IN THE MATTER OF UNITED TALMUDICAL ACADEMY OF MONSEY, Monsey NY
Respondent.

Docket No. 93-11-ST
Student Financial Assistance Proceeding

DECISION

YOLANDA R. GALLEGOS, Esq., for Respondent

CAROL BENGLE, Esg., for Student Financial Assistance Programs of the United States Department of Education

Before Paul J. Clerman. Administrative Law Judge:

This proceeding was commenced December 20, 1992, by Ronald D.
Lipton, Acting Director of the Compliance and Enforcement
Division of the United States Department of Education (ED),
who transmitted to Max Werczberger, the President of the
United Talmudical Academy of Monsey (UTA or respondent), a
letter/notice in which ED stated its intention to terminate
the eligibility of UTA to participate in programs authorized under Title IV of
the

Higher Education Act of 1965, as amended (HEA), 20 USC 1070
et
seq. and 42 USC 2751 et seq., for reasons set out in Part I
of
the letter/notice, and in which ED stated its intention to
fine
UTA $120,000, for reasons set out in Part II of the
letter/notice.

The Title IV HEA programs in connection with which ED intends
to terminate UTA's eligibility to participate are: Federal
Pell Grant, Federal Supplemental Educational Opportunity
Grants, Federal Work-Study, Federal Perkins Loans, and the
Federal Family Education Loan Program, which was formerly
called the Guaranteed Student Loan Programs. Included also
are the Stafford Federal Student Loan Program, the Federal
Supplemental Loans for Students Programs, the Federal PLUS
Programs, and the Federal Consolidation Loans Program.

The procedures being followed in this matter are those
established by the Secretary of ED (the Secretary) and set
out in 34 CFR Subpart G, specifically at section 668.86, as
amended, for initiating the termination of eligibility of
educational institutions to participate in Title IV programs
under HEA.

Docket No. 93-11-ST

This termination action is stated in the letter/notice to be
based on respondent's failure to submit required audit
reports in accordance with applicable regulations. These
regulatory provisions, as cited in the letter/notice, require
that an institution that participates in a Title IV HEA
program must conduct a financial and compliance audit of its
financial and program transactions for that program, and that
such an audit must be performed at least once every two years



and must cover the award years that have elapsed since the
previous audit. Audits must be conducted by an independent
auditor in accordance with audit standards and guidelines
issued by the General Accounting Office and ED's Inspector
General. An institution must submit its audit report by
January 31 of the year following the last award year covered
by the audit, except that if the institution received funds
for certain programs (the Campus-Based programs,, as
identified in the letter/notice), it is required to submit
its audit report by March 31 of the year following the last
award year covered by the audit.

The letter/notice specifies that: (a) UTA was required to
submit an audit report for each Title IV program in which it
participated that covered the biennial audit period July 1,
1985 through June 30, 1987. The deadline for this submission
was June 15, 1988, as extended by ED. (b) UTA was required to
submit an audit report for each Title IV program in which it
participated that covered the biennial audit period July 1,
1987 through June 30, 1989. The deadline for this submission
was January 31, 1990 (c) UTA was required to submit an audit
report for each Title IV program in which it participated
that covered the biennial audit period July 1, 1989 through
June 30, 1991. The deadline for this submission was March 31,
1992, as extended by ED.

The letter/notice states that UTA did not submit any of these
audit reports in compliance with the regulations. ED
acknowledges that UTA submitted an audit report covering the
period July 1, 1985 through June 30, 1987, but alleges that
this report did not comply with 34 CFR 668.23 because it was
not timely submitted. ED states that it does not consider an
institution to be in compliance with 34 CFR 668.23 with
respect to any biennial audit report submitted unless and
until ED has determined that each of the section 668.23
standards is satisfied. ED indicates that in the letter/notice
that it has not yet been determined whether UTA's audit report
for the period July 1, 1985 through June 30, 1987 complies
with all of the provisions of 34 CFR 668.23. It is emphasized
that as of the date of the letter/notice UTA had not submitted
audit reports covering the biennial audit periods July 1, 1987
through June 30, 1989 and July 1, 1989 through June 30, 1991.

