STATE OF FLORIDA, DEPARTMENT OF ) LABOR AND EMPLOYMENT SECURITY, ) DIVISION OF EMPLOYMENT AND )
vs. ) CASE NO. 81-628
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on 13-14 May, 1981, at Tallahassee, Florida.
For Petitioner: G. W. Jacobs, Esquire
2562 Executive Center Circle East Suite 115, Montgomery Building Tallahassee, Florida 32301
For Respondent: David M. Lipman, Esquire
By Agency Order to Show Cause dated 27 February 1981, as amended, the Florida Department of Labor and Employment Security, Division of Employment and Training, Petitioner, seeks to cancel contracts with Union of Concerned Parents, Inc. (UCP or Respondent) to operate two programs under the Comprehensive Employment and Training Act (CETA). As grounds therefor it is alleged that Respondent, in administering these contracts, has failed to comply with the provisions of the contracts and federal law and regulations. Specifically, it is alleged:
(a) Respondent failed to maintain proper vehicle logs showing mileage properly charged to these contracts; and
(f) Respondent collected funds from participants to help defray the costs of their Now York trip to observe a Broadway play and failed to properly account for and refund the sums so collected.
At the hearing, 13 witnesses testified. It was stipulated that a subpoenaed witness, who did not appear because of a family emergency would, if present, testify that he was aware of the problems between UCP and Petitioner and there was no evidence any funds had been misappropriated by UCP. Eighteen exhibits were admitted into evidence, including a late-filed exhibit of the bank records showing the handling of the $780 collected from 13 participants in the New York field trip. Official notice was taken of 41 CFR Part 29-70, Part 676, CETA Regulations, and pages 4522 and 4523 of the Legislative History of P.L. 95- 524.
Proposed findings submitted by the parties and not included below were not supported by competent evidence or were deemed immaterial to the results reached.
UCP is a non-profit organization incorporated in Florida.
During tie years of 1979-1980 and 1980-1981, UCP entered into contracts with Petitioner, to serve as operator for two CETA programs. One of these programs was a Title VIII Young Adult Conservation Corps program in which the operator contracted to train economically disadvantaged youths in park restoration and development while developing recreational areas in rural low- income communities (Exhibits 1 and 3). The contract price of the 1981 contract which Petitioner proposes to cancel is $74,000.
The other program contracted by UCP to operate proposes to train some
15 minority youths between the ages of 16 and 21 for positions in the Theatre/Journalism field and expose an additional 500 youths to the career opportunities available in these fields (Exhibits 2 and 4). The contract price of the 1981 contract which Petitioner proposes to cancel is $210,000 (Exhibit 2). The 1980 contracts for these programs were $85,000 and $315,000, respectively (Exhibits 3 and 4).
Dr. Ed James was the founder (Exhibit 5) and first Chairman of UCP, is now Chairman Emeritus of UCP and participates in the contract (Exhibit 2) as Journalism Coordinator. This involves the planning and operation of the journalism project portion of the contract. James also owns Full Spectrum Video and Film, Inc. which, during the time these contracts were in effect, had offices in the same building as UCP. Full Spectrum Video and Film, Inc. sells video services and products. It has no full-time employees but employs salesmen on a commission basis.
In addition to Dr. James as owner, a Tony Majors, who worked for UCP as Theatrical Director during the 1979-1980 contract period, was a Vice President of Full Spectrum Video and Film, Inc.
Fred Bacon, during all times here relevant, was Executive Director of UCP. His duties include the day-to-day operation of UCP, whose primary activity is serving as operator under these CETA contracts. Bacon serves as purchasing agent and is in charge of obligating and disbursing the funds provided pursuant to these CETA contracts.
During the earlier stages of these contracts Petitioner's employees who acted as contract managers frequently visited UCP to check their records and files and found no problems. These contract managers did not check fiscal procedures.
In the latter part of the first contract period, Petitioner's Division of Independent Monitors also visited UCP to check records, including fiscal records, to ascertain that the operator was in compliance with federal regulations applicable to CETA contracts. During a visit in late February, 1980, by monitors from Petitioner, numerous discrepancies were noted in procurement practices, including potential conflicts of interest and inadequate bidding procedures. Also, it was noted that vehicle logs were mot properly maintained to show that these vehicles were used on official business only.
In response to this monitor report the Respondent's Executive Director, in letter dated April 23, 1980, denied any impropriety, charged the monitors with bias and prejudice, and demanded an unbiased review.
