EDU-87-005-BC
2-1300-1633-2
STATE OF MINNESOTA
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE STATE BOARD OF EDUCATION
in the Matter of FINDINGS OF_FACT,
Bryant Glenwood CONCLUSIONS AND
Montessori RECOMMENDATION
The above-entitled matter came on for hearing before Bruce D. Campbell,
Administrative Law Judge from the State Office of Administrative Hearings, on
July 7, 10, and 14, 1987, in Minneapolis, Minnesota, pursuant to a Notice and
Order for Hearing issued on June 16, 1987. By authorization given on behalf
of the Chief Administrative Law Judge, granted on June 20, 1987, the 30-day
notice period was reduced to 21 days. DOE Ex. 16.
Appearances: Cindy L. Lavorato, Special Assistant Attorney General,
1100 Bremer Tower, Seventh Place and Minnesota Street, St. Paul, Minnesota
55101, appeared on behalf of the Minnesota Department of Education (Department
or DOE); and Thomas Brandt, Dorsey & Whitney, Attorneys at Law, 2300 First
Bank Place East, Minneapolis, Minnesota 55402, appeared on behalf of Bryant
Glenwood Montessori (BGM or School).
The record herein closed on July 29, 1987, after a telephonic conference
between both counsel and the Administrative Law Judge.
This Report is a recommendation, not a final decision. The State Board of
Education or its authorized designee will make the final decision after a
review of the record which may adopt, reject or modify the Findings of Fact,
Conclusions, and Recommendations contained herein. Pursuant to a stipulation
of the parties, the Board or its authorized designee shall consider this
Report on August 13, 1987. An opportunity must be afforded to each party
adversely affected by this Report to file exceptions and present argument to
the Board or its authorized designee. Any exceptions to this Report or
requests for the presentation of argument must be received on or before August
7, 1987, by serving the same in writing on Ted Suss, Board Liaison, State
Board of Education, 705 Capitol Square Building, 550 Cedar Street, St. Paul,
Minnesota 55101.
STATEMENT-OF ISSUE
The hearing herein was held to determine whether the Department of
Education properly rejected the application of Bryant Glenwood Montessori to
participate in the Child Care Food Program, authorized by the National School
Lunch Act, 42 U.S.C. 1766 et seg. and its implementing regulations, 7 C.F.R.
Part 226, for the 1987 federal fiscal year.
Based upon all of the proceedings herein, the Administrative Law Judge
makes the following:
FINDINGS OF FACT
1. Bryant Glenwood Montessori is a Minnesota non-profit corporation
which operates a pre-school and day care program in premises located at
501 Bryant Avenue North in Minneapolis. The School serves approximately
50 children, ranging in age from 16 months to 12 years. Approximately
50 percent of the children at BGM have been assigned to that facility by
Hennepin County Child Protection Services. The area in which the School is
located has a significant number of individuals and families on Aid to
Dependent Children, 35 percent of the population below federal poverty
guidelines and among the highest juvenile delinquency and unemployment rates
in the City of Minneapolis. The building at 501 Bryant Avenue, in which the
School is located, is a center owned and operated by the Federal Department of
Housing and Urban Development. The School has a staff of 11 people,
substantially in excess of the required staff ratio of 1-10. It does not
employ a full-time accountant or other person skilled or trained in financial
management or record keeping.
2. Since the early 1970s, BGM has participated in the Child Care Food
Program, authorized by section 17 of the National School Lunch Act, 42 U.S.C.
1766 (Program). That Program is a grant-in-aid program funded by the United
States Department of Agriculture to initiate, maintain and expand non-profit
food service programs for children in institutions providing day care.
3. Independent day care centers which participate in the Child Care Food
Program receive federal reimbursement for qualifying meals served children and
the costs of administering the Program. Funds are provided pursuant to annual
contracts or agreements with participating independent day care centers.
Pursuant to federal regulations, the Minnesota Department of Education is the
state agency responsible for administering the Child Care Food Program. That
oversight includes application approval for program agreements, monitoring the
program for substantive and financial responsiblity requirements of federal
rule, recovering or withholding payments which, upon audit, cannot be
documented to have been spent for an allowable Program purpose and terminating
participants who are found to be seriously deficient in Program participation.
