TITLE: Department of Labor-Grant to New York Workers' Compensation Board, B-303927, June 7, 2005
BNUMBER: B-303927
DATE: June 7, 2005
**********************************************************************
Decision
Matter of: Department of Labor-Grant to New York Workers' Compensation
Board
File: B-303927
Date: June 7, 2005
DIGEST
1. Appropriation to the Department of Labor "for payment to" New York
Workers' Compensation Board for "processing of claims" was not available
for the Workers' Compensation Board to make payments to other New York
State entities. The Department should seek recovery of $44 million
improperly transferred unless the Secretary seeks and obtains
congressional ratification of the grant expenditures to date.
2. Department of Labor's grant to New York Workers' Compensation Board
imposed a responsibility on the Department to ensure proper performance of
that grant, even though it was outside the Department's normal sphere of
operations.
DECISION
On September 8, 2004, the Government Accountability Office (GAO) testified
before the Subcommittee on National Security of the House Committee on
Government Reform about the New York Workers' Compensation Board's use of
federal grant funds to meet expenses related to the September 11, 2001,
terrorist attack on the World Trade Center.[1] At that time, we indicated
a need for further review of grant expenditures totaling $44 million that
the Board made to reimburse state entities other than the Workers'
Compensation Board, because those expenditures may have been in conflict
with the appropriation act that made funds available for the grant.[2] We
have since received additional information from the Department of Labor
(Department)[3] and the New York Workers' Compensation Board (Board),[4]
and, for the reasons explained below, we conclude that the appropriation
used was not available for the reimbursements to other entities and that
the Department did not meet its responsibilitties to ensure the funds were
properly applied. [5]
Both the Department and the Board seem to have contributed to the
misunderstandings that resulted in the payments to the Crime Victims Board
and the State Insurance Fund. Nevertheless, the Department should seek to
recover the $44 million improperly transferred to the Crime Victims Board
and the State Insurance Fund. If the Secretary wishes to forego recovery
of the improperly expended funds, she should seek and obtain congressional
ratification of the grant expenditures to date and permission to authorize
use of the remaining grant funds appropriated by Public Law 107-117 for
other World Trade Center-related claims and benefits. If such authority
is forthcoming, the Department should modify the grant agreement
accordingly. Until then, the Board should refrain from further
reimbursements to other entities and the Department should monitor grant
performance to ensure adherence to the purposes of administration and
mitigation consistent with the statute.
Background
In the aftermath of the September 11 attacks on the United States,
Congress in Public Law 107-38 quickly appropriated $40 billion to assist
in response and recovery.[6] Among other purposes, Congress made these
funds available to provide "' Federal, State, and local preparedness for
mitigating and responding to the attacks '." [7] Of the total amount
appropriated, $20 billion were reserved to be made available in future
emergency supplemental appropriation acts. Public Law 107-117, approved
on January 23, 2002, was such an enactment. Under the heading, "Workers
Compensation Programs," Congress appropriated $175 million to the
Department of Labor Employment and Training Administration to be
obligated from amounts previously made available in Public Law 107-38.
As appropriated, the $175 million was to remain available until expended:
"Provided, That, of such amount, $125,000,000 shall be for payment to
the New York State Workers Compensation Review [sic] Board,[8] for the
processing of claims related to the terrorist attacks: Provided further,
That, of such amount, $25,000,000 shall be for payment to the New York State
Uninsured Employers Fund, for reimbursement of claims related to the
terrorist attacks: Provided further, That, of such amount, $25,000,000
shall be for payment to the New York State Uninsured Employers Fund, for
reimbursement of claims related to the first response emergency services
personnel who were injured, were disabled, or died due to the terrorist
attacks."
115 Stat. 2312, 2313 (emphasis added).[9]
The Department determined that it should distribute the funds to the Board
by means of a grant.[10] The Department then invited the Board to write a
proposal for the grant. The Board submitted its proposal dated September
20, 2002. On November 14, 2002, the Department awarded a 4-year
grant to the Board.[11] The Department incorporated the Board's proposal
verbatim as the Statement of Work for the grant.
