STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DIVISION OF EMPLOYMENT AND ) TRAINING, DEPARTMENT OF LABOR ) AND EMPLOYMENT SECURITY, )

)

Petitioner, )

)

vs. ) CASE NO. 81-1091

) GAINESVILLE REVIEW OF ISSUES ) AND TRENDS, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, hearing was held in Gainesville, Florida, on May 27, 1981, before the Division of Administrative Hearings and its duly appointed Hearing Officer, R. T. Carpenter.

APPEARANCES

For Petitioner: Sonja P. Mathews, Esquire

Department of Labor and Employment Security Suite 117, Montgomery Building

2562 Executive Center Circle, East Tallahassee, Florida 32301

For Respondent: Ms. Janice McPherson

Executive Director Project SUCCESS

3432 North Main Street, Suite II Gainesville, Florida 32601

This matter arose on Petitioner's Order to Show Cause which alleges that Respondent mishandled Comprehensive Employment and Training Act (CETA) funds and permitted a conflict of interest to exist in violation of its contracts and applicable CETA regulations.

FINDINGS OF FACT

1. Gainesville Review of Issues and Trends for Self-Action, Inc. (GRITS or Respondent) conducts research under contract with the State of Florida, Department of Labor and Employment Security, Division of Employment and Training (Petitioner). GRITS original contract covered fiscal year (FY) 1980 (October 1, 1979 - September 30, 1980). It is now in its second contract year (October 1, 1980 - September 30, 1981). Funds are provided by the CETA program to the Governor of Florida who administers these funds through Petitioner.

2. As a non-profit organization, GRITS is not required to pay social security taxes on its employees or deduct FICA from their pay. Rather, participation is optional. Petitioner provided this information to GRITS by letter dated January 17, 1979. No deductions from payroll were made during the FY 1980 contract year, nor did GRITS pay any funds to the Internal Revenue Service, which collects social security taxes.

   
   

3. Throughout FY 1980 and the first two months of FY 1981, GRITS monthly reports of financial transactions (MRFT) required by the contracts showed FICA payments totalling $3,037.13 ($2,524.43 in FY 1980 and $512.70 in FY 1981). These payments had not, in fact, been made. Respondent's Executive Director, Jan McPherson, had transferred $1,209.92 of the purported FY 1980 FICA payments to a second checking account that was not disclosed to Petitioner, but was later discovered through an audit of cancelled checks.

   
   

4. Ms. McPherson used this second account as a source of travel funds for three of her trips costing $577. She contends the trips were program related, but replaced the $577 after Petitioner's critical audit report. Use of these funds for travel was inconsistent with the stated purpose of the account, which was to hold FY 1980 FICA funds pending disposition, and because travel occurred in FY 1981. Further, the travel reports submitted covering these periods omitted any reference to the trips in question.

   
   

5. Petitioner also points out that purchase of 300 checks for use in this second account was inconsistent with its stated purpose as an FICA holding account. However, 300 checks is a minimum purchase for a new account and Respondent was unaware of counter check arrangements which would have obviated the need for this large number of checks.

   
   

6. Petitioner charges that a conflict of interest or apparent conflict of interest existed in the contract by which GRITS retained B & E Janitorial Services. The contract service began on December 1, 1979, while Mr. Don Ethridge, co-owner of B & E, was serving as Treasurer of GRITS and as a member of its board of directors. Although Mr. Ethridge subsequently resigned from GRITS and did not personally negotiate terms, the execution of this contract created a conflict of interest.

   
   

   CONCLUSIONS OF LAW

   
   

7. GRITS FY 1980 contract requires it to

   
   

   . . .comply with the requirements of the Comprehensive Employment and Training Act (Public Law 95-524). . .and with the regulations and policies promulgated thereunder. . .

   
   

8. The FY 1981 contract assurances and certifications section contains a similar provision.

   
   

9. When a CETA contractor receives funds for a reported expense, failure to use the money for the purpose allocated is a violation of the contract and CETA regulations. See 20 CFR 676.41 and 41 CFR 29-70.207-2. 41 CFR 29-70.207-2 & contains the following guidelines for fiscal management:

   
   

   Each recipient shall establish and maintain a financial management system which provides for

   adequate control of grant or agreement funds and other assets. . .The recipient shall ensure that its financial management system meets the following standards:

   1. Reporting. The recipient's reporting procedures shall provide accurate, current, and complete disclosure of the financial results of each grant or agreement. . .

      c) Control of Assets. The recipient shall maintain effective control over and accountability for all project funds, property, and other assets. The recipient shall safeguard assets and shall assure they are

      used solely for authorized purposes.

      
      

10. GRITS failed to make an accurate or complete disclosure FICA transactions either during fiscal year 1980 or at the year-end close-out in violation of the above-quoted reporting requirements. Additionally, use of these funds for undisclosed and unauthorized travel violated the above provisions on control of assets.

    
    

11. 20 CFR 676.62(b) provides in part:

    
    

    "Each recipient and subrecipient shall avoid organizational conflict of interest, and their personnel shall avoid personal conflict of interest and appearance of conflict of interest. . .in the conduct of procurement activities involving funds under the [CETA] Act. . .

    
    

12. The required standard of conduct is stated in Orlando Orange Groves Co. v. Hale, 144 So. 674, 677 (Fla. 1932):

    
    

    Officers of corporations. . .are required to act with the utmost good faith, and they are forbidden to deal in or handle the funds or property of the corporation to their own advantage.

    
    

13. Mr. Ethridge's position as GRITS Treasurer-board member on one hand, and on the other, co-owner of a private firm contracting with GRITS, set up a conflict of interest. This conflict of interest violated 20 CFR 676.62(b), cited above.

    
    

14. Authority for termination of a CETA contract is provided in 29 CFR 98.27(e):

    
    

    Cancellation. If a contractor or subgrantee does not comply with any requirement of the [CETA] Act, the regulations promulgated under the Act, and other applicable law, the prime

    sponsor shall cancel the contract or subgrant. . .

15. Respondent has engaged in practices which provide a legal basis for the contract termination Petitioner seeks. Alternatively, Petitioner can decline to renew the annual contract which has three months to run. Immediate contract cancellation will result in project interruption and possible loss of research benefits. Therefore, Petitioner should permit the current contract to remain in effect until its expiration on September 30, 1981.

    
    

16. The parties submitted post-hearing memoranda containing proposed findings of fact. To the extent these proposed findings have not been adopted or otherwise incorporated herein, they have been specifically rejected as irrelevant or unsupported by the record. See Sections 120.59(2) and 120.57(1)(b)7, Florida Statutes (1979).

RECOMMENDATION

From the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner decline renewal of its annual contract with

Respondent.

DONE AND ENTERED this 24th day of June, 1981 in Tallahassee, Leon County, Florida.

R. T. CARPENTER, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 24th day of June, 1981.

COPIES FURNISHED:

Sonja P. Mathews, Esquire Department of Labor and

Employment Security

Suite 117, Montgomery Bldg. 2562 Executive Center

Circle, East

Tallahassee, Florida 32301

Ms. Janice McPherson Executive Director Project SUCCESS

3432 North Main Street, Suite II Gainesville, Florida 32601

Docket for Case No: 81-001091

Orders for Case No: 81-001091