4. The applicable federal regulations require that the Department insure
that participating institutions comply with Program regulations. Oversight by
the Department includes visits by nutritionists and other qualified
professionals to determine compliance with substantive Program requirements
and periodic reviews of the participants' financial records by way of audit
The auditing division of the Department is separate from the program division
that periodically inspects the facility for substantive Program compliance.
Payments are made to a participating institution on the basis of periodic
requests for payment and a certification that the amount claimed is properly
reimbursable. If an audit by the Department discloses that funds were
improperly spent or that expenditures cannot be documented to have been made
for Program purposes, the disqualified amount wijl be withheld from future
reimbursement. If the state agency pays an institution for claims which are
not allowed, the Federal Department of Agriculture may take action to collect
such overpayments from the supervising state agency. 7 C.F.R. 226.14(c)(14).
5. BGM's initial agreement for participation in the Program was granted
in the early 1970s. Between that date and 1986, BGM was annually approved for
participation in the Program pursuant to an approved application and
subsequent agreement. BGM did not apply for participation in the Program for
-2-
the fiscal year 1986. On March 13, 1987, BGM completed an application for
participation in the Program for Federal fiscal year 1987. That application
was denied by the Department of Education on the ground that a Program review
conducted by the Department in April of 1986 disclosed, in the opinion of the
Department, the following:
1. Failure to maintain adequate records.
2. Service of a significant number of meals which do not
include required quantities of all meal components.
3. A history of administrative or financial mismanagement.
DOE Ex. 1; 7 C.F.R. 226.6(c)(4); 7 C.F.R. 226.6(c)(7); 7 C.F.R. 226.6(c)
(10).
6. On February 16 and 17, 1982, a review of the Program at BGM was
performed by a nutritionist from the Department of Education. Her findings
indicated that a number of menus reviewed during a relatively short time
period were missing the basic food components required by federal
regulations. The review also disclosed that counts of meals served to
children were not being taken at the time meal s were served; instead, reliance
was placed on attendance figures in violation of federal regulations.
Production records and enrollment data records were also missing. DOE Ex. 3.
The School was requested to advise DOE of the corrective action it would
undertake within 20 days of the report, issued on March 24, 1982. DOE Ex. 3.
The School received a followup letter requesting corrective action on
April 23, 1982. DOE Ex. 4. Attempts to contact the administrator of the
School on five separate occasions did not elicit a response. When the School
did not respond to the cited deficiencies with proposed corrective measures,
DOE advised BGM that it would withhold some payment of funds in January of
1983. DOE Ex. 4. In March of 1983, since no corrective action had been
undertaken by BGM and it had not responded to the inquiries of DOE, $331.48
was withheld from the School's reimbursement, as disallowed meals. DOE
Ex. 5. The total payments made to the School during the period for which an
adjustment was made were $17,242.88. DOE Ex. 5.
7. The communication from DOE announcing the withholding required the
School to respond to the cited deficiencies before further payments would be
made. DOE Ex. 5, 2. By letter dated April 14, 1983, approximately one year
after the evaluation, the School assured DOE that corrective action had been
undertaken. DOE Ex. 6.
8. The BGM Program was audited for the-period between January 1, 1981
and April 30, 1981, by DOE auditors in the Spring of 1982. DOE Ex. 12. The
audit disclosed net unsubstantiated payments of $515.89. DOE Ex. 12. The
adjustment of $515.89 was from a reported total reimbursable amount of
$20,351.36, for the period October 1, 1980 through April 30, 1981. DOE
Ex. 12, Ex. B. The audit also disclosed a number of deficiencies in the
financial record keeping and veri fi cation methods of the School , including the
following: absence of family size/income data sheets for the month of
January, 1981; failure to keep family size/income data sheets on file for a
period of not less than three years and three months after the close of the
fiscal year; inappropriate recording of some individual items in improper
categories; total unavailability of supporting documentation for
administrative cost expense, including the absence of payroll records,
-3-
cancelled checks and other supporting documentation; failure of the director
to approve and sign family size/income data sheets; and failure to have a
receipts and disbursements ledger available to the auditor at the time of
audit. DOE Ex. 12. The School did not contest the findings of the audit,
although given an opportunity to do so, and no appeal of the audit was made to
the Department.
