that would undercut the
reliability of its findings.
The drumbeat of findings over five years by independent auditors and
reviewers selected by RDCA itself, as well as by ACF during reviews
requested by RDCA, is steady, consistent, and compelling. Posting of
checks, maintenance of ledgers, and reconciliations of accounts were
allowed to fall months behind over and over again. Records of purchases
(purchase orders, invoices, and checks) were haphazardly kept.
Financial reports on which federal agencies relied in making grants to
RDCA could not be traced to any supporting accounting documents. No one
maintained fiscal controls consistently, so as to keep track of assets
or avoid violating legal requirements such as late or erroneous tax
payments or improper procurements. Therefore, we conclude that ACF
established that RDCA failed to comply with financial reporting and
grant administration requirements.
B. High Turnover and Chaos in the Fiscal Office
Much of the weakness in RDCA's accounting systems seems to have stemmed
from its inability to retain qualified fiscal staff. RDCA was
instructed repeatedly that adequate accountability for financial
management in a program of this size (with annual funding exceeding one
million dollars) requires "competent and full-time fiscal staff."
ACF
Ex. 38, Tab 2, at 2 (amended) (1993 OSPRI); see also 1992 Audit at 18.
Mr. Sheppard from ACF testified to the relationship between inadequate
staffing and weak internal controls, as follows:
The internal controls would be the number of staff assigned, the
responsibilities assigned to the staff, the checking of various
bank reconciliations and cash deposits by more than one person [and
the] division and segregation of duties among fiscal staff so that
no one person would have the ability to control the finances of the
agency without someone else knowing about it.
Tr. at 49.
ACF charged that RDCA replaced qualified staff with less qualified
replacements. ACF More Definite Statement at 4-5. We do not find a
consistent pattern in regard to qualifications. Rather, from RDCA's own
descriptions, its fiscal office was occupied in succession by: a
dishonest fiscal officer; replaced in a hurry with someone who cannot
keep up with the work and cannot get requested help and who departs
abruptly; followed by a period of filling in; succeeded by another
fiscal officer, with experience and apparent qualifications, hired on a
temporary basis, then converted to permanent status, and suddenly
terminated; succeeded by a CPA with at least paper qualifications who
seems to have been at odds with his assistant (both of whom felt
overwhelmed by the backlog almost from the start); and at last replaced
by two more staff persons hired on a temporary contract basis and
converted to permanent staff in November 1993. Thus, a minimum of seven
individuals served in the fiscal office between January 1992 and
December 1993. Furthermore, the fiscal office staff consisted at several
periods of only part-time employees or staff from other components or
without adequate accounting background filling in. The upshot was
continuous chaos in the fiscal office, which in turn contributed to the
turnover, as succeeding fiscal officers found it impossible both to keep
ongoing fiscal affairs current and to tackle a backlog of posting ledger
entries and reconciling accounts.
It simply does not suffice to respond, as RDCA did here, that the
terminations of its fiscal staff were justified because of their
incompetence or misbehavior. See, e.g., RDCA Br. at 33-34. That
assertion (to the extent that it is accepted) only substantiates ACF's
basis for concern in that, even during the periods when the fiscal
office was staffed by full-time employees, RDCA itself believed those
employees to have performed unprofessionally. The responsibility for
the quality of the staff rests squarely on RDCA, especially in light of
its obligation under the Head Start Act to adopt rules that "assure that
only persons capable of discharging their duties with competence and
integrity are employed." 42 U.S.C. 9839(a)(2). The constant
changeovers and vacancies were particularly problematic because they
occurred over a time period when RDCA expanded rapidly from a budget of
about $250,000 to over $1 million. See ACF Ex. 38, Tab 2, at 15. RDCA
did not increase the staff in the fiscal office or upgrade its
functioning to meet the corresponding increase in demand for accounting
services. 18/
Ms. Maudie Chambers, the fiscal officer during Ms. Boyd's tenure as Head
Start Director (discussed further below), was suspended in July 1992 and
thereafter resigned after having worked for RDCA for eight years. RDCA
Supp. Exs. 19 and 22. She was found to have charged personal expenses
to the RDCA credit card. RDCA Supp. Ex. 18; see also ACF Ex. 25, Tab 2
(letter from Ms. Grant placing freeze on writing any checks except rent
and utilities until further notice as of June 5, 1992); RDCA Supp. Ex.
19 (extending the freeze to the agency credit card). RDCA repeatedly
pointed to her ouster as an example of its corrective action, for which
ACF is punishing it unfairly. However, ACF did not suggest that RDCA
was wrong to remove a fiscal officer who used federal funds for personal
purposes, or that RDCA had failed to pay back the funds after
discovering the misuse. The proposed termination of RDCA is not based
on this single incident. However, this episode involves one of a chain
of fiscal officers who were terminated for dishonesty, incompetence or
more obscure reasons. The resulting lack of continuity contributed to
the chaos in accounting for which RDCA is being held responsible. In
addition, the episode illustrates the danger arising from the weakness
of RDCA's internal controls.
Ms. Nellie Newsome came on as bookkeeper after Ms. Chambers's
departure, but left abruptly only one month later in August 1992, within
days of the completion of ACF's Fiscal Management Review. Tr. at 36.
Ms. Grant wrote a memorandum recording Ms. Newsome's report to her that
the "past bookkeeper maintained what some might call a `disorganized'
filing system." ACF Ex. 38, Tab 7, at 10. Ms. Grant instructed Ms.
Newsome to "concentrate on getting supporting documents in order for the
period covered in the special audit we are having" and later "get
all
records for past months in order and file or properly store them." Id.
19/ Ms. Grant also explained that Ms. Newsome had to buy a new computer
through Ms. Newsome's own firm (rather than checking other vendors), in
the short time she served as bookkeeper, because it was "an emergency
situation." ACF Ex. 26, Tab 2, at 1. 20/
On August 24, 1992, Ms. Kaye Lowe came on as a part-time contractor to
help out after Ms. Newsome left so suddenly. Ms. Lowe became a
full-time employee on November 1, 1992. Tr. at 464-65. She was
terminated on December 17, 1992, three days after having been sent to
training at the offices of a contractor handling the computerized
payroll. Tr. at 477.
Ms. Lowe described the condition of RDCA's financial records when she
was first brought in a temporary basis to bring things up to date as
follows: "Nothing was in any type of order. Nothing was organized.
Everything was behind, from payroll reports to salaries." Tr. at
464-65. She testified that she had to figure the payroll manually,
because the access code to the computer was lost (although she disputed
RDCA's claim that Ms. Newsome had stolen it, asserting that it was
later found in Ms. Hines' files). Tr. at 484. She further testified
that she had to hunt for data that was in boxes or cabinets out of
order. She stated: "Their deposits for the Federal Government for FICA
and federal withholding were not made on time. . . . They were three
months behind in State withholding." Tr. at 466. As a result, she
testified, RDCA incurred penalties and interest for lateness. Tr. at
466. A payroll system had been loaded on the computer but was not
properly set up "because nothing would transfer to your accounts payable
or your accounts receivable or to your balance sheet. It would only
print your checks." Tr. at 468. (Thereafter, responsibility for the
payroll was shifted to a data processing company outside of RDCA. Id.)
She found that vendors had been paid twice because no system was in
place to track payments by vendor. Tr. at 482. Ms. Lowe discussed with
Mr. Philhours (who, as mentioned above, came in during her tenure to
provide technical assistance) what the best way was to update the
records. She stated that he agreed she had no choice but to "go back to
the beginning balances of the prior year of the CPA firm that had begun
the audit in order to come up with an accurate figure." Tr. at 473. 21/
She testified that, during the time she was there, she met all payroll
deadlines and brought the general ledger and bank reconciliations up to
date. Tr. at 496-98. However, when she left RDCA the records and
filing systems were still "in shambles," although she felt she could
have put them in order if she had been allowed to stay three more
months. As it was she left just before the end of the year with
year-end tax and payroll records to be done and no one competent to do
it, since she had not yet trained her assistant, Ms. Kathy Lassiter.
Tr. at 482, 486-87.
On October 4, 1992, Ms. Lowe had submitted to the Board of RDCA a list
of suggestions for improving the fiscal office. ACF Ex. 53; Tr. at 487.
22/ She was terminated without prior notice on December 15, 1992,
leaving the office again without a competent fiscal officer. 23/
Ms. Lassiter, who had been Ms. Lowe's assistant, was thus alone in the
fiscal office when the 1993 OSPRI team arrived. Tr. at 118. She had
already complained about the pay and the workload, and in February 1993,
she resigned. ACF Ex. 27, Tab 8; RDCA Supp. Ex. 5.
The 1993 OSPRI Report summarized the situation the team encountered as
follows: as of January 1993, the fiscal officer's position had
essentially been vacant for six months (since August 1992) and four
individuals had served in the office in the preceding seven months (two
of them only part-time). ACF Ex. 38, Tab 2, at 2 (amended). A CPA had
been coming in part-time to help out since November 1992. ACF Ex. 38,
Tab 2, at 13. The same CPA was expected to audit the 1992 fiscal year
(which was acceptable since he did not come into the office to help out
until after the fiscal year ended on October 31, 1992), but would be
precluded by conflict of interest from doing the 1993 audit. Id.
Ms. Caroline Spruill (along with her assistant) covered the fiscal
office while it was vacant, until March 1993 when Mr. Raymond Robertson
was hired. Tr. at 384. (This period overlapped with Ms. Spruill's
service as Acting Head Start Director from February 9 through April 1,
1993, which demonstrates the kind of problems with segregation of duties
that were repeatedly presented by the turnover. Tr. at 381; ACF Ex.
47, Tab 12.)
In March 1993, Mr. Robertson came on as fiscal officer, and some time
after that Ms. Penny Lohr became the fiscal assistant. Tr. at 947.
Four months later, both Mr. Robertson's and Ms. Lohr's hours were
reduced to part- time. Tr. at 316-7, 950-52. When Mr. Robertson
arrived, he found a "deplorable accounting situation." Tr. at 360.
Posting of invoices and deposits had not been done since November 1992.
Tr. at 320-21, 331, 364. This aspect of Mr. Robertson's testimony is
corroborated by a memorandum from Ms. Lohr saying that she has to repost
Head Start from November 1, 1992 through June 30, 1993, which is "very
extensive research which takes a lot of time." ACF Ex. 27, Tab 12, at
1. (Some additional corroboration arises from a memorandum from Ms.
Grant to Mr. Robertson dated May 14, 1993, stating that the "fiscal
records must be brought up to date," and complaining that they have not
yet been. ACF Ex. 25, Tab 11.) Even as of September 8, 1993, Ms. Grant
instructed Mr. Robertson that he and Ms. Lohr "will post the Head Start
account beginning November 1, 1992 to June 30, 1993" and stating that
there appeared to have been posting errors. ACF Ex. 25, Tab 14; see
also ACF Ex. 25, Tabs 15-16. Mr. Robertson testified that the
accounting situation was impossible, because the office needed two or
three persons to deal with the backlog. Tr. at 338-39. As it was, he
stated that it "was just impossible to catch up and keep up." Tr.
at
339. Mr. Robertson was terminated in November 1993. Tr. at 335. He
testified that the records were still not up-to-date at that time. Tr.
at 366.
Ms. Angela Fitzhugh and Ms. Venita Thompson were then hired on a
contractual basis, and subsequently converted to permanent status as
fiscal officer and assistant. ACF Ex. 24, Tab 2, at 23 (November 29,
1993 Policy Council minutes). Ms. Grant stated that, as of October 11,
1993, RDCA had contracted with Ms. Thompson "for the purpose of
re-posting Head Start from November 1, 1992 to June 30, 1993,"
corroborating that this backlog was still not corrected. ACF Ex. 25,
Tab 19, at 1. Thus, each of the new fiscal officers or staff arrived to
find a situation already in crisis and had to try to both catch up and
maintain current systems.
In addition to the constant change in personnel in the fiscal office,
another disruptive influence on RDCA's recordkeeping during the last few
years has been a series of changes in direction in efforts to automate
its accounting systems. When ACF conducted the 1992 FMR, Mr. Sheppard
reported that Ms. Newsome was in the process of "trying to convert from
a manual system to a computerized system." Tr. at 36-37. Ms. Lowe
notified the Board, as mentioned above, that the computer system was not
functioning because its software had not been properly installed nor
up-to-date data entered. ACF Ex. 53, Tab 1, at 1. She suggested
reinstalling the software which was improperly installed and obtaining
necessary technical support. Tr. at 502-04. Instead, RDCA brought in
an outside contractor to install a different system for the payroll
portion alone, which has since been handled externally by the
contractor. Tr. at 503. The 1993 OSPRI found that within the preceding
year, "a manual and two different computer systems" had been used
for
accounting, and that the one then in use was "only on loan from the
CPA." ACF Ex. 38, Tab 2, at 2 (amended). Ms. Taylor, who was
responsible for reviewing fiscal compliance, noted that the "different
accounting methods (automation/manual) used by the four fiscal officers
in the past seven months made it very difficult to track expenses." ACF
Ex. 23, Tab 6, at 26. There is a great deal of evidence in the record
that both Mr. Robertson and Ms. Lohr were overwhelmed and frustrated in
their attempts to master the new computer systems with which they were
working. See, e.g., Tr. at 360, 949. Mr. Robertson testified that one
problem that confronted them in trying to post the backlog of accounting
records was the need to "recode" everything "in order for it
to fit the
new computer program." Tr. at 331. Ms. Hines as Head Start Director
was unable to provide direction since she was not supervising the fiscal
office (see discussion below) and was not familiar with what the staff
was doing with the computer system. Tr. at 949. Mr. Robertson
testified that, when he left, Ms. Grant "decided rather than hire the
assistant or another person in the Accounting Office to farm out the
bookkeeping to a bookkeeping service in Roanoke Rapids. And therefore,
all of the coding had to be changed, all of our records, to fit the
computer program there. So, I would say we were back to square one with
things . . . ." Tr. at 366; see also Tr. at 373.
We conclude that RDCA did not have adequate fiscal staff to provide
internal controls for its financial management system, largely as a
result of the high turnover and the assignment of insufficient staff
time to fiscal management. In addition, the filing and automation of
records was disorganized and confused. Consequently, we conclude that
RDCA failed to meet requirements for administration and financial
management.
C. Miscellaneous Financial Issues
In addition to the overarching financial instability discussed above,
ACF alleged a number of specific incidents of fiscal irregularities.
None of these incidents involved large sums of money or patterns of
criminal conduct. Some of them nevertheless illustrate that the
inadequacies in RDCA's fiscal systems created a continuing risk of
misuse of funds or assets. In other cases, ACF either provided too
little evidence for us to make any finding or failed to prove that any
requirements were violated. 24/
RDCA Property In Possession Of Board Member's Business: ACF charged that
a former Board member of RDCA was allowed to take furniture and
telephone equipment purchased by RDCA, apparently for use in a day care
center which she operated. ACF Br. at 42, n.22; ACF Ex. 38, Tab 5, at 5
(memorandum dated August 7, 1992 from Ms. Grant documenting the location
of the items). The telephone equipment originally cost $4515 when
bought in November 1990. ACF Ex. 38, Tab 5, at 6. The furniture was
surplus obtained from the school system in January 1991 for $710. ACF
Ex. 38, Tab 5, at 7; RDCA Supp. Ex. 8, at 2. RDCA retrieved all but
one of the items after ACF's 1992 FMR raised questions about them. Tr.
at 1066-68; ACF Ex. 38, Tab 5, at 1-2; ACF Ex. 29, Tab 3, at 6; ACF Ex.
28, Tab 3, at 3 (item F); ACF Ex. 28, Tab 4, at 2 (item F); RDCA Supp.
Ex. 8, at 1 (listing items recovered).
The FMR report noted that equipment should be disposed of only in
accordance with proper procedures. ACF Ex. 29, Tab 3, at 6; see also
ACF Ex. 38, Tab 3, at 2. The regulations on disposition of equipment
which "is no longer to be used" in a federally-sponsored project provide
that equipment acquired for less than $1000 "may be retained, sold, or
otherwise disposed of," but equipment of higher cost "may be retained
or
sold" with an appropriate federal share in the proceeds. 45 C.F.R.
74.139. Hence, the disposal of the telephone equipment clearly was
improper. Even as to the furniture, RDCA did not argue that the Head
Start program had no further use for the items and did not dispute that
they should be retrieved. RDCA attributed the blame for the equipment
problem to a former Head Start Director and accused ACF staff of a
"cover up" because the cost was not "initially" disallowed.
RDCA Notice
of Appeal at 5. Thus, RDCA did not offer any justification for the
transfer of the equipment. Since RDCA recovered the equipment after the
impropriety was pointed out, we see nothing inappropriate in ACF's
decision not to take a disallowance action in this regard. We conclude
that RDCA violated the financial management requirements by permitting
the equipment and furniture to be removed from the program.
RDCA vehicles purchased by Board Members: ACF also alleged that RDCA
improperly permitted three used vehicles to be sold to Board members.
ACF Br. at 42-43, n.22; ACF Ex. 29, Tab 3, at 6. The day care company
for which Ms. Grant works purchased from RDCA a 1985 Chevrolet bus in
July 1991 for $3000 and a 1986 Dodge van in September 1991 for $3000.
ACF Ex. 38, Tab 7, at 5, 8, 9; RDCA Supp. Exs. 12, 13. RDCA submitted a
statement from Ms. Grant asserting that her purchases on behalf of the
day care company met needs RDCA had to dispose of the vehicles, were
made at above-market prices compared to others bought at surplus by the
day care company, and were not improper transactions. ACF Ex. 38, Tab
7, at 5. In regard to the bus, Ms. Grant stated that she asked the then
Head Start Director what "his minimum asking price would be" and then
bid $1000 more. In regard to the van, the Head Start Director announced
at a Board meeting his "desperate need" to sell it in order to buy
a
truck and Ms. Grant then submitted the successful bid. Id. The
statement concludes: "If there are any Head Start guidelines in place
that make such purchases improper, we would like to know about them in
order to avoid such transactions in the future." Id. RDCA provided
evidence that an advertisement appeared in the local paper on July 5,
1991 seeking bids on the 1985 bus by July 8, 1991 and another
advertisement appeared on September 2, 1991 seeking sealed bids by
September 4, 1991 for a Dodge van. ACF Ex. 38, Tab 7, at 7; RDCA Supp.
Ex. 15.
In September 1991, another RDCA Board member purchased a 1985 van for
$2900. ACF Ex. 38, Tab 7, at 11; RDCA Supp. Ex. 14. The Board member
submitted a memorandum indicating that the Head Start Director told her
that this amount was the trade-in value of the van. Id.; see also RDCA
Appeal of Disallowed Costs, Attachment E at 2 (dealer's valuation).
Ms. Grant complained that the attention to these transactions was
"excessive," since RDCA "had no knowledge at that time of procurement
standards," but had only its own conflict of interest statement, with
which she felt it had complied. RDCA Appeal of Disallowed Costs at 4,
and Attachment E. That policy required that "no employee of the RDCA
Head Start program have any conflict of interest with any activity of
the program either in fact or in appearance or any other situation
similar that will affect the program." Id. at Attachment E at 4.
Although one of the Board members involved later was employed at RDCA,
the transactions do not appear to involve employees at the time of the
purchases, so it is not clear if the conflict of interest policy
referring to similar situations would apply to Board members. Nor is it
clear what procurement standards would have to do with disposition of
assets by the program. 25/
The Head Start Act requires that grantees adopt rules that "guard
against personal or financial conflicts of interest," and that they
operate "free of any taint of . . . personal, or family favoritism."
42 U.S.C. 9839(a). The direct application of these provisions to the
sales by the grantee here is not clear. We therefore do not rely on
these transactions as a basis for the proposed termination. However,
they do evidence an insensitivity to the appearance of impropriety that
is also evident in other incidents, especially since the Board members
involved obtained information from the Head Start Director which
assisted them in making bids which they knew were likely to be
acceptable (which information would not have been available to anyone
else responding to the advertisements in the two cases where bids were
solicited). 26/
Interest on federal funds not remitted: Under federal regulations,
grantees are required to "remit promptly, but at least quarterly"
to the
federal government any interest they earn over $100 per year on cash
advances which they draw down from federal funds. 45 C.F.R. 74.92.
ACF asserted that RDCA did not remit any of the interest which it earned
on federal funds from at least June 22, 1992 through December 1, 1993.
ACF Br. at 40; ACF More Definite Statement at 9. ACF submitted copies
of the six reports from RDCA covering that period with no entry showing
the remittance of interest for any of those periods. ACF Ex. 34. Based
on interest earnings reported in prior year audits, on reports by RDCA
of interest earned in prior quarters, and on RDCA's cash balances, ACF
estimated that RDCA owed approximately $3200 in interest for this
period. ACF Br. at 41; ACF Ex. 34, at 11-14; see also Tr. at 64-66.
The 1991 audit found that no interest earned on RDCA's credit union
account had even been recorded during the entire fiscal year. RDCA
concurred with this finding, promising to record all interest earned in
the general ledger in the future. ACF Ex. 23, Tab 2, at 17-18. Ms.
Foster, the peer reviewer who reported to RDCA in December 1992, warned
that RDCA should "make sure interest is being reported to the federal
government." ACF Ex. 23, Tab 5, at 17. In November 1992, Ms. Grant
wrote to ACF asserting that RDCA would consider 75% of the interest
earned in its accounts to be attributable to non-federal sources and
only 25% to federal funds. ACF Ex. 34, at 3. ACF responded that any
pro-rating of the interest earned would require documentation of the
basis of the allocation and requested bank statements and monthly
internal program reconciliations that would show the basis for this
division. Id. at 2. The 1993 OSPRI found that Head Start federal funds
accounted for 61% of cash on hand in the last quarter of 1992. ACF Ex.
38, Tab 2, at 16. Ms. Taylor, who conducted the fiscal portion of the
1993 OSPRI, reported that RDCA had no procedures . . . for returning all
but $100 of interest received on federal grant," and that, as of January
1993 such "procedures have never been established." ACF Ex. 23, Tab
6,
at 24.
RDCA did not deny that it had failed to pay interest promptly. It
asserted that the "new fiscal officer is now computing what percentage
of interest" should be paid and will then send a check. RDCA Response
to More Definite Statement at 6. RDCA did heatedly deny that ACF
informed it six times of the requirement; RDCA said that three of the
cited exhibits reference the 1993 OSPRI, Ms. Foster's report was less
than 30 days before the OSPRI (which RDCA considers too close in time to
constitute separate notice), and the 1991 audit dated from Mr.
Speller's tenure as Head Start Director (although RDCA did not make
clear why that would invalidate it as notice to the organization). RDCA
Br. at 60-61, referencing ACF Br. at 41. Since the requirement is in
the regulations, it is irrelevant how many separate times RDCA was
specifically reminded of it. Furthermore, RDCA had actual notice of its
obligations at least as early as Ms. Grant's letter indicating RDCA's
intention to allocate 25% of interest earned to the federal government
in November 1992, yet RDCA offered no evidence that it had made any such
payments even as of ACF's determination over a year later.
RDCA claimed that ACF "agrees that presently RDCA's failure to pay this
interest does not constitute a material violation," but in fact ACF
evinced no such agreement. RDCA relied for its assertion on ACF's
statement that "continued failure [to report interest] may constitute a
material ground for termination under 1303.14 (b) (3)." RDCA Br. at 61,
n.123 (quoting ACF Br. at 41, emphasis added by RDCA). The Head Start
termination regulations at 45 C.F.R. 1303.14(b)(3) list as one ground
for termination the failure to "comply with the [applicable] required
fiscal or program reporting requirements." In context, ACF's quoted
statement clearly constituted an assertion that the interest reporting
requirement was among those to which section 1303.14(b)(3) referred and
did not in any way suggest that RDCA's continued violation of that
reporting requirement would not be treated as a ground for termination.
We find that RDCA repeatedly violated the requirement to report and
remit interest earned on federal funds promptly.
Excess cash drawdowns from federal funds: ACF asserted that the
drawdown of excess federal cash was another example of RDCA's fiscal
mismanagement. ACF relied on 45 C.F.R. 74.93(a)(2), which requires
grantees to "minimize the time elapsing between the transfer of funds
from the Treasury and their disbursement." ACF stated that: over three
days in November 1991, RDCA withdrew 21% of budgeted funds; during
November and December 1992, RDCA withdrew 20% of its funds; and in one
day in May 1993, RDCA withdrew 17% of its funds. Tr. at 64; ACF Br. at
41; ACF Ex. 34, at 1, 12 and 13. ACF cited to the 1992 audit finding
that RDCA had requested excess funds for some months and needed to
better forecast its cash needs; ACF also cited to the 1993 OSPRI finding
that RDCA had excess cash balances and needed to better project its cash
needs. ACF Ex. 23, Tab 3, at 33; ACF Ex. 38, Tab 2, at 13.
RDCA replied that ACF's assertions that it drew down federal funds far
in excess of amounts necessary for program operations were not supported
by evidence that the withdrawals in question were not necessary for
continued efficient operation. RDCA argued that large drawdowns were
not prohibited, so long as funds were used within a reasonable time, and
were often necessary to meet "ordinary obligations" of Head Start.
In
any event, asserted RDCA, there was no violation of program requirements
since the funds were used for legitimate expenses. RDCA Br. at 61.
