Hearings for Recovery of Funds

34 C.F.R. Part ..., Subpart B
in effectEffective: 2024-07-01

34 C.F.R. § 81.30 Basis for recovery of funds.

(a) Subject to the provisions of § 81.31, an authorized Departmental official requires a recipient to return funds to the Department if— (1) The recipient made an unallowable expenditure of funds under a grant or cooperative agreement; or (2) The recipient otherwise failed to discharge its obligation to account properly for funds under a grant or cooperative agreement. (b) An authorized Departmental offcial may base a decision to require a recipient to return funds upon an audit report, an investigative report, a monitoring report, or any other evidence.

34 C.F.R. § 81.31 Measure of recovery.

A recipient that made an unallowable expenditure or otherwise failed to discharge its obligation to account properly for funds shall return an amount that— (a) Meets the standards for proportionality in § 81.32; (b) In the case of a State or local educational agency, excludes any amount attributable to mitigating circumstances under the standards in § 81.23; and (c) Excludes any amount expended in a manner not authorized by law more than five years before the recipient received the notice of a disallowance decision under § 81.34.

34 C.F.R. § 81.32 Proportionality.

(a)(1) A recipient that made an unallowable expenditure or otherwise failed to account properly for funds shall return an amount that is proportional to the extent of the harm its violation caused to an identifiable Federal interest associated with the program under which it received the grant or cooperative agreement. (2) An identifiable Federal interest under paragraph (a)(1) of this section includes, but is not limited to, the following: (i) Serving only eligible beneficiaries. (ii) Providing only authorized services or benefits. (iii) Complying with expenditure requirements and conditions, such as set-aside, excess cost, maintenance of effort, comparability, supplement-not-supplant, and matching requirements. (iv) Preserving the integrity of planning, application, recordkeeping, and reporting requirements. (v) Maintaining accountability for the use of funds. (b) The appendix to this part contains examples that illustrate how the standards for proportionality apply. The examples present hypothetical cases and do not represent interpretations of any actual program statute or regulation.

34 C.F.R. § 81.33 Mitigating circumstances.

(a) A recipient that is a State or local educational agency and that has made an unallowable expenditure or otherwise failed to account properly for funds is not required to return any amount that is attributable to the mitigating circumstances described in paragraph (b), (c), or (d) of this section. (b) Mitigating circumstances exist if it would be unjust to compel the recovery of funds because the recipient's violation was caused by erroneous written guidance from the department. To prove mitigating circumstances under this paragraph, the recipient shall prove that— (1) The guidance was provided in response to a specific written request from the recipient that was submitted to the Department at the address provided by notice published in the Federal Register under this section; (2) The guidance was provided by a Departmental official authorized to provide the guidance, as described by that notice; (3) The recipient actually relied on the guidance as the basis for the conduct that constituted the violation; and (4) The recipient's reliance on the guidance was reasonable. (c) Mitigating circumstances exist if it would be unjust to compel the recovery of funds because the recipient's violation was caused by the Department's failure to provide timely guidance. To prove mitigating circumstances under this paragraph, the recipient shall prove that— (1) The recipient in good faith submitted a written request for guidance with respect to the legality of a proposed expenditure or practice; (2) The request was submitted to the Department at the address provided by notice published in the Federal Register under this section; (3) The request— (i) Accurately described the proposed expenditure or practice; and (ii) Included the facts necessary for the Department's determination of its legality; (4) The request contained the certification of the chief legal officer of the appropriate State educational agency that the officer— (i) Examined the proposed expenditure or practice; and (ii) Believed it was permissible under State and Federal law applicable at the time of the certification; (5) The recipient reasonably believed the proposed expenditure or practice was permissible under State and Federal law applicable at the time it submitted the request to the Department; (6) No Departmental official authorized to provide the requested guidance responded to the request within 90 days of its receipt by the Department; and (7) The recipient made the proposed expenditure or engaged in the proposed practice after the expiration of the 90-day period. (d) Mitigating circumstances exist if it would be unjust to compel the recovery of funds because the recipient's violation was caused by the recipient's compliance with a judicial decree from a court of competent jurisdiction. To prove mitigating circumstances under this paragraph, the recipient shall prove that— (1) The recipient was legally bound by the decree; (2) The recipient actually relied on the decree when it engaged in the conduct that constituted the violation; and (3) The recipient's reliance on the decree was reasonable. (e) If a Departmental official authorized to provide the requested guidance responds to a request described in paragraph (c) of this section more than 90 days after its receipt, the recipient that made the request shall comply with the guidance at the earliest practicable time.