9. In the Spring of 1984, the auditing division of the Department
anticipated auditing the School for the period between October 1, 1982 and
June 30, 1983. Approximately one week in advance of the audit, the Department
informed the School of the date of the audit and the records that would be
necessary for the audit to be conducted. DOE Ex. 13. The Department's letter
invited the School to reschedule the audit if the announced date or time was
not convenient. DOE Ex. 13.
10. The audit disallowed $6,593.49 in "Food Costs" and "Nonfood Supplies"
as a consequence of missing invoices and receipts. The audit report included
the following paragraph:
The difference between the audited and reported figure was
due to missing invoices and receipts. What invoices were
at the center were unorganized. According to the director,
the center had several bookkeepers during the time period
and records were not kept organized. On the invoices and
receipts examined, it was not clear which items were being
claimed as Child Care Food Program (CCFP) costs. Although
a cost recap sheet was kept, individual purchases were not
listed which would allow reported costs to be traced to
source documents (Findings and Recommendations # 4 for
internal controlled deficiencies).
DOE Ex. 14, 2. The School was informed that all invoices and receipts must be
organized and kept on file for not less than three years and three months
after the fiscal year and that the documents must be available for inspection
at the time of audit. DOE Ex. 14, 2. Means by which the School could improve
its record system to insure compliance with governing regulations were
suggested. DOE Ex. 4.
11. The 1984 audit also described the state of the School's records as
follows:
The following records were requested but were not available
for inspection at the time of the audit: a) Bank
statements b) Deposit tickets c) Cancelled checks
d) Disbursements ledger e) Receipts ledger f) Invoices and
receipts documenting "Food Costs" and "Nonfood Supplies".
It was not clear where these records were located. It was
not possible to verify monies received from the CCFP. The
possible loss due to the unverifiability of the receipt of
these monies could be substantial. The loss due to missing
invoices and receipts is reflected in the amount due as a
result of this audit.
-4-
We recommend that the center establish a system for the
maintenance of records. CCFP records must be kept for
three years and three months after the close of a fiscal
year and be available for inspection at the time of audit.
DOE Ex. 14, 3.
12. By letter dated August 13, 1984, the Department communicated to the
School the results of the 1984 audit for the prior time period indicated and
requested that the School provide additional information bearing on the
validity of the audit within two weeks of the date of the letter. DOE
Ex. 14, 1. On August 30, 1984, the executive director of BGM and an assistant
visited the Department of Education to request a reaudit. They did not, at
that time, appear with supporting documentation and were given until
September 30, 1984, to document the disallowed claims. No further
documentation was received and $6,355.23 was withheld from Bryant Glenwood's
reimbursement for the period of the audit. The School never responded to the
deficiencies in its system of record keeping and reporting noted in the audit.
13. In 1985, the Department attempted to audit the School for the 1984
fiscal year. The records of the School for 1984, however, had teen vandalized
in a burglary of the premises. There is no evidence in the record, however,
that the condition of the School's financial records had changed materially
from the prior audit period or that it had implemented an appropriate record
management system. The Department took no action to withhold or disallow any
payments to the School as a result of the records missing for 1984, even
though it was not possible to verify the propriety of the payments received.
14. On April 1, 1986, a DOE nutritionist conducted a Program evaluation
of the School. Her report noted deficiencies in the operation of the
Program. The School had not maintained specified records for a period of
three years and three months from the close of the fiscal year. It still did
not take meal counts at the time of the meal instead of at a prior attendance
time. DOE Ex. 8. Further, food receipts did not correspond to or indicate
actual items purchased and daily time cards kept for payroll purposes were not
complete. DOE Ex. 8, 2.
15. The nutritionist reviewed sample menus and determined that certain
required meal components were missing in a number of instances. DOE Ex. 8,
3-4. The School was required to submit two weeks of actual menus for review
by the Department nutritionist to determine whether School personnel
understood and were following the federal regulations regarding meal
components. DOE Ex. 8, p. 4.
