B-119084, OCT. 28, 1955

B-119084: Oct 28, 1955

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SAMUEL OLANTZ: REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 30. WE REFERRED THE MATTER TO THE DEPARTMENT OF JUSTICE BUT IT WAS DETERMINED BY THAT DEPARTMENT THAT AFFIRMATIVE ACTION ON THE BASIS OF FRAUD SHOULD NOT BE TAKEN AGAINST THE ESTATE OF DR. YOU WERE ADVISED THAT CONSIDERATION WOULD BE GIVEN TO THE RELEASE OF PAYMENT TO THE ESTATE OF THE NET AMOUNT DETERMINED BY THE VETERANS ADMINISTRATION TO BE DUE THE SCHOOL WITHOUT CONSIDERATION OF THE ELEMENT OF POSSIBLE FRAUD. YOU WERE ADVISED THAT THE VETERANS ADMINISTRATION HAD INDICATED THAT THE CLAIMS FOR $40. 653.95 WERE OVERSTATED IN THE AMOUNT OF $18. YOU WERE ADVISED THAT NORMAL SUSPENSIONS AND AUDIT EXCEPTIONS ON THE CLAIM VOUCHERS TOTAL THE SUM OF $2.

B-119084, OCT. 28, 1955

TO MR. SAMUEL OLANTZ:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 30, 1955, ON BEHALF OF THE ADMINISTRATOR FOR THE ESTATE OF DR. HARRY E. DREXEL, DECEASED, PROPOSING THAT THE NET AMOUNT OF $13,477.78 BE PAID TO THE ESTATE IN FULL SETTLEMENT OF ALL CLAIMS AGAINST THE UNITED STATES ARISING OUT OF THE OPERATION BY DR. DREXEL OF THE NATIONAL OPTICAL SCHOOL UNDER ITS CONTRACTS WITH THE VETERANS ADMINISTRATION.

IN CONNECTION WITH AN AUDIT OF THE BOOKS AND RECORDS OF THE SCHOOL FOR THE PERIOD JUNE 3, 1946, THROUGH DECEMBER 22, 1950, THE QUESTION AROSE AS TO WHETHER ANY PART OF THE OUTSTANDING CLAIMS OF THE SCHOOL, AGGREGATING THE SUM OF $40,653.95, COULD PROPERLY BE PAID BECAUSE OF INDICATED IRREGULARITIES AND POSSIBLE FRAUD INVOLVED IN SUCH CLAIMS AND IN PREVIOUS BILLINGS OF THE SCHOOL, TOTALING THE SUM OF $159,088.82. ALSO, THERE EXISTED THE POSSIBILITY THAT, IN ADDITION TO THE REJECTION OF THE OUTSTANDING CLAIMS, THE GOVERNMENT MIGHT BE ENTITLED TO COLLECT DOUBLE DAMAGES AND PENALTIES ON OVERPAYMENTS REPORTED BY THE VETERANS ADMINISTRATION, PURSUANT TO THE PROVISIONS OF SECTION 231, TITLE 31, U.S.C. WHICH RELATES TO THE LIABILITY OF PERSONS MAKING FALSE CLAIMS AGAINST THE GOVERNMENT. WE REFERRED THE MATTER TO THE DEPARTMENT OF JUSTICE BUT IT WAS DETERMINED BY THAT DEPARTMENT THAT AFFIRMATIVE ACTION ON THE BASIS OF FRAUD SHOULD NOT BE TAKEN AGAINST THE ESTATE OF DR. DREXEL.

IN A CONFERENCE ON AUGUST 24, 1955, YOU WERE ADVISED THAT CONSIDERATION WOULD BE GIVEN TO THE RELEASE OF PAYMENT TO THE ESTATE OF THE NET AMOUNT DETERMINED BY THE VETERANS ADMINISTRATION TO BE DUE THE SCHOOL WITHOUT CONSIDERATION OF THE ELEMENT OF POSSIBLE FRAUD. IN THAT CONNECTION, YOU WERE ADVISED THAT THE VETERANS ADMINISTRATION HAD INDICATED THAT THE CLAIMS FOR $40,653.95 WERE OVERSTATED IN THE AMOUNT OF $18,951.59 BECAUSE OF A FAILURE TO CONSIDER ADVANCE PAYMENTS MADE BY THE VETERANS ADMINISTRATION DURING A PERIOD OF NEGOTIATION OF A CONTRACT TUITION RATE. WITH RESPECT TO THE BALANCE OF $21,702.36, YOU WERE ADVISED THAT NORMAL SUSPENSIONS AND AUDIT EXCEPTIONS ON THE CLAIM VOUCHERS TOTAL THE SUM OF $2,245.61; THAT THE VETERANS ADMINISTRATION HAD DETERMINED THAT AN OVERPAYMENT OF APPROXIMATELY $7,063.54 HAD BEEN MADE ON THE PREVIOUS CLAIMS OF THE SCHOOL; AND THAT WE WERE ADVISED THAT INTERNAL REVENUE SERVICE TAX LIENS AGAINST THE ESTATE OF DR. DREXEL AMOUNTED TO $2,098.59.