Docket No. 93-11-ST

The letter/notice states that the termination action is also
based on UTA's failure to meet the standard of conduct
required of a fiduciary, as set forth in 34 CFR 668.82. That
section provides that in its administration of Title IV HEA
programs a participating institution acts as a fiduciary, and
that in that capacity the institution is subject to the
highest standard of care and diligence in accounting for
funds received under those programs. ED alleges that by its
failure to submit the required audit reports UTA has failed
to account for the funds received under Title IV HEA programs
and thus has failed to conform to the regulatory requirements
as a fiduciary.

Respondent was notified in the letter/notice that its
eligibility to participate in Title IV HEA programs would
terminate January 20, 1993, unless by that date UTA submitted
a request for a hearing and/or written material indicating
why the termination should not take place. On January 19,
1993, on behalf of UTA its counsel requested a hearing to
contest the proposed termination and fine. I was designated
the hearing official in this matter on February 9, 1993, and



I subsequently issued a procedural order setting the matter
for hearing, such hearing to consist of the submission by the
parties of briefs, written materials and reply briefs. In due
course such submissions were timely made by the parties. This
matter is now ripe for decision.

On December 20, 1993, respondent's counsel notified me that
she was withdrawing as counsel in this matter. On December
28, 1993, I wrote to respondent's president, requesting that
he promptly notify me, and ED's counsel, as to whether he has
retained or will be retaining counsel to represent UTA in
this proceeding, and if so to identify that counsel. I
indicated that pending receipt of a reply I would take no
action in this case, but not for a period longer than fifteen
days from the date of my letter. As of the date of this
decision, which is more than fifteen days from the date of my
letter, I have received no response from UTA nor has any
counsel entered an appearance for UTA in this proceeding.

Counsel for the Student Financial Assistance Programs (SFAP)
of ED contends on brief that the only issue to be addressed
in this case is the factual issue of whether UTA failed to
timely submit one or more biennial audit reports as required
under 34 CFR 668.23. SFAP alleges in this regard that in the
eight years of UTA's participation in Title IV HEA programs
UTA has never submitted a biennial audit report on time. In
support, SFAP introduced the declaration, dated June 25,
1993, of a Supervisory Auditor (Eisenberg) for ED's Regional
Inspector General for Audit (RIGA) covering New York, among
other States, in which Eisenberg states with regard to UTA's
biennial audit reports:

Docket No. 93-11-ST

(1) that for the biennial audit period July
1, 1985 through June 30, 1987 (the 85/87
report), which was required to be
submitted by June 15, 1988, that report
was not received until November 19,
1992;

(2) that for the biennial audit period July,
1, 1987 through June 30, 1989 (the 87/89
report), which was required to be
submitted by January 31, 1990, that
report was not received until March 26,
1993; and

(3) that for the biennial audit period July
1, 1989 through June 30, 1991 ( the
89/91 report), which was required to be
submitted by March 31, 1992, that report
was not received until May 17, 1993.

Eisenberg stated in his declaration that ED does not consider
that an institution is in compliance with 34 CFR 668.23 until
RIGA has accepted that institution's audit reports. According
to Eisenberg, the 89/91 report has been accepted by RIGA, but
the 85/87 and 87/89 reports have not been accepted as of the
date of his declaration.

UTA confirmed on brief that its 85/87 report was submitted
November 19, 1992, and stated that its 87/89 report and 89/91
report were submitted March 23, 1992, and May 10, 1993,
respectively. Viewed from its own perspective, however, UTA



stresses that it has submitted all required biennial audit
reports for each award year from when its participation
commenced in Title IV HEA programs. UTA takes the position,
as later discussed, that ED is here seeking to terminate
UTA's participation in Title IV HEA programs and to fine UTA
solely because UTA did not submits its biennial audits in a
timely fashion, and that there is no justification for such
termination and fine.