16. The Evaluation Report required the school to notify the Department
within 20 days of the corrective actions-planned or taken with respect to each
deficiency noted. It advised the School of available appeal procedures. DOE
Ex. 8, 14. No response was provided by the School to the evaluation or to the
request for two weeks' menus, even though a second letter was sent
approximately one month later, DOE Ex. 9, and at least seven followup calls
were made to the School over a period of several months, DOE Ex. 9.
17. In 1986, an audit of BGM's financial records was performed by the
Department's auditing division for the period October 1, 1984 - September 30,
1985. Normally, an audit requires only several consecutive days on site. The
audit was conducted on June 24-26, July 15 and December 2, 1986. The audit
-5-
was conducted over such an extended period of time because of missing and
unorganized records. The auditor was finally told by his supervisor that
December 2, 1986, was the last day to review the records of the School for
purposes of his audit and that it would have to be performed on the basis of
available documentation. The director of the School was notified by the
auditor that she must produce all remaining records for his audit on December
2, 1986. The director of the School did not report for work on December 2,
1986. The auditor was provided with incomplete records in a totally
disorganized fashion with no staff person who could explain their origin or
import.
18. As a consequence of the audit for fiscal year 1985, the School was
notified that future reimbursements would be reduced by $8,327.64. The major
amount of the reduction, $7,380.73, was the result of a disallowance of the
category "Food Service Salaries" for failure to have available to the auditor
cost summary sheets or cancelled checks to document payments to food service
workers. DOE Ex. 15, 5. The auditor also noted the history of the School's
failure to maintain adequate records in a systematic fashion. DOE Ex. 15, 8.
19. Since BGM's participation in the Program ended in late 1986 and it
had rot reapplied, the audit was withheld and not sent to the School until
May 7, 1987, after it had applied for future participation in the Program, in
March of 1987. Although the results of the fiscal year 1985 audit were known
to DOE at the time of its denial of the School's application for fiscal year
1987 Program participation, the audit had not been sent to the School. The
1985 fiscal year audit was not relied upon by the Department in denying the
School's 1987 Program application.
20. The 1986 audit of the School, received in 1987, is not final and the
School has been given an opportunity to document the propriety of payments for
disallowed items. BGM Ex. B, BGM Ex. C.
21. By letter received by the Department of Education on June 5, 1987,
the director of BGM communicated to the Department her response to the denial
of the 1987 application for participation in the Program and, by implication,
her response to the evaluation conducted by the staff nutritionist of the
Department approximately a year earlier. DOE Ex. 10. The director indicated
that a sophisticated burglar alarm buzzer and intercom system had been
installed which would prevent further break-ins. Moreover, an Apple IIe
computer was available at the director's home which could be used for School
purposes. DOE Ex. 10.
22. There is no evidence in the record, other than the availability of
the described computer hardware, of a systematic plan or method the School
will use to ensure that it receives, prepares and maintains the required
financial records.
23. By letter dated July 2, 1987, the Department confirmed its initial
rejection of the 1987 application of the School, after considering the
director's response described in Finding 21, supra. DOE Ex. 11.
24. Although both DOE nutritionists and auditors had repeated contact
with the School over a number of years, the School did not receive warnings
that deficiencies noted could result in Program termination or a denial of a
new application. Typically, the official communications from the Department
-6-
thanked the School staff for its cooperation with the Department's action in
reviewing the School's Program and records and suggested methods of
improvement.
25. The Department provided little technical assistance to the School in
complying with Federal regulations and State directives for improvement, apart
from the suggestions in its audits and reviews. Both of the Program
evaluations did, however, invite the School to request assistance from DOE in
implementing the Program. DOE Ex. 3; DOE Ex. 8. There is no evidence in the
record that the School ever requested technical assistance from the Department
and was denied such help.
26. On June 16, 1987, a Notice and Order for Hearing in this matter was
issued by the Department of Education, under the signature of Daniel Skoog,
Assistant Commissioner, on behalf of Ruth Randall, the Commissioner of the
Department of Education.
PERTINENT REGULATORY EXCERPTS
7 C.F.R. 226.6(c), in relevant part, provides:
The state agency shall not enter into an agreement with any
applicant institution which the state agency determines to
have been seriously deficient at any time in its operation
of any Federal child nutrition program . . . . Serious
deficiencies, which are grounds for disapproval of
applications and for termination include, but are not
limited to, any of the following:..... (4) failure to
maintain adequate records;..... (7) service of a
significant number of meals which did not include required
quantities of all meal components;..... (10) a history of
administrative or financial mismanagement in any Federal
child nutrition program . . . .
