B-234990, Jul 13, 1990, 69 Comp.Gen. 600

B-234990, Jul 13, 1990, 69 Comp.Gen. 600

APPROPRIATIONS/FINANCIAL MANAGEMENT - Appropriation Availability - Purpose availability - Mandatory use - Grants APPROPRIATIONS/FINANCIAL MANAGEMENT - Federal Assistance - Grants - State/local governments - Funding levels The Veterans Rehabilitation and Education Amendments of 1980, which established the Disabled Veterans Outreach Program (DVOP), required each state accepting DVOP funds to use those funds to hire the number of DVOP specialists as calculated in accordance with a statutory formula. U.S.C. Sec. 2003A. Department regulation, however, which instructed the states that their Employment Service grant funds would also have to finance DVOP, did not earmark any part of the grant funds for this program. Consequently, this Office sees no basis to question states' expenditures of grant funds on otherwise appropriate grant activities even though the DVOP did not operate at the level anticipated.

Department of Labor-- Audit of the Disabled Veterans Outreach Program Fiscal Year 1982 Funding:

The Department of Labor's Inspector General (IG) and the Department of Labor's Deputy Assistant Secretary for Employment and Training asked this Office for assistance in determining the allocability of certain costs incurred by 16 states in fiscal year 1982 in connection with Employment Service grants to State Employment Security Agencies. In audits of these 16 grants, the IG concluded that the states had improperly expended approximately $3 million in funds allocated to the Disabled Veterans Outreach Program (DVOP) on non-DVOP activities. The Department has disagreed with the IG's audit findings. The Department argues that it had awarded the state agencies base grants to cover a number of employment service activities including DVOP, but without any allocation for DVOP in particular.

The matter for our consideration, then, is whether applicable federal law or Department regulation earmarked a portion of State Employment Service grant funds for DVOP purposes. For the reasons set forth below, we conclude that they did not. Although the law that established the DVOP required states to hire a particular number of DVOP specialists, Department regulations, which instructed the states to finance the DVOP using their base Employment Service grant, did not earmark a sum certain for DVOP.

BACKGROUND

The Veterans Rehabilitation and Education Amendments of 1980 established the DVOP as a permanent program in the Department of Labor (DOL). Pub.L. No. 96-466, 94 Stat. 2204, codified at 38 U.S.C. Sec. 2003A. The purpose of the program is to develop training and employment opportunities for disabled veterans. DOL's Veterans Employment and Training Service operates the DVOP through grant agreements with State Employment Security Agencies (hereafter referred to as the States). Originally DOL funded the program with discretionary funds authorized under the Comprehensive Employment and Training Act before that program was terminated at the end of fiscal year 1981. In fiscal year 1982 DOL funded the program under base grants to States for operation of Employment Services.

The DVOP enabling legislation directs the Secretary of Labor to provide states with sufficient funds directly or through grant or contract to support the appointment of one DVOP specialist for each 5,300 veterans of the Vietnam era and disabled veterans residing in such states. 38 U.S.C. Sec. 2003A. The statute requires that each specialist be a veteran, and gives preference in appointment to disabled veterans of the Vietnam era followed by disabled veterans of any other era. The statute also specifies that the DVOP specialists "be in addition to and shall not supplant employees assigned to local employment service offices" pursuant to other authority.

Fiscal year 1982 was a difficult period for the States because the overall reduction of federal funding required many of them to institute reduction-in-force (RIF) procedures to terminate regular Employment Service employees. At the same time, the States were directed to recruit qualified veterans to staff the DVOP.

IG audits of DVOP in 16 states concluded that some States utilized DVOP funding for general Employment Service requirements. The IG interpreted federal law and DOL instructions as requiring the States to devote a certain percentage of their Employment Services grants exclusively to DVOP operations. As a consequence, the IG reported, for example, that Illinois spent almost $774,000 of DVOP funds on non-DVOP activities, and Virginia spent approximately $234,000 of its $900,000 DVOP budget on non-DVOP activities. The IG questions a total of $3 million.

DOL's Employment and Training Administration (ETA), the agency responsible for resolving these audits, initially agreed with the IG audit findings and that DOL should recover these funds. However, after receiving arguments from the State of Illinois and a review of the matter from DOL's Office of the Solicitor, ETA reversed its position and disagreed with the findings.

