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B-229068-O.M. December 23, 1987

B-229068-O.M. Dec 23, 1987
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It was learned that the Department of the Interior (Interior) waived the collection of grant payments which had been made to the State of New Mexico. The money had been used to regulate mining on Indian lands even though the state did not have the authority to do so under SMCRA. We are asked if Interior had the authority to waive collection of the disallowed grant payments. It is our opinion that notwithstanding the state's good faith and the actions of Interior employees. Interior did not have the authority to waive the collection of the misused grant funds which must be repaid by the State of New Mexico to the United States. Background The State of New Mexico's regulatory program was conditionally approved effective on December 31.

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B-229068-O.M. December 23, 1987

DIGEST

To: Assistant Comptroller General, RCED-J. Dexter Peach From: Associate General Counsel-Rollee H. Etros

Subject: Request for Opinion-Department of the Interior Waiver of Collection of Disallowed Grant Payments to State of New Mexico Awarded Under Title V of the Surface Mining Control and Reclamation Act, B-229068-O.M.

Associate Director James Duffus III states that during the course of a review of federal and state management of administrative grants awarded to states under Title V of the Surface Mining Control and Reclamation Act of 1977, Pub. L. No. 95-87, (SMCRA), it was learned that the Department of the Interior (Interior) waived the collection of grant payments which had been made to the State of New Mexico. The money had been used to regulate mining on Indian lands even though the state did not have the authority to do so under SMCRA, the state's approved regulatory program, or the grant agreements. In this circumstance, we are asked if Interior had the authority to waive collection of the disallowed grant payments.

For the reasons stated below, it is our opinion that notwithstanding the state's good faith and the actions of Interior employees, Interior did not have the authority to waive the collection of the misused grant funds which must be repaid by the State of New Mexico to the United States.

Background

The State of New Mexico's regulatory program was conditionally approved effective on December 31, 1980, and finally approved with an effective date of October 26, 1982. On December 20, 1982 a cooperative agreement for state regulation of surface coal mining and reclamation operations on federal lands within the state went into effect. The agreement noted that the term "Federal lands" is defined in SMCRA, and in stated and federal regulations. In the event of conflict between state and federal definitions, the definitions in the approved program are to apply. (30 C.F.R. Sec. 931.30). This definition is found in sec. 701(4) of SMCRA (30 U.S.C. Sec. 1291(4)).

In September 1985, Interior's Office of Inspector General issued a report on its audit of Office of Surface Mining Reclamation and Enforcement (OSMRE) grants to the State of New Mexico for the period from January 1, 1981, through June 30, 1985. It found that the state conducted mine inspection and permitting activities on Indian lands with federal funds during the five grant periods covered by the audit and that a total of $519,534 was spent for these purposes. The audit disallowed these costs and recommended that the Direcor of OSMRE recover the funds from the state since the grant funds were no to be used for Indian lands.

Subsequently, the Secretary of New Mexico's Energy and Minerals Department, which carried out the regulatory activities on Indian lands in the state acknowledged "that as a matter of strict grant compliance, program funds should have not been expended on Indian lands" (letter of December 6, 1985, to the Director of OSMRE). However, the Secretary indicated that OSMRE officials had been aware of the activities and had not objected to them. Despite Office of Inspector General disagreement, OSMRE requested that the Secretary of the Interior grant relief from the recommended disallowance of program costs.

On June 24, 1986, the Assistant Secretary for Policy, Budget and Administration determined that it was not in the best interests of the government to recover all of the misallocated costs determined to be unallowable in th audit, and recovery was waived except as to the grant for fiscal year 1985. The latter grant included specific language that the expenditures on Indian lands were not allowed. The other grants, two of which were entered into prior to the signing of the cooperative agreement, did not have the specific provision.

The Assistant Secretary concluded that the government was on notice that there was a misunderstanding as to allowable expenses, and that government personnel participated with, and may have encouraged the state to incur expenses not allowable under OSMRE grants. He further concluded that the cooperative agreement "may have been so constructively changed through practice as to allow recovery of expenditures incurred with respect to activities conducted on Indian lands..."

Discussion

In 51 Comp.Gen. 162 (1971), we held that the recovery of clearly erroneous payments of federal grants, including one to the State of South Carolina, might not be waived even though the grantees in good faith relied on a federal agency's prior determination of eligibility. To waive the collection of the payments would in effect empower the government's agents to make expenditures by the State of Rhode Island which clearly violated program requirements, even though the payments were made in good faith.

The Supreme Court of the United States, in Bennett v. Kentucky Department of Education, 470 US 656 (1985), considered whether the United States Department of Education correctly demanded repayment of grant funds from the State of Kentucky. The Court found that the state clearly violated existing statutory and regulatory provisions. It concluded that the federal agency was justified in demanding repayment from the state, stating that, "Nor do we think that the absence of bad faith absolves a State from liability if funds were in fact spent contrary to the terms of the grant agreement."

In 64 Comp.Gen. 388 (1985), we took note of the general rule stated in 51 Comp.Gen. 162 that misapplied grant funds must be recovered even when expenditures have been incurred innocently by the grantee. Where grant funds were provided to eligible subgrantees from funds specifically earmarked for other subgrantees in an appropriation act, in the special circumstances of that case, we did not require the grantor agency to recover from the grantee. However, the circumstances of that case are substantially different than those here, where grant funds were expended, albeit innocently, by the grantee for purposes not allowed by the controlling statute.

In our case, Interior's Office of Inspector General found that the grant funds administered by New Mexico's Energy and Minerals Department were misused, since they were used for inspection and regulation of Indian lands, a use of appropriated funds not authorized by SMCRA. The state acknowledges that the funds should not have been used for the Indian lands. We agree. It appears clear that under the statutory definition of "Federal lands" that the state was not authorized to use grant funds for the Indian lands.

Conclusion

The Assistant Secretary for Policy, Budget and Administration determined that repayment of the grants, except for fiscal year 1985, was to be waived. In acord with the principle enunciated in 51 Comp.Gen. 162 and Bennett v. Kentucky Department of Education, notwithstanding the state's good faith and the actions of OSMRE personnel, the misused grant funds must be repaid to the United States.

Under 31 U.S.C. Sec. 3711(e)(2), the Comptroller General and the Attorney General have issued claims collection standards. These standards provide for agency termination of collection action only if a claim is plainly erroneous or clearly without legal merit; otherwise, for claims over $20,000 the authority to suspend or terminate rests solely with the Department of Justice. 4 C.F.R. Sec. 104.1(b). Interior should proceed to recover the grant funds (determined by OSMRE to be $187,086, less $6,910 repaid by the State of New Mexico) in accord with these standards.

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