7 C.F.R. 226.10(c), in relevant part, provides:
. . . In submitting a Claim for Reimbursement, each
institution shall certify that the claim is correct and
that records are available to support that claim . . . .
7 C.F.R. 226.10(d), in relevant part, provides:
All records to support the claim shall be retained for a
period of three years after the date of submission of the
final claim for the fiscal year to which they pertain,
except that if audit findings Nave not been resolved, the
record shall be retained beyond the end of the three-year
period as long as they may be required for the resolution
of the issues raised by the audit. All accounts and
records pertaining to the Program shall be made available,
upon request, to representatives of the State agency, of
the Department, and the U.S. General Accounting Office for
audit or review, at a reasonable time and place.
Based upon the foregoing Findings of Fact, the Administrative Law Judge
makes the following:
-7-
CONCLUSIONS
I. The Administrative Law Judge and the State Board of Education have
jurisdiction over the subject matter of the hearing pursuant to 7 C.F.R.
226.6(j) and authorized appeal procedures adopted by the Department of
Education pursuant to federal regulations.
2. Proper notice of the hearing was timely given, and all relevant
substantive and procedural requirements of law or rule have been fulfilled
and, therefore, the matter was properly before the Administrative Law Judge.
3. The Department must establish the violations at issue by a
preponderance of the evidence.
4. The Department has established by a preponderance of the evidence
that Bryant Glenwood Montessori has been seriously deficient in its operation
of the Federal Child Care Food Program authorized by section 17 of the
National School Lunch Act, 42 U.S.C. 1766 and Implementing regulations,
7 C.F.R. Part 226, in tnat it (1) failed to maintain adequate records: and
(2) served a significant number of meals which did not include required
quantities of all meal comocnents.
5. The Department has failed to establish by a preponderance of the
evidence that BGM has a history of administrative or financial mismanagement.
6. Bryant Glenwood Montessori has not corrected the deficiencies noted
in Conclusion 4, supra, within the meaning of 7 C.F.R. 226.6(c).
7. Any Finding of Fact more properly termed a Conclusion, and any
Conclusion more properly termed a Finding of Fact, is hereby expressly adopted
as such.
Based upon the foregoing Conclusions, the Administrative Law Judge makes
the following:
RECOMMENDATION
IT IS THE RECOMMENDATION of the Administrative Law Judge to the State
Board of Education or its authorized designee that it affirm the action of the
State Department of Education in denying Bryant Glenwood Montessori's
application for current participation in the Child Care Food Program,
authorized by section 17 of the National School Lunch Act, 42 U.S.C. 1766,
be affirmed.
In accordance with 7 C.F.R. 226.6(s), however, participation by Glenwood
Montessori in the Program should be allowed at such later date that it
demonstrates to the Department of Education and the Food and Nutrition Service
of the Federal Department of Agriculture that the serious deficiencies have
been corrected.
Dated this 31st day of July, 1987.
BRUCE D. CAMPBELL
Administrative Law Judge
NOTICE
Pursuant to Minn. Stat. 14.62, subd. 1, the agency is required to serve
its final decision upon each party and the Administrative Law Judge by first
class mail.
Reported: Tape Recorded.
MEMORANDUM
Pursuant to 7 C.F.R. 226.6(j), an institution whose appl ication for
participation in a federally funded food assistance program is denied may
appeal that determination to the State Agency, as defined in 7 C.F.R. 226.2,
here the Department of Education. Each state is authorized by federal
regulation to adopt state appeal procedures for the resolution of appeals.
Such rules must, however, include a provision that the review official or
final determining authority not be accountable or under the direction of the
State Agency. Pursuant to the appeal procedures adopted by the Department of
Education, the decisional authority for this appeal is the designee of the
Department. the State Board of Education. The Board is, however, the designee
of the Deoartmen: and selected only for the purpose of implementing the
independent review function required by 7 C.F.R. 226.6(j)(6). The agency
for purposes of initiating the contested case is the Department of Education,
the State Agency, as defined by 7 C.F.R. 226.2. It was, then, appropriate
for the Department of Education to initiate this contested case by issuing the
Notice and Order for Hearing, as was done in this proceeding.