This response was reviewed by Petitioner's Contract Manager and, by letter dated May 23, 1980, the Acting Director of the Division of Employment and Training notified Respondent that its response had been found acceptable.
At the time this letter was written, the Acting Director was unaware that Respondent had purchased office furniture and equipment from Allstate Office Supply and Equipment Co., a corporation established and owned by Bacon. Bacon's testimony regarding his lack of knowledge of the incorporators of Allstate, one of whom was his sister and the other an employee of UCP, and his lack of knowledge that James owned Full Spectrum Video and Film, Inc. at the time the equipment was leased and the video tapes purchased from Full Spectrum by Respondent, is not credible.
The charges of bias and demand for conference visits led to additional visits to UCP by contract managers, monitors, and auditors. On February 5-9, 1981, the firm of Alexander Grant and Company conducted a Financial and Compliance audit for the period October 1, 1979 to September 30, 1980 and its report was admitted as Exhibit 16. This audit, inter alia, found the lack of a general ledger unacceptable for proper accounting. These visits also disclosed Respondent had entered into a lease with Full Spectrum Video and Film, Inc. in which video equipment having a value of slightly in excess of $6,000 was leased for ten months for $10,270, with the full amount paid in advance, and video tapes were purchased from Full Spectrum. It was also disclosed that camera and recording equipment had been leased from WXLT-Television in Sarasota for
$15,000. Neither of these leases were supported by written bids and no bidding procedures had been established by Respondent.
The contract (Exhibit 4) provides that training equipment would be rented. It would normally be expected that the rental cost of the equipment having a relatively long life would be considerably less than the purchase price. Accordingly, it was CETA policy to lease non-consumable equipment rather than purchase such equipment.
In June, 1980, Dr. Charles Russell was appointed Director, Division of Employment and Training. He shortly learned of problems with UCP but found insufficient evidence to warrant refusal to review the contracts for 1981. However, additional audits were directed by Dr. Russell and, when evidence regarding conflicts of interest in the purchases from Allstate and Full Spectrum Video came to light, Russell issued the Agency Order to Cause.
One of these audits was conducted by Petitioners Bureau of Independent Monitoring wherein UCP was found deficient in maintaining financial records and backup documents to support the expenditures noted. These deficiencies occurred principally in vehicular travel expenses and leases of expensive equipment (greater than $10,000) for which no adequate bidding procedure was established or documented. The mileage put on the vehicles and the costs incurred could not be corroborated by the vehicle logs maintained. No evidence was presented that fraudulent transactions occurred, that gas was purchased for use other than in the leased vehicles, or that the vehicles were used other than for official business.
Newspaper publicity about some of the activities of Respondent resulted in the Auditor General of Florida sending auditors to audit Respondent's records. Part of this publicity included the disclosure that 13 participants in the Theatre program and eight staff members had been flown from Sarasota to New York on a field trip to see Broadway plays. It was also disclosed that $60 had been collected from the 13 participants and the $780 had not been returned although Petitioner had funded the total cost of this field trip. Exhibit 15 is a copy of checks dated 21 April 1981 refunding the $60 to each participant. Bacon's explanation for failure to return the money to the participants until shortly before the hearing was that it slipped his mind that these funds had been collected and not used.
Respondent was authorized to submit, as a late-filed exhibit, the bank records relating to the handling of the $780 collected from the participants.
By latter dated 26 May 1981, Petitioner, by and through his attorney, submitted a copy of a check dated April 7, 1981 drawn on UCP General Account payable to "Union of Concerned Parents-Trust" in the amount of $780; a copy of receipt for check deposit dated 041581 to UCP General Account in the amount of $780.00; a copy of a cashier's check dated April 7, 1981 drawn on UCP General Account payable to Union of Concerned Parents-Trust in the amount of $780; and copies of
11 checks dated April 21, 1981 drawn on UCP General Account in the amount of $60 and payable to individual payees. These latter checks were admitted into evidence during the hearing as Exhibit 15. The total shown refunded in Exhibit 15 is $660.
Respondent also submitted two affidavits neither of which are the bank records authorized to be submitted as a late-filed exhibit. These affidavits are not admitted into evidence and will not be considered although the letter of
26 May 1981 with all attachments is identified as Exhibit 18.
Exhibit 14 indicates the New York trip was taken Labor Day weekend. In 1980 Labor Day occurred 1 September. Presumably the money was collected during August 1980 and no record showing what happened to this $780 from the time of its collection until April 1981 has been presented. All checks disbursing either $60 or $780 were written on UCP General Account and no record has been presented showing the source of the $780 deposit dated 15 April 1981.