Our review of the record of RDCA's cash drawdowns substantiates the
amounts cited by ACF. ACF Ex. 34, at 12 and 13. Moreover, the 1992
audit stated that RDCA concurred with the finding about its cash
management practices and would "[i]n the future . . . attempt to better
forecast our immediate cash needs." ACF Ex. 23, Tab 3, at 34. It
illustrates the fiscal mismanagement at RDCA, discussed at length in
this decision, that an OSPRI conducted more than a year after the end of
the period covered in the 1992 audit would make basically the same
adverse finding. As a federal grantee, RDCA was obliged to safeguard
federal cash, using proper cash management practices. RDCA's large cash
drawdowns, coupled with excess cash on hand, give rise to a presumption
that RDCA was not adequately tracking its cash needs, as it had
admitted. RDCA's claim (without documentation) that its large drawdowns
represented funds needed for immediate expenditures is not persuasive
given its general deficiencies in maintaining budget and supporting
records. While the 1992 audit did not treat the deficiencies in RDCA's
cash management practices as material, they were cited as a weakness,
were admitted by RDCA, and went uncorrected. This again is further
evidence of the failure to meet explicit federal requirements. 27/
Overexpenditure of $86,961 in fiscal year 1993: As evidence of RDCA's
lack of budgetary controls, ACF referred to RDCA's financial status
report for the months ending October 31, 1993. That report showed an
$86,961 overexpenditure. Tr. at 32. With its brief, RDCA submitted a
revised report for the 12-month period ending October 31, 1993. RDCA
indicated that the $86,961 overexpenditure which was reported resulted
from errors made by Mr. Robertson, the former fiscal officer, and his
assistant, Ms. Lohr. The corrected report showed a $12,821
overexpenditure which RDCA indicated could be charged to other funds.
RDCA Br. Appendix A. RDCA asserted that the $86,961 overexpenditure "is
obviously an accounting error" which has now been corrected with the
submission of the revised SF 269. RDCA Br. at 55. RDCA missed the point
here. Whether the SF 269 has now been corrected is irrelevant, since
RDCA admitted that the first report was not accurate as required by 45
C.F.R. 74.61(a). In any case, this SF 269 was only one of many
inaccurate financial reports.
Improper payment of Christmas bonuses: Both the 1991 and 1992 audits
found improper payment of Christmas bonuses, which occurred in November
1991. ACF Ex. 23, Tab 2, at 26, and Tab 3, at 26; see also ACF Ex. 29,
Tab 3, at 8 (1992 FMR Report disallowing the use of federal funds for
this purpose because RDCA had no personnel policy on bonuses as required
to permit their payment). RDCA appealed this disallowance to the DAB
and it was upheld as "clearly unallowable." RDCA I, DAB No. 1384,
at 8,
7-9. RDCA repaid the federal government for the disallowed funds in
July 1993. ACF Ex. 39, at 1-2; ACF Br. at 42, n.22. Since this
disallowance has already been upheld, we simply note it here as further
evidence that the financial mismanagement detailed above caused
violations of the cost principles.
Rental of the Cozy Center: During the 1992 FMR, ACF questioned as
imprudent renovation and rental costs on one Head Start site, the Cozy
Center, that were incurred before a lease was signed. ACF Ex. 29, Tab
3, at 7. In addition, the lease was challenged as less-than-arm's-
length because the property was owned by the family of a woman to whom
the Head Start Director was engaged. The resulting disallowance was
appealed to the DAB. RDCA I, DAB No. 1384, at 2-7. The DAB found that
the signing of a retroactive lease agreement cured this deficiency, and
reversed the related portion of the disallowance. Id. at 3-4. The DAB
concluded that the lease was a less- than-arm's-length transaction and
therefore rental costs could not exceed the costs which would have been
allowable if RDCA had title to the building, and permitted ACF to
recalculate the disallowance in this regard. Id. at 5-7; see ACF Ex.
38, Tab 3, at 3. We do not revisit the conclusions reached regarding
the disallowances for Cozy Center at that time. This transaction
evidences a disregard for the applicable cost principles in Office of
Management and Budget Circular A-122, Attachment B, 42.a; 45 C.F.R.
74.174(c). However, ACF charged that RDCA has continued to lease the
property even though it is "still owned by a current Head Start
employee." ACF More Definite Statement at 7.
ACF's allegations omit several changes in circumstances regarding the
ownership of Cozy Center. The Head Start Director involved was
terminated and did not marry the woman to whom he was engaged. The
woman's mother continues to be employed as a cook at RDCA. See RDCA
Response to More Definite Statement at 5. RDCA provided some evidence
that the property is held in an estate to which the cook's husband is
one of the heirs, a status to which witnesses referred as "heir
property." Id.; Tr. at 915, 984-85. RDCA wrote to ACF in January 1993
about the status of the property and asked if the less-than-
arm's-length transaction rules would apply. RDCA Supp. Ex. 9; Tr. at
916. ACF response did not clearly address the changed circumstances.
ACF Ex. 38, Tab 3, at 3; Tr. at 965-66. The changes appear relevant
since the cook may not be in a decision-making position at RDCA and her
ownership interest in the property may have been tenuous. We do not
preclude ACF from reviewing this matter more closely in the event of a
disallowance arising from rental costs paid after the departure of the
former Head Start Director. However, we do not rely here as a basis for
ACF's proposed termination of RDCA on the payment of rental costs on the
Cozy Center after the period dealt with in RDCA I.
Overreprogrammed funds: ACF further alleged that the persistent errors
in RDCA's federal financial reports resulted in a debt to the Head Start
program of $19,895 which RDCA is obligated to repay from non-federal
funds. ACF More Definite Statement at 7; ACF Br. at 42-44; see generally
ACF Ex. 37, Tab 2. This debt arose from ACF carrying over from one
program year to the next funds which are reported as unobligated, but
later determining that RDCA had incorrectly reported the unobligated
fund balance. By relying on RDCA's reports, ACF calculated that, over
the course of several years, it had "overreprogrammed" the $19,895
and
required RDCA to account for that amount. This decision was appealed to
the DAB, which upheld RDCA's obligation to account for the funds, but
remanded to ACF to permit RDCA an opportunity to document whether any of
the overreprogrammed funds had already been accounted for or recovered
in other ways. RDCA I, DAB No. 1384, at 9-14. ACF did not accept as
sufficient documentation submitted by RDCA to show that the amount of
RDCA's debt should be reduced; RDCA subsequently decided not to pursue
the issue. ACF Ex. 37, Tab 2, at 2. RDCA stated that it "agreed to
make quarterly payments of $5000 per quarter" to repay the $19,895
disallowance. RDCA Br. at 65. The record is not clear on whether these
payments have been made as agreed. Compare ACF More Definite Statement
at 7 and ACF Br. at 43 with RDCA Response to More Definite Statement at
5. But in any case, RDCA clearly acknowledged the debt that it incurred
as a result of its inadequate financial tracking.
Personal expenses charged to federal funds: ACF also charged that RDCA
incurred an obligation to pay approximately $2500 because of personal
expenses that were charged to the RDCA credit card in 1992 in an
incident involving a former Head Start Director and fiscal officer (both
since terminated). ACF More Definite Statement at 8; see also Tr. at
920-21. The misuse was discovered only because a Board member who
attended the conference at which the incident occurred reported it to
Ms. Grant. Tr. at 1079-87. RDCA acknowledged that it had to repay
$2500 in federal funds "used for personal expenses," but pointed to
its
subsequent efforts to take corrective action by terminating the staff
involved and restricting use of the credit card. ACF did not disagree
with the appropriateness of RDCA's later corrective measures.
Nevertheless, this incident illustrates once again the absence of
adequate controls in the financial management of the program, especially
in light of the previous warnings it received to tighten controls and
divide fiscal duties among qualified staff. RDCA Response to More
Definite Statement at 6; RDCA Br. at 65; RDCA Supp. Ex. 19; ACF Ex. 25,
Tab 1. We discuss this episode further below, but here we note the
uncontested misuse of the funds. Grant regulations require that funds
be "used only for allowable costs of the activities for which the grant
was awarded." 45 C.F.R. 74.170.
Parent activity funds: ACF also presented testimony and argument to the
effect that money collected through parent fundraiser activities was not
being administered by the Policy Council as ACF argued is required by
regulation and by the RDCA Policy Council's own bylaws. See, e.g., ACF
Br. at 39; Tr. at 244-51, 289-92, 523, 568; 45 C.F.R. Part 1304,
Appendix B, at 4 (f); ACF Ex. 41, Tab 12, at 2. However, ACF failed to
include any reference to these allegations in its more definite
statement. The Presiding Board Member sustained an objection at the
hearing to any testimony relating to this subject because the more
definite statement did not provide adequate notice that it was at issue.
Tr. at 304-08. For the same reason, we do not consider the issue of
the parent activity funds in this decision.
Payment of interest and penalties on late taxes: ACF further alleged
that RDCA improperly paid from federal funds interest and penalties
resulting from the late payment of payroll taxes to the Internal Revenue
Service. ACF More Definite Statement at 7-8. The cost principles
expressly prohibit the use of federal funds for such payments. Office
of Management and Budget Circular A-122, Attachment B at 14 and 19.
ACF alleged that the payments consisted of $2991 in 1991 and $1066 in
1992. RDCA asserted that it had reimbursed the federal government for
the 1991 payments and did not have a record of the alleged 1992 payment.
RDCA's Response to More Definite Statement at 5. However, Ms. Hines
testified that both amounts listed have been repaid to the federal
government. Tr. at 916-20. The later reimbursement of the government
for monies improperly spent does not diminish the significance of having
repeatedly incurred unallowable costs. Therefore, we consider these
improper payments as further evidence of RDCA's violation of financial
management requirements.
Lease of Woodland Center: ACF further alleged that RDCA was improperly
spending Head Start funds to lease a facility which was not being used
as a Head Start Center. ACF Br. at 37-38. 28/ ACF agreed that the
record established that RDCA intended to use the building as a Head
Start site. ACF Br. at 37 and record citations therein. However, ACF
alleged that no use had been made of the building which would justify
charging half of the rent to Head Start. Id. RDCA acknowledged that
the rental costs were not reflected in RDCA's budget submissions to ACF,
even though Head Start was being charged. RDCA Br. at 58; Tr. at 943.
The information in the record about the use of the property is
insufficient to resolve the question of whether the charges to the Head
Start program were proper, and we therefore do not rely on this matter
in considering the proposed termination. We do not preclude ACF from
pursuing a disallowance if it concludes that the costs were unallowable.
Duplicate disability benefits and sick pay: ACF alleged that RDCA had
been inconsistent in implementing its personnel policies, in that Ms.
Hines was permitted to receive her pay while on sick leave and
simultaneously collect disability benefits but other employees were not
allowed to do the same. ACF More Definite Statement at 5. ACF alleged
that this inconsistency violated the requirement that Head Start
grantees avoid any favoritism in the operation of the program. Id.; 42
U.S.C. 9839(a). RDCA acknowledged that both Ms. Hines and Mr.
Speller, when he served as Head Start Director, received sick pay along
with disability benefits, but asserted that this practice was not
impermissible and that RDCA was unaware of any employee who sought this
benefit and was refused. RDCA Response to More Definite Statement at 3;
Tr. at 896-98.
ACF did not establish definitively that the insurance provisions
prohibited the payment of disability benefits while receiving sick pay.
RDCA pointed out that the Board of Directors did not adopt a policy
against receiving both until after Ms. Hines had already returned from
her illness. RDCA Supp. Ex. 7; Tr. at 419-22. However, Ms. Spruill
testified that, during an earlier period when she served as benefits
coordinator for RDCA, two employees were refused pay while receiving
disability benefits and complained to her about the differential
treatment. Tr. at 399-404. (She also mentioned other employees who
went on disability during the same period and did not receive pay. Tr.
at 422-23.) She reported the situation to the Board of Directors. Tr.
at 404, 415. Ms. Cook also testified that she was absent due to illness
for an extended period before the new policy and received disability
benefits but was not paid sick pay at the same time. Tr. at 615
We find that, even if the payment of disability benefits along with sick
pay did not violate the insurance policy, treating employees differently
in this regard did raise an inference of favoritism. This inference is
particularly compelling since the employees who received favorable
treatment were both Head Start Directors. We conclude that this
inconsistent treatment of disability benefits violated the prohibition
against favoritism.
Changes in personnel policies: ACF alleged that RDCA had "a pattern of
changing its personnel policies for no apparent reason and, many times,
without Policy Council approval." ACF More Definite Statement at 5.
ACF never adequately clarified to which changes in the personnel manual
it was referring (although a number were mentioned in the record
relating to layoffs, disability benefits, conflict of interest rules,
and inclement weather), why the changes were not reasonable, and which
of them lacked Policy Council approval. We therefore do not rely on the
alleged pattern as a basis for our decision here. 29/
2. Overall Problems in Administration and Chaotic Operating Environment
The disorder and repeated crises in fiscal management detailed in the
preceding section were symptoms of a larger problem. The administrative
structure of RDCA centered on a very small Board of Directors 30/
dominated by a single person. This Board took over roles assigned by
regulation to the Head Start Director and to the Policy Council. 31/
Since, as we find below, the Board and, in particular, the Chair of the
Board, became the immediate supervisor of line staff in the fiscal
department, the critical role of the Board in oversight of fiscal
affairs was lost. It is undisputed that the two Head Start Directors
preceding Ms. Hines were terminated for serious mismanagement, since,
according to RDCA's own witnesses, Mr. Speller had abused the staff and
poorly run the program and Ms. Boyd had misused agency funds. The
weight of the evidence is that problems in administration of the program
were not eliminated after their departure. In fact, as the
administration and, in particular, the Chair of the Board, increasingly
felt the program to be "under attack" internally and externally, an
atmosphere of tension and even paranoia developed in the office that
harmed staff morale, caused unusually high turnover, and negatively
affected the program operations.
A. Board of Directors' Supervision of Line Staff
The Head Start performance standards define in some detail the required
division of responsibilities in a Head Start grantee between the
Executive Director, the Head Start Director, the Board of Directors and
the Policy Council. 45 C.F.R. Part 1304, Appendix B, Chart C. 32/ As
to each function, the Chart specifies which body has "general
responsibility" (i.e., "legal and fiscal responsibility" that
"guides
and directs the carrying out of the function through the person or group
given operating responsibility"), has "operating responsibility"
(i.e.,
direct responsibility "for carrying out or performing the function"),
or
must "approve" or be "consulted" before a decision is made.
The Chart
states that, in regard to directing the "Head Start staff in day-to-day
operations," the Head Start Director is to have "operating
responsibility," while the Board "may be consulted." 33/
ACF alleged that the Board of Directors, and in particular Ms. Grant,
violated these standards consistently by intruding into the arena of
operating responsibility reserved to the Director and by supervising
directly the fiscal officers. ACF Br. at 48. RDCA responded that the
Board acted in accord with its fiscal and legal responsibility, and that
its structure of "having the fiscal staff report directly" to the
Board
had been in place for eight years before ACF objected. RDCA Br. at
67-68. Since this structure was in place for many years, we cannot
accept RDCA's additional claim that, in intervening in the fiscal
office, the Board was only responding to the emergency of discovering
Mr. Speller's "corrupt activities." RDCA Br. at 16.
The record established that Ms. Grant served as the immediate supervisor
for the fiscal officers. In its response to ACF's More Definite
Statement, RDCA flatly stated that "ACF is well aware from
organizational charts and both written and verbal communications that
the fiscal staff is answerable directly to the" Board. RDCA Response to
More Definite Statement at 3. When asked on cross-examination to whom
the fiscal officers report, she answered: "Me. Or what I should say is
the Board, but between Board meetings they'll contact me if there's a
problem." Tr. at 1134, see also Tr. at 1026. (She denied, however,
that this supervision involved day-to- day contact, because the fiscal
officers were expected to be able to function with some independence.
Tr. at 1133- 34.) The job description of the fiscal assistant states
that the individual is expected to "perform specific functions under
day-to-day supervision of the Fiscal Officer and/or Board of Directors,"
and names the supervisor for the position as the Board of Directors. ACF
Ex. 41, Tab 4, at 1 (approved by the Board on May 20, 1993, see ACF Ex.
46, Tab 10, at 2); Tr. at 355. Ms. Hines testified that the Board of
Directors supervised the fiscal staff throughout her tenure as Head
Start Director, i.e., since at least June 1992. Tr. at 935, 977; see
also Tr. at 947, 986. 34/ Even when a fiscal officer needed to work on
a weekend, Ms. Hines testified that would need Board approval. Tr. at
892.
Additional corroboration that Ms. Grant directly supervised the fiscal
staff comes from Ms. Hines' testimony that, when she concluded that a
fiscal assistant's complaints about her job were well-founded she "told
her please take that to their supervisor." Tr. at 871. This apparent
reference to Ms. Grant as their supervisor was later made explicit. Tr.
at 947, 986; see also Tr. at 588-89. (Ms. Banks and Ms. Swinson, two
Policy Council members, sought financial information and the fiscal
officer indicated that she could not release anything without speaking
to Ms. Grant, who instructed her to release nothing to them.) In a
memorandum to then-fiscal officer Maudie Chambers, Ms. Grant "reminded"
her that she was "answerable" directly to the Executive Committee
of the
Board. ACF Ex. 25, Tab 6; see also ACF Ex. 24, Tab 1, at 13. Even
after the departure of Mr. Robertson, Ms. Grant wrote instructions to
Ms. Angela Fitzhugh when she took over the fiscal office in October
1993, concluding that Ms. Fitzhugh should contact her (Ms. Grant) for
any "further guidance/help." ACF Ex. 25, Tab 18. The two witnesses
who
served as fiscal officers at RDCA both testified that they received
instructions regularly from Ms. Grant and had no other supervisor. Tr.
at 315 (Robertson); Tr. at 466-67; 476 (Lowe).
Ms. Grant denied that she was in "daily" contact with the fiscal
staff.
Tr. at 1134. RDCA denied Mr. Robertson's charges that the level of
interaction Ms. Grant had with him amounted to constant harassment (see,
e.g., Tr. at 319-25, 341-43; ACF Ex. 25, Tabs 8-20). RDCA argued that
he was fired for not doing his job so his motives are "questionable"
and
that Ms. Grant's instructions were an effort to implement fiscal changes
called for by audits or by ACF. RDCA Br. at 68 and n. 144; Tr. at 1032.
Even accepting RDCA's arguments, they simply confirm that Ms. Grant did
give directions to Mr. Robertson as fiscal officer, which supports the
overwhelming evidence that she functioned as the supervisor of fiscal
line staff. RDCA did not provide any examples of instructions from the
Head Start Director to any fiscal staff member, further reinforcing the
evidence, that, to the extent supervision was provided at all, it came
from the Board Chair. It is irrelevant whether she interacted with that
staff daily. "Day to day" operations means the hands-on operation
of
the program, as opposed to the oversight and policy functions, and does
not refer to the frequency with which a supervisor communicates with
particular staff.
RDCA also asserted that ACF had not, as it claimed, "repeatedly
admonished" Ms. Grant not to intrude in the day-to-day operations. RDCA
at 66-67. RDCA is correct that not all the letters from ACF to RDCA
cited in ACF's brief constitute admonishments on that subject. Cf. ACF
Br. at 48-49. However, RDCA did receive guidance that the role of
direct supervisor was not a proper one for the Board. In addition to
the regulations, with which a grantee is expected to be familiar, ACF
wrote to Ms. Grant on December 7, 1992, advising in relevant part:
The Personnel Policies and Procedures of the agency must be
consistent with acceptable Head Start practices and organizational
structures. The Executive Committee of the Board of Directors will
not be approved as part of the day-to-day management cadre. The
agency must designate a Chief Executive staff person . . . to direct
the day-to-day operations of the agency. All other line staff should
be assigned and held accountable for the functions delegated to them
through the Chief Executive staff person.
ACF Ex. 28, Tab 5, at 2 (emphasis added).
The letter went on to explain why this division of responsibility
between executive management and the Board is not a mere convenience or
a peculiarity of Head Start programs. The entanglement of Board members
in the operation of the program and the supervision of line staff
defeats the purpose of having an independent Board to provide effective
oversight of the running of the program and the control of its finances.
35/ Thus, ACF's letter continued:
The Board of Directors are charged with the legal and fiscal
responsibility for the agency. . . . They are to ensure that
checks and balances are in place for the efficient and effective
operation of their programs.
Id. Ms. Grant (and RDCA in its brief) attempted to recast this
reference to the Board's "legal and fiscal responsibility" as either
justifying her role in the fiscal office or making ACF responsible for
misleading RDCA about the propriety of that role. See, e.g., Tr. at
1133; RDCA Br. at 67 and n. 143. However, the language comes directly
from the regulations which distinguish that role from operating
responsibility. 45 C.F.R. Part 1304, Appendix B, Chart C (definitions A
and B); see also ACF Ex. 28, Tab 2, at 1 (letter from ACF instructing
that a staff and not a Board member should serve as Acting Director
after Mr. Speller's termination in order to preserve "proper separation
of the day to day operation of the agency and the overall legal
responsibility . . . of the Board").
Although the concept of an independent Board providing oversight is
common in the administration of grant programs as well as other
organizations, the precision of detail with which the regulations
specify the role which each entity is to play in the governance of a
Head Start grant is very unusual in our experience. This level of
detail both provided advance guidance to RDCA and also highlighted the
importance given to the division of functions. Like the proper role of
the Policy Council, the allocation of line supervision to the executive
management and oversight to the Board aims at preventing mismanagement
by keeping control from being centralized in one entity and by mandating
checks and balances. As far back as the 1991 OSPRI, ACF pointed to
RDCA's "lack of understanding of the various roles of" the Board of
Directors, the Policy Council and the Head Start and Executive
Directors. ACF Ex. 38, Tab 1, at 3. (The same confusion is evident in
the treatment of the Policy Council in decision-making, as discussed
below.) At that time, ACF provided RDCA with an issuance to guide it in
revising its organizational structure and clarifying the proper roles of
its entities. Id.
Clearly, a crucial difference exists between "carefully monitor[ing]"
fiscal operations, as Ms. Grant testified that they were instructed to
do in their training as Board members, and operating the fiscal office
directly as supervisor. Tr. at 1022. The result of ignoring that
difference is that no independent body was exercising effective
oversight of fiscal operations (and the outcome in fiscal mismanagement
is evident in the discussion in the preceding section).
B. Work Environment, High Rate of Turnover, and Personnel
Problems
Both of RDCA's witnesses, Ms. Hines and Ms. Grant, severely criticized
the work environment created by Mr. Carl Speller, who was the Head
Start Director from at least 1988 until March 1992. See, e.g., Tr. at
926-27; ACF Ex. 23, Tab 4; ACF Ex. 24, Tab 1; ACF Ex. 27, Tab 3. Asked
if the program was run well under him, Ms. Hines stated that he was --
oppressive, abusive. There is not enough terms that I could think
of, nice terms, with Mr. Speller. He - at one time I remember him
cursing out Ms. Dianne Cooke. Cursing out Debra Forriest. I
remember him setting Ms. Forriest up to look like she was a drug
addict in order to get her terminated. . . . Mr. Speller was not a
nice person and he would not treat anyone like they were a decent
fair human being.
Tr. at 927. 36/ Ms. Hines testified that Mr. Speller provided "mediocre
services, not pushing for quality," and that the staff "really virtually
had received no training until" she became Head Start Director in June
1992 (prior to which she had been employed at RDCA as a Monitor and
Technical Assistance Director). Tr. at 852, 969. She also testified
that he manipulated salaries intentionally to pay a subordinate more
than a supervisor. Tr. at 885-86. Ms. Grant testified that Mr.
Speller was terminated in March 1992 because "he committed large sums of
money without the knowledge or approval of the Board of Directors" for
a
renovation project, and that RDCA had "had problems with Carl prior to
that and we had given him warnings and that for us was the last straw."
Tr. at 999; see also ACF Ex. 24, Tab 1, at 11-13. (At least as early as
Fall 1988, a CPA who attempted to provide technical assistance to RDCA
for ACF wrote that Mr. Speller lacked concern about financial
record-keeping. ACF Ex. 23, Tab 4, at 10.) RDCA's brief describes the
Board having "uncovered numerous improprieties on Carl Speller's behalf
including alleged sexual involvement with Head Start employees, sexual
harassment of Head Start employees, misappropriation of Head Start
funds, and general mismanagement and intimidation of Head Start
employees." RDCA Br. at 3. 37/ Ms. Grant also testified that RDCA
became the subject of a lawsuit by female employees alleging that Mr.
Speller had sexually harassed them and alleging that the Board had
condoned his actions (although Ms. Grant also said the suit was
unfounded, at least as to the Board's knowledge of Mr. Speller's
actions). Tr. at 1001-03. Ms. Hines testified that Mr. Speller told
her that the women at RDCA "belonged to him." Tr. at 928.
Mr. Speller was followed as Head Start Director in April 1992 by Ms.
Hazel Boyd. ACF Ex. 27, Tab 4. Two months later, Ms. Boyd was
suspended by RDCA pending an audit and a financial management review by
ACF based on her unauthorized personal use of RDCA's credit card, as
well as other "unresolved matters and questions." ACF Ex. 27, Tab
5.
She was notified of her termination, pending a quorum of the Policy
Council, in August 1992. ACF made the requested financial management
review and issued its high risk designation only six months after Mr.
Speller's departure and one month after Ms. Boyd's termination. ACF Ex.
30, Tab 1. The uncontradicted testimony of Ms. Hines and Ms. Grant
themselves about Mr. Speller's abusive regime and Ms. Boyd's fiscal
irresponsibility demonstrates that ACF had well-founded concerns about
the administration of the program at that point.
The question then arises whether improvements in the administration of
the program between September 1992 and December 1993 (when the notice of
termination was issued) were so substantial as to undo the effects of
the prior deficient administration described by RDCA's own witnesses.
The testimony and documents describing the running of the program and
the morale of the employees do not evidence such a substantial
improvement.
In February 1993, after the site visit for the 1993 OSPRI, six central
office staff persons, one of whom testified at the hearing, wrote to ACF
stating that Ms. Grant had told them that the "team of white folks from
Atlanta" had come to take their jobs, not to save them. ACF Ex. 22, Tab
4, at 1. The letter supported the accuracy of the OSPRI and concluded
that the staff "cannot function in this type of environment." Id.
A
petition dated November 23, 1993 and signed by 17 current or former
staff members was also sent to ACF requesting an immediate investigation
and stating that the "community could be best served by finding another
governing body." ACF Ex. 22, Tab 7. The ongoing level of turmoil at
RDCA was also reflected in a stream of written and telephone complaints
to ACF, which Mr. Alexander described, based on his experience with
other Head Start grantees, as "excessive" for a program of RDCA's
size,
in particular, complaints from staff persons about how employees were
treated. Tr. at 835-36; see also ACF Exs. 20, 21, 22, and 23, Tab 7.
