B-158553, JULY 6, 1966, 46 COMP. GEN. 6

B-158553: Jul 6, 1966

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UNDER REGULATIONS PRESCRIBING THAT ANY SCHOOL WHOSE FOOD OR MILK SERVICE IS OPERATED BY A CONCESSIONAIRE OR FOOD MANAGEMENT COMPANY IS INELIGIBLE TO PARTICIPATE IN THE SPECIAL MILK PROGRAM FOR CHILDREN. A SCHOOL WHOSE DINING HALL WAS OPERATED UNDER CONTRACT WITH A FOOD SERVICE MANAGEMENT COMPANY ON A COST-PLUS-FEE BASIS DURING THE REGULAR SCHOOL YEAR MAY NOT BE RELIEVED OF LIABILITY TO REFUND THE ERRONEOUS PAYMENTS RECEIVED. WAIVING A SUBSTANTIVE PROGRAM REQUIREMENT ON THE BASIS THAT PAYMENTS WERE USED FOR THE PURPOSE OF THE PROGRAM NEGATING AND DEFEATING THE INTENT OF THE STATUTORY REGULATIONS. AS HAD THE SCHOOL BEEN PROPERLY INSTRUCTED IT COULD HAVE CONFORMED TO THE REGULATIONS BY SECURING APPROVAL TO ENTER INTO A FIXED PRICE CONTRACT FOR THE OPERATION OF THE CHILD-CARE PROGRAM.

B-158553, JULY 6, 1966, 46 COMP. GEN. 6

REGULATIONS - COMPLIANCE - FAILURE TO COMPLY. UNDER REGULATIONS PRESCRIBING THAT ANY SCHOOL WHOSE FOOD OR MILK SERVICE IS OPERATED BY A CONCESSIONAIRE OR FOOD MANAGEMENT COMPANY IS INELIGIBLE TO PARTICIPATE IN THE SPECIAL MILK PROGRAM FOR CHILDREN, BUT NOT A CHILD- CARE INSTITUTION CONTRACTING ITS FOOD AND MILK SERVICE AT A SPECIFIC FEE WITH APPROVAL BY THE APPROPRIATE STATE AGENCY, A SCHOOL WHOSE DINING HALL WAS OPERATED UNDER CONTRACT WITH A FOOD SERVICE MANAGEMENT COMPANY ON A COST-PLUS-FEE BASIS DURING THE REGULAR SCHOOL YEAR MAY NOT BE RELIEVED OF LIABILITY TO REFUND THE ERRONEOUS PAYMENTS RECEIVED, WAIVING A SUBSTANTIVE PROGRAM REQUIREMENT ON THE BASIS THAT PAYMENTS WERE USED FOR THE PURPOSE OF THE PROGRAM NEGATING AND DEFEATING THE INTENT OF THE STATUTORY REGULATIONS; HOWEVER, PAYMENTS MADE FOR THE CHILD-CARE SUMMER PROGRAM OF THE SCHOOL NEED NOT BE REFUNDED, AS HAD THE SCHOOL BEEN PROPERLY INSTRUCTED IT COULD HAVE CONFORMED TO THE REGULATIONS BY SECURING APPROVAL TO ENTER INTO A FIXED PRICE CONTRACT FOR THE OPERATION OF THE CHILD-CARE PROGRAM. NED.

TO THE SECRETARY OF AGRICULTURE, JULY 6, 1966:

REFERENCE IS MADE TO LETTER DATED FEBRUARY 15, 1966, FROM MR. GEORGE L. MEHREN, ASSISTANT SECRETARY, DEPARTMENT OF AGRICULTURE, REQUESTING OUR DECISION REGARDING PAYMENTS, IN THE AMOUNT OF $69,424.79, THAT WERE MADE IN VIOLATION OF THE SPECIAL MILK PROGRAM FOR CHILDREN REGULATIONS.

