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-An identification of total amounts ques

tioned, if any, for each Federal assistance award, as a result of noncompliance.

b. The three parts of the audit report may be bound into a single report, or presented at the same time as separate documents.

C. All fraud abuse, or illegal acts or indications of such acts, including all questioned costs found as the result of these acts that auditors become aware of, should normally be covered in a separate written report submitted in accordance with paragraph 11f.

d. In addition to the audit report, the recipient shall provide comments on the findings and recommendations in the report, including a plan for corrective action taken or planned and comments on the status of corrective action taken on prior findings. If corrective action is not necessary, a statement describing the reason it is not should accompany the audit report.

e. The reports shall be made available by the State or local government for public inspection within 30 days after the completion of the audit.

f. In accordance with generally accepted government audit standards, reports shall be submitted by the auditor to the organization audited and to those requiring or arranging for the audit. In addition, the recipient shall submit copies of the reports to each Federal department or agency that provided Federal assistance

funds to the recipient. Subrecipients shall submit copies to recipients that provided them Federal assistance funds. The reports shall be sent within 30 days after the completion of the audit, but no later than one year after the end of the audit period unless a longer period is agreed to with the cognizant agency.

8. Recipien ts of more than $100,000 in Federal funds shall submit one copy of the audit report within 30 days after issuance to a central clearinghouse to be designated by the Office of Management and Budget. The clearinghouse will keep completed audits on file and follow up with State and local governments that have not submitted required

13. Audit workpapers


reports. Workpapers and reports shall be retained for a minimum of three years from the date of the audit report, unless the auditor is notified in writing by the cognizant agency to extent the retention period. Audit work papers shall be made available upon request to the cognizant agency or its designee or the General Accounting Office, at the completion of the audit.

14. Audit Costs. The cost of audits made in accordance with the provisions of this appendix are allowable charges to Federal assistance programs.

a. The charges may be considered a direct cost or an allocated indirect cost, determined in accordance with the provisions of 34 CFR part 74, Appendix C, “Principles for Determining Costs Applicable to Grants and Contracts with State and Local Governments.'

b. Generally, the percentage of costs charged to Federal assistance programs for a single audit shall not exceed the percentage that Federal funds expended represent of total funds expended by the recipient during the fiscal year. The percentage may be exceeded, however, if appropriate documentation demonstrates higher actual cost.

15. Sanctions. The Single Audit Act provides that no cost may be charged to Federal assistance programs for audits required by the Act that are not made in accordance with this appendix. In cases of continued inability or unwillingness to have a proper audit, Federal agencies must consider other appropriate sanctions including: -Withholding a percentage of assistance

payments until the audit is completed sat

isfactorily, -Withholding or disallowing overhead costs,

and -Suspending the Federal assistance agree

ment until the audit is made.

16. Auditor Selection. In arranging for audit services State and local governments shall follow the procurement standards prescribed by 34 CFR part 74, Subpart P, “Procurement Standards.” The standards provide that while recipients are encouraged to enter into intergovermental agreements for audit and other services, analysis should be made to determine whether it would be more economical to purchase the services from private firms. In instances where use of such intergovernmental agreements are required by State statutes (e.g., audit services) these statutes will take precedence.

17. Small and Minority Audit Firms. Small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals shall have the maximum practicable opportunity to participate in contracts awarded to fulfill the requirements of this appendix. Recipients of Federal assistance shall take the following steps to further this goal:

audit reports.

h. Recipients shall keep audit reports on file for three years from their issuance.

12. Audit Resolution. As provided in paragraph 9, the cognizant agency shall be responsible for monitoring the resolution of audit findings that affect the programs of more than one Federal agency. Resolution of findings that relate to the programs of a single Federal agency will be the responsibility of the recipient and that agency. Alternate arrangements may be made on a case-bycase basis by agreement among the agencies

Resolution shall be made within six months after receipt of the report by the Federal departments and agencies. Corrective action should proceed as rapidly as pos




Subpart A-General Provisions

a. Assure that small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals are used to the fullest extent practicable.

b. Make information on forthcoming opportunities available and arrange timeframes for the audit so as to encourage and facilitate participation by small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals.

c. Consider in the contract process whether firms competing for larger audits intend to subcontract with small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals.

d. Encourage contracting with small audit firms or audit firms owned and controlled by socially and economically disadvantaged individuals which have traditionally audited government programs and, in such cases where this is not possible, assure that these firms are given consideration for audit subcontracting opportunities.

e. Encourage contracting with consortiums of small audit firms as described in paragraph (a) above when a contract is too large for an individual small audit firm or audit firm owned and controlled by socially and economically disadvantaged individuals.

f. Use the services and assistance, as appropriate, of such organizations as the Small Business Administration, in the solicitation and utilization of small audit firms or audit firms owned and controlled by socially and economically disadvantaged individuals.