34 C.F.R. § 81.34 Notice of a disallowance decision.

(a) If an authorized Departmental official decides that a recipient must return funds under § 81.30, the official gives the recipient written notice of a disallowance decision. The official sends the notice by certified mail, return receipt requested, or other means that ensure proof of receipt. (b)(1) The notice must establish a prima facie case for the recovery of funds, including an analysis reflecting the value of the program services actually obtained in a determination of harm to the Federal interest. (2) For the purpose of this section, a prima facie case is a statement of the law and the facts that, unless rebutted, is sufficient to sustain the conclusion drawn in the notice. The facts may be set out in the notice or in a document that is identified in the notice and available to the recipient. (3) A statement that the recipient failed to maintain records required by law or failed to allow an authorized representative of the Secretary access to those records constitutes a prima facie case for the recovery of the funds affected. (i) If the recipient failed to maintain records, the statement must briefly describe the types of records that were not maintained and identify the recordkeeping requirement that was violated. (ii) If the recipient failed to allow access to records, the statement must briefly describe the recipient's actions that constituted the failure and identify the access requirement that was violated. (c) The notice must inform the recipient that it may— (1) Obtain a review of the disallowance decision by the OALJ; and (2) Request mediation under § 81.13. (d) The notice must describe— (1) The time available to apply for a review of the disallowance decision; and (2) The procedure for filing an application for review.

34 C.F.R. § 81.35 Reduction of claims.

The Secretary or an authorized Departmental official as appropriate may, after the issuance of a disallowance decision, reduce the amount of a claim established under this subpart by— (a) Redetermining the claim on the basis of the proper application of the law, including the standards for the measure of recovery under § 81.31, to the facts; (b) Compromising the claim under the Federal Claims Collection Standards in 4 CFR part 103; or (c) Compromising the claim under § 81.36, if applicable.

34 C.F.R. § 81.36 Compromise of claims under General Education Provisions Act.

(a) The Secretary or an authorized Departmental official as appropriate may compromise a claim established under this subpart without following the procedures in 4 CFR part 103 if— (1)(i) The amount of the claim does not exceed $200,000; or (ii) The difference between the amount of the claim and the amount agreed to be returned does not exceed $200,000; and (2) The Secretary or the official determines that— (i) The collection of the amount by which the claim is reduced under the compromise would not be practical or in the public interest; and (ii) The practice that resulted in the disallowance decision has been corrected and will not recur. (b) Not less than 45 days before compromising a claim under this section, the Department publishes a notice in the Federal Register stating— (1) The intention to compromise the claim; and (2) That interested persons may comment on the proposed compromise.

34 C.F.R. § 81.37 Application for review of a disallowance decision.

(a) If a recipient wishes to obtain review of a disallowance decision, the recipient shall file a written application for review with the Office of Administrative Law Judges, c/o Docket Clerk, Office of Hearings and Appeals, and, as required by § 81.12(b), shall serve a copy on the applicable Departmental official who made the disallowance decision. (b) A recipient shall file an application for review not later than 60 days after the date it receives the notice of a disallowance decision. (c) Within 10 days after receipt of a copy of the application for review, the authorized Departmental official who made the disallowance decision shall provide the ALJ with a copy of any document identified in the notice pursuant to § 81.34(b)(2). (d) An application for review must contain— (1) A copy of the disallowance decision of which review is sought; (2) A statement certifying the date the recipient received the notice of that decision; (3) A short and plain statement of the disputed issues of law and fact, the recipient's position with respect to these issues, and the disallowed funds the recipient contends need not be returned; and (4) A statement of the facts and the reasons that support the recipient's position. (e) The ALJ who considers a timely application for review that substantially complies with the requirements of paragraph (c) of this section may permit the recipient to supplement or amend the application with respect to issues that were timely raised. Any requirement to return funds that is not timely appealed becomes the final decision of the Department.