Ms. Christine Banks (current Policy Council Secretary) vividly described
a staff meeting which she attended at which Ms. Grant spoke to the
staff. Stip. 17; Tr. at 574. Ms. Banks reported that the way that Ms.
Grant "talked with those adults you don't talk to adults like that. You
don't threaten adults. You don't - you just don't threaten other
adults. . . . You can say anything you have to say to get your point
across without - what's the word I want to use? I really feel like the
workers are afraid of her. . . . I really do." Tr. at 574-75. Policy
Council minutes of June 11, 1993 refer, in a list of what went wrong in
the preceding school year, to "[s]taff
fighting/crying/lying/unprofessional" and to "[a]ttitudes became
negative after Mr. Alexander's visit." ACF Ex. 45, Tab 8, at 2.
Furthermore, Ms. Hines testified that she told the staff that, in order
to present a professional manner, they should not say "anything
negative" about the Head Start program. Tr. at 904. She stated that
they adopted an expression from one of their training consultants, Mr.
Hogan, of "go to the house," or "take a Hogan day." Id.
She testified
that "what that means is, is that if you come to work on a particular
day and you don't feel like being there and you know that if you're in
that classroom those children are going to pick up . . . on how you are
feeling that day. And it's going to affect the day to day operations .
. . . We would rather you take a Hogan day or go to the house." Id.
Staff meeting minutes of April 14, 1993 also show Ms. Hines warning that
"if negative remarks are made about agency will be dismissed." ACF
Ex.
47, Tab 16. Staff meeting minutes of July 27, 1993 report the Head
Start Director informing "those present not to take her smile for
granted because she will send home those who refuse to work." ACF Ex.
24, Tab 3, at 10. She denied that any of these statements were made in
"an intimidating fashion" or a "threatening manner," but
the testimony
of former employees indicates that some of the staff felt threatened or
intimidated. Tr. at 904-05. 38/
For example, Ms. Spruill testified that she took the minutes for the
cited staff meeting and understood that: "We were not to say anything
that was negative against RDCA. We were not allowed to speak with our
Regional Office in Atlanta." Tr. at 388. She testified that if staff
members disregarded this, they would be targeted for dismissal. Tr. at
389. "So, there was certain things you didn't do. You didn't speak
your mind. You didn't have an opinion. You couldn't voice your
opinion, because you will be a target to be terminated." Tr. at 389.
Ms. Jeroline Smith, a head teacher, testified that most of the people
terminated during the almost ten years she worked at RDCA were "people
that were open minded enough to speak out against a lot of things that
they felt like was going on wrong." Tr. at 202. Ms. Smith explained
that many employees were "afraid to open their mouth," because jobs
were
scarce in this rural area, and many RDCA employees were single parents
dependent on their income from their jobs to support families. Tr. at
187-88, 194. Her testimony at the hearing is corroborated by staff
meeting minutes from March 8, 1993 at which she told Ms. Hines that
"people were afraid to speak out for fear of losing their jobs." ACF
Ex. 47, Tab 14, at 1. (Ms. Hines responded that she "did not understand
that" since people have a right to say what they want. Id.) Ms. Dianne
Cooke, who held several positions while at RDCA, testified that the
atmosphere at RDCA was "not conducive to good working conditions,"
because you "never knew when you were going to be terminated." Tr.
at
619-20. Ms. Cooke testified that she was present at the April 1993
staff meeting at which Ms. Hines spoke against "negative remarks,"
and
understood that Ms. Hines was trying to find who the "leak" was that
was
making "negative remarks" in public. Tr. at 620-21; see also Tr. at
644.
She also testified that job duties were constantly reassigned. Tr. at
619, 642. She described the environment as "threatening" and "very
unstable." Tr. at 642.
ACF also alleged that RDCA had an excessively high turnover rate. ACF
Br. at 52. A high rate of turnover, in and of itself, is not
necessarily a basis for terminating a program, since it may result from
factors that are temporary, that impact a particular grantee because of
its size or location, or that are beyond the control of the program.
However, if the resulting instability causes non-compliance in one or
more areas, those areas of non-compliance cannot be ignored simply
because the staff turned over. A program does not cease to be
responsible for the actions of its staff or their consequences simply by
asserting that the staff involved have been fired. Also, a high rate of
turnover, without adequate justification, contributes to the overall
evidence of mismanagement. The persons who testified to morale problems
at RDCA were mostly long-time employees many of whom were terminated.
The reasons which RDCA adduced to justify individual terminations did
not address why the frequency of terminations was so high.
Below, we discuss the layoff of central office staff in the summer of
1993. Many of the coordinators of key components of RDCA's Head Start
program were not called back to work after the layoffs, which caused
considerable restructuring. Above, we discussed the changeover in Head
Start Directors from Mr. Speller, to Ms. Boyd, to Ms. Hines (with Ms.
Spruill serving as acting Head Start Director during Ms. Hines' extended
absence for health reasons). We also discussed the extraordinary
turnover in fiscal office staff. Mr. Sheppard testified that the "high
turnover" of employees in "responsible, fiscal" positions "would
necessarily affect how the program operates." Tr. at 110. Ms. Foster's
independent fiscal review found that the program's internal controls
were weak because of staff turnover. ACF Ex. 23, Tab 5, at 4; Tr. at
49. RDCA suggested that it had cause to fire each of the terminated
fiscal staff members, because, for example, their conduct was less than
ethical or their performance was less than satisfactory. Nevertheless,
a pattern of repeated firings of key staff for such causes casts doubt
on the management that is responsible for their hiring and supervision.
39/
RDCA charged that any organization of RDCA's size would be vulnerable to
accusations by "five or more disgruntled employees." RDCA Br. at 4.
However, even current staff members and continuing Policy Council
participants testified against RDCA and described intimidation in the
work environment. Furthermore, "disgruntled" seems to be used here
as a
pejorative, as if the fact that a current or former employee criticizes
an organization in itself cast doubt on the credibility of the
criticism. This is not necessarily so. An employee may criticize an
employer's practices or work environment because the employee is unhappy
or angry, but an employee may also become unhappy or angry because
something is seriously wrong with the employer's practices or work
environment. Consequently, it is necessary to weigh credibility based on
the entire circumstances. For example, absent some evidence to the
contrary, current employees have little to gain and jobs to lose in
testifying against their employer. Also, the consistency of the
witnesses' testimony about the nature of the problems they experienced
or observed adds to its credibility. Finally, despite RDCA's assertion
that its witnesses offered "quality over quantity," the fact that
several current and former employees testified about problems in the
work environment there, while only one employee, the Head Start Director
herself, testified in favor of RDCA reinforces the likelihood that
serious problems do in fact exist at RDCA. Cf. RDCA Br. at 5. 40/
In addition to the clear impact on the work environment in the central
office, the mismanagement appears to have affected classroom operations
to some extent. Teachers testified movingly that they constantly had to
purchase supplies and recruit substitutes out of their own pockets,
because they understood that funds for those purposes had run out. For
example, Ms. Marion Sykes- Stokes, currently employed as a teacher at
RDCA (and therefore not fairly described as a disgruntled ex- employee)
testified about needing supplies that never came and having to
repeatedly request packages of construction paper. Tr. at 237-40. Ms.
Pearline Frederick, presently a lead teacher at RDCA, told of getting 20
crayons to divide among 40 children in two classrooms. Tr. at 285-86.
They each bought supplies when what they ordered failed to arrive and
paid parents to substitute for them. See, e.g., Tr. at 237-40, 284- 86.
They testified that they did not seek reimbursement, assuming that RDCA
would have supplied these things already if it were able. Tr. at
240-42, 254-56, 289. That the program should be unable to stock adequate
supplies, even though Ms. Hines agreed that ACF had fully funded RDCA's
budget, is evidence of continuing mismanagement. See Tr. at 981.
In general, RDCA operated from one crisis to another. For example, an
emergency freeze on all checks other than payments for rent and
utilities and on any use of the credit card was imposed in June 1992, in
the wake of the incident with Ms. Boyd and Ms. Chambers allegedly
misusing the card. ACF Ex. 25, Tabs 1 and 2. In July 1993, Ms. Grant
again instructed the fiscal officer (then Mr. Robertson) to pay no
bills, even salaries, without Board approval and to permit no use of the
agency credit card. ACF Ex. 27, Tab 9. Mr. Sheppard testified that
this recurrent need to intervene in fiscal affairs demonstrated that
even "after a year's lapse in time, [RDCA] still was not able to
control, or project, or plan their financial expenditures without crisis
management." Tr. at 76. The purchase of a new computer upon Ms.
Newsome's arrival in the fiscal office was "an emergency." ACF Ex.
26,
Tab 2, at 1. The layoff in the summer of 1993 was an "emergency."
RDCA
Br. at 26. The high level of involvement by the Board Chair was
necessitated by the "crisis" of ACF "attacks" and "harassment"
for two
years. Tr. at 1130-31. In August 1993, Ms. Grant instructed the fiscal
officer to mail her weekly status reports "[u]ntil our crisis period is
over." ACF Ex. 25, Tab 12, at 2. We conclude that the continuous
posture of crisis management, the turbulent work environment, and the
resulting disruption in continuity of program operations meant that the
administration of RDCA failed to comply with the requirement to "conduct
the Head Start program in an effective and efficient manner." 45 C.F.R.
1301.30.
3. Repeated Violation of Federal Labor Laws
One ground for termination of a grantee is its failure to abide by any
applicable federal law, in addition to those specifically relating to
the operation of a Head Start program. 45 C.F.R. 1303.14(b)(9). ACF
alleged that RDCA repeatedly violated the federal Fair Labor Standards
Act. ACF Br. at 56. Mr. David Craig of the United States Department of
Labor (DOL) conducted two investigations of RDCA after receiving a
number of complaints and concluded in each case that RDCA had violated
the Act and was required to pay back wages to its employees.
A. First DOL Investigation
The first investigation was begun in November 1992 and reviewed RDCA's
compliance for 104 weeks backward from April 7, 1993. Tr. at 137. The
main violation found was that RDCA did not pay its employees for
overtime which they worked. The Fair Labor Standards Act (FLSA)
requires that all non-exempt employees of a covered employer must
receive pay at overtime rates for all hours worked over 40 in a work
week. 29 U.S.C. 207(a); Tr. at 135-36. 41/ RDCA did not dispute the
finding that it is a covered employer. See Tr. at 136; ACF Ex. 19, at
5. Rather than the required overtime, RDCA was found to offer only
compensatory time which was accrued only at straight time and was lost
if not used in two weeks. This policy was expressly set forth in RDCA's
personnel manual in effect in 1992. ACF Ex. 41, Tabs 8-11. 42/ In
addition, RDCA was found in violation for failing to record and pay for
compensable hours which employees worked at home with the knowledge of
supervisors, and for minimum wage violations. ACF Ex. 19, at 6. RDCA's
records were found to be "of questionable value," with many of the
supplementary time sheets on which overtime hours were supposed to have
been recorded admittedly missing. Id.; see also Tr. at 140. Ms. Hines
admitted to the investigator that the records which RDCA furnished "did
not represent a consistent time keeping method and were probably not an
accurate measure of the extent of overtime violations." ACF Ex. 19, at
7. 43/ Mr. Craig met with Ms. Hines and RDCA's current fiscal officer
to explain the federal labor laws in detail and provide written
publications with the applicable regulations. Id. at 6; Tr. at 138-39.
Ms. Hines admitted the violations and agreed to pay back wages. ACF Ex.
19, at 6. After completing and forwarding computation of the amounts of
back wages due (totalling approximately $3800, including nine employees
with unpaid overtime), Mr. Craig had a telephone conference with Ms.
Grant in June 1993, in which she agreed to all of the back wage
payments, except for a disagreement about the amount of overtime
computed in regard to one unidentified employee. Id. at 2, 7; Tr. at
140-41. Mr. Craig testified that RDCA paid the back wages for the other
employees. Tr. at 140.
RDCA claimed that it made this payment although it did not "agree with
the assessment of DOL." RDCA Br. at 71. No evidence was presented that
RDCA ever contested DOL's determinations, except as to the single
employee representing less than $700 of the back wages owed. Cf. ACF
Ex. 19, at 2. Had RDCA had adequate documentation to demonstrate that
the findings were erroneous, paying the back wages would not have been a
responsible use of federal Head Start funds. 44/ Since RDCA paid the
remaining back wages and did not appeal DOL's determinations, ACF is
entitled to rely on the accuracy of the findings of the federal agency
charged with enforcing the federal labor laws. 45/
B. Second DOL Investigation
In September 1993, a second investigation was initiated as a result of a
complaint that employees were not being paid for hours which they worked
during a layoff begun on July 16, 1993. Tr. at 166-67. The complaint
also asserted that "employees were under duress that they thought that
they would not be called back after the layoff . . . if they did not
volunteer their time." Tr. at 166; see also Tr. at 170 and ACF Ex. 19,
at 2. Mr. Craig testified that he contacted Ms. Grant on September 7,
1993 in an effort to resolve the new complaints without a full
investigation. Tr. at 143; ACF Ex. 19, at 2. He explained that
employees may not waive their right to payment of wages for hours
worked; however, he testified that Ms. Grant stated that "she knew that
employees could volunteer their time" and that therefore RDCA would
continue to permit employees to work without pay in similar
circumstances. Tr. at 144; see also Tr. at 153-54.
The investigative records confirmed that employees understood that they
might not be called back after the temporary layoffs if they did not
continue to work without pay in the interim. ACF Ex. 19, at 3. Mr.
Craig testified that Ms. Hines told him during the investigation that no
time sheets existed for those employees who were volunteering, and she
provided no records when he requested them. Tr. at 145, 169; see also
ACF Ex. 19, at 3. She also denied that any volunteer work was done.
Tr. at 145; ACF Ex. 19, at 3. Mr. Craig testified that he found that
eight central office staff each worked different hours during the layoff
period, and that his calculations took those variations into account.
Tr. at 142; ACF Ex. 19, at 2-3. Mr. Craig also testified that 29
teachers worked about seven hours per day for six days each in
orientation and training sessions between October 1 and October 15,
1993, for which they were not compensated. 46/ The back wages owed by
RDCA for the 37 employees totalled $7793. ACF Ex. 19, at 3.
RDCA challenged the underlying calculations of back wages resulting from
this second investigation. RDCA Br. at 72; RDCA Exs. 33 and 34. The
only specific example cited in RDCA's brief is the inclusion of Mr.
Reginald Lise (for $85), on the grounds that he "did not become an
employee until September 1, 1993," and was merely volunteering before
that date "presumably in hope of obtaining a position once RDCA's fiscal
situation improved." RDCA Br. at 72. The weight of the evidence in the
record supports a finding that Mr. Lise had already been hired by RDCA
by the layoff period, although, like other staff, he was not paid for
the time he worked. 47/
Ms. Grant also testified that Mr. Craig calculated back pay amounts
$400-500 greater for those employees "who sent letters to ACF
criticizing our program." Tr. at 1105. However, the size of the back
pay awards was so small that this claim is implausible on its face. 48/
Ms. Grant testified that she believed some of the employees "never even
set foot in the building" on days for which they were calculated to be
due back wages, based on sign-in sheets which "somebody had found."
Tr.
at 1105; RDCA Supp. Ex. 28.
RDCA took vacillating stands on whether or not employees volunteered
time at all, but in the end RDCA's own records and admissions clearly
establish that employees were working without pay that summer. Ms.
Hines told Mr. Craig that she was not aware of anyone volunteering.
Tr. at 145; ACF Ex. 19, at 3. Ms. Grant testified that employees who
came in during the layoff were "voluntary," but did not deny that
they
did come in to work at least some days. Tr. at 1103. RDCA produced
statements, discussed below in regard to whether the work was coerced,
that substantiated that at least the five signatories, all current
employees, were "volunteering" during the layoff. ACF Ex. 44, Tabs
1-5.
The calculation sheets produced by DOL are annotated by Ms. Hines to
show where she differs from the calculations on the basis of the sign-in
sheets. Tr. at 1106-07. The essential point is that, even if Ms.
Hines' annotations and RDCA's sign-in sheets were accepted, they amount
to an admission of substantial numbers of employees coming in to work
during the period when they were laid off, and contradict Ms. Hines's
claims to the contrary. However, there is little basis in the record to
conclude that these scanty sign-in sheets reflected all hours worked by
all employees. They are inadequate on their face, since they mostly
show only the arrival and not the departure time. RDCA Supp. Ex. 28.
The failure to keep adequate records of hours worked by employees, in
itself, violated recordkeeping requirements of both the FLSA and its
regulations, cited above, and of the applicable cost principles for a
Head Start grantee. 49/ Furthermore, employee testimony indicated that
employees who came in during the layoff did not necessarily sign in
because they were "supposedly not working." Tr. at 614. We need not
resolve the precise hours worked by individual employees in order to
conclude that the record demonstrates without serious dispute that a
number of laid off staff members came into work at their usual jobs for
a significant number of hours without receiving compensation during the
summer of 1993. We turn next to RDCA's claims that this unpaid work was
not "coerced" and not in violation of the FLSA.
RDCA disputed the allegation that employees were "forced" to volunteer
during the layoff. RDCA Br. at 71. It is uncontested that some
employees who volunteered were not called back and others who did not
volunteer did return to work. RDCA Br. at 7; Tr. at 914. No evidence
was presented of actual coercion in the sense of physical force or
involuntary servitude. Tr. at 163. However, credible evidence was
presented that Ms. Hines communicated to employees the expectation that
they were to do their jobs even if laid off, if they wanted to be called
back. Tr. at 613-14. At the least, this message served to encourage,
if not pressure, employees into providing uncompensated work. 50/
However, the question of whether employees were pressured to work is
ultimately irrelevant to the finding of a violation of the FLSA. Since
the standard is whether an employer suffered or permitted work to occur,
not whether it coerced or demanded work, the proper "inquiry is not
whether the work is voluntary, but rather whether the participants are
in fact performing services for the benefit of the employer with the
knowledge and approval of the employer." Martin v. Conagra, Inc., 784
F.Supp. 1394, 1400 (S.D.Iowa 1992); 29 U.S.C. 203(g). Plainly, RDCA
was aware that employees were coming to the office and performing work
for its benefit during the layoff. 51/
RDCA did not offer any evidence rebutting the conclusion that some
employees were allowed to come in and work at their jobs without
compensation during the summer of 1993. However, RDCA claimed that such
volunteer work by laid-off employees is "entirely appropriate." RDCA
Br. at 73. RDCA cited no authority for this proposition. While the law
certainly permits true volunteers to work without pay, they must be
working "without promise or expectation of compensation, but solely for
. . . personal purpose or pleasure." Walling v. Portland Terminal Co.,
330 U.S. 148, 152 (1947); see also Tony & Susan Alamo Foundation v.
Sec'y of Labor, 471 U.S. 290, 295 (1985) (employees must be paid even if
they "vehemently" decline their right to pay, to guard against employers
abusing their superior bargaining power). In this case, the
"volunteers" were regular employees on temporary layoffs who expected
to
return to normal jobs and who were performing their normal duties for
the benefit of RDCA. Yet RDCA not only failed to pay them for hours
worked and failed to keep adequate records, both violations of the FLSA,
but Ms. Grant also made clear that the RDCA did not intend to comply in
the future. Tr. at 144; see also Tr. at 153-54. The record indicates
that RDCA had not paid the back wages awarded in the second
investigation by the time of the hearing. Tr. at 151-52; RDCA Br. at 73.
RDCA did not demonstrate any proper basis to wilfully ignore DOL's
conclusions.
Finally, we reject RDCA's charges that DOL was operating as a mere
"instrumentality" of ACF. RDCA Br. at 72. Contrary to the claim that
ACF approached DOL to use it in an effort to harass RDCA, the unrebutted
evidence from both Mr. Craig of DOL and Mr. Sheppard of ACF is that DOL
sought the help of ACF, as RDCA's primary funding source, in trying to
bring RDCA into compliance with federal labor laws. Tr. at 153-54; ACF
Ex. 19 at 1. This testimony is corroborated by investigative records of
Mr. Craig indicating that he contacted ACF to inform them about the
second investigation. ACF Ex. 19, Tab 4. Even if ACF had contacted DOL
initially, we fail to see why it would be inappropriate for a grantor
agency to report any concern about possible violations of the FLSA of
which it might become aware, whether through complaints received or
while conducting site reviews, to the federal agency charged with
investigation and enforcement of the labor laws. RDCA apparently
considered the initiation of a second investigation within months of the
conclusion of the first to demonstrate harassment. RDCA Br. at 71-72.
However, since both investigations were triggered by complaints and both
resulted in significant violation findings, the need for a second
investigation so soon after the first can more reasonably be interpreted
as demonstrating an egregious unwillingness on RDCA's part to comply
with the requirements of the FLSA. In any case, we fail to see how RDCA
can reasonably argue that DOL would have acted more responsibly by
ignoring new complaints about an employer which had already been
required to pay back wages for FLSA violations.
We conclude that RDCA failed to abide by applicable federal labor laws.
4. Overall Deficiencies in Parent Involvement
One of the central characteristics of the Head Start program is its
emphasis on giving parents a substantive role in shaping the program to
serve the particular needs of their children and families. Both parties
emphasized that parent involvement is crucial, but disagreed about
whether RDCA provided for the kind of parental involvement required by
the Head Start performance standards. Cf. RDCA Br. at 17, 20; ACF Br.
at 5. As discussed above, each grantee must establish a Policy Council,
composed of at least 50% current parents, which must play a major role
in the management of the grantee's Head Start program. Specifically,
the Policy Council must --
(1) be consulted in assuring that standards for acquiring space,
equipment and supplies are met;
(2) approve or disapprove the hiring or firing of Head Start staff;
(3) approve or disapprove budgets; and
(4) approve or disapprove major changes in the budget and work
program while the program is in operation.
45 C.F.R. Part 1304, App. B, Chart C. "Consulted" is defined as being
called on for advice or information before a decision is made. "Approve
or disapprove" is defined as requiring both consultation and approval
before a decision is made final or an action taken. In addition to this
required participation in major management decisions, the Policy Council
is to link the Board of Directors and the community served, to initiate
its own ideas for improving the program, to organize activities for
parents agency-wide, with staff support, and generally to encourage
active inclusion of parents.
A. Role of the Policy Council at RDCA
During the September 1991 OSPRI, a team of reviewers spoke with staff,
parents, and members of the Policy Council and Board of Directors,
visited all of RDCA's centers, examined pertinent documents and
procedures, and produced a report assessing RDCA's compliance status.
ACF Ex. 38, Tab 1, at 1. In regard to parent involvement, the 1991
OSPRI team found RDCA out of compliance with the requirement for
"effective parent participation" in decision-making set forth in 45
C.F.R. 1304.5-2(a), and commented as follows:
A review of the Policy Council's minutes for the past 12 months and
interviews with parents indicated that the process of making
decisions about the nature and operation of the Head Start program is
not in compliance with this standard.
ACF Ex. 38, Tab 1, at 7. In addition, the 1991 OSPRI highlighted poor
communication within RDCA resulting in an inadequate system for regular
ongoing provision of information to the Policy Council. Id. at 8. RDCA
was given 45 days in which to bring all areas into compliance or submit
a plan to do so. Id. at 4.
As discussed in relation to fiscal problems, ACF conducted a second
OSPRI in January 1993 at RDCA's request. ACF Ex. 29, Tab 4. This 1993
OSPRI found a "well-written" parent involvement plan and a "dedicated
staff" working well with parents on training for them to assist with
educational activities. RDCA pointed to the finding as demonstrating
that ACF's evidence of lack of parent involvement is "flimsy." RDCA
Br.
at 23. 52/ RDCA's focus on the mention of these positive areas (the 1993
OSPRI is structured to begin the discussion of each component by
referencing its strengths) overlooks the five areas found in
non-compliance in the parent involvement component (up from two in the
1991 OSPRI and including both of those found in non-compliance in 1991).
Compare ACF Ex. 38, Tab 1, at 7-8 with ACF Ex. 38, Tab 2, at 7-9. 53/
These findings belie RDCA's claim that Policy Council minutes from 1992
and 1993 "clearly show" that the deficiencies found in involving the
Policy Council in decision-making had been corrected, at least as of the
1993 OSPRI. The team found that:
[T]he Policy Council is asked to vote on the budget and hiring and
firing after decisions are made by the Board Chairperson. For this
reason there has been a large turnover in Policy Council members. . .
. Documentation on terminations was not found."
ACF Ex. 38, Tab 2, at 7. No documentation supported the existence of
any system for providing information to the Policy Council in order for
them to make informed decisions and act effectively. Id. at 8. The
1993 OSPRI also noted that no planning took place between parent
involvement and the other components and nothing indicated that "parents
had input into the planning process, with budgets, component planning,
or training" in the health, mental health, dental and nutritional
components. Id. Workshops for parents were planned by staff without
evidence that the results of parents' surveys were considered or that
parents got "enough information to advocate on their own behalf."
Id.
at 8-9. Once again RDCA was given 45 days to come into full compliance,
or 30 days in which to submit for approval a plan to achieve compliance.
54/
In between the two OSPRI visits, Ms. Foster, the peer reviewer hired by
RDCA, made her evaluation. Tr. at 47; ACF Ex. 23, Tab 5. She noted,
based on a review of written materials and an interview with the Head
Start Director, that "it appears that the policy council has little
involvement in the budget." Id. at 5. She recommended that the budget
process include, at a minimum "the policy council and board's
involvement at the development stage and a process for making budget
changes during the fiscal year." Id. at 8.
In addition to these reports, ACF presented testimony from both current
and former parent members of the Policy Council in support of its
contention that the Policy Council did not fill the role required of it
by the performance standards. Ms. Sandra Alston (Policy Council
Secretary in 1991-92 and President in 1992-93; Board member in 1992-93)
testified that the plan of having a Policy Council member serve on the
Board of Directors was intended to improve communication between them as
a result of the "turmoil" in 1991-92. Tr. at 517. At that time, Mr.