The Statement of Work (Part I of the Grant) applied the $125 million
earmarked in the appropriation for "processing of claims" to the Board's
functions of administration and mitigation. With regard to
administration, the Board related that it would need about 30 full-time
equivalent positions and $55.7 million to process workers compensation
claims that were related to the World Trade Center attack. With regard to
mitigation, the Statement of Work indicated the Board would follow
well-established principles and fund such items as a call center and an
off-site electronic data recovery system in order to lessen the effects of
a future disaster, should one occur.[12] The Board estimated that 22
full-time equivalent positions and $69.3 million would be needed for its
mitigation efforts.
In addition, the Statement of Work related that the Board intended to
create a "contingency account" within the $125 million it would receive
for administration and mitigation, "to assist other entities" and "respond
effectively to any unexpected needs as they arise, both in administrative
and in mitigation efforts." The Statement of Work also mentioned the
Board's need for flexibility in administering the funds provided to it
under the grant. In its concluding paragraph, the Statement of Work
mentioned the need to meet "changing priorities and circumstances" and to
ensure the funds would be used in the most cost-effective way.
GAO reviewed the Board's performance under the grant and testified before
the National Security Subcommittee on the actual use of the grant funds.
In our testimony, we reported that of the $125 million appropriated for
"processing of claims" and granted to the Board for "administration" and
"mitigation" as described in the Statement of Work, just $4 million had
been used for mitigation to create a remote call center. In contrast, $44
million of the grant funds had been used under the contingency account
mentioned in the Statement of Work to assist other entities.[13] Pursuant
to legislation enacted by the New York State Legislature,[14] the $44
million were paid over to the New York Crime Victims Board and the New
York State Insurance Fund to reimburse those entities for expenses they
incurred paying claims to victims of the World Trade Center attack.[15]
The New York State Insurance Fund is a state-managed insurance carrier
that provides workers' compensation insurance coverage to state government
employees and to other employers in the state who choose the fund as their
insurer. It is distinct from the New York State Uninsured Employers Fund,
the entity mentioned in the appropriation act.
ANALYSIS
The questions for decision here are (1) whether the appropriation made for
payment to the Board for "processing of claims" was available for the
purpose of reimbursing other state entities for the claims they paid
because of the September 11 attack and (2) whether the Department met its
responsibilities as a grantor of federal funds to clarify the purpose for
which the grant was available and to monitor the Board's use of the grant
funds. Our answer to both questions is in the negative.
In this case, Congress appropriated $125 million to the Department "for
payment to" the Board for "processing of claims." We believe that with
respect to the Board, and in the absence of some other specific direction
from the Congress, the plain meaning of the words "processing of claims"
necessarily refers to the function the Board normally performs under the
Board's statutory authority. That function is the receipt, adjudication,
and referral for payment or other disposition of claims for workers'
compensation.[16] The Board agrees that the term "processing of claims"
means executing these functions.[17]
Because processing of claims is the purpose for which the funds were
appropriated, the Department's grant to the Board was necessarily for that
purpose. The Statement of Work articulated the purposes of the grant as
"administration" and "mitigation," both of which are broadly compatible
with the Board's claims processing functions. This was consistent with 31
U.S.C. S 1301, which requires appropriations to be expended only for the
purpose for which they were made. Given this constraint, it is not
possible to reconcile the Board's spending patterns. Our review found
that the bulk of grant funds expended ($44 million out of $48.4 million)
have been used for another purpose entirely-reimbursing other state
entities for claims they paid to or on behalf of September 11 victims.
The entities, the Crime Victims Board and the State Insurance Fund, are
not part of the Workers' Compensation Board and are separate and
independent agencies under New York State law.[18]
The Board believes that the grant instrument conveyed the flexibility to
make the payments in question.[19] The Board refers to the fact that the
Department approved the Statement of Work, in which the Board indicated it
required considerable flexibility to ensure the funds would be used
efficiently and effectively.[20] While the Department did approve the
Statement of Work, it lacked the authority to confer the kind of
flexibility the Board relies on.