34 C.F.R. § 81.38 Consideration of an application for review.

(a) The ALJ assigned to the case under § 81.4 considers an application for review of a disallowance decision. (b) The ALJ decides whether the notice of a disallowance decision meets the requirements of § 81.34, as provided by section 451(e) of GEPA. (1) If the notice does not meet those requirements, the ALJ— (i) Returns the notice, as expeditiously as possible, to the authorized Departmental official who made the disallowance decision; (ii) Gives the official the reasons why the notice does not meet the requirements of § 81.34; and (iii) Informs the recipient of the ALJ's decision by certified mail, return receipt requested. (2) An authorized Departmental official may modify and reissue a notice that an ALJ returns. (c) If the notice of a disallowance decision meets the requirements of § 81.34, the ALJ decides whether the application for review meets the requirements of § 81.37. (1) If the application, including any supplements or amendments under § 81.37(d), does not meet those requirements, the disallowance decision becomes the final decision of the Department. (2) If the application meets those requirements, the ALJ— (i) Informs the recipient and the authorized Departmental official that the OALJ has accepted jurisdiction of the case; and (ii) Schedules a hearing on the record. (3) The ALJ informs the recipient of the disposition of its application for review by certified mail, return receipt requested. If the ALJ decides that the application does not meet the requirements of § 81.37, the ALJ informs the recipient of the reasons for the decision.

34 C.F.R. § 81.39 Submission of evidence.

(a) The ALJ schedules the submission of the evidence, whether oral or documentary, to occur within 90 days of the OALJ's receipt of an acceptable application for review under § 81.37. (b) The ALJ may waive the 90-day requirement for good cause.

34 C.F.R. § 81.40 Burden of proof.

If the OALJ accepts jurisdiction of a case under § 81.38, the recipient shall present its case first and shall have the burden of proving that the recipient is not required to return the amount of funds that the disallowance decision requires to be returned because— (a) An expenditure identified in the disallowance decision as unallowable was allowable; (b) The recipient discharged its obligation to account properly for the funds; (c) The amount required to be returned does not meet the standards for proportionality in § 81.32; (d) The amount required to be returned includes an amount attributable to mitigating circumstances under the standards in § 81.33; or (e) The amount required to be returned includes an amount expended in a manner not authorized by law more than five years before the recipient received the notice of the disallowance decision.

34 C.F.R. § 81.41 Initial decision.

(a) The ALJ makes an initial decision based on the record. (b) The initial decision includes the ALJ's findings of fact, conclusions of law, and reasoning on all material issues. (c) The OALJ transmits the initial decision to the Secretary and to the parties by submission to OES and, if filing in paper format was permitted by the ALJ, by certified mail, return receipt requested, or by another parcel service with delivery confirmation. (d) For the purpose of this part, “initial decision” includes an ALJ's modified decision after the Secretary's remand of a case.