Ron Roberson, then President of the Policy Council, "went to war"
with
the Board of Directors over the termination of Mr. Speller, of which he
disapproved. Tr. at 519. The Policy Council removed Mr. Roberson as
President because he had erroneously claimed that the Policy Council had
approved the suspension of Ms. Hazel Boyd (Mr. Speller's replacement as
Head Start Director) and Ms. Maudie Chambers (then fiscal officer) by
telephone consensus when in fact he had not called the members about
this matter. Tr. at 520. (The Policy Council did eventually concur in
all three terminations. Tr. at 540.)
Ms. Alston further testified that Ms. Grant led the Policy Council to
understand that, because the Board of Directors has legal and fiscal
responsibility, the Policy Council should defer to the Board on all
matters relating to the fiscal component, such as hiring and firing of
fiscal officers. Tr. at 533, 563. Consequently, the Policy Council did
not play an effective role in fiscal affairs. Tr. at 561. In general,
Ms. Alston testified that the Head Start Directors and Board of
Directors sometimes paid attention to the Policy Council and sometimes
did not. Tr. at 551. She resigned before completing her term as
President (in September 1993) because she was dissatisfied with the
absence of Policy Council involvement in the layoffs during the summer
of 1993. Tr. at 515-22. She testified that the Policy Council was
given no advance information about the layoffs and was not consulted
before action was taken. She learned of the layoffs informally from
another Policy Council member. Ms. Grant later contacted her by
telephone and requested that she obtain an after-the-fact telephone
consensus on the layoff. However, she testified that the Policy Council
never ratified the layoffs. Tr. at 548-49.
RDCA attacked Ms. Alston's credibility on the grounds that she "lied"
by
citing personal reasons at the time of her resignation, rather than
telling Ms. Grant and Ms. Hines that she was unhappy about "what
happened with the last termination of some employees." RDCA Br. at 24,
and n.24, quoting Tr. at 516. 55/ Similarly, RDCA called Ms. Alston
"deceptive" and "dishonest" because when Ms. Grant told
her to get a
telephone consensus, she indicated she would but did not. RDCA Br. at
24-25 and n.24. Obviously, it would have been preferable if Ms. Alston
had been more direct in challenging Ms. Grant and Ms. Hines about the
terminations resulting from the layoffs and her resulting decision to
resign. However, choosing to rely on personal reasons in leaving a
voluntary council position in order to avoid an uncomfortable
confrontation with professional staff is not persuasive evidence of a
dishonest character. Such conduct does not suggest that Ms. Alston
would lie at a hearing under penalty of potential conviction for making
false statements. In fact, Ms. Alston's testimony was consistent with
other evidence about the Policy Council (for example, the minutes from
before and after the layoff, and even the testimony of Ms. Grant
corroborates Ms. Alston's testimony that the Policy Council was not told
of the layoffs in advance and never approved the actions which resulted
in a number of key staff not returning to duty). Furthermore, Ms.
Alston's demeanor was sincere and believable, and she demonstrated
considerable interest in and concern for the families and staff at RDCA.
Ms. Hines testified that Ms. Alston was "a very conscientious person."
Tr. at 857. RDCA suggested no motive for her to be untruthful, and
relied itself on her testimony in some respects, particularly in blaming
the Policy Council for "limiting its own involvement." RDCA Br. at
25.
(Ms. Alston also acknowledged that, in some respects, the Policy Council
itself should have been more assertive and relied less on the
professional staff.) We conclude that Ms. Alston's testimony concerning
the role of the Policy Council was credible. As far as the Policy
Council's own lack of assertiveness, the performance standards recognize
that professional staff can easily dominate a Policy Council and enjoin
the grantee to take steps to prevent this. 45 C.F.R. Part 1304, Appendix
B. Ultimately, the grantee is responsible for having an active Policy
Council which fulfills its regulatory responsibilities.
The finding that RDCA failed to meet the Policy Council standards is
also supported by the testimony of Ms. Christine Banks, present
Secretary of the Policy Council, who testified that the Policy Council
has not played "much of a role" during her tenure, partly because
it
failed to have a quorum at meetings and partly because it did not seem
to stay on track. Tr. at 565-66. She stated that it has not, as a
body, "made any decisions regarding the operation" of RDCA and has
not
approved any of the budgets submitted to ACF during her tenure. Tr. at
567. 56/ She testified that the Policy Council was not made "aware of
all decisions that are made before they are made," giving as examples
three recent suspensions. Tr. at 587-92. In particular, she testified
that one employee remained on suspension even after the Policy Council
voted for his reinstatement. Tr. at 590.
Ms. Banks further testified that when she and the current Policy Council
President (Ms. Linda Swinson) sought to examine documents at RDCA's
office, Ms. Grant instructed the fiscal officer not to "give them
anything." Tr. at 568, 587-89. (They sought documentation on monthly
bills incurred and paid to "get a better understanding of . . . how the
money was being spent." Tr. at 588.) RDCA justified this refusal on
the grounds that Ms. Grant "was never presented with a formal request"
to provide the information and that Ms. Banks is "not the Policy
Council, she is merely a member." RDCA Br. at 32. This position is
disingenuous. Ms. Grant is not the Board of Directors either, nor is
she empowered to control the access of Policy Council members to
information about the program. Further, RDCA ignored the testimony that
Ms. Banks was joined in her request by the Policy Council President,
and that "other Policy Council members were in there" (i.e., in the
fiscal officer's office when Ms. Banks called Ms. Grant) and that they
heard Ms. Grant make the refusal to Ms. Banks and Ms. Swinson. Tr. at
589. No evidence was presented that Ms. Grant followed up to determine
if the request for financial information was supported officially by the
full Policy Council, which detracts from RDCA's claim that her real
concern was to check on the legitimacy of their purposes in seeking the
information.
RDCA also claims that Ms. Grant was "wise not to release this
information without some assurances of confidentiality." RDCA Br. at
32. No evidence was presented that anything in the monthly bills
required confidentiality or that Ms. Grant sought any such assurances.
The testimony rather was that she made a blanket refusal to provide
anything to the Policy Council members who had come into the office in
an effort to "better understand" the program's financial status. Tr.
at 568, 587-89. RDCA also asserted that the incident was "irrelevant,"
because it did not constitute a material breach of the performance
standards. We agree that this single episode would not constitute a
significant breach. However, we disagree with RDCA's conclusion that it
is therefore irrelevant. First, the actions of Ms. Grant in blocking
access by officers and members of the Policy Council to information on
monthly spending contravenes the spirit, if not the letter, of the
performance standards which require a system for "two-way communication
between staff and parents" and for "regular provision of information"
to
Policy Council members to allow them to "make informed decisions in a
timely and effective manner." 45 C.F.R. 1304.5-4(a) and (b). The
information to be provided must include, "at a minimum," financial
reports and Head Start account expense statements. 45 C.F.R.
1304.5-4(b)(3). Second, this dispute was not a single incident, but was
a striking example of the management approach to the role of the Policy
Council, i.e., of providing after-the-fact information about decisions
rather than encouraging a pro-active participation in formulating major
decisions. We therefore conclude that the refusal to provide information
about expenses to the Policy Council members and officers requesting it
contributes to the evidence discussed herein that RDCA failed to comply
with the parent involvement performance standards.
RDCA also attacked the credibility of Ms. Banks' testimony. RDCA Br. at
30-31. RDCA argued that Ms. Banks' forceful criticism of Ms. Grant
indicated that Ms. Banks "would say just about anything to oust Ms.
Grant as Board of Directors chairperson." RDCA Br. at 30 (footnote
omitted). In response to a question on cross- examination about her
opinion of Ms. Grant, Ms. Banks stated that she did not like Ms. Grant,
that she had not "come across a person like Ms. Grant" in 12 years
of
working with people as a salesperson, and that Ms. Grant was
"obnoxious." Tr. at 574. Ms. Banks also stated of Ms. Grant: "Lord,
forgive me if I'm wrong . . . but I think she's deranged." Tr. at 574.
Ms. Banks went on to explain that she formed this opinion of Ms. Grant
when she met her for the first time at a staff meeting at which Ms.
Banks felt that Ms. Grant's conduct was threatening to the employees.
Ms. Banks concluded that: "I'm not going to say she's a bad person in
other areas but what I have seen personally . . . no, I do not like."
Tr. at 575.
We are not persuaded that Ms. Banks is biased simply because she holds
an unfavorable opinion of Ms. Grant. Ms. Banks testified without
contradiction that she based her opinion on her personal observations of
Ms. Grant in operating the Head Start program and without prior
interaction with her. Witnesses are not required to like everyone in
order to testify honestly, and there was no indication that any personal
animus for Ms. Grant tainted Ms. Banks' testimony about events involving
the Policy Council. 57/
B. RDCA Responses on Parent Involvement
In addition to the specific points discussed above, RDCA responded to
ACF findings of the lack of parent involvement generally by relying
heavily on letters from parents which were included among the
testimonials in a package celebrating RDCA's 13th anniversary. RDCA Br.
at 17-20. The letters included congratulations from local politicians
(Congressperson Eva M. Clayton, Senator Terry Sanford, county
commissioners, and school superintendents), endorsements from civic
groups (The Civic Club and a senior citizens' group), and five
individuals identifying themselves as parents or grandparents of
children in the program who are happy with the benefits which their
families have received.
We do not question that these writers described ways in which they see
benefits to themselves or the community from the RDCA Head Start
program. In many cases, however, the benefits they describe are the
result of the existence of a Head Start program in the area, rather than
its placement with RDCA. For example, among the benefits which RDCA
cites from these letters is the praise parents offered for training
which they received. The training apparently referenced was provided at
the National Conference in Atlanta by ACF for all Policy Councils. Even
if we accept that the letters establish that some parents received
benefits for their children's and their own education, RDCA pointed to
nothing in these letters that demonstrated anything like the decision-
making role that the performance standards require the grantee to afford
to parents in the planning and operation of its Head Start program.
In addition, the motivation of some of those writing is not clear. We
do not know whether these letters were solicited. RDCA stated that they
were unsolicited but offered no evidence to support that assertion, and
we note that the parents' letters were all on RDCA letterhead. Cf. RDCA
Br. at 19. One of the parents is presently employed by RDCA as a
teaching aide, and enjoys her job "to the fullest." RDCA 13th
Anniversary Folder at 24. Another parent and former Policy Council
Secretary wrote that she would like to be employed with RDCA one day,
because "they are wonderful people to work with." Id. at 22. A present
or prospective employee may be motivated to support the program in order
to retain or obtain a job rather than simply as a satisfied parent.
RDCA's Head Start program has an enrollment of almost 300 children a
year. We have no way of knowing whether these five positive responses
obtained by RDCA fairly reflect the feelings of a majority of these
families. 58/ Ms. Grant herself testified that none of those who sent
in these letters of commendation "would be familiar with the [Head
Start] performance standards." Tr. at 1145-46.
In general, we have little information in the record about these
individuals or their ties to or experiences with RDCA. Not one of these
individuals was produced at the hearing to testify on behalf of RDCA,
even though RDCA listed some of them as its witnesses. The only parents
who testified at the hearing appeared on behalf of ACF. Although RDCA
asserted in its brief that those who wrote letters for it had no
"vendettas, bones to pick, or axes to grind," RDCA did not choose
to
submit any of them to cross-examination. Cf. RDCA Br. at 20. It is
reasonable to infer from the unexplained failure to produce as witnesses
those whose letters RDCA proffered in support of its case that their
testimony would not necessarily have been supportive. For all these
reasons, we do not give significant weight to the letters in the 13th
Annual Celebration folder submitted by RDCA in determining whether RDCA
complied with Head Start performance standards.
RDCA also pointed to Policy Council minutes from July 1992 to November
1993 as evidence that the Policy Council "met on a regular basis and
considered issues from hiring and termination to amendment of the
by-laws." RDCA Br. at 21; see also RDCA Br. at 31 and n.42; ACF Ex.
24, Tab 2, at 20-22. However, ACF did not allege that the Policy
Council met too irregularly or that it never discussed matters of
importance. Furthermore, discussion of many topics at meetings is not
equivalent to an effective role in organizational decision-making. The
essence of the problem with RDCA's Policy Council, as found in the
repeated reviews discussed above and confirmed in the testimony of Ms.
Alston and Ms. Banks, is that RDCA did not consistently give the Policy
Council the opportunity to act before a decision was made or an action
taken on matters which, by regulation, require Policy Council approval.
We note that Ms. Hines, when asked about her working relationship with
the Policy Council, described efforts to include them in orientations
and in one or two training events. Tr. at 988. She said that Policy
Council members "help in our fund raisers," might get to go along
on
trips to state or national meetings, and sometimes a Policy Council
member might "just call to say, hey, her child's picture won a contest
and we just all cheer for that." Id. The relationship described with
Policy Council members may well be cordial (although the record
discussed above demonstrates that it was not always so) and may provide
benefits to those parents participating (who might otherwise have
limited opportunities for training and travel). However, nowhere does
Ms. Hines' description of her working relationship with the Policy
Council evidence the required sharing of real power. What is described
here is a relationship of giving to beneficiaries, not of operating with
partners who must be consulted or whose approval must be sought before
major decisions are made.
We also reject RDCA's claim that ACF was responsible for RDCA's problems
with the Policy Council. Ms. Hines attributed all problems with the
Policy Council to "two words, Andy Alexander." Tr. at 859. She based
this opinion on some occasions where Policy Council members referred to
having been in touch with Mr. Alexander. Id. She did not claim to have
direct knowledge of any interactions between Mr. Alexander and the
Policy Council that would support the idea that he was deliberately
playing a destructive role. No present or former Policy Council members
corroborated her suggestion that Mr. Alexander (or any other ACF staff
member) was fomenting opposition to the Board or hostility to the
program among Policy Council members. Ms. Banks, on the contrary,
testified that she never had any discussions with Mr. Sheppard or Mr.
Alexander. Tr. at 576-77.
C. Composition of the Policy Council
In addition to its allegations regarding the inadequacy of the role
played by the Policy Council at RDCA, ACF also asserted that the
composition of the Policy Council itself did not meet the requirements
for including community representatives. ACF More Definite Statement at
3. The 1991 OSPRI pointed out that the composition of the Policy
Council needed to be examined, "especially to ensure that community
representatives from appropriate community agencies are represented on
the Council." ACF Ex. 38, Tab 1, at 8. RDCA had adequate notice that
it needed to provide affirmative evidence that it had a properly
constituted Policy Council throughout the relevant time period.
As mentioned in the legal overview, Head Start Performance Standards
require the grantee's Policy Council to be composed of at least 50%
parents of current Head Start children plus representatives of the
community. 45 C.F.R. Part 1304, Appendix B, Chart A. A community
representative is defined as follows: "A representative of major
agencies (public and private) and major community civic or professional
organizations which have a concern for children of low income families
and can contribute to the program. The number of such representatives
will vary . . . . Parents of former Head Start children may serve as
representatives of the community on grantee agency policy groups." Id.
at n.2 to Chart A.
Membership lists for the Policy Council for the years 1991-92, 1992-93,
and 1993-94 are in the record. ACF Ex. 41, Tab 3. Each list
identifies parent representatives (and alternates) by Head Start center.
The first list contains no other names. The second list has three
additional names at the end: Mr. Daniel Smith (identified as from the
County Extension Office), as well as Ms. Shirley Kee and Ms. Audrey
Moore (who are not otherwise identified on the list, although ACF noted
that Audrey Moore was a member of the RDCA Board of Directors, and hence
apparently its liaison, and we note that Ms. Kee was listed as a parent
the prior year). ACF Ex. 41, Tab 3, at 4; ACF Br. at 22. The third
list contains three additional names at the end with the title of
community representatives, but gives no other identification for them:
Rev. Walter Boston, Jr., Ms. Moore, and Mr. Keith Urquhart. In the
Policy Council minutes of September 10, 1993, Reverend Boston is
introduced as a minister and Mr. Urquhart as a 4-H agent.
The Policy Council in 1991-92 consisted entirely of parents, and
therefore was clearly not in compliance, as was noted in the 1991 OSPRI.
ACF Ex. 41, Tab 3, at 1-2; ACF Ex. 38, Tab 1, at 7-8. The following
year's list, however, includes Ms. Kee, mentioned above, and identifies
Mr. Smith as affiliated with the county extension service. ACF Ex. 41,
Tab 3, at 3-5. ACF ignored this affiliation and did not explain why the
extension service would not be an appropriate agency to be represented
on the Policy Council of a rural Head Start program. Cf. ACF Br. at 23.
The current year's list, read with the cited minutes, identifies two
community representatives, a minister and a 4-H agent. ACF Ex. 41, Tab
3, at 8; ACF Ex. 24, Tab 2, at 16. Again, ACF ignored these
affiliations, asserting that there is "nothing in the record to suggest
they represent any one but themselves." ACF Br. at 23. While it is
true that RDCA failed to call Mr. Smith, Mr. Urquhart or Rev. Boston as
witnesses, despite indicating an intention to do so, it is not true that
the record provides no indication of their affiliations. ACF did not
explain why a minister and 4-H agent would not be appropriate community
representatives for this community.
RDCA also argued that former parents served as community representatives
on its Policy Council. RDCA interpreted the language in the regulations
relating to former parents to permit treating them as community
representatives by virtue of that status alone, as opposed to permitting
them to serve, even though they no longer have children in the program,
so long as they represent some community organization. The language of
the requirement is ambiguous in this regard, and ACF has not promulgated
any authoritative interpretation. We also note that the bylaws of
RDCA's Policy Council state that community representatives "shall
represent agencies with concern for low income families and children;
with one member of the Grantee Board of Directors included in this
category, and one parent of a former Head Start Child." ACF Ex. 41, Tab
12, at 5. There is no evidence that ACF informed RDCA that this
provision of the Policy Council by-laws was unacceptable. 59/
We therefore find that RDCA met the minimal requirements for composition
of its Policy Council in two of the last three years. It failed to meet
those requirements during the year 1991-92, and corrected the situation
only by the barest minimum of inclusion of community participants in the
subsequent years. However, its compliance in recent years is sufficient
so that we do not rely on the composition of the Policy Council in
reaching a conclusion about the bases of the termination.
D. Integrity of the Policy Council Minutes
ACF raised questions about the integrity of the Policy Council minutes,
for several reasons. ACF Br. at 16-17, 19-21. First, ACF alleged that
RDCA central office staff typed, and sometimes altered, the minutes.
See Tr. at 525-29, 570-72, 592-99. Second, ACF alleged that the
signature of the Policy Council secretary was sometimes affixed by
cutting and pasting it from other documents, on at least one occasion
when the Secretary whose signature was attached had not attended the
meeting. See Tr. at 391-97, 446-53. While the procedures for producing
the minutes may well have been sloppy, and the content of the minutes
themselves was often less than clear, 60/ we found no basis to conclude
that anyone intentionally tampered with the minutes in order to change
their substance.
The cutting and pasting of a signature alone does not invalidate the
minutes if the Secretary authorized the staff to affix the signature or
adopted the minutes as signed, or if the Policy Council accepted the
minutes as accurate at a subsequent meeting. 61/ ACF pointed out
differences in format or spacing between drafts of minutes, but we find
these to be without significance. We therefore focussed only on those
instances in which ACF alleged that the minutes were altered in a way
which did not reflect the substance of what occurred at the meeting
involved.
The first instance involved the Policy Council minutes for August 13,
1993. Policy Council minutes of August 13, 1993, attachment to
affidavit of Ms. Hines, dated June 27, 1994.
ACF charged in an affidavit from Mr. Sheppard that the August 13, 1993
Policy Council minutes were not produced in response to ACF's discovery
request. Letter from ACF to DAB, dated July 5, 1994; Affidavit of Mr.
Sheppard, dated July 5, 1994. (The minutes were produced by RDCA after
the DAB specifically inquired about them at oral argument after noting a
reference to them in the minutes of the September 1993 Policy Council
meeting. See Tr. of Oral Argument, June 23, 1994, at 41-45; ACF Ex. 45,
Tab 9, at 1.) Ms. Hines' affidavit asserted that these minutes were
already submitted to ACF in the summer of 1993. Pursuant to a request
from the DAB, ACF searched its files and found a copy of the minutes.
Attachment to Letter from ACF to DAB dated July 21, 1994. While RDCA
may have been derelict in responding fully to ACF's discovery requests,
we can see no prejudice to ACF since ACF already had the minutes in its
own files.
ACF attacked the validity of the minutes as submitted by RDCA because
ACF contended that the minutes were signed after-the-fact and because
two persons present at the meeting disputed their accuracy. Letters
from ACF to DAB, dated July 5, 1994 and July 21, 1994; Affidavits of Ms.
Alston (undated) and Mr. Robertson (undated). Ms. Hines admitted that
the Policy Council Secretary "re- signed" the minutes shortly before
their submission to the DAB. Letter from Ms. Hines to DAB, dated July
6, 1994. However, the minutes located in ACF's files, which were sent
to ACF in the summer of 1993, are signed as well and do not show any
substantive difference from the minutes as submitted to the DAB by RDCA.
We therefore see no real issue of authenticity as to these minutes.
As to the accuracy of the minutes, Ms. Alston and Mr. Robertson denied
that the reason for the layoffs in the summer of 1993 was discussed at
the meeting and generally alleged that the minutes reflect more
discussion than occurred. RDCA submitted affidavits from two other
Policy Council members asserting that the minutes were accurate and that
the meeting began long before Ms. Alston arrived, so that she missed
most of the discussions. Affidavits of Ms. Juanita Valentine, dated
July 19, 1994, and Ms. Annie Rivers, dated July 13, 1994. The minutes
indicate that the meeting began with Ms. Alston leading a prayer.
August 13, 1993 Policy Council minutes at 1. The affidavits describe
this meeting as taking place during a luncheon at a hotel. The most
likely resolution of the conflict in the affidavits is that some
discussion occurred at the luncheon among Policy Council members before
Ms. Alston arrived and the official meeting began, and that the minutes
did not distinguish between the informal and official discussions. In
any case, the August 13, 1993 minutes were presented to the Policy
Council at the September meeting and the only correction made was to a
point not relevant here. ACF Ex. 45, Tab 9, at 1. While the
minute-taking at the August 1993 meeting may thus have been less than
ideal, we do not find the minutes to be inaccurate in any substantive
way.
We also find that ACF's challenge to the accuracy of the minutes of
October 29, 1993 is not well-founded. ACF Br. at 16-17; ACF Ex. 45,
Tab 11. These minutes reflect an interview held with Mr. Robertson
prior to his termination. Mr. Robertson asserted that a quorum was not
present during his interview. However, he was not present for the whole
meeting, so there is no reason to believe that the members listed as in
attendance were not present during the discussion and voting. Mr.
Robertson also denied the accuracy of the summary of his interview. Tr.
at 367-68. Ms. Hines claimed that it was accurate. Tr. at 872-74,
880-89. We conclude from reviewing the summary and comparing it with
Mr. Robertson's version of what he said that the differences are more
likely to reflect miscommunication between the CPA and the members of
the Policy Council than misrepresentation of the interview in the
minutes.
We reach similar conclusions about the minutes of November 22, 1993.
ACF pointed to the existence of two versions of the minutes from this
meeting, one of which was allegedly typed by Ms. Christine Banks, who
was then the Policy Council Secretary, and one of which was allegedly
typed by RDCA staff. ACF Br. at 20; compare ACF Ex. 24, Tab 2, at 20
and 22 with ACF Ex. 45, Tab 12; see also Tr. at 592-99. While some of
the text was different, we do not agree with ACF's assessment that the
difference reflected an intentional effort to downplay Ms. Hines' role
in the meeting. Generally, the minutes seem to have been revised to
show attendance, which had been omitted, and to make clarifying changes.
In any case, Ms. Banks signed the minutes as revised. ACF Ex. 45, Tab
12, at 3.
Overall, we conclude that, although the quality of the minutes taken for
RDCA's Policy Council was lower than might be desirable, ACF failed to
prove its charges concerning the integrity of the Policy Council
minutes.
E. Policy Council Role in Layoffs in Summer 1993
ACF argued that RDCA laid off a large number of staff during the summer
of 1993 without seeking the approval of, or even consulting with, the
Policy Council. ACF Br. at 10. RDCA made two inconsistent arguments
with respect to the failure to obtain Policy Council concurrence in
these layoffs, i.e., (1) that RDCA had to respond by layoffs to a sudden
emergency so there was no time to consult or (2) that layoffs in summer
months were routine so there was no reason to consult.
First, RDCA claimed that ACF was overlooking "the emergency nature of
the layoffs." RDCA Br. at 26-27. RDCA asserted that Ms. Grant was
suddenly informed by the fiscal officer of a cash shortfall that
necessitated immediate layoffs. Id. at n. 28; Tr. at 1029. Ms. Grant
testified that she did not believe she needed the concurrence of the
Policy Council in the layoffs, as opposed to terminations, but that she
made efforts to reach the Policy Council which were unsuccessful because
some members did not have telephones. Tr. at 1029-30.
This position, that RDCA coped reasonably with an unexpected crisis, is
unsupported. RDCA did not explain satisfactorily how a fully-funded
program with the ability to draw down funds electronically became
suddenly unable to meet its payroll. RDCA variously attributed the
problem to the fiscal officer's failure to deposit checks in a timely
fashion or to transfer sufficient funds to the payroll account from
different program accounts; these alleged failures do not account for
layoffs of so much of the staff for periods of up to several months,
especially when other alternatives were available, such as immediate
action to transfer any necessary funds. Cf. RDCA Br. at 26, n.28; Tr.
at 975-76 (Hines).
At other times, RDCA asserted that its financial problems resulted from
ACF having provided only $100,000 in funding for a two-month extension,
and that this was insufficient to meet payroll, necessitating the
layoffs. Tr. at 1029; August 13, 1993 Policy Council minutes at 1.
Amendment No. 6 to RDCA's Program Year 8 grant awarded $100,000 for the
period July 1, 1993 to August 31, 1993. By letter dated June 16, 1993,
ACF informed RDCA that it was providing $100,000 as an additional two
months funding while ACF awaited receipt of documents ACF had requested
from RDCA. By letter dated July 29, 1993, Ms. Hines stated that --
The sum given this agency for 2 months is inadequate regardless of
how fiscal needs are determined. Our annual allocation is
approximately one million dollars which implies monthly expenditures
of approximately 85,000 dollars. This means 100,000 for a two month
period is totally inadequate.