The Statement of Work for the grant cannot change the purpose for which
the
$125 million was appropriated-the Board's "processing of claims." A grant
is an instrument used to effectuate a statutory purpose. 31 U.S.C. S
6304. It is axiomatic that a grant may not exceed, enlarge, or change the
statutory authority that underlies it. To illustrate this principle, we
concluded in 45 Comp. Gen. 409 (1966) that a sewage treatment plant under
construction that was damaged by a tornado could not be considered an
"essential public facility" under a statute appropriating funds to make
grants for temporary and emergency repairs to essential public facilities
damaged in natural disasters. The purpose of the appropriation was to
alleviate the immediate effects of natural disasters, not to finance
permanent repairs or rehabilitation of facilities. Therefore, a grant to
the incomplete facility would have changed the statutory purpose and was
not permitted. In the case at hand, the statutory purpose for which the
grant funds were available was processing of workers compensation claims
by the Board. The transmission of the funds to the Board by means of a
grant instrument did not, and could not, create a larger purpose-payment
of claims by other state entities.
The Board points to the "contingency account" mentioned in the approved
Statement of Work as the source of authority for payments to the Crime
Victims Board and the State Insurance Fund. In this regard, the Statement
of Work provided as follows:
"Additionally, the Board is proposing to use a portion of the disaster
funds to assist other entities by creating a contingency account within
our funding structure that will allow the State to respond effectively to
any unexpected needs as they arise, both in administrative and in
mitigation efforts. This will allow the State to evaluate and respond to
applications for assistance by affected stakeholders within the system,
subsequent to [sic] rules, regulations and eligibility criteria that will
be established to oversee this process."
Relying on this provision in the Statement of Work [21] and on the action
of the New York State Legislature,[22] the Board made payments of $28
million to the Crime Victims Board and $16 million to the State Insurance
Fund. However, on its face, the contingency account language does not
provide authority for reimbursements to either entity. Whatever authority
the contingency language created in the grant was for the Board to support
administrative and mitigation activities, i.e., processing of claims. The
contingency account could not create new authority to reimburse other
state agencies for benefits they paid out to or on behalf of victims of
the World Trade Center attacks.[23]
Moreover, the Common Grant Management Rules (Common Rules) provide a
framework for grant administration.[24] Even if the contingency account
had been available for reimbursements to other state entities, such a
large change in the budget for the grant (35 percent of the funds granted
for administration and mitigation expenses of the Board redirected to
reimbursement of claims paid by others) would have required written
advance approval under the Common Rules. 29 C.F.R. S 97.30 (2004). The
Statement of Work appears to have recognized this and anticipated that in
certain circumstances the Board would make formal requests for
modification of the grant agreement.[25] Any such request would have
given the Department an opportunity to review these reimbursements before
they took place. This might have prevented the questioned expenditures,
but it was not done.
As we have discussed above, the appropriation provided authority to expend
funds for "processing of claims" and it was broad enough to support the
activities of "administration" and "mitigation" set out in the grant's
Statement of Work. However, this authority was not broad enough to
support payments from a contingency account mentioned in the Statement of
Work to reimburse entities for claims they paid out to or on behalf of
September 11 victims.
For the reasons above, we conclude that the appropriation which provided
the funds for the grant to the Board was not available to reimburse other
New York State agencies for claims they paid to or on behalf of September
11 victims.
The second question is whether the Department met its responsibilities as
a grantor of federal funds. The appropriation that funded the grant was
made to the Department of Labor, although the Department did not take an
active part in the creation, or monitoring, of the grant. The Department
believed that it had neither the authority nor the responsibility to
structure the grant or direct its performance.[26] The Department points
out that the appropriation in Public Law 107-117 was made "for payment to
the . . . Board." Therefore, the Department concluded that it had no
role in administering the functions that would be carried out with the
grant. Accordingly, the Department argues, it properly refrained from
interjecting itself in the Board's design and performance of the
grant.[27] That view is not correct. It is the specific earmark of funds
in an appropriation act for transfer to a third party that creates the
authority to make a grant. 67 Comp. Gen. 401 (1988). This includes a
grant that would not otherwise be within the grantor agency's statutory
competence. Id. at 401-02.