34 C.F.R. § 81.42 Petition for review of initial decision.

(a)(1) If a party seeks to obtain the Secretary's review of the initial decision of an ALJ, the party must file a petition for review by submission to OES on behalf of the Office of the Secretary unless the party shows the ALJ good cause why the petition cannot be filed electronically. (2) If the ALJ permits a party to file a petition for review in paper format, the filing party must file the petition with the ALJ by hand-delivery or regular mail. (b) A party must file a petition for review not later than 30 days after the date it receives the initial decision. The party is deemed to have received the initial decision on the date the initial decision is uploaded to OES or, if filing in paper format was permitted by the ALJ, the party is deemed to have received the initial decision on the delivery date indicated by the certified mail or parcel delivery records. (c) Electronically filing a petition to OES for review constitutes service on the other party. (d) If the ALJ has permitted the petition to be filed in paper format, then— (1) The party must serve a copy of the petition on the other party on the filing date by hand delivery or by “overnight” or “express” mail. If agreed upon by the parties, service of a copy of the petition may be made upon the other party by a method approved by the ALJ. (2) Any petition submitted under this section in paper format must be accompanied by a statement certifying the date that the petition was served on the other party. (e) A petition for review of an initial decision must— (1) Identify the initial decision for which review is sought; and (2) Include a statement of the reasons asserted by the party for affirming, modifying, setting aside, or remanding the initial decision in whole or in part. (f)(1) A party may respond to a petition for review of an initial decision by filing a statement of its views on the issues raised in the petition, as provided for in this section, not later than 15 days after the date it receives the petition. (2) If the ALJ has permitted the written submission to be filed in paper format, a party must serve a copy of its statement of views on the other party by hand delivery or mail and certify that it has done so pursuant to the provisions of paragraph (d) of this section. (g)(1) The filing date for petitions under this section is the date the document is— (i) Electronically filed; or (ii) Hand-delivered or mailed, if permitted to file in paper format. (2) If a scheduled filing date falls on a Saturday, Sunday, or a Federal holiday, the filing deadline is the next business day.

34 C.F.R. § 81.43 Review by the Secretary.

(a)(1) The Secretary's review of an initial decision is based on the record of the case, the initial decision, and any proper submissions of the parties or other participants in the case. (2) During the Secretary's review of the initial decision there shall not be any ex parte contact between the Secretary and individuals representing the Department or the recipient. (b) The ALJ's findings of fact, if supported by substantial evidence, are conclusive. (c) The Secretary may affirm, modify, set aside, or remand the ALJ's initial decision. (1) If the Secretary modifies, sets aside, or remands an initial decision, in whole or in part, the Secretary's decision includes a statement of reasons that supports the Secretary's decision. (2)(i) The Secretary may remand the case to the ALJ with instructions to make additional findings of fact or conclusions of law, or both, based on the evidence of record. The Secretary may also remand the case to the ALJ for further briefing or for clarification or revision of the initial decision. (ii) If a case is remanded, the ALJ shall make new or modified findings of fact or conclusions of law or otherwise modify the initial decision in accordance with the Secretary's remand order. (iii) A party may appeal a modified decision of the ALJ under the provisions of §§ 81.42 through 81.45. However, upon that review, the ALJ's new or modified findings, if supported by substantial evidence, are conclusive. (3) The Secretary, for good cause shown, may remand the case to the ALJ to take further evidence, and the ALJ may make new or modified findings of fact and may modify the initial decision based on that new evidence. These new or modified findings of fact are likewise conclusive if supported by substantial evidence.

34 C.F.R. § 81.44 Final decision of the Department.

(a) The ALJ's initial decision becomes the final decision of the Department 60 days after the recipient receives the ALJ's decision unless the Secretary modifies, sets aside, or remands the decision during the 60-day period. (b) If the Secretary modifies or sets aside the ALJ's initial decision, a copy of the Secretary's decision is provided to the parties by submission to OES. If the ALJ has permitted written submissions to be filed in paper format, the decision will be sent by certified mail, return receipt requested, or by another parcel service with delivery confirmation. The Secretary's decision becomes the final decision of the Department on the date it is electronically filed or, if sent via parcel delivery service, on the delivery date indicated by the certified mail or parcel delivery records.

34 C.F.R. § 81.45 Collection of claims.

(a) An authorized Departmental official collects a claim established under this subpart by using the standards and procedures in 34 CFR part 30. (b) A claim established under this subpart may be collected— (1) 30 days after a recipient receives notice of a disallowance decision if the recipient fails to file an acceptable application for review under § 81.37; or (2) On the date of the final decision of the Department under § 81.44 if the recipient obtains review of a disallowance decision. (c) The Department takes no collection action pending judicial review of a final decision of the Department under section 458 of GEPA. (d) If a recipient obtains review of a disallowance decision under § 81.38, the Department does not collect interest on the claim for the period between the date of the disallowance decision and the date of the final decision of the Department under § 81.44.

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