THE LETTER STATES THAT UNDER THE SPECIAL MILK PROGRAM FOR CHILDREN SCHOOLS AND CHILD-CARE INSTITUTIONS CLAIM MONTHLY REIMBURSEMENT AT SET RATES PER HALF PINT FOR MILK SERVED TO CHILDREN. THE PAYMENTS IN QUESTION WERE MADE BY THE INDIANA DEPARTMENT OF PUBLIC INSTRUCTION, WHICH ADMINISTERS THE AFOREMENTIONED PROGRAM IN THE STATE OF INDIANA UNDER AN AGREEMENT WITH THE DEPARTMENT OF AGRICULTURE, TO THE CULVER MILITARY ACADEMY, CULVER, INDIANA. THE SPECIAL MILK PROGRAM FOR CHILDREN REGULATIONS, PUBLISHED AS PART 215 OF TITLE 7, CODE OF FED. REGS., WERE MADE A PART OF THE AGREEMENT BETWEEN THE DEPARTMENT OF AGRICULTURE AND THE INDIANA DEPARTMENT OF PUBLIC INSTRUCTION BY REFERENCE.

SECTIONS 215.7 (C) AND 215.7 (E) OF TITLE 7, CODE OF FED. REGS., PROVIDE IN PERTINENT PART, AS FOLLOWS:

(C) ANY SCHOOL WHICH OPERATES THE FOOD OR MILK SERVICE IN ANY ATTENDANCE UNIT UNDER A CONTRACTUAL ARRANGEMENT WITH A CONCESSIONAIRE OR FOOD SERVICE MANAGEMENT COMPANY OR UNDER A SIMILAR ARRANGEMENT SHALL NOT BE ELIGIBLE FOR PARTICIPATION IN THE PROGRAM WITH RESPECT TO SUCH ATTENDANCE UNIT, EVEN THOUGH THE SCHOOL OR SUCH ATTENDANCE UNIT OBTAINS NO PROFIT FROM THE OPERATION OF SUCH FOOD OR MILK SERVICE * * *.

(E) A CHILD-CARE INSTITUTION WHICH OPERATES ITS FOOD OR MILK SERVICE UNDER A CONTRACTUAL ARRANGEMENT WITH A CONCESSIONAIRE OR FOOD SERVICE MANAGEMENT COMPANY OR UNDER A SIMILAR ARRANGEMENT MAY BE APPROVED FOR PARTICIPATION IN THE PROGRAM, AFTER FDD HAS APPROVED THE ARRANGEMENT. BE APPROVED BY FDD THE ARRANGEMENT MUST PROVIDE FOR:

(1) A SPECIFIC FEE FOR THE MANAGEMENT SERVICE * * *.

THE RECORD SHOWS THAT CULVER PARTICIPATED IN THE PROGRAM FROM MARCH 1962 THROUGH JANUARY 1965, DURING WHICH TIME CULVER FILED MONTHLY CLAIMS TOTALING $80,117.36, OF WHICH $69,424.79 HAS BEEN PAID, LEAVING AN UNPAID BALANCE OF $10,692.57. THE RECORD SHOWS FURTHER THAT AN AUDIT CONDUCTED BY THE OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF AGRICULTURE, DISCLOSED THAT, DURING ALL OF THE REGULAR SCHOOL YEARS AND DURING THE SPECIAL SUMMER SCHOOLS COVERED BY THE AFOREMENTIONED PERIOD OF PARTICIPATION IN THE PROGRAM, CULVER'S DINING HALL HAD BEEN OPERATED UNDER A CONTRACT WITH A FOOD SERVICE MANAGEMENT COMPANY WHOSE FEE WAS COMPUTED ON A COST-PLUS BASIS.

THEREFORE, SINCE THE DINING HALL WAS OPERATED BY A FOOD SERVICE MANAGEMENT COMPANY, THE ASSISTANT SECRETARY STATES THAT CULVER MILITARY ACADEMY WAS INELIGIBLE TO PARTICIPATE IN THE PROGRAM DURING THE REGULAR SCHOOL YEAR UNDER THE PROVISIONS OF SECTION 215.7 (C) QUOTED ABOVE. ALSO, THE ASSISTANT SECRETARY STATES THAT THE SUMMER SCHOOLS CONDUCTED BY CULVER, WHICH FOR PURPOSES OF THE PROGRAM ARE CLASSIFIED AS CHILD-CARE INSTITUTIONS, WERE INELIGIBLE TO PARTICIPATE IN THE PROGRAM UNDER THE PROVISIONS OF SECTION 215.7 (E) BECAUSE THE FOOD SERVICE MANAGEMENT CONTRACT HAD NOT BEEN APPROVED.