It was only after the adverse newspaper publicity about the New York trip that the existence of the $780 came to light and it was subsequent to the charges here preferred that any money was refunded to the participants. From the records presented it cannot be determined that the $780 collected from 13 participants was the source of the funds refunded to the 11 payees of the $60 checks dated April 21, 1981.
Upon their initial visit the Auditor General's agents were refused access to Respondent's records. When they appealed to Petitioner, Respondent's executive director was contacted by Petitioner and he agreed to allow the Auditor General access to his records if written authorization was received from Petitioner. A letter was sent to Respondent containing such authorization (Exhibit 17); however, when the auditors appeared after the letter had been received, Bacon again refused them access to the records unless UCP's attorney was present. Although Bacon testified the books and records would be shown to the Auditor General no time acceptable to both parties has been established.
Respondent contends that the genesis of these charges here involved is political and that the primary, if not sole, purpose of the show cause order is to remove Dr. Ed James from the employ of UCP. To substantiate this contention Respondent called Wallace Orr, Secretary of the Department of Labor and Employment Security, to testify that he had told UCP and a member of the Board of Directors of Minority Ventures, Inc. that they should get rid of Ed James because of the disrupting influence he was having with their relations with the Department of Labor and Employment Security. Secretary Orr acknowledged making the statements plus telling UCP that if they didn't get rid of James he (Orr) might revoke their contracts. Orr attributed these comments to his concern for the viability of both organizations and to the difficulties created by James with his continual allegations of racial discrimination every time he contacted the Department of Labor on behalf of those organizations.
The evidence was undisputed that the Order to Show Cause was instituted by Charles Russell in his capacity as Director, Division of Employment and Training, and as a result of reports he had received indicating UCP had violated federal regulations in their handling and disbursing CETA funds with which they were entrusted under the contracts.
Respondent further contends that the contract between UCP and Allstate Office Supplies was in the best interest of UCP as were the transactions with Full Spectrum Video involving the purchase of video tapes and the lease of equipment. In support of that position Bacon testified that he had obtained an oral quote for the furniture needed from Bunko's at a price of approximately
$3,000 and that he procured the furniture through Allstate at cost. Although this testimony was unrebutted neither was it corroborated by documents showing how much Allstate actually paid for the furniture. No record of Bunko's quote was available.
Respondent justified awarding the contract to lease video equipment from Full Spectrum Video on the basis of a telephone call to a supplier in Miami, Image Devices Incorporated (IDI), and the receipt of a price list from IDI for renting equipment on a daily basis only. No effort was made to obtain a bid from a supplier in Tampa (or elsewhere) or from the manufacturer of the equipment. The testimony of Bacon that an important consideration was maintenance of the equipment, and the lease provided for maintenance of the equipment, is not borne out by the copy of the invoice contained in Exhibit 8 or the testimony of James that he didn't know how often repairs were required on the leased equipment although he was the only one to make repairs. Respondent
likewise justified the $15,000 lease of equipment from WXLT-TV on the comparison of their quoted price with the daily rates contained in the catalog Bacon had received from IDI and without obtaining a quote from any other supplier.
It is evident that contract managers and others in the employ of Petitioner made numerous visits to UCP to look over their procedures and assist UCP with potential problems and failed to recognize or discover accounting, organization and procurement errors being committed by Respondent; or, if these errors were recognized, their existence was not communicated to UCP. It further appears that the policy of making every effort to settle all problems if the operator promised future compliance with applicable regulations was discontinued shortly after Charles Russell assumed the duties of Director, Employment and Training.
The contracts here involved provide the operator shall avoid organizational conflicts of interest; its personnel shall avoid personal conflict of interests and appearance of conflict of interest in the conduct of procurement activities; and that it shall establish monitoring procedures to ensure that its program is in compliance with the Act and the regulations.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of these proceedings.
The accountability for CETA funds and various accounting and bid procedures for contract operators are contained in 41 CFR Part 29-70. Those regulations include the following sections.
Section 29-70.203b-1 which provides:
In addition to the requirements stated in 29-70.203-6(a) each CETA recipient shall insure that the following records are
maintained for the period prescribed. . .and made available to the Secretary or his authorized designee:
Records including books of account for the expenditure of CETA funds to enable the Secretary to audit and monitor the program. . .