Attachment C to RDCA's Appeal of Intent to Deny Refunding. RDCA argued
that this amount was inadequate due to "certain unplanned expenditures
.
. . which necessitated a lay-off of central office staff for several
weeks this past summer." The reasons given for the inadequacy of the
awarded funds were special audit costs, fiscal consultant costs,
increased staff costs (as ACF recommended staff increases), and
increased rental costs. RDCA's Appeal of Intent to Deny Refunding at
2-3.
The record of RDCA's cash withdrawals for 1992-1993 shows that RDCA
withdrew $134,952.48 during November, $134,000 during December,
$103,750.82 during January, $57,951.49 during February, $123,146.27
during March, $71,100 during April, $175,000 during May, $45,000 during
June, $55,000 during July, $75,000 during August, $75,000 during
September, and $36,260.73 during October. ACF Ex. 34, at 12-13. There
is no discernible pattern to these cash drawdowns other than that there
were lower amounts toward the end of the 12-month period. However, the
cash available from May through August averaged in excess of $80,000 per
month. While RDCA therefore may well have experienced a cash shortfall
during the summer of 1993, as it asserted, the existence of another
"emergency" resulting in the lay-off of staff must be laid at the
feet
of RDCA management. RDCA must bear the responsibility for its fiscal
straits even if caused by deficiencies of its fiscal officer in not
adequately forecasting cash needs. While RDCA complained to ACF about
the award amount, RDCA had been notified in June 1993 of the award
amount for July and August and there is no record of a formal request to
increase the funds awarded supported by budgets or records of required
expenditures for those months. 62/ By letter of July 20, 1993, ACF
specifically told RDCA that "[i]f additional funds were needed, there is
a procedure by which they may have been requested." RDCA Appeal of
Intent to Deny Refunding, Attachment C. While the amount awarded is
lower than amounts awarded for other months, there is no basis for
concluding that this amount was unreasonably low since children were not
enrolled in Head Start during the summer months. Therefore, any funding
crisis is RDCA's responsibility given its obligations to have had
appropriate records projecting its cash needs for those months. 63/
The difficulty of reaching Ms. Alston or other Policy Council members by
telephone may explain some delay in obtaining their concurrence in an
emergency action, but does not justify failing to bring the situation to
their attention by mail or by calling a prompt meeting. Yet RDCA
provided no evidence of a mailing to Policy Council members about this
alleged emergency. Ms. Alston testified that the layoffs were not
discussed at a Policy Council meeting beforehand, and were never
approved by the Policy Council, and that she was never sent a copy of
the layoff letter. Tr. at 517, 519, and 522. Although the June 1993
Policy Council minutes reflect a fiscal report, they do not show any
indication that a funding crisis resulting in a massive staff layoff was
imminent or had just occurred. ACF Exs. 45, Tab 8. The next meeting of
the Policy Council was not held until August 13, 1993, since no meeting
was held in July 1993. Oral Argument Tr. at 42-43. At the August
meeting, an explanation was offered that the layoffs were the result of
inadequate funding, but no action by the Policy Council was sought or
taken to ratify the layoffs or to consider which staff would be called
back. August 13, 1993 Policy Council minutes.
Contrary to its argument about the emergency nature of the layoffs, RDCA
also asserted that ACF was exaggerating the gravity of the layoffs,
because such layoffs are common for Head Start programs in the summer
months. RDCA Br. at 26, n.27. In addition, RDCA stated that it "has had
to routinely lay off employees during the summer months to conserve
funds," because of "ACF's historic pattern of underfunding."
Id. RDCA
cited nothing in the record to support these contentions. No testimony
or documentation was presented of another layoff in prior years at RDCA,
nor any information about layoffs at other programs. Tr. at 549. While
some employees may serve only during the school year, the layoff letter
involved here was expressly directed at 12-month employees. ACF Ex. 27,
Tab 10. 64/ No testimony supported the contention that this was a
routine occurrence. Ms. Jeroline Smith testified that the layoff and
her termination were unexpected by the staff, which argues against a
routine practice. Tr. at 200.
And, contrary to the claim of underfunding, Ms. Hines, RDCA's Head Start
Director, testified that RDCA's Head Start Program has always been fully
funded. Tr. at 981. (She attributed the problems with making payroll
and providing supplies to "unexpected expenses" associated with RDCA's
high risk status, to ACF advice to increase the fiscal officer's salary,
to the cost of special audits, and to higher rent costs. 65/) The
minutes of both the Policy Council and the Board of Directors from the
period surrounding the layoffs contain no suggestion that the program
was suffering from chronic underfunding or a cash flow crisis, which
undercuts the credibility of this claim at this late date. We reject
RDCA's further implication that ACF manipulated the amount of RDCA's
awards to inadequately fund it. 66/ We also reject RDCA's claim that
the two requests for additional funding which it made in the past two
fiscal years demonstrate underfunding by ACF. Hence, we conclude that
RDCA did not demonstrate that ACF failed to adequately fund it. 67/
Ms. Grant's position that no concurrence of, or even consultation with,
the Policy Council, was required for a layoff, because the standards
require approval only of hiring and firing is without merit. Tr. at
1030. It is true that the Policy Council must approve in advance the
hiring and firing of all Head Start staff. 45 C.F.R. Part 1304, App.
B, Chart C. However, the Policy Council must also approve in advance
the making of "major changes in . . . work program while [the] program
is in operation." Id. The positions filled by staff members who were
laid off and never recalled were clearly key to the operation of a Head
Start program, including Health Coordinator, Parent Involvement
Coordinator, and Social Services Coordinator. The regulations require
that the Policy Council play a decision-making role in such sweeping and
permanent changes in personnel. The requirement to obtain Policy
Council approval may not be evaded simply by characterizing the
termination of key staff as layoffs rather than firings. 68/
We conclude that the layoffs during the summer of 1993 were imposed
without adequate involvement of the Policy Council.
F. Failure to Obtain Policy Council Approval for Terminations
ACF alleged that RDCA failed to obtain approval from the Policy Council
prior to terminating certain staff persons (including persons who were
laid off and replaced or never called back to duty). According to an
Information Memorandum sent to all Head Start grantees in 1987, when
RDCA was receiving Head Start funds, ACF pointed out that, prior to
being asked to approve the firing of an employee, a Policy Council
should be consulted about the problems with the employee's work. ACF
Ex. 3, at 2 (ACYF-IM-87-33, issued November 5, 1987). One would
therefore expect to find references in Policy Council minutes preceding
each termination to consultation with the Head Start Director and to a
request for approval of a proposed termination, followed by Policy
Council approval prior to the actual termination.
Turning to the particular individuals terminated, ACF argued that the
Policy Council did not approve the July 1993 layoffs of Ms. Spruill and
Ms. Jeroline Smith, as well as other staff members such as Ms. Cooke,
Ms. Debra Forriest, Ms. Mary Powell, or Ms. Barbara Smith. ACF Br. at
10, n.3; see also Tr. at 517, 548-49 (Alston). Of those individuals
named by ACF, only Ms. Barbara Smith and Ms. Cooke ever returned to work
at RDCA after the layoff, and Ms. Cooke was suspended and then
terminated later that year. ACF alleged that the Policy Council never
approved these terminations.
RDCA argued that Ms. Spruill's termination was approved by the Policy
Council, because the minutes of the Policy Council for September 10,
1993 evidence an agreement to eliminate the position of Administrative
Assistant which she then held. RDCA Br. at 28; ACF Ex. 45, Tab 9, at 2.
RDCA contended that "when the Policy Council agrees to eliminate a
position the person holding that position will necessarily be terminated
or transferred." RDCA Br. at 28. Consequently, RDCA concluded that
the Policy Council must have concurred in her termination absent a
showing of an attempt to find her another position. The Policy Council
minutes do not support this interpretation. Not only is ACF correct
that no reference is made to Ms. Spruill or her termination, but the
position of Administrative Assistant is not eliminated but rather
changed to clerk typist. Therefore, the more reasonable expectation of
the Policy Council, absent explicit information that she was to be
terminated, was that Ms. Spruill was being transferred to the position
of clerk typist. Ms. Spruill's termination letter was dated September
24, 1993. ACF Ex. 27, Tab 13. This was two months after she was laid
off in July 1993. ACF Ex. 27, Tab 10. The Policy Council did not meet
in July 1993 and the minutes for the Policy Council meeting of August
13, 1993 made no reference to Ms. Spruill. We find no basis in the
record sufficient to conclude that the Policy Council concurred in or
was even aware of the intended termination of Ms. Spruill.
Ms. Jeroline Smith testified that she was hired as a teacher in 1984 and
became a Center Director. Tr. at 181-82. She was told at the end of
the 1993 school year that she was to become the Parent Involvement
Coordinator. Tr. at 182, 189-91; see also ACF Ex. 47, Tab 15 (Staff
Meeting Minutes of April 12, 1993, showing staff rotation of Ms. Smith
to Parent Involvement Coordinator and ACF Ex. 47, Tab 20, at 2, showing
her working with other Parent Involvement staff on student acceptance).
She was laid off in the summer of 1993, after receiving the layoff
letter effective July 16, 1993. Tr. at 191; ACF Ex. 27, Tab 10. She
was never called back to work and received a letter in September 1993
terminating her on the grounds that she lacked the computer background
required for the position of Parent Involvement Coordinator. Tr. at
192. In fact, some evidence in the record supports a conclusion that
she had already been replaced without notice months earlier, since staff
meeting minutes from July 27, 1993 refer to another employee holding the
position of Parent Involvement Coordinator. ACF Ex. 24, Tab 3, at 10;
see also August 13, 1993 Policy Council minutes. None of the Policy
Council minutes from the period before or after Ms. Smith's layoff and
subsequent formal termination reflect any discussion of her layoff, of
increasing computer requirements for the Parent Involvement Coordinator,
of Ms. Smith as an employee, or of any intention that her employment at
RDCA be terminated. ACF Exs. 24 and 45; see also August 13, 1993 Policy
Council minutes. We therefore conclude that Ms. Smith's termination was
not approved by the Policy Council as required by Head Start performance
standards.
Ms. Cooke testified that she was laid off in July 1993, but continued to
work without pay. Tr. at 613. She testified that she went on sick
leave on November 15, 1993 for emotional stress. Tr. at 615. She was
suspended on December 23, 1993 and got a letter on January 5, 1994
stating that she was being laid off due to lack of funds and her use of
leave. Tr. at 617, 653- 54. She also testified that she submitted a
doctor's note as required, but that Ms. Hines rejected it as
insufficient. Tr. at 618. She further stated that to her knowledge the
Policy Council never approved her suspension or termination. Tr. at
617. She based this on having written to request a hearing from the
Policy Council and not having received a response as of the DAB hearing.
Tr. at 640.
RDCA argued that the Policy Council minutes of November 22, 1993
evidence "concurrence in the termination of" Ms. Cooke. RDCA Br. at
29. Those minutes reflect only that Ms. Hines reported that Ms. Cooke
(the Disability Coordinator) had been out on medical leave without
giving a medical reason, that she was due to bring in a doctor's slip,
that she was a probationary employee, and the conclusion that: "If
documents are produced and there is a real reason for being out then
everyone in the office will have to pitch in to fulfill her
obligations." ACF Ex. 45, Tab 12, at 1. A motion was made and seconded
to terminate her employment, but no vote to approve Ms. Cooke's
termination was recorded. The minutes are thus ambiguous, since they
record no final vote and refer to an expectation that she may bring in
the necessary documents and other employees will then help out with her
work. Ms. Christine Banks, then Policy Council Secretary, testified
that the Policy Council was asked to terminate the Disability
Coordinator but decided to give her more time to explain her absence and
that they never revisited the issue. Tr. at 569-70. 69/ The Policy
Council minutes show that just a week later the Policy Council met again
and decided to give Ms. Cooke more time to bring in a reason for her
medical absence. ACF Ex. 45, Tab 13, at 1. Those minutes contain no
suggestion that this action was a rescission of any earlier final
action. On balance, the most reasonable conclusion is that Ms. Cooke's
termination was not approved by the Policy Council as required by the
Performance Standards.
In regard to Ms. Powell and Ms. Forriest, RDCA stated that no evidence
was presented that they were illegally terminated. RDCA Br. at 69.
Neither Ms. Forriest nor Ms. Powell testified at the hearing. However,
Mr. Alexander testified that they were, respectively, the Parent
Involvement Coordinator and the Social Services Coordinator in January
1993 when he conducted the second OSPRI review, and that neither
presently works for RDCA. Ms. Sandra Alston, former Policy Council
President, testified that both were laid off during the summer of 1993.
Tr. at 518. She testified that she knew Ms. Forriest to be dedicated
and hardworking, and that Ms. Powell had had early problems but had
straightened out before her departure. Tr. at 546-47. Ms. Forriest's
termination letter dated September 24, 1993 is in the record, and refers
to "new requirements for the position of Social Services Supervisor."
ACF Ex. 27, Tab 14. No termination letter was cited for Ms. Powell.
None of the Policy Council minutes from 1993 contain any approval of
their termination or any other reference to the departure of these two
key staff members. ACF Ex. 45, Tabs 2-13; August 13, 1993 Policy
Council minutes. These facts are sufficient to raise an inference that
both coordinators were terminated without Policy Council participation.
RDCA had to come forward with some evidence to rebut this, such as, for
example, resignation letters or evidence of Policy Council action. RDCA
did not present any such contrary evidence. RDCA Br. at 69. We
conclude that Ms. Forriest and Ms. Powell were terminated without Policy
Council approval.
In addition to those employees terminated after the summer of 1993
layoffs, ACF alleged that the Policy Council did not properly approve
the terminations of Ms. Lohr and Mr. Robertson. ACF Br. at 16-18. The
Policy Council minutes of October 22, 1993 show a discussion about the
problems in the fiscal department, a recommendation from the Board of
Directors for the termination of both employees, and a decision to hear
from the employees. ACF Ex. 45, Tab 10. A meeting was then held on
October 29, 1993 for that purpose. ACF Ex. 45, Tab 11. 70/ At that
meeting Ms. Lohr and Mr. Robertson were questioned separately, and, as
discussed above, we heard conflicting testimony at the hearing about the
accuracy of the summary of Mr. Robertson's interview in the minutes.
The minutes of October 29, 1993 conclude with a unanimous vote to
terminate both Mr. Robertson and Ms. Lohr. We conclude that
insufficient evidence was presented to support ACF's allegation that Ms.
Lohr and Mr. Robertson were terminated without Policy Council approval.
We conclude that several employees were terminated without the required
Policy Council approval in violation of the Head Start performance
requirements.
5. Failure to Submit a Fundable Application
ACF alleged that none of the three applications for refunding submitted
by RDCA after August 1993 could be approved because they each failed to
meet some of the threshold requirements for such review. ACF's More
Definite Statement at 11. Ms. Frances Braunbeck testified that, in
order for ACF to complete processing and approve an application, three
threshold requirements must be met, i.e. administrative costs must be
less than 15%, a matching non-federal share of 20% must be shown, and
Policy Council approval must be included (and updated if major
amendments are submitted to the application). Tr. at 669-70, 682-88,
692. RDCA responded generally that the problem with meeting the
matching requirements was the result of erroneous data on the total
funding available which ACF had sent to RDCA to use in calculating its
budget. RDCA's Response to More Definite Statement at 8. Where Policy
Council approval was missing, RDCA alleged that it had promised to
submit documentation later. RDCA did not allege, however, that any one
of the applications constituted a complete application meeting the three
threshold requirements explained above. 71/ In any case, we do not need
to make a detailed review of the status of each application, since the
evidence overwhelmingly supports the reasons for termination and denial
of refunding advanced by ACF, as discussed above. Hence, even if a
fundable application had been completed, ACF had sufficient bases to
deny refunding for those reasons.
6. RDCA Defenses
A. Selective Enforcement
RDCA argued that, although its program was not in perfect compliance,
nevertheless, "on the continuum of grantees within Region IV from worst
to best, RDCA is on the better end of the scale." RDCA Br. at 2. In
support, RDCA presented documents concerning five particular grantees
and alleged that, since those grantees were not terminated despite
having problems, RDCA could not properly be terminated. In addition,
RDCA relied on a report issued by the HHS Office of the Inspector
General on financial management problems at Head Start grantees
generally. We consider first whether ACF's failure to terminate other
similarly-situated, non-complying grantees, if proved, would be a bar to
RDCA's termination. We next consider whether RDCA has in fact proven
that ACF treated other similarly-situated grantees more favorably.
RDCA conceded that "selective enforcement in and of itself is not a
valid defense to" termination. RDCA Br. at 12. Instead, RDCA argued
more obliquely that, by choosing not to terminate the other grantees,
ACF has demonstrated that it does not consider problems of the kinds
which those grantees have to be "material." Therefore, an effort to
terminate RDCA for similar problems must of necessity be arbitrary and
capricious. RDCA Br. at 6, 12-14. We therefore do not address whether
selective enforcement could ever serve as a defense to termination of a
grant for failure to comply with program requirements.
On the narrower issue framed by RDCA, we fail to see how violations
committed by other grantees bear on the question of the materiality of
RDCA's non-compliance even as RDCA itself defined materiality, i.e.,
relevance "to the grantee's ability to carry out its obligations under
the grant." RDCA Br. at 10. The same violations might be within bounds
of tolerance in the circumstances of one grantee but beyond acceptance
or correction in another. The difference might result from their
relative size or budget, their history of prior problems, the grantees'
experience in operating Head Start or other programs, the availability
of alternative grantees and the community need in the particular
locations, evidence that the violations were inadvertent or intentional,
evidence of effective corrective actions and cooperation, or a host of
other considerations within the discretion of the grantor agency to
evaluate.
Furthermore, RDCA's position that by not terminating some grantees ACF
set a standard that any violations committed by those grantees were
immaterial in any context would make a mockery of the legal obligations
imposed on grantees. Cf. RDCA Br. at 74. ACF cannot be deprived of
either its power or its responsibility to monitor the Head Start program
and enforce its requirements simply because ACF officials decided not to
act in some instances or even if they neglected to act in some cases
which might also have been meritorious. To conclude otherwise would
require the federal government to "throw good money after bad" and
to
continue indefinitely to fund ineffective, incompetent or non-complying
programs because it had once begun to do so. Nor do we see any basis
for requiring ACF to rank its grantees from best to worst and begin
imposing sanctions on the worst grantee first. If the termination of a
grantee is justified by its failings, it is hardly a defense that
someone else should be terminated first.
Nor do we credit RDCA's claim that the "only guidance a grantee receives
concerning the materiality standard in the Head Start regulations is the
enforcement actions of ACF relative to other grantees." RDCA Br. at 40.
RDCA presented absolutely no evidence that RDCA relied upon or was even
aware of the enforcement actions of ACF relative to other grantees in
determining its course of action prior to receiving its termination
notice. 72/ RDCA cited no authority which would entitle it to rely on
information it might glean about enforcement actions involving other
grantees to justify lax compliance with its legal obligations. Even if
RDCA received some information on other grantees' deficiencies, RDCA
could not reasonably rely on ACF's failure to terminate these grantees.
Certainly, RDCA had ample guidance about its obligations as a Head Start
grantee from its own grant documents, as well as the correspondence RDCA
received from ACF before and after it was placed on high risk status.
This correspondence should have alerted RDCA that, whatever might be the
case with others, ACF considered RDCA's violations to be serious and to
require correction. We therefore reject RDCA's contention that its
violations must be overlooked if other grantees with similar or more
serious violations were not terminated.
Turning to the evidence on which RDCA relied to prove differential
treatment, we do not find that RDCA persuasively demonstrated that the
other grantees were similarly situated or differently treated. Mr.
Sheppard testified for ACF that, in a number of cases, other grantees
were treated more harshly. For example, some grantees were put on
manual cash review or inspected in unannounced visits. Tr. at 84. The
different treatment was based, he testified, on such factors as the
larger amounts of funds involved or the existence of some criminal
activity. Tr. at 88-90.
RDCA offered OSPRI reports for four grantees (one from 1990, two from
1992 and one from 1993), and the 1991 and 1992 audit reports of a fifth
grantee as evidence that their violations were as bad or even more
egregious than RDCA's, yet these grantees were not terminated, denied
refunding or placed high risk. RDCA Supp. Exs. 1(a)-(f). Each of these
documents did evidence areas of non- compliance in the programs
involved. For example, one grantee's Policy Council had not had a
quorum at its meetings for a year; another had non-compliance findings
in six component areas; a third had violated its bylaws and personnel
policies; a fourth had centers out of compliance with safety standards;
and so on. Id. There is no question that the reports refer to serious
findings of non-compliance. However, RDCA did not provide the preceding
or succeeding year's OSPRI report for any of the grantees for which RDCA
submitted OSPRI reports. Thus, all RDCA chose to look at was a snapshot
of a single period in which each of these few selected grantees had
serious problems. RDCA too had serious findings of non-compliance in
its 1991 OSPRI (as well as problems in even earlier audits) but was
neither designated high risk nor terminated at that time.
Mr. Alexander testified that these grantees were under his supervision
and that ACF took seriously the kinds of concerns found in the documents
submitted by RDCA, even though it had not terminated the grantees
involved or placed them on high risk status to date. Tr. at 796-824. He
testified further that most of the deficiencies found in RDCA's
documents relating to other grantees have been corrected and that before
terminating a grantee, ACF looked for deficiencies across "a broad range
of administrative responsibilities" and persisting "over long periods
of
time." Tr. at 836-37. The documents submitted by RDCA lend some
corroboration to Mr. Alexander's testimony on correction. RDCA
presented audits from more than one year only for one grantee. In that
case, the second audit submitted expressly found that all findings but
one from the preceding year's audit "have been resolved." RDCA Supp.
Ex. 1(e) at 68; see also RDCA Supp. Ex. 1(d). By contrast, not one
audit reported that RDCA had corrected any of the findings made about it
year after year. RDCA offered no credible evidence countering the
testimony and documentary evidence that the other grantees made more
effective corrective efforts or that their violations were less
wide-ranging or long-lasting than those of RDCA. 73/
As further support for its argument that ACF's treatment of other
grantees gave RDCA reason to believe that its problems would not be
treated so seriously, RDCA attached to its brief a synopsis of a report
issued by the HHS Office of the Inspector General in September 1993,
entitled "Summarization of concerns with the financial management
systems and control structures found at Head Start grantees." RDCA Br.,
Appendix C (IG Report). RDCA pointed out findings that a high
percentage of Head Start grantees had findings relating to internal
control or other financial non-compliance, based on independent audit
reports (only 29% had no such findings). RDCA Br. at 62-64; IG Report
at 2. RDCA also quoted from the impressive range of problems found
among Head Start grantees. Some of the inadequacies are similar to
those found at RDCA, such as poor accounting procedures, inadequate
inventory records, absence of safeguard over assets, absence of proper
segregation of employee duties, failure to reconcile records and
accounts, inadequate budget and spending controls, breaches of federal
laws, filing of inaccurate federal financial reports, inadequate
supporting documentation (including invoices, time sheets, etc.),
failure to return interest on federal funds, and so on. Some problems
were listed which were not noted at RDCA, such as lack of collaterally
securing bank account balances above federal insurance limits, or
failure to meet licensing requirements.
The IG Report does not tie particular violations to individual grantees,
however, so it provides no way to compare the range, seriousness and
persistence of problems at RDCA with those found at other grantees. The
IG Report shows that many Head Start grantees encounter fiscal problems
of one kind or another, but it does not show, as RDCA claimed, that "the
vast majority . . . have similar or worse financial management problems
than those allegedly committed by RDCA." RDCA Br. at 62. RDCA
overlooked the essential thrust of the report which was to highlight
ACF's need to strengthen the controls in the Head Start program in light
of its anticipated expansion. By RDCA's reasoning, no grantee could be
terminated so long as other grantees are also out of compliance. Yet
ACF is certainly obliged to begin somewhere in addressing the apparently
widespread fiscal problems. ACF did not begin with RDCA. The record
shows that ACF has terminated five grantees in HHS Region IV alone from
1990 to 1993 (and two more in 1994 so far). ACF Ex. 18, Tab 1. Data
collected from eight of the nine other regions reported 31 terminations
in the same four years. Id. Over that period, 27 grantees in Region IV
were designated high risk and 41 in the other regions. Id. RDCA may not
have been the worst grantee in Region IV, but there is simply nothing in
the record to support its reiterated assertions that it was singled out
for harsh treatment.
Furthermore, RDCA did not represent accurately the conclusion of the IG
Report. RDCA relied on the report's recommendation that ACF "fortify
its training and technical assistance efforts relating to financial
management matters" to improve the performance of grantees as a basis
for concluding that ACF should have provided RDCA with more technical
assistance after September 1993 "when RDCA was experiencing fiscal
problems" rather than using "RDCA's fiscal problems as an excuse to
attempt to" terminate RDCA. RDCA Br. at 64; IG Report at 3. However,
RDCA overlooked the two other recommendations of the report, i.e., that
ACF should (1) "identify high risk grantees to upgrade their procedures"
and (2) "drop grantees that cannot demonstrate sound fiscal and
management controls for the programs, and develop a contingency plan to
replace substandard performers." IG Report at 3-4 (emphasis added).
ACF has done with RDCA precisely what the report recommended.
We conclude that RDCA failed to prove that ACF's treatment of other
grantees misinformed RDCA about the seriousness of its own violations or
that ACF acted arbitrarily or capriciously in terminating RDCA in light
of its treatment of other grantees.
B. ACF's Alleged Failure to Provide Adequate Technical Assistance
RDCA argued that ACF could not terminate RDCA because RDCA's failure to
comply with the terms of its grant was "due, in great part, to ACF's
failure to uphold its end of the bargain," by providing sufficient
technical assistance. RDCA Br. at 17.
The Head Start Act provides that:
The Secretary shall provide, directly or through grants or other
arrangements (1) technical assistance to communities in developing,
conducting, and administering programs . . . ; and (2) training for
specialized or other personnel needed in connection with Head Start
programs [which includes funding for developing centralized
credentialling and training programs].
42 U.S.C. 9843(a). 74/
RDCA conceded that this "statutory mandate for technical assistance .
.