THE RECORD SHOWS THAT AFTER THE AFOREMENTIONED AUDIT WAS COMPLETED THE STATE AGENCY WITHHELD FURTHER PAYMENTS UNDER THE PROGRAM TO CULVER AND REQUESTED CULVER TO REFUND ALL PAYMENTS RECEIVED. IN A REPLY TO THAT REQUEST DATED MAY 24, 1965, CULVER SET FORTH THE FOLLOWING CONTENTIONS:

1. THE APPLICATION AGREEMENT USED BY THE STATE AGENCY FOR FISCAL YEARS 1962 AND 1963 MADE NO MENTION OF FOOD SERVICE AGREEMENTS.

2. WHEN THE REVISED FORM FOR FISCAL YEAR 1964 WAS RECEIVED, CULVER ADVISED THE STATE AGENCY ON MAY 22, 1963, THAT IT HAD A FOOD SERVICE MANAGEMENT CONTRACT AND ASKED HOW TO GET IT APPROVED; HOWEVER, CULVER WAS NOT ASKED TO SUBMIT THE CONTRACT FOR APPROVAL.

3. CULVER COMPLIED WITH ALL OF THE INSTRUCTIONS RECEIVED FROM THE STATE AGENCY, AND IF THERE WAS A PROBLEM IT SHOULD HAVE BEEN RESOLVED AFTER THE MAY 22, 1963, LETTER.

4. IF CULVER SHOULD BE FOUND IN VIOLATION OF THE PROGRAM REGULATIONS, WAIVER OF REFUND SHOULD BE GRANTED IN VIEW OF THE EXTENUATING CIRCUMSTANCES. REFUND WOULD CAUSE A SEVERE HARDSHIP AS THE FUNDS WERE USED TO THE GREATEST EXTENT POSSIBLE TO FURTHER MILK CONSUMPTION AND TO MEET REGULAR FOOD SERVICE EXPENSES.

5. IF CULVER SHOULD BE FOUND INELIGIBLE FOR THE REGULAR SCHOOL YEAR AND WAIVER OF REFUND IS NOT ALLOWED, THEN THE REFUND SHOULD EXCLUDE PAYMENTS FOR THE SUMMER SCHOOL PROGRAM SINCE THE SUMMER SCHOOLS WOULD NORMALLY BE ELIGIBLE FOR PARTICIPATION IN THE PROGRAM WITH A FOOD SERVICE CONTRACT UPON APPROVAL OF THE CONTRACT BY THE DEPARTMENT OF AGRICULTURE.

THE ASSISTANT SECRETARY STATES THAT THE STATE AGENCY DOES NOT DISPUTE CULVER'S STATEMENTS, EXCEPT FOR THE INFERENCE THAT NO ACTION WAS TAKEN ON THE MAY 23, 1963 LETTER. THE RECORD SHOWS THAT A STATE AGENCY OFFICIAL VISITED CULVER ON JUNE 14, 1963, AND IN A REPORT CONFIRMED THE CONCEPT THAT CULVER HAD OF THE FOOD SERVICE CONTRACT, NAMELY, THAT THE FOOD SERVICE FACILITIES WERE OPERATED BY CULVER. THE ASSISTANT SECRETARY STATES THAT IT IS UNFORTUNATE THAT THE STATE AGENCY OFFICIAL DID NOT INSIST THAT THE CONTRACT BE SUBMITTED FOR APPROVAL, REGARDLESS OF THE INFORMATION HE WAS GIVEN, AND THAT THE STATE AGENCY DID NOT REQUEST SUCH REFERRAL BY LETTER OR CONFIRM THE UNDERSTANDING OBTAINED FROM THE VISIT.