Exercising the authority in Public Law 107-117, the Department should have
ensured that the grant and its Statement of Work identified the necessary
limits on the flexibility the Board had in using grant funds.[28] As a
matter of law, a grantor agency may not disassociate itself from the
performance of its grant. 31 U.S.C. S 7504 (a)(1) (2000). In a very
similar case, an agency that had been directed by statute to make a grant
argued that it had no authority to ensure proper performance of the
grant. We disagreed and held that the agency was required to monitor
performance.[29] In that case, we noted that the grant itself contained
the authority to obtain records and to review the grantee's performance,
which is also the case here.
In this instance the Statement of Work was not improper on its face. The
Board indicated it would use about half the $125 million for
administration and the other half for mitigation.[30] Nevertheless, the
Board's language concerning flexibility and the contingency account should
have alerted the Department to question what the Board intended. The
Department did not do this because it saw its role as a mere conduit for
the funds.[31] The Department also stated that it presumed that Congress
intended the Board to support claims paid by other entities because it
understood that the amount appropriated would be significantly greater
than the Board's apparent need for funds to process workers' compensation
claims.[32] This position implies that the Department would not have
objected even had it foreseen the Board's action.
When we apply the principles enunciated above, the Department could not
properly have approved the Board's proposal, which became the Statement of
Work, if the Board had indicated that a significant portion of the grant
funds would be paid over to other state entities to support activities
unrelated to the processing of claims for workers' compensation. It is a
well-understood principle of law that what cannot be done directly cannot
be done indirectly.[33] Thus, the Department lacked the capacity to
approve the Board's use of grant funds through the indirect mechanism of a
contingency account for a purpose at variance with the underlying
appropriation act.
REMEDIAL ACTION
Grant funds that have been misapplied by a grantee must be recovered by
the grantor agency, even when those expenditures have been incurred
innocently by the grantee. 51 Comp. Gen. 162 (1971). Accordingly, the
Department should seek to recover the $44 million improperly transferred
to the Crime Victims Board and the State Insurance Fund. As discussed
above, both the Department and the Board seem to have contributed to the
misunderstandings that resulted in the payments to the Crime Victims Board
and the State Insurance Fund. In this case, if the Secretary wishes to
forego recovery of the improperly expended funds, she should seek and
obtain congressional ratification of the grant expenditures to date and
permission to authorize use of the remaining grant funds appropriated by
Public Law 107-117 for other World Trade Center-related claims and
benefits. If such authority is forthcoming, the Department should modify
the grant agreement accordingly. Until then, the Board should refrain
from further reimbursements to other entities and the Department should
monitor grant performance to ensure adherence to the grant purposes of
administration and mitigation consistent with the statute.
Anthony H. Gamboa
General Counsel
------------------------
[1] GAO, September 11: Federal Assistance for New York Workers'
Compensation Costs, GAO-04-1013T (Washington, D.C.: Sept. 8, 2004).
[2] Department of Defense and Emergency Supplemental Appropriations for
Recovery from and Response to Terrorist Attacks on the United States Act,
2002, Pub. L. No. 107-117, Ch. 115 Stat. 2230, 2312-13 (Jan. 10,
2002).
[3] Letter from Carol A. De Deo, Deputy Solicitor for National Operations,
U.S. Department of Labor, to Dayna K. Shah, Associate General Counsel,
GAO, Sept. 3, 2004 (De Deo Letter).
[4] Letter from David P. Wehner, Chairman, New York State Workers'
Compensation Board, to Dayna K. Shah, Associate General Counsel, GAO,
Sept. 30, 2004 (Wehner Letter).
[5] We have not audited the actual use of the funds by the recipients.
[6] 2001 Emergency Supplemental Appropriations Act for Recovery from and
Response to Terrorist Attacks on the United States, Pub. L. No. 107-38,
115 Stat. 220-221 (Sept. 18, 2001).
[7] Id.
[8] The correct title should have been the New York Workers' Compensation
Board.
[9] The President has proposed canceling the balance of this appropriation
in the fiscal year 2006 budget request to the Congress. Budget of the
U.S. Gov't, Fiscal Year 2006 App. at 724 ("Of funds provided under this
heading [Workers Compensation Programs] in the Emergency Supplemental
Appropriations Act, 2002 (Public Law 107-117), there is hereby cancelled
$120,000,000.").
[10] De Deo Letter at 2.
[11] Agreement # WC-12748-03-60 (Grant).