ASSUMING THAT THE CLAIMS MAY PROPERLY BE ADJUSTED ON THE BASIS OF THE FOREGOING FIGURES, YOU WERE ADVISED THAT THE NET AMOUNT DUE THE SCHOOL WOULD BE $12,393.21, SUBJECT TO DEDUCTION OF A SUFFICIENT AMOUNT TO LIQUIDATE THE TAX INDEBTEDNESS OF DECEDENT'S ESTATE. THAT BASIS OF SETTLEMENT WAS QUESTIONED BY YOU ON THE GROUND THAT THE ESTIMATED OVERPAYMENT OF $7,063.54 APPEARED TO BE EXCESSIVE, AND THAT YOU DESIRED TO VERIFY ON BEHALF OF THE ESTATE THE DEDUCTION OF $18,951.59 AS ADVANCE PAYMENTS MADE TO THE SCHOOL. YOU NOW PROPOSE THAT THE FIGURE $18,951.59 BE ACCEPTED, BUT SUGGEST THAT THE FIGURE $7,163.54 BE REDUCED BY 50 PERCENT, OR TO THE SUM OF $3,531.77. WITH THE ADDITION OF THAT AMOUNT TO THE ABOVE SUM OF $12,393.21 THE ASSUMED NET AMOUNT DUE ON THE CLAIMS FOR $40,653.95 WOULD EQUAL $15,924.98. FURTHER, IT IS INDICATED IN YOUR LETTER THAT YOU WERE RECENTLY ADVISED BY THE LOCAL COLLECTION DIVISION OF THE INTERNAL REVENUE SERVICE THAT THE EXACT TOTAL AMOUNT OF THE TAX LIENS IS $2,447.20. THE DEDUCTION OF THAT AMOUNT FROM THE SUM OF $15,924.98 WOULD RESULT IN A NET PAYMENT OF $13,477.78 ON THE CLAIMS OF THE SCHOOL.

THE ESTIMATED OVERPAYMENT OF $7,063.54 WAS COMPUTED ON THE BASIS OF AN EXCESS ABSENCE FACTOR OF 4.44 PERCENT, DEVELOPED WITH RESPECT TO RECORDS OF STUDENT ATTENDANCE FOR A PERIOD SUBSEQUENT TO AUGUST 1, 1950, WHICH RECORDS OF ATTENDANCE WERE THE ONLY RECORDS OF SUCH TYPE WHICH WERE MADE AVAILABLE TO THE AUDITORS OF THE VETERANS ADMINISTRATION. THE SCHOOL AUTHORITIES ALLEGED THAT ALL PRIOR RECORDS OF STUDENT ATTENDANCE WERE DESTROYED EARLY IN OCTOBER 1950, ONLY TWO OR THREE WEEKS BEFORE THE COMMENCEMENT OF THE AUDIT. IN VIEW OF CONTRADICTORY AND EVASIVE STATEMENTS MADE IN REGARD TO THOSE RECORDS, IT SEEMED REASONABLE TO ASSUME THAT THE SCHOOL AUTHORITIES HAD DELIBERATELY CONCEALED THE RECORDS AND DISPOSED OF SAME AFTER THE COMMENCEMENT OF THE AUDIT. APPARENTLY, SUCH ACTION WAS CONSIDERED TO BE AT LEAST TECHNICALLY UNOBJECTIONABLE FOR THE REASON THAT, PRIOR TO THE YEAR 1950, THE VETERANS ADMINISTRATION CONTRACTS WITH THE SCHOOL DID NOT REQUIRE THE PRESERVATION OF SCHOOL RECORDS FOR ANY PARTICULAR PERIOD.