The rules of the Office of Administrative Hearings provide that the party
proposing that affirmative action be taken bears the ultimate burden of
persuasion by a preponderance of the evidence. Minn. Rules 1400.7300, subp. 5
(1985). As a general rule, however, when a person seeks participation in a
government program, that person must demonstrate its qualifications. If. for
example, state law imposes qualifications for obtaining a state license, the
applicant must affirmatively establish his or her qualification; the burden of
proof is on the applicant rather than on the governmental authority. See I
F. Cooper, State Administrative Law, ch. 12, 1 (1965); Anton's v._City of
Minneapolis, 375 N.W.2d 504, 506 (Minn. App. 1985). Although, on cursory
analysis it would appear that BGM is, in this proceeding, seeking a government
benefit and must establish its entitlement, the rules implementing the program
dictate a different result. A child care center is entitled to participate in
the program as long as the State Agency does not find that the applicant has
been "seriously deficient at any time in its-operation of any Federal child
nutrition program". 7 C.F.R. 226.6(c). Hence, BGM need not establish
qualifications for participation. The State Agency, here the Department of
Education, must establish by a preponderance of the evidence that the School
has been seriously deficient in operating a Federal child nutrition-program.
The burden of establishing by a preponderance of the evidence the existence of
a serious deficiency in operation is, then, on the Department. Minn. Rules
1400.7300, subp. 5 (1985).
The Department has, in this proceeding, provided evidence of the manner in
which the School has participated in the federally assisted program since
1981. The Department's denial of BGM's application was, however, premised on
an inspection conducted in April of 1986, which listed deficiencies and the
-9-
absence of appropriate corrective action. DOE Ex. 1. The Administrative Law
Judge finds that incidents prior to the April 1986 review are appropriate for
consideration when the governing rules impose on the State an obligation to
determine whether the applicant has ever been seriously deficient at any time
in its operation of a Federal child nutrition program. 7 C.F.R. 226.6(c).
Nor is it possible to evaluate the seriousness of the deficiencies noted in
April of 1986 without a reference to the prior history of the institution and
attempts by the Department to obtain compliance on previous occasions. A
violation takes on added significance when considered in light of the history
of prior dealings between the institution and the Department. This is
analogous to the application of the "last straw" doctrine in cases in which a
single act, if viewed in isolation, would not be sufficient for a severe
penalty, but takes on added seriousness because of prior history and acts.
Giddens v. Appeal Board of Michigan Employment Security Commission, 4 Mich.
App. 526, 145 N.W.2d 294, 298 (Mich. App. 1968).
It could be argued that the letter notifying the School of the reasons for
the denial of its program application in 1987 should limit tne matters
considered by the Board in this proceeding. Normal concerns of ability to
prepare a defense and participate meaningfully in a hearing might argue for
such a result. In this case, however, the applicant was represented by
counsel. At no time did counsel for the School object to the introduction of
any of the evidence of prior incidents or request a continuation of the
hearing to enable the School to respond to the incidents discussed. Under
such circumstances, given the applicable federal rule, it is appropriate for
the Administrative Law Judge to consider the history of the School from the
date of its initial participation in the School program to the date of the
rejection of its application to determine whether it has been seriously
deficient in the operation of a federally funded child nutrition program and
whether that serious deficiency remains as of the date of the hearing herein.
Since the audit conducted in 1986 was still open at the time of the
hearing, it is not appropriate to consider that audit as substantive proof of
violations, except insofar as any of its conclusions were admitted at the
hearings.
7 C.F.R. 226.6(c) states grounds upon which a State Agency may determine
that a serious deficiency has occurred. The Administrative Law Judge has
found that two of the grounds for finding the existence of a serious
deficiency have been established in this proceeding: failure to maintain
adequate records; and service of a significant number of meals which did not
include required quantities of all meal components. The Administrative Law
Judge does not find that the Department has established that the School has a
"history of administrative or financial mismanagement in any Federal child
nutrition program" within the meaning of 7 C.F.R. 226.6(c)(10).