[12] The use of funds for mitigation is not in question because the
overarching appropriation in Pub. L. No. 107-38 was available for
mitigation.
[13] Of the $50 million appropriated for reimbursements to the New York
State Uninsured Employers Fund of claims related to employees of uninsured
employers and emergency first response personnel (volunteers), $456,000
had been used for claims of volunteers, and none had been used for claims
of employees whose employers were uninsured.
[14] 2003 N.Y. Laws, A.B. 7265, S.B. 3377, Mar. 23, 2003.
[15] In the case of the State Insurance Fund, the reimbursement was to
cover the cost of workers' compensation benefits paid to or on behalf of
state employees injured or killed in the attack. See N.Y. Workers' Comp.
Law S 88-c (McKinney 2004).
[16] See inter alia N.Y. Workers' Comp. Law, SS 20-24 (McKinney 2004).
[17] "The Board interprets the term 'processing of claims' to mean the
execution of all functions and services undertaken to resolve, administer
and continuously manage issues pertaining to claims. In the case of the
volunteer and UEF [Uninsured Employers Fund] claims; that definition
extends to the actual payment of claims; as opposed to standard cases that
are typically paid by the responsible insurer." (Punctuation is from the
original.) Wehner Letter at 1.
[18] N.Y. Exec. Law, SS 621-34 (McKinney 2004) (Crime Victims) and N.Y.
Workers' Comp. Law, SS 76-77 (McKinney 2004) (The New York Department of
Labor maintains the State Insurance Fund.)
[19] Wehner Letter at 1-2.
[20] As an example of the flexibility the Board believes it was given in
the Statement of Work, the Board maintained that the Statement of Work
approved transferring funds between the $125 million for "processing of
claims" and the two $25 million amounts for the claims from the Uninsured
Employers Fund. To effectuate the requested transfer of funds, the Board
asked for immediate release of the full $50 million appropriated for
reimbursement of claims paid from the Uninsured Employers Fund.
The transfers were not permitted to go forward, however. The Department
of Health and Human Services Payment Management System, which administers
payments under this grant and other federal grants, declined to advance
the $50 million to the Board, noting that the appropriations act limited
the payments to the Uninsured Employers Fund to "reimbursement of claims"
paid from the Fund. Furthermore, we note that even had a transfer between
the Uninsured Employers Fund and the Board been permitted and the advance
of funds approved, the authority conveyed thereby would not have included
the flexibility to transfer funds to other state entities.
[21] According to the Board, it relied upon the Department-approved
statement of work, "which clearly states the Board's intention to use a
portion of the funds to assist other entities. The SOW [statement of
work] also clearly states the need for flexibility between the grants. . .
."
[22] See footnote 14, supra.
[23] For purposes of this decision, it is not necessary to determine what
contingency expenses would have been supportable under the approved
Statement of Work.
[24] Labor's Common Rules are published at 29 C.F.R. Pts. 95-97 (2004).
[25] The Board asked "that administrative flexibility be applied whenever
amendments to this proposal are submitted for your approval." Grant at 25
(Statement of Work).
[26] De Deo Letter at 2.
[27] Id.
[28] This could have been done either by making appropriate changes to the
Board's proposal before adopting it as the Statement of Work for the grant
or by more carefully reviewing the Board's spending proposal (Part II of
the Grant). (Of the total $175 million appropriated, $150 million was not
identified with an object class, such as personnel or equipment, but was
characterized as "other" spending.)
[29] 64 Comp. Gen. 582, 584 (1985). See also 42 Comp. Gen. 289, 294
(1962) (acceptance of a grant creates a contract between United States and
grantee). Cf. Henke v. U.S. Dep't of Commerce, 83 F.3d 1445, 1450
(D.C. Cir. 1996) (grant agreement includes essential elements of contract
and establishes what would commonly be regarded as a contractual
relationship between government and grantee).
[30] The authority to use funds for mitigation derives from the
overarching appropriation in Pub. L. No. 107-38, which included mitigation
among its purposes. See text at footnote 6, supra.
[31] De Deo Letter at 2.
[32] Id.
[33] Cummings v. Missouri, 71 U.S. (4 Wall.) 277 (1866).