. is met if the technical assistance provided is reasonable in the
circumstances." RDCA Br. at 16. ACF agreed that this criteria was
appropriate. ACF Br. at 68. We therefore turn to what technical
assistance was provided and then discuss what constitutes reasonable
technical assistance under the circumstances presented here.
The technical assistance provided by ACF to RDCA during the period at
issue (roughly 1991 through 1993) included the following:
o Training provided through ACF or with ACF funding. ACF Br. at
68; see also ACF Ex. 45, Tab 6, at 3. The record includes the
following examples of training attended by RDCA staff, Board or
Policy Council members in the last two years alone:
National Head Start Association Conference in California in April
1992 attended by then Head Start Director, as well as Board
members. ACF Ex. 27, Tab 4, at 1.
15th Annual Grants/Fiscal Management Workshop in Atlanta in June
1992, attended by then Head Start Director and fiscal officer.
ACF Ex. 21, Tab 2, at 1; ACF Ex. 24, Tab 1, at 6.
National Head Start Association Conference in Indianapolis in
April 1993 attended by at least seven staff or Policy Council
members. ACF Ex. 24, Tab 2, at 7.
Disability training in Atlanta -- May 1993. ACF Ex. 46, Tab 9,
at 6.
Fiscal Training in Atlanta -- June 1993. Id. at 7.
Parent Involvement Institute in Washington, D.C. in August 1993.
Id.
Training conferences each year for Board and staff members with
Center for Community Change from Washington, D.C. Tr. at 922.
75/
o Funding for peer reviewers and outside consultants to provide
technical assistance to RDCA on site:
Mr. Philhours from Western Kentucky University provided technical
assistance to the fiscal office at ACF's request in 1988 and
1992. ACF Ex. 23, Tab 4.
Ms. Foster, a peer reviewer trained and certified by ACF, was
hired by RDCA (with Head Start funds) to provide technical
assistance in December 1992, and produced a report (with findings
of serious financial problems discussed above). Tr. at 47- 51;
ACF Ex. 23, Tab 5.
Mr. Tom Spivey, a CPA, was brought in with the support of ACF to
help with the fiscal department from November 1992 to January
1993. ACF Ex. 38, Tab 2, at 13; Tr. at 946.
o Meetings in Atlanta between ACF and representatives of RDCA to
address how concerns could be resolved. ACF considered its
meetings with RDCA staff in Atlanta to be efforts to resolve
problems and provide needed guidance. Tr. at 80, 844; ACF Exs.
28, Tabs 3 and 4, and Ex. 37, Tab 2. ACF also provided evidence
that RDCA did not follow up on an ACF offer at the July 1992
meeting to provide names of sources for additional technical
assistance. ACF Ex. 30, Tab 3, at 3.
o Correspondence between RDCA requesting guidance and ACF
responding to concerns. The record is replete with
correspondence between ACF and RDCA which offered guidance
directly, offered opportunities for additional technical
assistance, and demonstrated that RDCA was appreciative for help
received. Thus, in the periods after the departures of Mr.
Speller and Ms. Boyd as directors, ACF "provided assistance,
guidance, help in resolving certain matters that they were
concerned about" and there was "a lot of correspondence going
back and forth." Tr. at 29 (Sheppard). Mr. Alexander testified
that it was normal to offer grantees with problems guidance
through letters and meetings. Tr. at 782-84. In the letter
informing RDCA of its high risk designation, ACF offered
additional technical assistance, stated that ACF staff "will be
available to assist you in reviewing your program and providing
information regarding Federal regulations and guidelines and in
helping you obtain specific training/or technical assistance,"
and noted that "if necessary," another site visit would be
scheduled to provide "close assistance in addressing the
deficiencies." ACF Ex. 30, Tab 1, at 2. In November 1992, ACF
wrote to RDCA agreeing to conduct an OSPRI in 1993 to determine
if the issues which led to the high risk designation were
resolved and offered that RDCA could contact named ACF staff with
any questions about its technical assistance process or
practices. ACF Ex. 31, Tab 5, at 2. Furthermore, there is
evidence in the record of telephone contacts with ACF staff by
administrative or fiscal staff from RDCA which ACF characterized
as "extensive." ACF Ex. 30, Tab 3, at 3; see also ACF Ex. 29,
Tabs 1 and 2; ACF Ex. 31, Tab 2 (thanking ACF "staff for all
their good help and guidance, upon which we are sure we have
imposed"); and ACF 38, Tab 2.
o Site visits by ACF personnel in 1991 and 1993 OSPRIs and in 1992
fiscal management review. Each of these visits included
performance evaluation and hands-on technical assistance, in
particular in the financial management area (which has been found
here to be still out of compliance despite being the focus of
this aid), followed by written reports detailing needed
improvements. See ACF Exs. 29, Tab 3, and 38, Tabs 1-3. ACF Ex.
31, Tab 3 (thanking ACF for the "helpful guidance" received
during Mr. Sheppard's fiscal management review). The grants
management regulations clearly contemplate that site visits may
combine the dual purposes of reviewing performance and providing
technical assistance for improvement. 76/
In regard to what constitutes reasonable technical assistance, we note
that the DAB has previously considered this question in the context of
technical assistance which the Secretary "shall" provide to states
in
establishing child support enforcement programs. Guam Dept. of Public
Health and Social Services, DAB No. 1050 (1989); 42 U.S.C. 652. The
DAB found that technical assistance need not be provided in person, but
can be through contacts by telephone and correspondence. Guam at 6; see
also Commonwealth of Puerto Rico, DAB No. 1253, at 10-11 (1991).
Furthermore, allegations of inadequate technical assistance are not
sufficient to excuse the failure to comply with requirements. (This is
particularly clear when the particular assistance which was denied might
well not have sufficed to bring the program into compliance.) District
of Columbia Department of Human Services, DAB No. 1228, at 11 (1991)
(the refusal to provide an agency staff person to assist a state
director on site for three to four days a week for six months, as
requested, not evidence of inadequate technical assistance when
telephone and written advice was available and the state had independent
responsibility to staff and operate its program).
We also note the provisions on what technical assistance is contemplated
for a high-risk grantee in the Departmental Grants Administration Manual
(GAM), which state that the purpose of considering such aid is to "raise
the level of competence" of the grantee, and warns that the "potential
benefits . . . must be weighed against its financial costs, the
intangible costs of Federal intrusion, and the risk that the technical
assistance offered may not be successful." HHS GAM, Chapter 1-05,
1-05-50 (A) and (B). A range of six options are listed for an agency to
consider in providing technical assistance, including telling the
grantee what is wrong and requiring that the grantee cure it (getting
its own technical assistance if needed); permitting the use of
contractors for specific purposes; pointing to a successful grantee as a
model and authorizing the model grantee to offer some guidance and help;
furnishing direct help through site visits or grantee visits to the
regional offices "where narrow problems and minor time commitments are
involved;" and only "in exceptional cases," providing "substantial
direct technical assistance by Federal personnel." Id. at 1-05-50(C).
In this case, ACF met or exceeded the standard for reasonable technical
assistance. ACF produced reports to the grantee telling it what was
wrong and requiring that it be corrected. ACF provided technical
assistance on site and in visits to the regional office by grantee
staff, as well as by telephone and letter. ACF provided assistance
through general training opportunities, through its own staff directly
to RDCA, and by financing outside technical assistance obtained by RDCA.
Perhaps, at times, the content of communications from ACF may not have
been as clear as might be desired. Moreover, it is certainly true that
the technical assistance offered did not result in success, in that RDCA
did not move out of high-risk status. (But, as noted in the GAM, there
is always a risk that technical assistance will not be enough to save a
grantee.) In seeking to help a grantee in trouble, the agency wears two
hats, since it must also monitor the grantee's performance, which can
result in misunderstanding. 77/ At times, RDCA staff may thus have had
expectations about the agenda for its meetings with ACF or for the site
visit process that were disappointed. See, e.g., Tr. at 1003-05 and ACF
Ex. 28, Tabs 3 and 4 (indicating RDCA went to Atlanta expecting to
discuss only Mr. Speller's termination and instead ACF addressed many
other problems which RDCA acknowledged; Tr. at 864 (indicating RDCA
expected financial management review to mean "you are coming to help,
not place us on high risk"). Some of the efforts at providing
assistance and guidance were frustrated by the turnover in RDCA's staff.
See, e.g., Tr. at 36-38 (Mr. Sheppard's technical assistance during his
financial management review provided to Ms. Newsome, then fiscal
officer, was fruitless, since Ms. Newsome left within days thereafter).
Significantly, RDCA never clearly articulated here what assistance from
ACF would have sufficed to bring RDCA into compliance. RDCA did not
point to any specific request for technical assistance services that was
refused, 78/ and the record contains many offers from ACF to RDCA of
technical assistance. The only thing that was evidently not done was
for federal staff to remain on site long term in an effort to bring the
program into compliance. Such intensive involvement is not required by
the mandate to provide technical assistance to a grantee (as prior DAB
decisions have found), is only contemplated in "exceptional cases,"
and
represents a real risk of "Federal intrusion" (a special concern here
in
light of the hostility which had arisen in relations between federal
staff and the grantee).
In the end, the technical assistance offered by ACF unquestionably fell
well within the standard which both parties agreed was applicable, i.e.,
it was reasonable under the circumstances. We find no basis for
excusing RDCA's failures to comply with the terms and conditions of its
grant on the grounds of any inadequacy of the technical assistance
offered to it by ACF.
C. ACF's Alleged Conspiracy to Destroy RDCA
Much of RDCA's response to ACF's allegations is based on the premise
that ACF has improperly singled out RDCA for harsh treatment. 79/ RDCA
proposed several possible reasons for this:
(1) ACF is engaging in a planned effort to "destroy Black grantees"
(RDCA expressly withdrew this charge of racial bias from the DAB's
consideration, stating that it would pursue the issue in another forum.
Tr. at 24, and 1017; Summary of Telephone Conference at 3 (April 4,
1992).);
(2) ACF had a personal vendetta against Ms. Grant and/or Ms. Hines; or
(3) ACF conspired with Mr. Speller and other terminated or disgruntled
employees to tamper with the program. RDCA Br. at 2-3.
ACF categorically denied any bias in its treatment of RDCA. ACF Br. at
64.
Assuming ACF's motives in proposing to terminate RDCA as a Head Start
grantee are relevant, we find that RDCA presented no direct evidence to
support any of its theories of conspiracy by ACF staff against it;
instead RDCA relied entirely on innuendo, inference, and speculation, as
described below. For example, asked to explain what she meant by
"attacks from ACF" on RDCA, Ms. Grant testified that Mr. Alexander
from
ACF called Ms. Hines seven times about a situation involving the
termination of an employee "with various verbal threats that they don't
put in writing" and that Ms. Hines had been "told, on a few occasions,
the funds would get cut off unless she did something or another that was
ridiculous. General harassment." Tr. at 1131. While Ms. Grant may
have felt that ACF calls or letters over two years "didn't make sense,"
the discussion in the analysis above evidences that ACF had very
substantial concerns about RDCA's operations. Id. Ms. Grant's charges,
without any further detail supporting Ms. Grant's interpretation of
these events as harassment, amount to unsupported inference and
innuendo. Ms. Grant also testified that a local newspaper reported that
another organization in the area had voted on whether to compete for the
Head Start program; she concluded that "I cannot swear, of course, that
ACF has promised them our program." Tr. at 1011. Such speculation
without foundation cannot be given any weight as evidence of ACF's
alleged animus against RDCA.
This case is not the first time RDCA has offered a defense based on
claims of bias against it on the part of ACF. See RDCA I, DAB No. 1384,
at 14 (1993). In a prior proceeding, the DAB found that RDCA's claims
of bias were unsupported and "based on hearsay assertions for which
[RDCA] has offered no concrete proof. Such assertions are simply too
tenuous to be credible." RDCA I, DAB No. 1384, at 15. The DAB
therefore rejected RDCA's bias claims, especially since "ACF has a clear
interest in ensuring that its programs are administered correctly, and
[RDCA's] financial reporting problems have been documented in several
independent accounting reports." Id. Thus, RDCA had notice that RDCA
had to present concrete evidence to support any claims of bias,
discrimination, or conspiracy. Nevertheless, as we explain below, we
found RDCA's charges of bias, discrimination, or conspiracy in the
present case equally unsupported.
In regard to racial motivations, although RDCA withdrew the issue before
us, documents in the record (particularly correspondence from Ms. Grant)
and testimony elicited from both RDCA witnesses contained pervasive
references to race. For example, RDCA wrote to a Congressional
representative that it "may or may not have any bearing on our
situation, but we will mention for whatever it is worth that the `face'
of Head Start appears to us to be turning White." RDCA Request for a
Congressional Hearing at 1. This observation was allegedly based on
experience such as attending conferences, but was unsupported by any
evidence in the record. RDCA never explained what the color of the
"face" of Head Start might have to do with RDCA's violations of
performance standards. Ms. Hines testified that she felt that what
happened to RDCA was "genocide, where you would try to get rid of all
the rural, small, minority administered programs and give them over into
the white administered programs." Tr. at 858. Ms. Grant testified to
her belief that RDCA was "among any number of black administered Head
Start programs that were identified for extinction." Tr. at 1006. RDCA
has created a task force with an 800 number in an effort to organize
unhappy Head Start grantees. Id. Similarly, in its Notice of Appeal,
RDCA alleged that the ACF Regional Office was attacking RDCA because it
is "(1) Black, (2) women, (3) rural and (4) small." RDCA Notice of
Appeal at 1 (emphasis in original). RDCA presented no objective data
substantiating the "feelings" of Ms. Grant and Ms. Hines that tighter
enforcement of Head Start performance standards is resulting in a
disproportionate impact on grantees by race, gender, size, or location.
80/ (For example, RDCA did not present any information about the race,
size, location or problems of the callers to its 800 number hotline.)
Since the question of race was not fully addressed in the record, we
reach no overall conclusions about it. However, we note that nothing
presented to us substantiated the claim that the race of the
administration of RDCA 81/ played any role in ACF's treatment of it as a
grantee or in the decision to terminate and deny refunding.
No direct evidence of any personal vendetta against Ms. Grant on the
part of ACF staff was presented by RDCA. Instead, RDCA relied on second
hand reports, as illustrated by Ms. Hines' testimony that she was told
by Mr. Hogan (a consultant) and Ms. Alston (a Policy Council member)
that what ACF really wanted was Ms. Grant and that she [Ms. Hines]
should "step out of the way." Tr. at 856-57. While hearsay may be
admitted in administrative hearings if there are sufficient indicia of
its reliability, this testimony is hearsay about hearsay and lacks any
indicia of reliability. Cf. Richardson v. Perales, 402 U.S. 398,
407-08 (1971). Ms. Hines did not know with which ACF staff person this
statement was supposed to have originated or in what circumstances it
may have been made. Tr. at 935-36. Ms. Alston was a witness for ACF
and did not testify to any such statement. Mr. Hogan was not called by
RDCA. The content of the reported statement is unclear as to what may
have been said. (It is impossible to know what was meant by "wanting"
Ms. Grant or asking Ms. Hines to "step out of the way." For example,
it
is entirely plausible that someone may have commented that Ms. Grant did
not seem capable of correcting the problems at RDCA over a long period
of time, so that no solution seemed likely as long as she was Board
Chair.) 82/ Furthermore, since Ms. Hines, like Ms. Grant, has a
significant interest in the outcome of this case, we do not give her
testimony the same weight as if testimony had been presented from
persons without self-interest. RDCA presented no evidence whatsoever in
support of its claim of a vendetta against Ms. Hines and the reported
statement on which it relied in regard to Ms. Grant implies that ACF was
not opposed to Ms. Hines. The alleged statements about Ms. Grant are
too vague and unreliable for us to draw the inferences that RDCA would
have us draw. Thus, we reject ACF's assertion that ACF had a personal
vendetta against Ms. Hines and Ms. Grant.
In regard to Mr. Speller, RDCA alleged that its former Head Start
Director "felt close enough to ACF officials to abuse his authority . .
. with impunity," that he had "private parties with ACF staff to secure
his position," and that he "went so far as to suggest that he could
provide favors from ACF staff." RDCA Br. at 69-70. The only support
which RDCA cited for these charges was testimony of Ms. Hines that she
remembered Mr. Speller "telling us how he set up ACF staff for parties
and that type thing, . . . That was his boast to us." Tr. at 927. She
said that he told RDCA managers that he could ask for what he wanted
because he "was close friends with everybody in there" and gave parties
during OSPRI reviews. Id. She guessed the parties must have been at
the Ramada Inn, because she could not imagine anywhere else they could
go. Id. 83/ Ms. Hines testified that she did not really know what sort
of favors might have been involved or which ACF staff Mr. Speller was
talking about. Tr. at 967-68. Apart from Ms. Hines' recollection of
Mr. Speller's boasting, RDCA offered no corroboration of any close
relationships, no eyewitness testimony about any parties, no
documentation from the Ramada Inn, and no instance of any favor which
Mr. Speller ever received from anyone at ACF. Ms. Hines stated that he
never even told her the names of any individuals at ACF with whom he
claimed to have such good relationships. Id. Moreover, nothing
presented by RDCA suggested that a social relationship between Mr.
Speller and some unnamed ACF staff persons would necessarily have been
improper.
Ms. Hines also testified that Mr. Speller "told us that he would have
his position back and that ACF would see to that." Tr. at 969.
Indisputably, Mr. Speller has not returned to RDCA nor has any evidence
been offered that anyone at ACF ever sought or suggested his
reinstatement. 84/ Therefore, it seems most probable that his other
bragging about influence with ACF was equally empty.
RDCA read great significance into the timing of complaints to ACF from
"disgruntled employees" which "[m]ysteriously" began to
pour into ACF
shortly after Mr. Speller's termination and which RDCA therefore
concluded must have been orchestrated. RDCA Br. at 69. The facts
better support another interpretation. If Mr. Speller was as brutally
abusive as RDCA's witnesses described him as being, his departure may
well have triggered a wave of complaints from unhappy employees who felt
ill-treated and hoped to find some sympathetic redress, now that Mr.
Speller had been discredited. RDCA gave no logical explanation why Mr.
Speller's claims of close ties to ACF would have led unhappy employees
to feel that their complaints were strengthened "by the desire of ACF
officials to maintain" their relationship with Mr. Speller. RDCA Br.
at 70. It seems more likely that the employees would fear that ACF
would not respond with sufficient vigor if they believed Mr. Speller's
claims that ACF was knowingly tolerating his misconduct. The fact that
some employees nevertheless did turn to ACF with complaints or requests
for assistance may simply reflect its status as the single largest
source of funding for RDCA, rather than constituting any evidence of
conspiracy by ACF.
RDCA also treated as suspicious the timing of ACF's steps to monitor its
program more closely after RDCA "uncovered numerous improprieties on
Carl Speller's behalf, including alleged sexual involvement with Head
Start employees, sexual harassment of Head Start employees,
misappropriation of Head Start funds, and general mismanagement and
intimidation of Head Start employees" and "took swift corrective action
and terminated" him. RDCA Br. at 3. First, there is evidence in the
record that ACF was concerned about Mr. Speller well before he was
terminated, contrary to RDCA's claims that ACF gave him "tacit approval"
to violate Head Start Performance Standards. RDCA Br. at 52. 85/
Second, closer monitoring of a program in the kind of trouble described
by RDCA itself is hardly a reaction suggesting bias against RDCA. On
the contrary, failing to increase the level of monitoring might well
have been irresponsible. Thus, we reject RDCA's claim that ACF
persecuted RDCA because Mr. Speller was terminated.
RDCA's evidence of conspiracy between ACF and terminated employees
boiled down generally to anonymous claims of having "sighted" ACF
staff
talking to former employees. See, e.g., RDCA Request for Congressional
Hearing, Attachment A-1, at 5 ("We have just been notified by a source
we believe to be reliable that your [ACF's] staff was seen meeting with
Carl Speller at their hotel during their stay for the Ospri review."];
id., Attachment E-4, at 2 (Terminated employees and a former Board
member "have spoken of regular contacts with" ACF staff.); RDCA Notice
of Appeal at Attachment K-1 (Mr. Alexander and Mr. Sheppard "have been
seen meeting" with disgruntled or terminated staff). RDCA felt that its
"opponents" (as it described Mr. Speller, Ms. Boyd -- both former
directors, Mr. Roberson - a former Policy Council President, and a few
employees) "could not have carried their attack as far as it went, nor
accomplished the `turmoil' and destruction they did had they not had
`receptive' or otherwise encouraging `ears' in Atlanta [ACF Regional
Office]." RDCA Appeal of Disallowed Costs at 2. The underlying
assumption of all of these allegations is that it is inappropriate for a
monitoring agency to receive communications from former or present
staff, Board or Policy Council members, and that following up by
investigating complaints presupposes hostility toward the grantee. Even
if we credited the unattributed and vague claims of meetings and
sightings, we do not share the assumption that such interaction was
necessarily surreptitious or showed complicity by ACF in fomenting
dissatisfaction. The described course of events is equally consistent
with a grantor agency taking seriously its responsibility to determine
what is going on in a grantee program that, by its own description, had
had serious problems in the recent past. There is no evidence that ACF
was intervening in an attempt to influence the internal grievance
proceedings on any of the terminations (even when terminated employees
may have sought such intervention). But that policy of not intruding in
individual employee grievances except to assure due process does not
preclude ACF gathering information from such former employees and
weighing it in the context of its overall monitoring and review efforts.
Ms. Grant and Ms. Hines clearly interpreted RDCA's escalating
difficulties with successive employees over recent years as the result
of tampering by ACF staff or other disgruntled employees. See, e.g.,
Tr. at 1061; Tr. at 1046-47; ACF Ex. 45, Tab 9, at 3 (Ms. Hines stated
that "Mr. Alexander has been calling the agency and has left alarming
messages in hopes to try and destroy the staff morale"). 86/ However,
RDCA produced no evidence in support of this interpretation. No one
testified that they became unhappy or were encouraged to complain
because of contacts with ACF staff. No satisfied staff members
testified about any efforts made by ACF staff or others to cause them to
turn against RDCA, as would be expected if such a conspiracy were
underway. On the other hand, substantial evidence was presented that
many employees found the work environment at RDCA demoralizing.
RDCA also repeatedly accused ACF of misrepresenting facts about RDCA and
of employing "corrupt, unconscionable tactics . . . to sabotage" RDCA.
RDCA Request for Congressional Hearing, Attachment F-1; see also id. at
Attachment A-3, at 7; RDCA Notice of Appeal at 5. The kinds of
misrepresentation alleged included referring to the full amount of a
disallowance when some portion was reversed on appeal to the DAB. Even
if such an error were made referring to the amount of funds owed the
government, or even if RDCA disagreed with findings in OSPRI or FMR
reviews, the characterization of such disputes as corrupt is
unwarranted. See, e.g., id. at Attachment F-4. Examples of the
"tactics" involved were the high risk designation and subsequent
monitoring activities, when RDCA felt that its only "crime" was
terminating a Head Start Director and Fiscal Officer for questionable
financial incidents. Id., Attachment F-2. 87/ The discussion in the
preceding sections makes clear that those terminations were not the
"crime" for which ACF was designating RDCA as high risk or acting
to
watch it more closely.
We conclude that RDCA's allegations of a conspiracy by ACF to attack
RDCA's program or leaders were unsubstantiated.
D. Conclusion on RDCA Defenses
Ultimately, RDCA blamed everyone in sight for its problems. It blamed
ACF for inadequate technical assistance and for singling it out for
attack. It blamed DOL. It blamed Mr. Speller. It blamed the
incompetence or failings of virtually every past member of its fiscal
staff. It blamed the "apathy" of its Policy Council. It blamed
"disgruntled" present and former employees. While the record reflects
a
pervasive and growing concern at RDCA with eliminating "negative"
thinking and defending against outside "attacks," the record simply
does
not establish that RDCA took the necessary concrete actions to correct
the problems to which its attention was directed. RDCA was under an
affirmative obligation to hire a competent staff and establish an
effective Policy Council, so, to the extent that its ongoing problems
arose from staff failures or Policy Council inaction, RDCA is not
thereby blameless. In the final analysis, RDCA accepted funds from ACF
on the condition of complying with all relevant laws and other grant
terms and cannot escape the consequences of failing to comply with so
many of them over so long a period of time.
We do not imply that the staff or management of RDCA acted without
concern for the children or that valuable services were not provided to
the community by RDCA. Unfortunately, however, the management of a
rapidly- expanding program with an annual budget of over one million
dollars in federal funds requires more than good intentions and good
will. It is not enough to sincerely wish to serve children and
families, not enough to have found friends and supporters, and not even
enough to have provided useful services over the years. The management
must be able to account for how federal funds have been spent, so that
taxpayers can be assured that they are spent efficiently and for proper
purposes. The management and staff must be able to operate the program
within the laws, regulations, and standards provided for all Head Start
programs to ensure high quality services. The current management has
failed to comply with these requirements in important respects.
Conclusion
We conclude that ACF has established an adequate legal and factual basis
for terminating and/or denying refunding to RDCA, and we therefore
sustain ACF's proposed action.
___________________________ Judith A.
Ballard
___________________________ M. Terry Johnson
___________________________ Cecilia Sparks
Ford Presiding Board Member
APPENDIX
DISPOSITION OF ISSUES FROM REGULATORY NOTICE OF HEARING
ON RURAL DAY CARE ASSOCIATION OF NORTHEASTERN NORTH CAROLINA
ALLEGED VIOLATIONS:
A. ACF alleged that RDCA violated Head Start performance standards
relating to parent involvement set forth at 45 C.F.R. 1304.5 to
1304.5-5, and Part 1304, Appendix B, Chart A, B, and C, by
(1) failing to obtain the required participation and prior approval
of the Policy Council in Head Start budgets, new employment policies,
and employee hiring and firing;
SUSTAINED AS MODIFIED IN ANALYSIS
(2) failing to establish an effective and representative Policy
Council with sufficient community representatives;
REVERSED, EXCEPT AS TO ONE PERIOD
(3) failing to implement an effective plan to involve parents, to
have the health staff plan parent activities, and to maintain
documentation demonstrating parent involvement; and
REVERSED
(4) permitting the Chair of the Board of Directors to perform
operating activities specifically delegated to the Head Start
Director.