WE ARE NOT IN AGREEMENT WITH YOUR SUGGESTION THAT, IN THE CIRCUMSTANCES OF THE PRESENT CASE, AN ESTIMATED OVERPAYMENT FIGURE FOR THE PERIODS OF INSTRUCTION PRIOR TO AUGUST 1, 1950, COULD NOT BE CONSIDERED AS ADMISSIBLE EVIDENCE IN ANY COURT PROCEEDING. ASIDE FROM SUCH QUESTION OF ADMISSIBLITY, YOU STATE THAT THE PROJECTED FIGURE ITSELF REPRESENTS A PROJECTION BASED UPON AN AUDIT MADE DURING A PERIOD WHEN, ADMITTEDLY, THE SCHOOL WAS IN THE PROCESS OF CLOSING ITS DOORS, AND WOULD, THEREFORE, NOT BE A REPRESENTATIVE SAMPLE. HOWEVER, SUCH PERIOD IS THE ONLY ONE AS TO WHICH ADEQUATE RECORDS OF STUDENT ATTENDANCE WERE AVAILABLE FOR EXAMINATION AND IT WOULD APPEAR THAT, AFTER MORE THAN FOUR YEARS OF OPERATION UNDER THE VETERANS ADMINISTRATION'S EDUCATIONAL PROGRAM, THE SCHOOL SESSIONS DURING THE LAST FIVE MONTHS OF ITS OPERATION THAN FOR MOST OF THE PREVIOUS PERIODS OF INSTRUCTION. ALSO, IT WILL BE NOTED THAT THE AUDIT OF THE SCHOOL RECORDS WAS BEING CONDUCTED DURING APPROXIMATELY ONE- HALF OF THE BASE PERIOD, AND IT IS EVIDENT THAT THIS MIGHT WELL HAVE CONTRIBUTED TO A HIGHER RATE OF REGULAR ATTENDANCE FOR THE PERIOD AUGUST 1 TO DECEMBER 22, 1950, THAN FOR ANY PREVIOUS PERIOD, REGARDLESS OF ANY CONTEMPLATED CLOSING OF THE SCHOOL AT THE TIME THE AUDIT WAS COMMENCED.

IN ANY EVENT, YOU HAVE NOT PRESENTED ANY BETTER OR MORE DEFINITE BASIS FOR DETERMINING THE AMOUNT OF OVERPAYMENTS ON ACCOUNT OF ABSENCES. WITH RESPECT TO THE USE OF THE EXCESS ABSENCE FACTOR OF 4.44 PERCENT IN RELATIONSHIP TO THE PREVIOUS PAYMENTS MADE TO THE SCHOOL, THE VETERANS ADMINISTRATION HAS TAKEN THE POSITION THAT, IF FACTUAL RECORDS OF ATTENDANCE HAD BEEN MAINTAINED AND RETAINED BY THE OPERATORS OF THE SCHOOL, OVERCHARGES AND OVERPAYMENTS WOULD PROBABLY HAVE BEEN ESTABLISHED IN CONSIDERABLY GREATER AMOUNTS THAN AS SET FORTH IN THE REPORT OF AUDIT. WE BELIEVE THAT THERE IS A REASONABLE BASIS FOR SUCH CONCLUSION AND FEEL THAT WE CANNOT, THEREFORE, PROPERLY MAKE ANY ADJUSTMENT IN THE $7,063.54 OVERPAYMENT FIGURE.

AS A MATTER OF FACT, THE SITUATION IN THE PRESENT CASE WOULD APPEAR TO WARRANT THE TOTAL REJECTION OF THE CLAIMS OF THE SCHOOL. SEE LONGWILL V. UNITED STATES, 17 C.CLS. 288, 291; CHARLES V. UNITED STATES, 19 ID. 316, 319; 33 COMP. GEN. 394, 395. HOWEVER, SINCE THE DEPARTMENT OF JUSTICE HAS CONCLUDED THAT NO FRAUD ACTION WILL BE TAKEN IN THE MATTER, THE BALANCE DUE THE SCHOOL ACCORDING TO THE ADMINISTRATIVE DETERMINATIONS WILL BE PAID TO THE ESTATE OF DR. HARRY E. DREXEL AS IN FULL AND FINAL SETTLEMENT OF ALL CLAIMS ARISING OUT OF THE CONTRACTS BETWEEN THE NATIONAL OPTICAL SCHOOL AND THE VETERANS ADMINISTRATION, AFTER DEDUCTION OF THE AMOUNT DUE AS TAXES.