Section 29-70.207-2 generally provides that each recipient shall establish and maintain a financial management system which provides for adequate control of grant or agreement funds; insures the accuracy of financial data; and provides for operational efficiency and for internal controls to avoid conflict of interest situations. It establishes reporting requirements, the maintenance of adequate records to insure accountability of funds, review of the costs of various equipment or projects, conservation of assets, and steps to insure the proper expenditure and accountability therefor of all funds.
Section 29-79.216-5(b) provides that the recipient shall conduct all procurement transactions in a manner that provides free and open competition with the extent of the competition consistent with the dollar value of the award.
Section 29-70.216-6 requires recipient to establish procurement procedures and establishes minimum requirements among which are specific requirements involving procurement of material or services of a value of $10,000 or more which includes written specifications and bids.
Section 29-70.205 and .206 requires the accountability of all income received by a CETA operator.
From the evidence presented it is clear that UCP violated the above- noted regulations pertinent to CETA projects. Although no evidence of specific misuse of funds was presented, it is evident that these regulations are intended to protect CETA funds, not only from the dishonest, but also from the naive or indolent. Purchasing supplies from Allstate and Full Spectrum Video certainly presented the appearance of conflict of interest, even if, as Respondent contends, no undue benefit was received by the vendors. In purchasing supplies and equipment Respondent was remiss in the cavalier manner in which competing bids were obtained. It is inexcusable to lease equipment for one year (or less) for $10,000 or $15,000 without some effective competition for such a contract. Here that happened on at least two occasions.
In refusing the Auditor General access to its records after receiving notification from Petitioner to do so Respondent also violated these regulations.
While collecting $60 from each participant of the field trip to New York to help defray hotel expenses not expected to be paid for by Petitioner was not necessarily a violation of the regulations, the failure to account for these funds or return them promptly to the participants upon their return to Sarasota is a violation. This coupled with the fact that none of the staff accompanying the participants to New York contributed to the fund for over-budged hotel room costs and no effort was made to refund these payments until shortly prior to this hearing, despite newspaper accounts of the incident, raises additional questions of impropriety.
Most of the above-noted violations occurred on the 1979-1980 contracts and it is the 1980-1981 contracts that Petitioner proposes to cancel. 20 CFR Part 676 contains general provisions governing programs under CETA. Section
thereof establishes the following requirements for contracts with nongovernmental organizations:
No funds will be paid to any nongovernmental organization for the conduct of programs (other than under Title VII or on-the-job training) under the Act unless;
(3) It has not been seriously deficient in its conduct of, or participation in, any Department of Labor program in the past, or is not a successor organization to one that was seriously deficient in the past, unless the Secretary certifies after a clear, convincing and detailed showing that the deficiencies will be eliminated and performance substantially improved.
Deficiencies in the operation of programs will normally be found during audits conducted after the close of the contract period. Subsection (3) above quoted provides grounds for cancelling a contract as well as grounds for
refusing to award a contract to an operator who has been seriously deficient in the past. It is incongruous to hold 20 CFP 676.38(a)(3), under the facts here presented, authorizes and directs Petitioner not to renew Respondent's contract when it expires September 30, 1981, but does not authorize the contract's termination prior thereto. Accordingly, I find 20 CFR 676.38(a)(3) authorizes the termination of a contract by directing CETA funds not be paid to a nongovernmental organization found to have been seriously deficient in their handling of past CETA contracts.
From the foregoing it is concluded that Respondent purchased supplies and equipment from employees of Respondent thus giving rise to an apparent conflict of interest; that it engaged in improper procurement practices in leasing expensive equipment; that it refused to allow an inspection of its books and records by authorized persons; that it failed to maintain adequate vehicle logs; and that it failed to properly account for all funds received. It is, therefore,
RECOMMENDED that the Union of Concerned Parents' CETA contracts be cancelled.
Done and Entered this 3rd day of June, 1981, in Tallahassee, Florida.
K. N. AYERS, Hearing Officer Division of Administrative Hearings The Oakland Building
Filed with the Clerk of the Division of Administrative Hearings this 3rd day of June, 1981.
G. W. Jacobs, Esquire
2562 Executive Center Circle East Suite 115, Montgomery Building Tallahassee, Florida 32301
David M. Lipman, Esquire 9500 Southwest 175th Terrace Suite 100