THE STATE AGENCY HAS NOW REQUESTED THE DEPARTMENT OF AGRICULTURE TO CONCUR IN A DETERMINATION WHICH WOULD ALLOW CULVER'S SUMMER SCHOOL CLAIMS IN THE AMOUNT OF $25,674.67, REQUIRE CULVER TO REFUND $43,750.12, AND DISALLOW UNPAID CLAIMS IN THE AMOUNT OF $10,692.57.

THE ASSISTANT SECRETARY STATES THAT BECAUSE OF THE DEPARTMENT OF AGRICULTURE'S VIEW THAT CULVER'S FOOD SERVICE MANAGEMENT CONTRACT WOULD HAVE BEEN APPROVED BY THE DEPARTMENT, SUBJECT TO MODIFICATION TO PROVIDE FOR A FIXED FEE, THE DEPARTMENT RECOMMENDS THAT CULVER BE ALLOWED $25,674.67 FOR ITS SUMMER SCHOOL PROGRAM. ALSO, HE STATES THAT IT IS THE DEPARTMENT'S OPINION THAT PROVIDING FOR A FIXED FEE FOR ITS MANAGEMENT SERVICE COULD HAVE BEEN ARRANGED WITHOUT DIFFICULTY BETWEEN CULVER AND THE FOOD SERVICE MANAGEMENT COMPANY. IN ADDITION, THE DEPARTMENT RECOMMENDS THAT CULVER BE ALLOWED TO RETAIN THE ENTIRE $69,424.79 PAID TO IT. IT IS STATED THAT NOTHING HAS BEEN ESTABLISHED TO SHOW THAT THE PAYMENTS WERE NOT USED IN FULL ACCORDANCE WITH THE LEGISLATIVE PURPOSE OF THE PROGRAM WHICH IS TO ENCOURAGE THE CONSUMPTION OF MILK BY CHILDREN AND SO IT CAN BE SAID THAT THERE WAS NO LOSS TO THE GOVERNMENT. THEREFORE, IT IS THE DEPARTMENT'S VIEW THAT IT WOULD NOT BE PROPER TO REQUIRE CULVER TO REPAY ANY PART OF THE $69,424.79, ESPECIALLY SINCE THEY COMPLIED WITH ALL INSTRUCTIONS RECEIVED FROM THE STATE AGENCY AND USED THE FUNDS FOR PROGRAM PURPOSES. HOWEVER, IT IS THE DEPARTMENT'S OPINION THAT THE SO-CALLED TECHNICAL VIOLATION OF THE AFOREMENTIONED REGULATIONS WARRANTS DISALLOWANCE OF THE UNPAID CLAIMS IN THE AMOUNT OF $10,692.57. FOR THE SAME REASON THE DEPARTMENT RECOMMENDS DISALLOWANCE OF ADDITIONAL CLAIMS OF $8,217.90 FOR THE POST AUDIT PERIOD OF FEBRUARY 1965 THROUGH JUNE 1965.

THE RECORD NOW SHOWS THAT CULVER HAS CANCELED ITS FOOD SERVICE MANAGEMENT CONTRACT AND NOW QUALIFIES FOR THE SPECIAL MILK PROGRAM FOR CHILDREN, BOTH FOR THE SCHOOL YEAR AND THE SUMMER PROGRAM.

IN CONCLUSION, THE ASSISTANT SECRETARY RAISES THE QUESTION AS TO WHAT ACTION, IF ANY, SHOULD BE TAKEN AGAINST THE STATE AGENCY REGARDING THE FUNDS PAID IN VIOLATION OF THE REGULATIONS, AND STATES THAT IT IS THE OPINION OF THE DEPARTMENT THAT A CLAIM AGAINST THE STATE AGENCY FOR ALL OR ANY PART OF THE $69,424.79 WOULD NOT BE JUSTIFIED.