Sec. 81.1 Purpose. 81.2 Definitions. 81.3 Jurisdiction of the Office of Adminis

trative Law Judges. 81.4 Membership and assignment to cases. 81.5 Authority and responsibility of an Ad

ministrative Law Judge. 81.6 Hearing on the record. 81.7 Non-party participation. 81.8 Representation. 81.9 Location of proceedings. 81.10 Ex parte communications. 81.11 Motions. 81.12 Filing requirements. 81.13 Mediation. 81.14 Settlement negotiations. 81.15 Evidence. 81.16 Discovery. 81.17 Privileges. 81.18 The record. 81.19 Costs and fees of parties. 81.20 Interlocutory appeals to the Secretary

from rulings of an ALJ. Subpart B-Hearings for Recovery of Funds 81.30 Basis for recovery of funds. 81.31 Measure of recovery. 81.32 Proportionality. 81.33 Mitigating circumstances. 81.34 Notice a of disallowance decision. 81.35 Reduction of claims. 81.36 Compromise of claims under General

Education Provisions Act. 81.37 Application for review of a disallow

ance decision. 81.38 Consideration of an application for re

view. 81.39 Submission of evidence. 81.40 Burden of proof. 81.41 Initial decision. 81.42 Petition for review of initial decision. 81.43 Review by the Secretary. 81.44 Final decision of the Department. 81.45 Collection of claims. APPENDIX TO PART 81-ILLUSTRATIONS OF

PROPORTIONALITY AUTHORITY: 20 U.S.C. 1221e 3(a)(1), 1234 12341, 3474(a), unless otherwise noted.

SOURCE: 54 FR 19512, May 5, 1989, unless otherwise noted.

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Subpart A-General Provisions

$81.1 Purpose.

The regulations in this part govern the enforcement of legal requirements under applicable programs adminis

(50 FR 37358, Sept. 13, 1985. Redesignated at 53 FR 8072, Mar. 11, 1988)

tered by the Department of Education and implement Part E of the General Education Provisions Act (GEPA). (Authority: 20 U.S.C. 1221e-3(a)(1), 1234(1)(1), 3474(a))

881.3 Jurisdiction of the Office of Ad.

ministrative Law Judges. (a) The Office of Administrative Law Judges (OALJ) established under section 451(a) of GEPA has jurisdiction to conduct the following proceedings concerning an applicable program:

(1) Hearings for recovery of funds.
(2) Withholding hearings.
(3) Cease and desist hearings.

(b) The OALJ also has jurisdiction to conduct other proceedings designated by the Secretary. If a proceeding or class of proceedings is so designated, the Department publishes a notice of the designation in the FEDERAL REGISTER. (Authority: 5 U.S.C. 554, 20 U.S.C. 1234(a))

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$81.2 Definitions.

The following definitions apply to the terms used in this part:

Administrative Law Judge (ALJ) means a judge appointed by the Secretary in accordance with section 451 (b) and (c) of GEPA.

Applicable program means any program for which the Secretary of Education has administrative responsibility, except a program authorized by

(a) The Higher Education Act of 1965, as amended;

(b) The Act of September 30, 1950 (Pub. L. 874, 81st Congress), as amended; or

(c) The Act of September 23, 1950 (Pub. L. 815, 81st Congress), as amended.

Department means the United States Department of Education.

Disallowance decision means the decision of an authorized Departmental official that a recipient must return funds because it made an expenditure of funds that was not allowable or otherwise failed to discharge its obligation to account properly for funds. Such a decision, referred to as a "preliminary departmental decision” in section 452 of GEPA, is subject to review by the Office of Administrative Law Judges.