SUSTAINED
Failure to meet applicable performance standards for operation of Head
Start programs is a reason for termination or denial of refunding under
45 C.F.R. 1303.14(b)(4) and 45 C.F.R. 1303.15(c).
B. ACF alleged that RDCA violated provisions of the Head Start Act and
grants administration requirements, by
(1) repeatedly terminating qualified fiscal employees and component
coordinators and replacing them with less qualified staff and having
an unusually high employee turnover rate, in violation of section
644(a) of the Head Start Act and 45 C.F.R. 1301.30;
SUSTAINED AS MODIFIED IN ANALYSIS
(2) changing its personnel policies without reason and, many times,
without Policy Council approval, in violation of 45 C.F.R. Part 1304,
Appendix B, Chart C, see also 45 C.F.R. 1301.31(a) and (b);
REVERSED
(3) not consistently implementing its personnel policies, in regard
to inequitably treatment of sick leave and disability pay among
employees, in violation of section 644(a) of the Head Start Act, see
also 45 C.F.R. 1301.31(a);
SUSTAINED
(4) forcing employees to work without pay and sign letters under
coercion indicating that they acted voluntarily, in violation of
section 644(a) of the Head Start Act and Office of Management and
Budget (OMB) Circular A-122, Attachment B, 61(3); and
SUSTAINED AS MODIFIED IN ANALYSIS
(5) permitting the Chair of the Board of Directors to perform
activities not permitted by RDCA's personnel manual, including
appearing in job descriptions of some employees as immediate
supervisor, writing letters of termination, and giving instructions
to employees on their jobs and fiscal personnel on bill payment, in
violation of 45 C.F.R. Part 1304 Appendix B, see also 45 C.F.R.
1301.31(a).
SUSTAINED
Failure to comply with Head Start grants administration requirements in
45 C.F.R. Part 1301 is a reason for termination or denial of refunding
under 45 C.F.R. 1303.14(b)(6) and 45 C.F.R. 1303.15(c). Failure to
comply with the requirements of the Head Start Act is a reason for
termination or denial of refunding under 45 C.F.R. 1303.14(b)(7) and
45 C.F.R. 1303.15(c).
C. ACF alleged that RDCA violated required fiscal and program reporting
requirements, by
(1) having failed to resolve findings of independent audit reports
from 1990 through 1993 and of ACF on- site reviews regarding
supporting documentation for financial reports submitted by RDCA to
ACF;
SUSTAINED
(2) failing to maintain adequate records of federal expenditures, in
violation of 45 C.F.R. 74.61(a)- (g) and 1303.14(b)(3);
SUSTAINED
(3) purchasing office equipment with Head Start funds later found in
the home of a (former) RDCA Board member, in violation of OMB
Circular A-122, Attachment A, 2 and 3, 45 C.F.R. 74.137(a) and
74.170, and section 644(a) of the Head Start Act;
SUSTAINED
(4) expending $54,671 in equipment during a period when only $3,000
in equipment expenditures was approved, in violation of 45 C.F.R.
74.102 and the Grants Administration Manual of the OHDS, chapter 1,
L, 3;
REVERSED
(5) leasing property owned by employees or their relatives, in
violation of OMB Circular A-122, Attachment B, 42(c);
SUSTAINED AS MODIFIED IN ANALYSIS
(6) incurring a debt of $19,895 to the Head Start account all or most
of which has not been paid as required by OHDS GAM, Chapter 1, I.2;
SUSTAINED
(7) permitting three sales of used vehicles to RDCA Board members, in
violation of conflict of interest prohibitions in section 644(a) of
the Head Start Act;
SUSTAINED
(8) paying penalties and interest on late payroll taxes in fiscal
years ending October 31, 1991 and October 31, 1992 with federal funds
(totaling $2991 and $1066 respectively), in violation of OMB Circular
A-122, Attachment B, 14 and 19;
SUSTAINED
(9) issuing $10,008 in unallowable Christmas bonuses in November
1991, in violation of OMB Circular A-122, Attachment B, 6h;
SUSTAINED
(10) permitting use of federal funds for personal expenses
(approximately $2500) in 1992, in violation of 45 C.F.R. 74.170;
SUSTAINED
(11) mishandling purchase orders in 1993, in violation of section
644(a) of the Head Start Act, 45 C.F.R. 74.61(g), OMB Circular
A-122, Attachment A, A(2) and (3), and RDCA's own Procurement and
Property Management Manual;
SUSTAINED
(12) failing to return interest earned from federal funds since June
22, 1992, in violation of 45 C.F.R. 74.92;
SUSTAINED
(13) failing to maintain documentation that administrative costs are
below the 15% limit required by section 644(b) of the Head Start Act
and 45 C.F.R. 1301.32(a)(1) and (f)(1); and
REVERSED
(14) failing to verify the actual attendance of children for whom
invoices for meals were paid in 1993, in violation of 45 C.F.R.
74.61(g) and OMB Circular A-122, Attachment A, A(2) and (3).
REVERSED
Failure to comply with required fiscal and program reporting
requirements is a reason for termination or denial of refunding under 45
C.F.R. 1303.14(b)(3) and 45 C.F.R. 1303.15(c).
D. ACF alleged that RDCA violated other applicable laws and
requirements, by
(1) failing to pay minimum wage to 37 employees required to work as
volunteers and failing to maintain required records of hours worked,
both during a period in 1993, in violation of the Fair Labor
Standards Act, sections 6 and 11;
SUSTAINED
(2) failing to submit documentation requested by ACF, in violation of
record access requirements in section 644(a) of the Head Start Act
and 45 C.F.R. 74.24; and
REVERSED
(3) ordering office and playground equipment with funds budgeted for
other use without required approval from ACF, in violation of section
644(a) of the Head Start Act and 45 C.F.R. 74.102.
SUSTAINED
Failure to abide by any other applicable laws, regulations, or other
applicable Federal requirements or policies is a reason for termination
or denial of refunding under 45 C.F.R. 1303.14(b)(9) and 45 C.F.R.
1303.15(c).
E. ACF alleged that RDCA submitted three applications for refunding
which did not satisfy matching requirements of section 640(b) of the
Head Start Act and that the third application (received October 25,
1993) did not contain Policy Council approval as required by 45 C.F.R.
1303.20. ACF alleged that these inadequacies in the applications were
an additional reason for denial of refunding.
SUSTAINED AS MODIFIED IN ANALYSIS
1. The parties' briefs both couched the issue in this case as whether
ACF has established an adequate legal and factual basis for its
determination. Consequently, we have applied that agreed-upon standard
in our review.
2. RDCA's fiscal year throughout the relevant period ran from November
1 through October 31. Stip. 6.
3. A "material weakness" is defined in the audit report as "a
reportable condition in which the design or operation of the specific
internal control structure elements does not reduce to a relatively low
level the risk that errors or irregularities . . . [in material amounts]
or that noncompliance with laws and regulations that would be material .
. . may occur and not be detected . . . ." 1990 Audit at 17.
"Reportable conditions" relate to "significant deficiencies in
the
design or operation of the internal control structure that . . . could
adversely affect the entity's ability to record, process, summarize, and
report financial data . . . or to administer federal and state financial
assistance programs in accordance with applicable law and regulations."
Id.
4. Grantees are required to submit regular reports of their
expenditures of federal funds and required matching funds. 45 C.F.R.
74.73; see also ACF Br. at 26, n.1; ACF Ex. 33, at 1-2.
5. RDCA's only argument regarding the 1990 audit was to focus on the
auditors' statement that "management has plans to correct" its
accounting system and "has begun to implement" the inventory procedures,
as evidence that RDCA "was making a concerted effort to improve."
RDCA
Br. at 46-47; 1990 Audit at 17. Nothing in the 1990 audit supports any
finding of improvement on the part of RDCA, or even "concerted effort,"
since the auditors refer only to aspirations and initiations of some
effort but not to any results. The following year's audit, discussed
below, demonstrates the absence of any effective correction.
6. The 1991 ACF review also noted that RDCA had failed to meet its
matching requirement for the prior year. ACF Ex. 38, Tab 1, at 3.
7. The finding concerning the absence of time and attendance records
is particularly significant in light of the discussion below about
RDCA's violations of federal minimum wage and record keeping
requirements.
8. We note that whether the auditors considered particular findings
material or immaterial for audit purposes is not conclusive on the
importance of the findings here in evaluating RDCA's compliance with
program requirements and the terms of its grant.
9. Mr. Joseph Sheppard from ACF testified that the differences between
RDCA's audited expenses and the expenditures it reported to the federal
government amounted in some periods to more than $50,000. Tr. at
31-32. These differences over the past five program years were
summarized in a chart prepared by ACF. ACF Ex. 33, Tab 1. RDCA's
answer to these discrepancies was to assert that they are "routine"
and
"common." RDCA Br. at 54. The only basis RDCA cited for its claims
that "most organizations have discrepancies in expenses on a regular
basis" was that two audit reports of another grantee showed such
differences. Id. RDCA did not point to where in those audit reports a
finding was made analogous to RDCA's persistent failure to have
supporting documentation to which its federal financial expenditure
reports could be traced. RDCA Supp. Exs. 1(d) and 1(e). The second
audit indicates that, except for one finding (not relevant here), all
the findings of the prior year's audit of that organization had been
satisfactorily resolved. RDCA Supp. Ex. 1(e), at 68. In any case, the
regulations unambiguously require that federal financial reports be
accurate, that they be based on adequately identifiable accounting
records and that the records be supported by source documentation. 45
C.F.R. 74.61 (a), (b) and (g). The auditors and reviewers, as
discussed above and further below, clearly found the irreconcilability
of RDCA's federal financial reports to any source documents to be
evidence of serious weaknesses in RDCA's accounting and internal control
systems. RDCA's cavalier attitude about the importance of these
requirements only highlights the reasonableness of ACF's concerns about
RDCA's handling of federal funds.
10. Although the record substantiates that a special audit was
conducted, the report of that audit was not included in the record.
11. Before the FMR took place, representatives from RDCA met with ACF
staff in Atlanta and discussed the problems at RDCA. Tr. at 33-35.
Among the topics discussed in the fiscal area were the auditors'
findings for 1990 and 1991 that federal financial reports were not
supported by accounting records, and the findings of unallowable
Christmas bonuses and payments of penalties and interest, as well as
matching funds shortages. ACF Ex. 28, Tab 3, at 2-3. RDCA agreed to
have its fiscal staff work with Mr. Sheppard on these problems. ACF Ex.
28, Tab 4, at 2. ACF pointed to bank overdrafts found in each of the
audits ($5384 in 1991 and $9460 in 1990), to which RDCA made the
disturbing response that it had not known that "bank overdrafts" meant
bad checks until Mr. Sheppard told them so at the meeting and therefore
had failed to take steps to prevent recurrence in 1991. ACF Ex. 28, Tab
3, at 2; ACF Ex. 28, Tab 4, at 2. It is disturbing both that those with
fiscal responsibility for over a million dollars a year would not know
what a "bank overdraft" means and that, being uncertain, they would
simply have taken no action on an audit finding rather than inquire. In
the same letter, RDCA indicated that they "had never heard of federal
policy regarding `arm's length'" (in relation to Board members doing
business with RDCA), and that they had had their agency credit card for
six years (before it was misused by a former Head Start Director) but
that "[n]o one said there needed to be any special policies or
procedures regarding its use." ACF Ex. 28, Tab 4, at 1-2. A grantee
that had received Head Start funds for eight years at that point should
surely have been conscious from even a cursory review of its grant
documents and governing regulations of matters such as this. The Head
Start Act itself obliges grantees have rules to "guard against personal
or financial conflicts of interest." 42 U.S.C. 9839(a)(3).
12. The "high risk" designation triggers closer monitoring, precludes
further expansion, and qualifies the grantee for additional technical
assistance. Tr. at 40-41; ACF Ex. 30, Tab 1, at 2.
13. RDCA objected to its high risk designation and sought to appeal it
to the DAB. ACF Ex. 30, Tab 2. The DAB concluded that it did not have
jurisdiction over such an appeal. Stip. 4. ACF responded with a more
detailed explanation of its basis for the designation both from the
findings of the 1992 FMR and the consistent earlier audit findings. ACF
Ex. 30, Tab 3.
14. A prior OSPRI had been conducted in 1991 and the normal schedule
would have been to wait three years before repeating it. However, RDCA
requested earlier on- site review. ACF Ex. 29, Tab 4.
15. ACF submitted a sample of purchase orders to illustrate the kinds
of deficiencies observed by the reviewers. ACF Ex. 38, Tab 9; see Tr.
at 127-30. Mr. Sheppard testified that these examples were only a
sampling to show each category, and did not represent all of the
inadequate records. Tr. at 130.
16. RDCA responded to the 1993 OSPRI by letter to ACF dated April 8,
1993. RDCA Supp. Ex. 35. In its response, RDCA asserted that January
1993 purchase orders were available to the reviewers "but had not yet
been processed." Id. at 4. This answer does not explain whey purchase
orders were missing from checks back to June 1992. RDCA also referred
to its voluntary switch to first one computer system which "did not give
all information desired by the Board," and then a "revised system"
which
would replace the temporary one which the accountant meanwhile
installed. Id. at 4 and 6. This account only supports the OSPRI team's
observations about the importance of getting the fiscal office staffed
and computerized. See ACF Ex. 38, Tab 2, at 11-12. RDCA's response
also asserted that a new fiscal officer was on board, eliminating the
need for help from the accountant who might present a conflict of
interest for future audits. In any case, RDCA noted that this
accountant had not given them assistance as extensive as their previous
auditors had given in prior years "when there was a bookkeeper of
questionable competence, whose employment [RDCA] eventually terminated."
RDCA Supp. Ex. 35, at 4. The new fiscal officer, Mr. Raymond Robertson,
was terminated for alleged incompetence a few months later.
17. RDCA denied the cash shortages but did not produce documentation
to disprove them. In any case, RDCA did not deny the comingling of
funds from different sources in a single account which presented the
ongoing potential for interfund transfers. RDCA Supp. Ex. 35, at 5.
18. However, evidence in the record indicates that RDCA's problems in
hiring and retaining competent fiscal staff began even before the bulk
of the expansion, and therefore cannot be attributed only to growing
pains. The first fiscal office staff person about whom we have
information is Ms. Annette Branch in 1991, who is referenced in a letter
from an RDCA Board member to ACF. RDCA Congressional Request, Attachment
A-1, at 2. The letter quotes Ms. Grant as stating that the problems
with Ms. Branch involved her "overall ability in the field of
accounting, and that her employment had been terminated as a result of
this inadequacy." Id.
19. This memorandum also supports our conclusion below about Ms.
Grant's long-standing usurpation of the role of direct supervisor to the
fiscal staff.
20. RDCA's problem of a lack of sensitivity to the appearance, if not
the fact, of conflicts of interest in conducting business dealings with
Board or staff members, often on the same grounds of urgency, recurs in
other contexts.
21. Ms. Hines testified for RDCA that Ms. Lowe was unwilling to begin
with the figures from the FMR or the special audit, because she thought
them inaccurate, that she had "a minor problem being that she was sort
of set in her ways," and that Ms. Lowe particularly resented the
transfer of payroll processing to an outside contractor. Tr. at 890-93.
Ms. Lowe denied that she resented the contracting out of the payroll.
Tr. at 499. Ms. Lowe's testimony that she was proceeding properly in
trying to rectify the backlog is corroborated by Mr. Philhours' report,
which, as noted above, commented favorably on the efforts Ms. Lowe was
making and noted that she was up to July 1992 in her recording, so he
clearly knew what she was doing. Ms. Hinesþs testimony did not explain
why the opinions of the fiscal officer and consultant about how best to
update the records were wrong. We conclude that Ms. Lowe's testimony
about the condition of RDCA's records was credible.
22. This document also contains a description of the then-current
situation written before her termination which corroborates her
testimony as to the state of RDCA's financial records when she began
working. The problem areas she identified included federal and state
reports that were late or incomplete, a payroll and computer system that
was not functioning, a filing system that "was not set up properly and
invoices [that] were filed incorrectly," accounts payable and general
ledgers that "were not up to date," a failure to follow government
general accounting principles, and the absence of "budget information .
. . down to the department level." ACF Ex. 53, Tab 1, at 1.
23. ACF did not list Ms. Loweþs termination among those effected
without Policy Council approval, and the Policy Council minutes from the
time of her termination are not in the record. However, the testimony
of Ms. Hines and Ms. Grant about the circumstances of her termination
does not refer to any Policy Council action. See Tr. at 892, 1051-52.
Ms. Lowe herself testified to the manner of the termination as resulting
from an unexpected call she received at home one night from Ms. Grant
informing Ms. Lowe that "she [Ms. Grant] and Ms. Hines had talked the
night before at length and decided it was to the best interest of all
concerned that I [Ms. Lowe] not return." Tr. at 501. Ms. Lowe stopped
working for RDCA from that point on. (That the call came from the Board
Chair rather than the Head Start Director adds to the evidence discussed
below of the Board Chairþs direct supervision of fiscal staff.)
24. ACF charged that RDCA spent $54,671 in equipment as of June 30,
1992, when only $3000 was approved for that purpose. ACF More Definite
Statement at 7. As ACF stated, the special audit for the eight month
period ending June 30, 1992 did show equipment purchases of $54,671 when
the approved line item amount for equipment was $3000. ACF Ex. 17, Tab
2 and Ex. 38, Tab 6-6. As RDCA pointed out, the amount ultimately
approved for the 12-month period ending October 31, 1992 included an
additional award and shows an approved line item amount of $61,058 for
equipment. RDCA Response to More Definite Statement at 4-5; ACF Ex. 17,
Tab 3-1. Accordingly, ACF did not show that the equipment purchases it
referred to were unauthorized.
ACF also charged that RDCA failed to adequately document that RDCA's
administrative costs were below the 15% required by the Head Start Act.
42 U.S.C. 9839(b); ACF More Definite Statement at 9; ACF Br. at 42,
n.21. ACF relied on fiscal findings of Ms. Taylor during the 1993 OSPRI
that RDCA lacked a process to allocate costs to administration
consistently, but Ms. Taylor did not believe that the limitation had
been exceeded. ACF Ex. 23, Tab 6, at 22. RDCA submitted calculations
showing that those costs which it did allocate to administration in this
fiscal year and the preceding one did not exceed 15%. RDCA Response to
More Definite Statement at 6-7, and at Attachment C. We conclude that
ACF did not show that RDCA's documentation was inadequate in this
respect.
25. Nevertheless, it is odd that RDCA should assert that it was
unaware of procurement standards applicable to grantees in federal
regulations even after it had been handling Head Start funds for seven
years. Cf. 45 C.F.R. Part 74, Attachment H.
26. RDCA itself stated that the members of any corporate board of
directors serve as fiduciaries and are "prohibited from any self
dealing" with the organization. RDCA Br. at 14.
27. The danger inherent in the practice of drawing down funds not
needed immediately for legitimate expenditures is that cash balances may
be manipulated to create improper benefits either for the program or for
some individuals. This risk is compounded where interest earned on
federal funds is not accounted for and controls on interfund transfers
are weak, both conditions which existed over a long period of time at
RDCA as discussed elsewhere.
28. Initially, ACF questioned whether RDCA had improperly purchased
the building, but did not pursue this allegation after Ms. Hines
testified that RDCA was renting not purchasing it. Tr. at 940-43.
29. ACF listed two additional bases for termination which RDCA denied
and for which ACF presented no significant evidence or argument. See
ACF More Definite Statement at 9, 10; RDCA Response to More Definite
Statement at 7; see also RDCA Supp. Ex. 27. Consequently, we do not rely
on ACF's allegations that: (1) RDCA failed to verify actual attendance
of children for whom meal invoices were paid, and (2) RDCA failed to
submit documentation requested by ACF.
30. The advisability of expanding the size and breadth of the Board of
Directors was pointed out to RDCA several times. ACF's summary of the
July 1992 meeting in Atlanta recorded an agreement by RDCA to "consider
expanding its [Board] membership to more than five members based on its
increased responsibility due to growth of funding." ACF Ex. 28, Tab 3,
at 1. In particular, ACF pointed out that "a broad base of community
support" should be represented on RDCA's Board, since Head Start is
meant to be "community-based." Id. RDCA responded in writing that
it
"[a]greed" with this point. ACF Ex. 28, Tab 4, at 1. The 1993 OSPRI
stated that while "some improvements have been made, the composition of
the [RDCA Board] . . . is very limited, narrowly focussed, and does not
represent a broadly based interest of the community which is essential
to mobilize local resources. Over the past several months, the Board of
Directors consisted of three or four individuals who operated day care
centers." ACF Ex. 38, Tab 2, at 2 (amended). (The official lists of
Board members contain more names, but we note that some of the
individuals are not confirmed yet as members or may have resigned during
their terms. ACF Ex. 41, Tab 2.) At least one member of the Board was
employed by Ms. Grant in another business, raising questions of
independence. Tr. at 1147.
31. The diminished role of the Policy Council is discussed in the
section on parent involvement. Here we discuss the Board's intrusion
into staff supervision and day-to-day operation and the overall work
environment.
32. The positions of Executive Director of the organization and Head
Start Director at RDCA were combined since roughly 92% of RDCAþs
operating funds comes from Head Start and RDCA does not operate any
other major program. ACF Br. at 47, n.24; ACF Ex. 23, Tab 3, at 6. Ms.
Hines serves in both roles. Stip. 25; Tr. at 832, 934.
33. We note that Ms. Grant was plainly familiar with this Chart since
she attached it to a letter on another subject that she wrote to a
former Policy Council president in June 1992. ACF Ex. 26, Tab 2, at 3.
34. We therefore reject RDCAþs claim, without citation to the record,
that Ms. Hines was the supervisor of the fiscal staff because she
evaluated them, communicated with them daily, or signed fiscal
documents. RDCA Br. at 15. When asked directly if she supervised the
fiscal department, Ms. Hines responded, "No, I do not." Tr. at 935.
35. RDCA itself recognized that the function of any corporate board of
directors is to "exercise its best judgment and independent discretion."
RDCA Br. at 14. That independence is compromised when Board members
themselves become involved in operating the organization.
36. A letter dated March 18, 1992 and signed by six individuals who
identify themselves as the steering committee of concerned citizens of
RDCA was sent to ACF requesting "an emergency meeting" and an
investigation on the grounds that "the program is in jeopardy due to
current leadership." ACF Ex. 21, Tab 1, at 1. ACF responded that it
was aware of Mr. Speller's termination and, since he was appealing it
within RDCA's process, the matter should be addressed at the local
level. Id. at 2.
37. RDCA argued that Mr. Spellerþs termination was evidence of RDCA
taking corrective action. RDCA Br. at 3. However, the same evidence
that RDCA presented to justify Mr. Speller's termination also amply
supports ACF's basis for more closely monitoring RDCA's program after
learning of the circumstances leading to the termination of Mr. Speller
and then his successor a few months later. Those concerns did not lead
immediately to this proposed action by ACF but rather led to a financial
management review, which resulted in a high risk designation, followed
by an early OSPRI, and additional efforts to monitor RDCA, culminating
in this proposed action about 21 months after Mr. Speller's termination.
38. In addition, the testimony of at least one former employee was
that staff persons were in fact terminated for speaking out. Tr. at 202
(Smith).
39. This doubt is further augmented in light of our findings below
that, in at least some cases, these terminations were effected without
the prior approval of the Policy Council required by the regulations.
40. RDCA alleged that most of ACFþs witnesses did not file complaints
under RDCAþs internal grievance procedure. Consequently, RDCA argued
that their complaints should not receive an administrative review
because they failed to exhaust their internal remedies. RDCA Br. at 4-5.
This argument is misplaced. First, we are not providing an
administrative review of employees' grievances. (We offer no remedies
to the individual employees, another factor which adds to their
credibility here.) Second, exhaustion of administrative remedies is a
rule of judicial economy in the courts and does not apply to preclude an
administrative board reviewing a grantee's performance from hearing
testimony as to relevant facts simply because a witness, for whatever
reason, chose not to file a grievance. In addition, at least some of
these witnesses testified that they sought to file internal grievances
on which no action was taken by RDCA. See, e.g., Tr. at 640-41 (Cooke).
41. FLSA minimum wage and overtime protections are among the "public
policy requirements" with which all ACF grantees must comply. Office of
Human Development Services, Discretionary Grants Administration Manual
at Chapter 7, Part A, reprinted in ACF Ex. 16, at 7-1 through 7-3.
42. Compensatory time in lieu of overtime is permitted only for
certain employees of governmental agencies. 29 U.S.C. 207(o); Tr. at
148. RDCA did not suggest that it qualified as a government agency, and
DOL expressly found that RDCA was subject to normal overtime
requirements. ACF Ex. 19, at 5; Tr. at 149.
43. FLSA and its implementing regulations require employers to
maintain records of the wages, hours worked, and other employment
conditions of all employees and authorize DOL investigators to have
access to those records. 29 U.S.C. 211(a) and (c); 29 C.F.R. Part
516.
44. Ms. Grant stated that DOL did not have adequate documentation for
the back wage amounts, claimed that she received attorney's advice not
to pay, and accused DOL of having "bilked" RDCA out of back wages.
Tr.
at 1101-02, 1105. However, RDCA paid the back wages; Ms. Grant admitted
that employees who did work overtime were given compensatory time only
and only at straight time rates, which was the basis of the back wage
finding; the personnel manuals demonstrate that this was RDCA's policy;
and Ms. Hines admitted to Mr. Craig in an interview the inadequacy of
RDCA's time records. Tr. at 1101-02; ACF Ex. 19. Hence, DOL
reasonably relied on other evidence to calculate the hours involved.
45. Some testimony suggested that RDCA did not thereafter comply with
FLSA overtime requirements, but rather informed staff that they were now
permitted to earn neither compensatory time nor overtime. For example,
Ms. Spruill testified that she and other employees nevertheless worked
excess hours even after April 1993 without receiving overtime pay. Tr.
at 390-91.