THE SPECIAL MILK PROGRAM FOR CHILDREN IS CARRIED OUT UNDER THE AUTHORITY OF THE ACT OF JULY 1, 1958, PUBLIC LAW 85-478, 72 STAT. 276, AS AMENDED (7 U.S.C. 1446 NOTE). THE OPERATIONS OF THE PROGRAM ARE GOVERNED BY REGULATIONS PUBLISHED AS PART 215 OF TITLE 7, CODE OF FEDERAL REGULATIONS. THE CITED ACT AUTHORIZES THE APPROPRIATION AND DIRECTS THE EXPENDITURE OF STATED FUNDS TO INCREASE THE CONSUMPTION OF FLUID MILK BY CHILDREN IN SPECIFIED TYPES OF INSTITUTIONS. THE CITED REGULATIONS SET FORTH THE TERMS AND CONDITIONS UPON WHICH PAYMENTS UNDER THE ACT WILL BE MADE. WHILE THERE IS NO EXPRESS PROVISION IN THE BASIC ACT AUTHORIZING YOU TO ISSUE REGULATIONS RELATING TO THE PROGRAM ESTABLISHED THEREBY, THE AMENDMENT THERETO ENACTED BY SECTION 402 OF THE AGRICULTURAL ACT OF 1961, APPROVED AUGUST 8, 1961, PUBLIC LAW 87-128, 75 STAT. 319, U.S.C. 1446 NOTE, AUTHORIZED THE PROMULGATION OF SUCH RULES AND REGULATIONS AS YOU MAY DEEM IN THE PUBLIC INTEREST. HENCE, THE TERMS AND CONDITIONS PRESCRIBED BY THE CITED REGULATIONS ARE STATUTORY REGULATIONS, AND, AS SUCH, CANNOT ORDINARILY BE WAIVED IN PARTICULAR INSTANCES.

THE CITED REGULATIONS, WHICH WERE MADE A PART OF THE AGREEMENT BETWEEN THE DEPARTMENT AND THE STATE AGENCY BY REFERENCE, SET FORTH IN SECTION 215.7, QUOTED ABOVE IN PART, SPECIFIC REQUIREMENTS WHICH MUST BE MET IN ORDER FOR A SCHOOL OR CHILD-CARE INSTITUTION TO PARTICIPATE IN THE PROGRAM. IT IS THE RESPONSIBILITY OF THE STATE AGENCY IN ITS ADMINISTRATION OF THE PROGRAM TO DETERMINE THAT ANY SCHOOL OR CHILD CARE INSTITUTION THAT MAKES APPLICATION FOR PARTICIPATION HAS COMPLIED WITH SUCH REQUIREMENTS PRIOR TO APPROVING ITS PARTICIPATION IN THE PROGRAM. SINCE THE REGULATIONS GOVERNING PARTICIPATION INTEND THAT PAYMENTS UNDER THE PROGRAM SHALL BE MADE ONLY TO QUALIFIED SCHOOLS AND CHILD-CARE INSTITUTIONS, IT IS OUR VIEW THAT SUCH REGULATIONS ARE ESSENTIAL SUBSTANTIVE PROGRAM REQUIREMENTS WHICH MUST BE ADHERED TO IN ORDER TO CARRY OUT THE INTENT OF THE REGULATIONS.

IT IS CLEAR THAT UNDER THE PROVISIONS OF 7 CFR 215.7 (C) CULVER WAS INELIGIBLE TO PARTICIPATE IN THE PROGRAM DURING THE REGULAR SCHOOL YEAR DUE TO THE FACT THAT ITS DINING HALL WAS OPERATED BY A FOOD SERVICE MANAGEMENT COMPANY. WHILE IT MAY BE CONTENDED THAT THERE WAS NO LOSS TO THE GOVERNMENT ON THE BASIS THAT NOTHING HAS BEEN ESTABLISHED TO SHOW THAT THE PAYMENTS TO CULVER WERE NOT USED FOR THE PURPOSE OF THE PROGRAM, THERE IS NOTHING IN THE REGULATIONS AUTHORIZING THE WAIVER OF THE AFOREMENTIONED ELIGIBILITY REQUIREMENT ON THE BASIS THAT AN INELIGIBLE SCHOOL MAY PARTICIPATE AND RECEIVE PAYMENTS UNDER THE PROGRAM IN THE EVENT SUCH PAYMENTS ARE USED FOR THE PURPOSE OF THE PROGRAM. WAIVING A SUBSTANTIVE PROGRAM REQUIREMENT ON SUCH A BASIS WOULD, FOR ALL PRACTICAL PURPOSES COMPLETELY NEGATE AND DEFEAT THE INTENT OF THE REGULATION.