7 C.F.R. 226.20 states the food groups and quantities which must be
contained in each meal or snack served by a center in order to qualify for the
program. Failure to follow the required meal components in a significant
number of instances constitutes a serious deficiency. 7 C.F.R 226.6(c)(7).
The Department has reviewed the meals provided by the School on two
occasions. In 1982, a spot check of menus showed at least five unexplained
instances in which the regulations were not followed. DOE Ex. 3; BGM Ex. A.
The only corrective action undertaken by the School was a letter sent
approximately one year after the inspection assuring the Department of current
compliance with the menu requirements. DOE Ex. 6. The second review of the
-10-
School's compliance with meal content requirements was conducted in 1986. As
noted in the Findings, that review documented a number of instances in which
the School had not complied with the requirements. The nutritionist requested
that the School provide copies of its menus for a two-week period to assess
and ensure compliance. The School did not honor the investigative request of
the Department. Balanced against the documented instances of non-compliance
and failure to provide the Department with additional information is the
unsupported assurance of the director that appropriate meals were usually
served. Under such circumstances, the Administrative Law Judge finds that the
Department has established that the School has served a significant number of
meals which did not comply with federal standards.
The Administrative Law Judge also finds that the School has failed to
maintain adequate records so as to allow the Department to check its
compliance with federal regulations. The Findings include a number of
instances in which the School was unable to document its entitlement to
federal reimbursement. On several occasions, significant reductions in its
entitlement were ordered. The audits of the School's financial
:ords on a number of occasions disclosed the failure to maintain records and
implement a procedure which would verify the School 's entitlement to full
ederal reimbursement. DOE Ex. 12, 3-4, Finding 6, 7: DOE Ex. 12, 5,
Finding 10; DOE Ex. 14, 3, Finding 4. For the 1984 fiscal year, no records
were available for inspection because of a burglary and vandalism of the
premises. Although the Administrative Law Judge is persuaded that the
vandalism of records did, in fact, occur, there is no evidence in the record
that the financial records of the School for the 1984 fiscal year were any
more complete or organized than they had been previously. The fact that an
audit transmitted to the School in 1987 showed that the School's record
keeping had not improved supports that conclusion. The Administrative Law
Judge is compelled to find that the School did not have a financial management
or record keeping system that would enable it to comply with applicable
federal regulations.
In a number of additional instances, the School failed to maintain the
records required by federal regulations. 7 C.F.R 226.15(e)(4) requires that
records be kept of meal counts, apart from attendance data. The School admits
it made no such records and, instead, relied on attendance data for meal
counts. The School also failed to maintain family size/income data sheets,
DOE Ex. 8, 2-3, and appropriate invoices to verify claimed food costs. DOE
Ex. 14, 2, Finding 2.
The difficulties of the auditors in reviewing the records of the School
should be considered in light of the efforts of the Department to apprise the
School of scheduled audits and the documents-required to be available. Even
with such advance notice and direction, the problems with the audits noted in
the Findings repeatedly occurred. Even though several of the audits resulted
in only relatively small net financial adjustments, deficiencies in the
School's records were called to their attention with no apparent corrective
action. The Administrative Law Judge, therefore, finds that the Department
has established that the School failed to maintain adequate records to support
its claimed reimbursements. The instances of the keeping of inadequate
records relied upon by the Administrative Law Judge do not include the 1986
audit which is, as yet, not final. The School did, however, admit that the
records available to the auditor and explained to him at the time of the audit
were accurately described. It asserts, however, that additional documentation
-11-
not available at the School during the audit will lessen the amount of the
disallowance.
The Administrative Law Judge does not find that the Department has
demonstrated a history of administrative or financial mismanagement within the
meaning of 7 C.F.R. 226.6(c)(10). The Department relies on the escalating
program disallowances and lack of cooperation with it as the basis for its
assertion that administrative and/or financial mismanagement of the Program
was apparent. The Administrative Law Judge, however, finds it most probable
that the changes in allowable reimbursement were the results of the failure to
keep adequate records and not the result of misappropriation or misapplication
of federal funds. At least, no such activity has been demonstrated. The
Administrative Law Judge agrees that the School administration has been less
than cooperative with the State in correcting problems and responding to
official inquiries. That is not, however, the type of administrative or
financial mismanagement contemplated by 7 C.F.R. 226(c)(10), which may serve
as a basis for finding tne existence of a serious deficiency.