46. A letter from Ms. Grant admitted that the time spent by teachers
in orientation was compensable and asserted that the fiscal staff
violated instructions to pay for that time. RDCA Notice of Appeal,
Attachment M-1. However, RDCA submitted no evidence that these portions
of the back pay awards have been paid.
47. Staff minutes show Mr. Lise's presence on July 27, 1993 and state
that he "will hold Parent Involvement Coordinator (supervisor)
position." ACF Ex. 24, Tab 3, at 10. Furthermore, the Policy Council
minutes of August 1993 refer to Mr. Lise moving to Parent Involvement as
an internal reassignment. August 13, 1993 Policy Council Minutes. RDCA
claims that Mr. Lise was present at the staff meeting only as a
volunteer. RDCA Br. at 72. Ms. Grant testified that Mr. Lise "wasn't
even employed, he wasn't even coming in . . . . He didn't exist for
us." (RDCA interpreted this to mean that Mr. Lise was not a paid
employee yet.) RDCA Br. at 72-73; Tr. at 1145. However, RDCAþs own time
sheets show him signed in on August 17, 18, and 19. RDCA Supp. Ex. 28.
His sign-in records are not distinguished from those of other employees
by any notation suggesting he was not employed or was a volunteer.
DOL's calculations show him working two days a week for five hours a day
during two weeks between August 15 and September 1, 1993. RDCA Supp.
Ex. 34. RDCA listed Mr. Lise as a witness but chose not to call him.
48. The DOL calculations show amounts due of $178.50, $212.50, or
$268.87 per employee for the 37 employees, with only three exceptions
which exceeded $400 each, i.e., one of $612, one of $637.50, and one of
$401.61. RDCA Supp. Ex. 34. Two of the employees receiving the larger
awards did sign petitions sent to ACF in February 1993 and November 1993
respectively, asking for investigation of the management of RDCA. ACF
Ex. 22, Tabs 4 and 7. One of those who received a larger award did not
sign any complaint letters to ACF. ACF Ex. 22 (employee complaints to
ACF). RDCA's own sign-in sheets and staff meeting minutes evidence that
these staff members worked at least some days during the layoffs. RDCA
Supp. Ex. 28; ACF Ex. 24, Tab 3, at 10; Tr. at 148, 155-56. Other
employees that signed the February 1993 letter did not receive larger
awards. The letter was signed by a number of central office staff. The
idea that Mr. Craig distorted his calculations of 37 employees' back
wages in an effort to reward two of the many staff who sought ACF's
intervention in RDCA's problems (while ignoring at least one other who
actively complained) is not credible.
49. The cost principles require that charges for salaries and wages
for all non-exempt personnel must be supported by records that show "the
total number of hours worked each day" and that are "maintained in
conformance" with the FLSA regulations. Office of Management and Budget
Circular A-122, Attachment B, 6.l(3) (in effect throughout the
relevant period), adopted for HHS grant programs' non-profit grantees at
74 C.F.R. 74.174, and expressly made applicable as a term and
condition of all Head Start grants, see ACF Ex. 13, at 2.). When
employers fail to keep accurate and complete FLSA records, DOL need only
show a "just and reasonable inference" of the amount of unpaid work,
even if it cannot be proved with specificity, because an employer should
not benefit from inadequate recordkeeping. See, e.g., Anderson v. Mt.
Clemens Pottery Co, 328 U.S. 680 (1946); Martin v. Deiriggi, 985 F.2d
129, 132 (4th Cir. 1993) (amended); Wirtz v. McGhee, 244 F.Supp. 412,
417 (E.D.S.C. 1965).
50. RDCA submitted signed letters from five current RDCA employees,
stating that they "on occasion donated" their services to RDCA because
of their "commitment to what our agency stands for," and that they
do
not want to be paid. ACF Ex. 44, Tabs 1-5. All of the letters are on
RDCA letterhead; all are dated and notarized on the same day, December
21, 1993 (three weeks after ACF's notice of intent to deny refunding and
terminate); and all contain the identical text. We give little weight
to these letters because (1) they represent only five of the 37
employees involved, (2) the fact that they were written only by those
few laid-off employees still employed by RDCA and were prepared
simultaneously on program letterhead raises an appearance of pressure,
(3) they were prepared long after-the-fact in contemplation of
litigation, and (4) Mr. Craig testified that employees cannot waive FLSA
rights. Tr. at 144.
51. RDCA was also aware that teachers were coming for training,
orientation, and classroom set-up before classes began. Such brief
training directed at preparation for a particular job for which the
trainee has already been selected and which provides immediate benefits
to the employer is clearly covered employment. See, e.g., McLaughlin v.
Ensley, 877 F.2d 1207 (4th Cir. 1989).
52. In fact, the 1991 OSPRI and the record in general support a
finding that many of the teachers and coordinators who provided direct
services were dedicated and worked hard to help the families and
children in the Head Start program. See, e.g., ACF Ex. 38, Tab 2, at 1
(amended). Most of the direct service components (education,
disabilities, health, nutrition, mental health, and social services) had
no more than one or two standards with which they were out of compliance
by the time of the 1993 OSPRI. Id. at 4-5 (amended). Nevertheless,
serious problems arose from the failure of management to involve parents
in decision-making and to provide a well-run, stable financial and
management support structure. Id. at 5 (amended). The absence or
relatively minor nature of non-compliance in some areas cannot cure
failures in other areas which are very important to the Head Start
program. Furthermore, the problems in parent involvement and program
administration discussed in the text inevitably impact the operation of
the other components. For example, just six months after the OSPRI
visit, the directors of virtually all these well-functioning components
were laid off during the summer of 1993 and most were never recalled to
RDCA. See Tr. at 731.
53. While relying on it for some purposes, RDCA simultaneously
attacked the 1993 OSPRI on the basis that it was "suspect" for citing
only one interview with a Policy Council member. RDCA Br. at 23. The
report also indicates, however, that three staff persons were
interviewed on parent involvement, and that the team observed program
operations and reviewed written plans, procedures, and program records.
ACF Ex. 38, Tab 2, at 1 and 7. RDCA gave no reason why these approaches
were insufficient to support the findings made. We note that the team
member reviewing this component was not an ACF staff person. ACF Ex.
38, Tab 2, at 1; Tr. at 839.
54. RDCA responded to the 1993 OSPRI findings on parent involvement by
letter, denying that the Board had a "hands-on role" in hiring and
firing staff or in writing budgets. RDCA Supp. Ex. 35, at 2. Instead,
RDCA asserted that both the Board and the Policy Council interviewed
candidates and "the same is true in the decisions to terminate key
staff; as our Minutes clearlly indicate." Id. Our review of the
testimony and of the minutes of the Policy Council supports the OSPRI
conclusions regarding the absence of independent Policy Council approval
of actions in a number of instances.
55. RDCA asserted that, because of Ms. Alston's reticence or
"dishonesty," RDCA had no indication that any Policy Council member
was
dissatisfied. RDCA Br. at 25. However, in light of the repeated
findings in the reviews summarized above, RDCA can hardly claim to have
lacked notice that all was not well with the role the Policy Council
played in its program.
56. In the 1993 OSPRI, ACF found that "the Policy Council is asked to
vote on the budget . . . after decisions are made by the Board
Chairperson." ACF Ex. 38, Tab 2, at 7. ACF alleged that the Policy
Council was not playing the role assigned to it by regulation of giving
prior approval to the budget before it is made final. ACF More Definite
Statement at 2. RDCA conceded that its practice for many years had been
to have the Board of Directors act pending Policy Council approval
(after some consultation between the Head Start Director and the
President of the Policy Council). RDCA Response to More Definite
Statement at 1. RDCA asserted that it has recently changed its
practices to assure that Policy Council action precedes final adoption
of the budget. ACF did not provide specifics about the budgets whose
adoptions it alleged were not properly approved by the Policy Council.
Therefore, while RDCA's admission indicates that proper procedures for
involving the Policy Council in decision-making on the budget were not
always followed, we do not make any specific findings on this allegation
and do not rely on it in considering ACF's proposed action.
57. RDCA also referred to Ms. Banks testifying at one point that
training was not provided to the Policy Council and then that it was
provided but she failed to attend. RDCA Br. at 31. This
characterization of her testimony is inaccurate. Ms. Banks testified on
direct examination that she had not received any training since she had
been on the Policy Council. Tr. at 570. On cross-examination, she was
asked if she had refused to attend training provided to the Policy
Council and responded that she had not refused but had been sick at the
time. Tr. at 581. We see no contradiction in her testimony.
58. RDCA asserted that ACF's exhibits were conspicuously missing any
expressions of dissatisfaction from parents, and noted that Mr.
Alexander testified that he did not "recall" any complaints from parents
"concerning the types of services that had been provided to the
children." RDCA Br. at 26, n.27; Tr. at 835. However, among ACF's
exhibits is a petition dated November 23, 1993 sent to ACF requesting
"the immediate investigation" of RDCA by ACF "for reasons well
documented by" ACF's Regional Office, because the signatories "feel
that
the community could be best served by finding another governing body."
ACF Ex. 22, Tab 7, at 1. One of the signatories is identified as a
wrap- around program teacher and a parent. Id. at 4.
59. It is not entirely clear who served as former parent in the
relevant years. RDCA referred to one former parent who is a present
Policy Council member and asserted that her "presence alone brings RDCA
within the guidelines." RDCA Br. at 45. However, she was only a
non-voting alternate in prior years. ACF Ex. 41, Tab 3; ACF Ex. 41, Tab
12, at 5. However, Board minutes identify another former parent, Ms.
Kee, as a community representative for the year October 1992 - September
1993. ACF Ex. 24, Tab 1, at 9. She resigned in May 1993. ACF Ex. 24,
Tab 2, at 12; ACF Ex. 41, Tab 3, at 1. Therefore, the record supports
RDCA's contention that it treated former parents as community
representatives.
60. For example, the minutes often report a motion or discussion, and
sometimes a second, without recording a vote. See, e.g., ACF Ex. 45,
Tab 6, at 4 (April 6, 1993 minutes on termination of Ms. Sandra
Wheaten).
61. Ms. Hines acknowledged that signatures on Policy Council minutes
were cut and pasted at times, but denied that she directed that it be
done. Tr. at 903-04.
62. Furthermore, RDCA officials came to Atlanta in July 1993 to meet
with ACF and discussed administrative and fiscal problems, yet did not
mention the "emergency" layoffs. ACF Ex. 28, Tabs 3 and 4.
63. RDCA objected generally to ACF's practice following November 1,
1992 of awarding funds for periods of two to four months or of
restricting RDCA's use of awarded funds. RDCA objected that ACF was
applying financial pressure on RDCA. RDCA Br. at 55. Ordinarily such
piecemeal awards are not advisable since they may create uncertainty
about continued funding. However, here such uncertainty was warranted.
RDCA had been notified that it was a high risk grantee with serious
fiscal and other problems. Even with the benefit of hindsight, we see
no reason to second-guess ACF's decision that proper oversight
necessitated awards in less than 12-month increments. (We note that
RDCA appealed the restrictions placed on one award to the DAB, which
determined it had no jurisdiction. DAB Ruling in Board Docket No.
A-94-71 (March 8, 1994).)
64. Some testimony and briefing also referred to center staff who were
laid off in the summer, and who, according to RDCA's brief, mostly
returned to work. However, the focus of the layoff issue was on
12-month staff who were abruptly laid off, and in a number of cases,
never called back to work. Cf. RDCA Br. at 27, citing Tr. at 985.
65. As ACF pointed out, RDCA had projected a budget of $949,691 for
November 1, 1992 through October 31, 1993. Actual awards for that time
totaled $1,034,007; RDCA's proposed budget for that year included
amounts for key component staff. ACF Ex. 43, Tab 1. ACF stated that it
never received a revised budget or any other indication that RDCA was
changing its operations for this 12-month period. ACF Br. at 35.
66. RDCA argued that since ACF informs grantees how much it will
award, RDCA's budget is not a barometer of RDCA's needs. This argument
is an apparent effort to counter Ms. Hines' testimony and attribute to
ACF RDCA's financial woes. RDCA presented no evidence that ACF erred in
determining the amount properly awarded to RDCA under Head Start program
practices for deteriming award amounts. See 42 U.S.C. 9835 (allotment
of funds).
67. RDCA requested approval in December 1992 to purchase approximately
$20,000 in office and program (play) equipment. ACF denied RDCA's
request to use set aside retirement funds for the proposed purchase.
ACF Ex. 35. The record shows that RDCA had in fact already purchased
some of the equipment before seeking the required prior approval from
ACF. Id. In any case, this request does not seek additional funding
but permission to change the approved use of certain funds.
RDCA also requested an increase in its line item budget for rent and
salaries for the fiscal year beginning November 1, 1993 of $150,000.
ACF Exs. 43, Tab 2, at 18 and 22; RDCA Notice of Appeal, Attachment C.
This request dealt with prospective funding and did not address any
documentation relating to RDCA's needs in the summer of 1993.
68. Even if the regulations could be interpreted to permit management
to impose a temporary layoff without Policy Council approval, and even
if these employees were initially laid off rather than terminated, at
some point it became clear that they were not going to be recalled to
the program. Yet, the record does not show any point at which Policy
Council approval was sought for the decision not to continue the
employment of a number of these individuals.
69. Ms. Banks stated at another point that the Policy Council agreed
at that meeting to Ms. Cooke's dismissal, but that that was their first
meeting, that they had received no training, that they did not know the
name but only the title of the individual involved, and therefore they
simply accepted Ms. Hines' explanation about the circumstances of the
dismissal. Ms. Banks further stated the vote to accept the termination
was followed by a decision to give Ms. Cooke more time instead. Tr. at
569-70, 577-81. Her testimony was somewhat ambiguous, but did reflect
the understanding that no final action to approve the termination was
ever taken.
70. ACF challenged the authenticity of the minutes of this meeting.
ACF Br. at 16. ACF argued that RDCA listed as witnesses individuals who
attended those meetings and could have corroborated the accuracy of the
minutes, but chose not to present them at the hearing. RDCA responded
that ACF stipulated to the authenticity of the documents and should not
be heard to challenge them now. While neither side sought to exclude
these documents from the record on grounds of authenticity, and their
admissibility was accepted, neither side was precluded from arguing any
relevant facts in regard to the proper weight to be given to particular
documents. We have, however, rejected the substance of ACF's attack on
the accuracy of these minutes in our discussion of the integrity of the
Policy Council minutes generally. RDCA also argued that these were ACF
exhibits, so RDCA did not need to corroborate them because RDCA did not
proffer them. RDCA Br. at 34. This argument misconstrues the role of
the appeal file in this case. Both sides were to submit for the appeal
file all documents "necessary to the Board's decision." See Order
Setting Further Procedures, dated February 1, 1994, at 4-5. Under that
order, ACF provided all documents which it believed relevant to the
issues before the Board. RDCA had several opportunities to include any
additional documents which it considered relevant. Although we have
designated the documents as exhibits of the party that provided them to
the appeal file, the party did not thereby become the proponent of the
document unless that party relied on the document in its case and
arguments. Thus, the fact that a document is an ACF rather than an RDCA
exhibit is not significant in itself. However, as discussed above, we
do not put great significance on any of the irregularities in these
minutes.
71. Ms. Hines testified that RDCA was aware that ACF either required
submission of additional information or correction of deficiencies in
regard to RDCA's applications, but that RDCA never understood that their
application was "non-refundable." Tr. at 1160-61. The point made by
Ms. Braunbeck was not that RDCA's applications in themselves precluded
refunding but rather than none of the applications submitted since
August 1993 met the prerequisites to be reviewed for refunding, i.e.,
meeting the 20% matching funds, 15% administrative cost ceiling, and
Policy Council approval requirements simultaneously.
72. RDCA's witnesses indicated that RDCA is now operating an 800
number soliciting contact with other Head Start grantees having problems
with ACF. See, e.g., Tr. at 1018. Obviously, such an activity, even
were it to have yielded information early enough for RDCA to have relied
upon it during the relevant time, is hardly a reliable or even
statistically valid measure of ACF enforcement actions.
73. The only contrary evidence offered by RDCA was Ms. Hines'
testimony that she did not believe that all these grantees had corrected
their violations. She based this belief on calls on her 800 number
relating to an age discrimination lawsuit and morale problems involving
one of the grantees and a meeting with someone from a program not listed
among the grantees identified in RDCA's documents. Tr. at 867-68. This
testimony is, thus, without foundation on any personal knowledge, or for
that matter, any relevant second-hand information, since neither morale
problems nor a discrimination suit would prove that most of that
grantee's deficiencies were uncorrected.
74. HHS grant management regulations provide that: "Site visits may be
made as necessary by representatives of HHS to: (a) Review program
accomplishments and management control systems. (b) Provide such
technical assistance as required." 45 C.F.R. 74.85; 45 C.F.R.
1301.10(a). Similarly, the general requirements for administration of
grants to nonprofit organizations, such as RDCA, provide for granting
agencies to "make site visits as frequently as practicable" in order
to
provide oversight review and technical assistance. Office of Management
and Budget Circular A-110, Attachment H, 7 (1987 Rev.).
75. RDCA did not dispute its attendance at numerous training
conferences, and we list these only as examples of training
opportunities provided by ACF that are referenced by witnesses or
documents in the record. ACF's Regional Office also conducted annual
financial management seminars, like that for which RDCAþs attendance in
1992 was documented, open to RDCA throughout its term as a Head Start
grantee with travel paid for by ACF. ACF Ex. 30, Tab 3, at 3. In
addition, ACF provided annual training for new Head Start directors.
Id.
76. ACF pointed out that RDCA personnel wrote a number of letters
expressing appreciation for the technical assistance or other support
received from ACF. ACF Br. at 68, cited ACF Ex. 31, Tabs 2 (ACF staff
"gave good guidance") and 3 (RDCA got "much helpful guidance");
ACF Ex.
28, Tab 4, at 1-2 (RDCA felt "much was gained" by the visit to Atlanta);
see also ACF Ex. 29, Tabs 1 and 2; ACF Ex. 29, Tab 4; ACF Ex. 38, Tab 2.
In June 1992, Ms. Grant wrote to the then-president of RDCA's Policy
Council that "the Regional Office staff cannot solve all this agency's
problems. We feel we have pestered them excessively and committed
ourselves to trying to resolve our problems among ourselves." ACF Ex.
26, Tab 2, at 2. RDCAþs response to ACFþs references to RDCAþs
letters
expressing gratitude for assistance provided by ACF on various occasions
was that a "grantee can be grateful for assistance without conceding to
the discontinuance of further necessary assistance." RDCA Br. at 17.
However, the expressions of gratitude evidence at the least that ACF did
make repeated efforts to provide assistance to RDCA in various forms.
It is unclear what RDCA means by the "discontinuance" of further help,
since the exhibits cited above show correspondence and meetings between
the parties well into 1993.
77. Mr. Sheppard referred to this inherent difficulty when he
testified that ACF "tried to walk a fine line between providing
assistance and training and solving the problems at [RDCA] and, at the
same time, carrying out the legitimate federal responsibility of
safeguarding federal funds and ensuring that quality services were
provided." Tr. at 85.
78. Ms. Grant complained that, after RDCA's Atlanta visit in July
1992, requests for assistance were referred from their prior program
specialists, with whom she felt RDCA had had a supportive relationship,
to Mr. Vaughn and Mr. Alexander, who she did not feel were helpful. Tr.
at 1005-06. However, we see no basis for finding that a grantee has a
right to receive technical assistance from specific staff persons at
ACF. While it is certainly unfortunate that RDCA felt itself
inexplicably cut off from staff with whom it had some rapport, it is not
wholly unreasonable to transfer the monitoring of a program having
serious problems (RDCA went on high risk status two months later) to
supervisors, as was done here. Cf. Tr. at 28, 730, 863. In any case,
Ms. Hines testified that RDCA's program specialist at ACF for a number
of years had provided them with "a lot of consulting or technical
assistance [and walked her] through a lot of things in terms of the
budget." Tr. at 862-63. During those years, Ms. Hines was director of
technical assistance at RDCA, before becoming Head Start Director, and
would thus have been aware of the quality of ACF's assistance. Yet
despite the admittedly sufficient assistance provided during that time
period, we have found above that RDCA's serious financial and
administrative problems date back to at least 1988. Therefore, we see no
basis to believe that RDCA's problems would have been resolved if ACF
permitted them to continue to work only with their prior program
specialists.
79. Inflammatory language and broad accusations about ACF run
throughout the documents submitted with RDCA's notice of appeal,
throughout RDCAþs correspondence with ACF in the record, and throughout
the testimony of RDCA's witnesses. It is not possible in the confines
of this decision to cite every location at which such allegations occur.
However, we have carefully reviewed every assertion made by RDCA or in
its submissions in this regard, as we have done for every other issue
discussed herein. The conclusions which we reach in the text are based
on this thorough review.
80. ACF submitted some data on grantees in the same region and
nationwide who have been terminated, designated high risk, or received
extensions rather than new grants. ACF Ex. 18. The data is not broken
down by race. The breakdowns by rural/urban location and size (based on
funding amount) do not demonstrate any evident pattern. However, no
definite conclusions can be drawn from the raw data, especially since no
information was provided on the location and size of grantees that were
not sanctioned.
81. It was never clearly established what RDCA meant by "Black
grantees," i.e., whether it referred to the racial makeup of the
communities or families served, of the Boards of Directors, of the staff
members, or of the administrators in describing the "race" of an
organization.
82. Ms. Hines also testified at one point to a conversation which she
variously attributed to Mr. Vaughn or Mr. Alexander (both ACF staff
members) in November 1992 in which one of them allegedly told her that
further funding was unlikely with Ms. Grant as Board Chair because Ms.
Grant's letters to ACF were irritating the Regional Administrator. Tr.
at 932-33. She relied in her testimony on a letter she said she had
written about this conversation to Mr. Vaughn, but RDCA did not provide
that letter for the record and did not indicate if ACF responded to it.
Tr. at 933-34. Thus, no independent corroboration of such a
conversation was presented. ACF did not propose to terminate RDCA's
funding until more than a year after the alleged conversation. In any
case, even if a staff member of ACF expressed annoyance with the volume
of correspondence from Ms. Grant, that would hardly establish a vendetta
against Ms. Grant or bias against RDCA as an organization.
83. Ms. Grant testified that she was not aware of any parties Mr.
Speller gave for ACF staff nor of his claims to having had special
relationship with ACF staff members. Tr. at 1000-01.
84. On the contrary, when Mr. Speller sought ACF's help in challenging
his termination, ACF responded to him, as it did to other employees,
that he must follow internal grievance procedures. See ACF Ex. 27, Tab
3, at 1, 2. ACF also wrote that it had already made recommendations to
improve the operating structure, and that it would be following the
operations of RDCA closely "with regard to past practices and future
administration." ACF Ex. 27, Tab 3, at 1. The record supports a
conclusion that ACF was interested in having the problems left by Mr.
Speller corrected, not in facilitating Mr. Speller's return. (There is
no foundation on the record, beyond her speculation, for Ms. Grant's
assertion that ACF "orchestrated" Mr. Speller's lawsuit against RDCA
arising from his termination. Tr. at 1007.) When a letter arrived at
ACF requesting "an emergency meeting" and an investigation on the
grounds that "the program is in jeopardy due to current leadership,"
ACF responded that they were aware of Mr. Speller's termination and,
since he was appealing it within RDCA's process, the matter should be
addressed at the local level. ACF Ex. 21, Tab 1, at 1, 2. ACF appears
to have taken no steps to reinstate Mr. Speller.
85. When Mr. Philhours visited RDCA to provide technical assistance in
1988, the cover letter to his report to ACF referred to Mr. Speller's
"lack of concern . . . with activities, particularly the maintenance of
financial records" especially from earlier periods, and noted that as a
result RDCA's records may "remain in disarray." ACF Ex. 23, Tab 4,
at
10. ACF responded that Mr. Philhours' "observations are exactly in
concert with those of this office. The Chairman of the [RDCA Board] . .
. is also fully aware of the Executive Director's capabilities or
attitude and has expressed that concern to us. . . . We are pursuing the
audit issue with the OIG since we have serious concerns about the close
relationship between the former Bookkeeper and the CPA, the alleged
missing funds, and the continued non-submittal of the audit.
Programmatically, we are also monitoring the program on a continuing
basis. Therefore, until current developments play out, I suggest you
wait on this one." ACF Ex. 23, Tab 4, at 9. This exchange indicates
that ACF was anything but sanguine about Mr. Speller, and that both
RDCA's Board and ACF were worried about Mr. Speller's attitude and
competence for a long time. There is no hint in this correspondence of
ACF defending or supporting Mr. Speller.
86. It is plain that many employees were hired with high expectations
and, after working some time at RDCA, were fired as incompetent,
dishonest or disloyal. For example, Ms. Spruill, according to Ms. Grant
was "very good" and was doing a good enough job to be appointed Acting
Head Start Director during Ms. Hines' absence. Tr. at 1058. Yet, her
job performance began deteriorating for no apparent reason and she was
reprimanded for not following the chain of command, was "staring off
into space," and had "difficulty differentiating between office gossip
and issues that would be detrimental to or hurt the Agency." Tr. at
901, 907, 1058. Ms. Newsome was "very capable," and "worked diligently"
preparing financial records, and then "ran off" with the computer
password. Tr. at 1044. Ms. Lohr was, according to Ms. Hines, initially
"very conscientious, conscientious about her work performance." Tr.
at
870. Four months later, she was indicating that she could not perform
her job under the conditions at RDCA, and became "disgruntled." Tr.
at
877, 880-81, 952- 53. When Mr. Robertson came on, they were "full of
joy" at his credentials. Tr. at 869. He was a CPA with previous
experience as a fiscal officer and executive director of another Head
Start program. Tr. at 869-70. Within a few months, he was terminated
because they "got absolutely nothing out of him." Tr. at 871, 883.
87. RDCA also alleged that Mr. Alexander demonstrated ACF's "coercive"
treatment of Head Start grantees by having interfered in the selection
of Policy Council members at another grantee. RDCA Br. at 70; Tr. at
1014. Since RDCA made no claim that ACF interfered in any way with
Policy Council selections at RDCA, we see no relevance to these charges,
and they are not established on the