Party means either of the following: (a) A recipient that appeals a decision.

(b) An authorized Departmental official who issues a decision that is appealed.

Recipient means the recipient of a grant or cooperative agreement under an applicable program. Secretary means the Secretary of the Department of Education or an official or employee of the Department acting for the Secretary under a delegation of authority. (Authority: 20 U.S.C. 1221e-3(a)(1); 1234 (b), (c), and (1)(1); 1234a(a)(1); 12341; 3474(a)) (54 FR 19512, May 5, 1989, as amended at 58 FR 43473, Aug. 16, 1993)

(a) The Secretary appoints Administrative Law Judges as members of the QALJ.

(b) The Secretary appoints one of the members of the OALJ to be the chief judge. The chief judge is responsible for the efficient and effective administration of the OALJ.

(c) The chief judge assigns an ALJ to each case or class of cases within the jurisdiction of the OALJ. (Authority: 20 U.S.C. 1221e-3(a)(1), 1234 (b) and (c), 3474(a))

881.5 Authority and responsibility of

an Administrative Law Judge. (a) An ALJ assigned to a case conducts a hearing on the record. The ALJ regulates the course of the proceedings and the conduct of the parties to ensure a fair, expeditious, and economical resolution of the case in accordance with applicable law.

(b) An ALJ is bound by all applicable statutes and regulations and may neither waive them nor rule them invalid.

(c) An ALJ is disqualified in any case in which the ALJ has a substantial interest, has been of counsel, is or has been a material witness, or is so related to or connected with any party or the party's attorney as to make it improper for the ALJ to be assigned to the case.

(d)(1) An ALJ may disqualify himself or herself at any time on the basis of

the standards in paragraph (c) of this section.

(2) A party may file a motion to disqualify an ALJ under the standards in paragraph (c) of this section. A motion to disqualify must be accompanied by an affidavit that meets the requirements of 5 U.S.C. 556(b). Upon the filing of such a motion and affidavit, the ALJ decides the disqualification matter before proceeding further with the case. (Authority: 5 U.S.C. 556(b); 20 U.S.C. 1221e3(a)(1); 1234(d), (1)(1), and (8)(1); 3474(a))

(1) Will aid in the disposition of the case;

(2) Will not unduly delay the proceedings; and

(3) Will not prejudice the adjudication of the parties' rights.

(c) If the ALJ permits an applicant to participate, the ALJ permits the applicant to file briefs.

(d) (1) In addition to the participation described in paragraph (c) of this section, the ALJ may permit the applicant to participate in any or all of the following ways:

(i) Submit documentary evidence.

(ii) Participate in an evidentiary hearing afforded the pa ties.

(iii) Participate in an oral argument afforded the parties.

(2) The ALJ may place appropriate limits on an applicant's participation to ensure the efficient conduct of the proceedings.

(e) A non-party participant shall comply with the requirements for parties in $81.11 and $81.12.

881.6 Hearing on the record.

(a) A hearing on the record is a process for the orderly presentation of evidence and arguments by the parties.

(b) Except as otherwise provided in this part or in a notice of designation under $81.3(b), an ALJ conducts the hearing entirely on the basis of briefs and other written submissions unless

(1) The ALJ determines, after reviewing all appropriate submissions, that an evidentiary hearing is needed to resolve a material factual issue in dispute; or

(2) The ALJ determines, after reviewing all appropriate submissions, that oral argument is needed to clarify the issues in the case.

(c) At a party's request, the ALJ shall confer with the parties in person or by conference telephone call before determining whether an evidentiary hearing or an oral argument is needed. (Authority: 5 U.S.C. 556(d); 20 U.S.C. 1221e3(a)(1), 1234(1)(1), 3474(a))

(Authority: 20 U.S.C. 1221e-3(a)(1), 1234(1)(1). 3474(a))

881.8 Representation.

A party to, or other participant in, a case may be represented by counsel. (Authority: 20 U.S.C. 1221e-3(a)(1), 1234(1)(1), 3474(a)

$81.9 Location of proceedings.

(a) An ALJ may hold conferences of the parties in person or by conference telephone call.

(b) Any conference, hearing, argument, or other proceeding at which the parties are required to appear in person is held in the Washington, DC metropolitan area unless the ALJ determines that the convenience and necessity of the parties or their representatives requires that it be held elsewhere.