THEREFORE, THE FUNDS, IN THE AMOUNT OF $43,750.12, THAT THE STATE AGENCY PAID TO CULVER IN VIOLATION OF 7 CFR 125.7 (C) SHOULD BE RECOVERED.

UNDER THE PROVISIONS OF 7 CFR 215.7 (E) CHILD-CARE INSTITUTIONS SUCH AS CULVER'S SUMMER SCHOOLS MAY BE ELIGIBLE TO PARTICIPATE IN THE PROGRAM EVEN THOUGH ITS FOOD OR MILK SERVICE IS OPERATED UNDER A CONTRACTUAL AGREEMENT BY A FOOD SERVICE MANAGEMENT COMPANY AFTER SUCH ARRANGEMENT HAS BEEN APPROVED BY THE DEPARTMENT. ALSO, TO BE APPROVED BY THE DEPARTMENT THE CONTRACTUAL ARRANGEMENT MUST PROVIDE FOR A FIXED FEE. IN THE INSTANT CASE CULVER'S CONTRACTUAL ARRANGEMENT WITH A FOOD SERVICE MANAGEMENT COMPANY TO OPERATE ITS DINING HALL DURING SUMMER CAMPS WAS NOT APPROVED BY THE DEPARTMENT AND THE CONTRACT DID NOT PROVIDE FOR A FIXED FEE. HOWEVER, THE RECORD SHOWS THAT CULVER ADVISED THE STATE AGENCY THAT ITS DINING HALL WAS OPERATED UNDER A CONTRACTUAL ARRANGEMENT WITH A FOOD SERVICE MANAGEMENT COMPANY AND REQUESTED TO BE ADVISED AS TO WHAT STEPS SHOULD BE TAKEN TO HAVE THE CONTRACT APPROVED. IN YOUR LETTER OF FEBRUARY 15, 1966, YOU STATE, IN EFFECT, THAT IF CULVER'S CONTRACT HAD BEEN SUBMITTED IT WOULD HAVE BEEN APPROVED BY THE DEPARTMENT, SUBJECT TO MODIFICATION TO PROVIDE FOR A FIXED FEE. REGARDING SUCH MODIFICATION, IN A LETTER TO OUROFFICE DATED JUNE 2, 1966, YOUR GENERAL COUNSEL STATES, IN EFFECT, THAT FROM THE DEPARTMENT'S EXPERIENCE WITH SUMMER CAMPS AND MANAGEMENT COMPANIES OPERATING CAMP FEEDING PROGRAMS, IT CAN BE ASSUMED THAT THE COMPANY MANAGING CULVER'S DINING HALL DURING THE SUMMER CAMPS WOULD HAVE READILY AGREED TO A REVISION OF ITS CONTRACT WITH CULVER TO PROVIDE FOR A SPECIFIC FEE. THUS, IF CULVER HAD BEEN PROPERLY INSTRUCTED BY THE STATE AGENCY, THE MANAGEMENT CONTRACT AND CULVER'S PARTICIPATION IN THE PROGRAM DURING ITS SUMMER CAMP PERIOD COULD HAVE BEEN REGULARIZED FROM THE START.

THEREFORE, IN VIEW OF THE FOREGOING EXPLANATION AND SINCE CULVER PROPERLY COULD HAVE PARTICIPATED IN THE PROGRAM DURING ITS SUMMER SCHOOL WHILE HAVING ITS DINING HALL OPERATED UNDER A MANAGEMENT CONTRACT, YOU ARE ADVISED THAT IF THE PAYMENTS OF $25,674.67 TO CULVER FOR ITS SUMMER SCHOOL PROGRAMS ARE OTHERWISE PROPER, THEY NEED NOT BE FURTHER QUESTIO ..END :