The School has basically admitted its previous history but asserts that
two corrective measures make future noncompliance unlikely. It has installed
. burglar alarm and intercom and now has available to it a computer. while
:he burglar alarm and intercom may avoid instances of vandalism, that will not
create better and more comorenensive records for the School. As previously
discussed, the School had a history of maintaining inadequate records both
before and subsequent to tne interference with its 1984 fiscal year records.
Further, there is no discussion in the record of how the fact of the
availability of a computer will change the record keeping practices of the
School. There is no evidence in the record of any plan the School has
developed for using the computer to improve the record keeping system. There
is no evidence in the record that the School has developed or implemented any
consistent program for ensuring that required records will be available to
government auditors. Of course, a computer can only manipulate data that is
first correctly obtained and entered. The mere availability of the hardware
in no way assures that federal regulations will be followed. Hence, the
Department was justified in concluding that, at the time of the rejection of
BGM's application, the serious deficiencies previously identified continued to
exist.
-the School asserts that its actions are partially attributable to the
statement. It claims that the Department should have offered more technical
stance and provided warnings that its Program participation was in
jepardy. Initially, it seems to espouse considerations like "progressive
discipline" normally found in a civil service employment dismissal case. A
civil service employee, however, has a protectable property interest in the
maintenance of his or her employment. Annual grants received, even over a
number of years, create no similar property interest or right. Community
Action Organization v. Action, 546 F. Supp. 494, 497-498 (W.D.N.Y. 1982);
Mil-Ka-Ko Research and Development Corp. v. Office of Economic Opportunity,
352 F. Supp. 169, 171-73 (D.D.C. 1972). The responsibility of complying with
federal regulations was clearly on the School at all times as a Program
participant, and not on the Department.
The only legal theory supporting the argument of the School is one akin to
estoppel. In Brown v. Minnesota Department_of Public Welfare, 368 N.W.2d 906,
910 (Minn. 1985), the Minnesota Supreme Court summarized the law of government
estoppel as follows:
-12-
To establish a claim of estoppel, plaintiff must prove that
defendant made representations or inducements, upon which
plaintiff reasonably relied, and that plaintiff will be
harmed if the claim of estoppel is not allowed. Northern
Petrochemical Co. v. United States Fire Insurance Co.,
277 N.W.2d 408, 410 (Minn. 1979). The government may be
estopped if justice requires, but this court has said it
does not "envision that estoppel will be freely applied
against the government." To estop a government agency,
some element of fault or wrongful conduct must be shown. A
plaintiff seeking to estop a government agency has a heavy
burden of proof. When deciding whether estoppel will be
applied against the government, the court will weigh the
pulbic interest frustrated by the estoppel against the
equities of the case.
As should be apparent. one has no right to claim detrimental reliance in
continues violation of Program requirements. Forbearance and Qatience by the
government does not give rise to an estoppel.
Concerning its argument aoout tie lack of technical assistance proviled,
the School did not assert that it ever sought technical assistance and was
refused such help. On several occasions, the Department invited the School to
request assistance in imolementing changes to bring BGM into Program
compliance. The School did not respond to such overtures. The
unresponsiveness of the School in its dealings with the Department, as
documented in the Findings, made it an unlikely candidate for in-service
assistance. Finally, even the corrective suggestions made by the Department
were, largely, ignored.
Although the Administrative Law Judge has found that the Department was
justified in refusing the School's current application for participation in
the Program, that does not prohibit the School from future participation.
7 C.F.R. 226.6(c) provides that an institution which has been determined to
have been seriously deficient in the operation of a federally assisted child
nutrition program may participate in the program at a future date when it can
establish to the State Agency and the Federal Government that it has corrected
the deficiencies previously experienced.
To both the Department and the School the prime concern should be, of
course, that hungry children are fed in accordance with federal Program
requirements. The Administrative Law Judge suggests that the School take
cognizance of the problems which have been identified and work with the
Department in implementing mutually satisfactory corrective measures.
B.D.C.
-13-