ETA argues that the IG incorrectly assumed that the law and grant provisions earmarked a specific sum to DVOP. ETA acknowledges that the law authorizes it to require State grantees to budget ascertainable amounts for DVOP. But ETA points out that it did not, in fact, earmark grant funds in any way; consequently, grantees were constrained to use the funds only in a general sense, i.e., for employment services.

DISCUSSION

The DVOP was established by 38 U.S.C. Sec. 2003A. Section 2003A required that: "The Secretary of Labor shall make available to each State, directly or by grant or contract, such funds as may be necessary to support a disabled veteran's outreach program. ... Funds provided under this subsection shall be sufficient to support the appointment of one disabled veterans outreach program specialist for each 5,300 disabled and Vietnam era veterans residing in such State." Section 2003A(a)(4) specified that DVOP specialists appointed pursuant to this authority be "in addition to and shall not supplant employees assigned to local employment service offices." We believe that one may fairly interpret section 2003A(a)(4) as requiring states to appoint the number of specialists ascertained by application of the statutory formula. States such as Virginia and Illinois that did not appoint the appropriate number failed to fulfill this responsibility.

Such failure, however, does not necessarily provide the basis for a claim by ETA, as the IG suggests, for the return of a portion of the grant funds. To require States to return grant funds, ETA would have to find that certain expenditures were not in accordance with the terms of the grant.

For fiscal year 1982, the Secretary granted each State a lump sum for "Employment Services" to finance DVOP, among other services, but with sufficient funds for each State to operate its outreach program at the level suggested by the section 2003A formula. Although he advised that each State should hire a particular number of DVOP specialists, as determined by the section 2003A formula, he did not earmark any portion of the lump sum for DVOP.

In 1981, following the enactment of section 2003A, ETA issued Field Memorandum (FM) No. 180-81 to all regional administrators. Its stated purpose was "to provide preliminary dollar and staff-year planning levels for ETA funded State Agency activities for FY 1982 to be used in planning and developing FY 1982 State Agency Program and Budget Plans." Section 1(a). Section 3(c)(2)(e) explained that the States would need to absorb 2016 staff-years within the Employment Service Grants-to-States funding allocation. The Field Memorandum advised that each State should plan for its allocated number of DVOP staff, and the instructions included a list of state quotas of DVOP specialist positions as determined by the statutory formula. However, the Field Memorandum did not earmark any portion of the allocated amount for DVOP.

Indeed, without more detailed information as to cost, it would be difficult to calculate, with any reliability, what portion of the grant funds might be necessary to finance DVOP at the suggested level. The IG, in his audits, divided each States' lump sum by the total number of Employment Services slots which that lump sum was intended to fund to arrive at an average cost per slot; he then multiplied the average cost by the State's DVOP quota to derive the DVOP "earmark." However, as ETA and the Department's Solicitor argue, the actual cost for each DVOP position could differ significantly from the average cost calculated by the IG. The Solicitor points out that States could expect a reasonable time to reach staffing levels, suggesting that as a result, actual costs might have been less than the IG's average cost, which presumed full staffing for the full year.

ETA reaffirmed its earlier instructions in a subsequent field memorandum, FM 255-81, September 19, 1981. ETA noted that States must designate the number of DVOP specialists as indicated in FM 180-81, but advised, once again, that funding for the program would have to be absorbed within the total grant. See sections 5(c)(1), 5(g)(3)(a). Again, ETA did not earmark funds for DVOP.

In January 1982, after enactment of DOL's fiscal year 1982 appropriations, ETA issued FM 35-82 to inform the States of their revised grant funding allocations. It instructed the States that the DVOP "must continue according to the formula allocation specified in Pub.L. No. 96-466 within the revised Employment Service base allocation. Every effort must be made to fill these positions as quickly as possible according to State-by-State staff levels cited in FM 180-81." Section 7(a)(6). But, as before, ETA did not earmark any part of the base allocation for DVOP.

CONCLUSION

As ETA suggested in its submission to us and in its rebuttal to the IG's audits, the grantees were constrained to use grant funds only in a general sense, i.e., for a myriad of employment services competing for limited funds. Although DVOP positions went unfilled, fiscal year 1982 grant funds did not lapse. In addition, there is no suggestion in the record that the states did not make good faith effects to staff-up the DVOP to meet their targets. Accordingly, we see no basis to recoup the expenditures, so long as the funds were expended for otherwise eligible grant activities.