881.7 Non-party participation.

(a) A person or organization, other than a party, that wishes to participate in a case shall file an application to participate with the ALJ assigned to the case. The application must

(1) Identify the case in which participation is sought;

(2) State how the applicant's interest relates to the case;

(3) State how the applicant's participation would aid in the disposition of the case; and

(4) State how the applicant seeks to participate.

(b) The ALJ may permit an applicant to participate if the ALJ determines that the applicant's participation

(Authority: 5 U.S.C. 554(b); 20 U.S.C. 1221e 3(a)(1), 1234(f)(1), 3474(a))

881.10 Ex parte communications.

A party to, or other participant in, a case may not communicate with an ALJ on any fact in issue in the case or on any matter relevant to the merits of the case unless the parties are given

notice and an opportunity to participate. (Authority: 5 U.S.C. 554(d)(1), 557(d)(1)(A); 20 U.S.C. 1221e 3(a)(1), 1234(1)(1), 3474(a))

$81.11 Motions.

(a) To obtain an order or a ruling from an ALJ, a party shall make a motion to the ALJ.

(b) Except for a request for an extension of time, a motion must be made in writing unless the parties appear in person or participate in a conference telephone call. The ALJ may require a party to reduce an oral motion to writing.

(c) If a party files a motion, the party shall serve a copy of the motion on the other party on the filing date by handdelivery or by mail. If agreed upon by the parties, service of the motion may be made upon the other party by facsimile transmission.

(d) Except for a request for an extension of time, the ALJ may not grant a party's written motion without the consent of the other party unless the other party has had at least 21 days from the date of service of the motion to respond. However, the ALJ may deny a motion without awaiting a response.

(e) The date of service of a motion is determined by the standards for determining a filing date in $81.12(d). (Authority: 20 U.S.C. 1221e-3(a)(1), 1234(1)(1),

statement certifying the date that the filed material was filed and served on the other party.

(d)(1) The filing date for a written submission to an ALJ or the QALJ is the date the document is

(1) Hand-delivered; (ii) Mailed; or (iii) Sent by facsimile transmission.

(2) If a scheduled filing date falls on a Saturday, Sunday, or Federal holiday, the filing deadline is the next business day.

(e) A party filing by facsimile transmission is responsible for confirming that a complete and legible copy of the document was received by the Department.

(f) If a document is filed by facsimile transmission, a follow-up hard copy must be filed by hand-delivery or by mail within a reasonable period of time. (Authority: 20 U.S.C. 1221e-3(a)(1), 1234(1)(1), 3474(a)) (54 FR 19512, May 5, 1989, as amended at 57 FR 56795, Nov. 30, 1992)


(54 FR 19512, May 5, 1989, as amended at 57 FR 56795, Nov. 30, 1992) 981.12 Filing requirements.

(a) Any written submission to an ALJ or the OALJ under this part must be filed by hand-delivery, by mail, or by facsimile transmission. The Secretary discourages the use of facsimile transmission for documents longer

8 81.13 Mediation.

(a) Voluntary mediation is available for proceedings that are pending before the OALJ.

(b) A mediator must be independent of, and agreed to by, the parties to the case.

(c) A party may request mediation by filing a motion with the ALJ assigned to the case. The OALJ arranges for a mediator if the parties to the case agree to mediation.

(d) A party may terminate mediation at any time. Mediation is limited to 120 days unless the mediator informs the ALJ that

(1) The parties are likely to resolve some or all of the dispute; and

(2) An extension of time will facilitate an agreement.

(e) The ALJ stays the proceedings during mediation.

(f) (1) Evidence of conduct or statements made during mediation is not admissible in any proceeding under this part. However, evidence that is otherwise discoverable may not be excluded merely because it was presented during mediation.

(2) A mediator may not disclose, in any proceeding under this part, infor

than five pages.

(b) If a party files a brief or other document with an ALJ or the OALJ, the party shall serve a copy of the filed material on the other party on the filing date by hand-delivery or by mail. If agreed upon by the parties, service of a document may be made upon the other party by facsimile transmission.

(c) Any written submission to an ALJ or the OALJ must be accompanied by a

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