The position taken by SFAP is that once it is established,
as SFAP contends it has been established, that UTA has
failed to comply within the regulatory time frame for
submission of biennial audit reports as set forth in 34 CFR
668.23(a)(4), the sanction of termination is mandatory.
SFAP relies on 34 CFR 668.90(a)(3)(iv), as follows:

In a termination action taken against
an institution based on the grounds
that an institution has failed to
comply with the requirements of
668.23(c)(4), the hearing official must
find that the termination is warranted;

4

Docket No. 93-11-ST

That regulatory provision, herein sometimes referred to as
subparagraph iv, was added to section 668.90 on July 31,
1991, in Volume 56, No. 147, at page 36698 of the Federal
Register. SFAP makes reference to the comments of the
Secretary (of ED) at page 36694 of that Federal Register in
explanation of the rationale for this mandatory sanction, in
part as follows:

...the Secretary considers that type of
violation to be sufficiently detrimental to
effective monitoring of an institution's
title IV, HEA program activities to merit
the placing of restrictions on [a hearing
official's] discretion to modify the
decision to terminate the institution's
participation. The Secretary considers the
fact that a large number of institutions
have ignored deadlines and refused to take
the simple steps to explain why those
deadlines were ignored is a strong
justification for adopting the changes in
this section. Chances: Section
668.90(a)(3)(iv) is revised to provide that
[a hearing official] must uphold any
termination action imposed against an
institution for a violation of the
deadlines for submission of audit reports
in 668.23(c)(4).

SFAP relies not only on the specific language of subparagraph
iv and the Secretary's comments, but also on recent
precedent. In particular, SFAP cites San Francisco College of
Mortuary Science (SFCMS), Docket No. 92-8-ST, decided
December 31, 1992, and affirmed on appeal March 26, 1993, by
the Secretary. In SFCMS, as here, it was alleged, among other
things, that an institution had failed to make timely
compliance with section 668.23(c)(4), and there, as here,
SFAP argued that subparagraph iv, effective 45 days after its
Federal Register publication, allowed the hearing official no



alternative but to terminate the institution's participation
in Title IV HEA programs. The decision in SFCMS found that
the language of subparagraph iv is very clear that if it is
shown that an institution has failed to comply with the
requirements of 668.23(c)(4), the hearing official must find
that termination is warranted. That decision, which was
affirmed by the Secretary, concluded in this regard that "The
words [of subparagraph iv] allow for no discretion."

SFAP also cites Romar Beauty Schools (Romar), Docket No.
90-90ST, decided July 6, 1993. After finding that the
respondent institution had failed to submit timely biennial
audits and thus had violated section 668,23(c)(4), the
decision concluded that

5

Docket No. 93-11-ST

subparagraph iv prescribes that the penalty for such
violation is mandatory termination, and that the hearing
official "has no discretion to order any remedy other than
imposing termination." In a footnote to that conclusion the
decision states, among other things, that:

...the compulsory language of Section
668.90(a)(3)(iv) means that the [Hearing
Official] does not have the discretion to
step outside of the regulation and
countenance a different penalty. The
regulation's restrictive language
precludes considerations of equity,
fairness or mitigating circumstances.
[Footnote 710, page 251]

It is precisely these latter considerations, that is,
equity, fairness or mitigating circumstances, that are the
primary basis for UTA's opposition to ED's action to
terminate UTA's participation in Title IV HEA programs. UTA
contends that the hearing official is not required to
terminate UTA automatically, that the hearing official must
consider both mitigating circumstances to the violations as
well as the equities of the situation. UTA alleges that it
has been the published policy of the Secretary since at
least 1977 that the termination of an otherwise eligible
institutions's eligibility for students financial aid
programs is an extremely serious measure, and that such an
action will be taken only when: (a) an institution has
consistently violated the statute and regulations governing
student aid programs and standards of financial
responsibility and administrative capability, and (b)
attempts to remedy such a situation have failed. See 42 Fed.
Reg. 64567. UTA contends that the evidence in the instant
proceeding falls far short of establishing that UTA's
conduct in this case meets the two-prong test of the
Secretary's policy, that is, that UTA's violations have been
(1) continuous, and (2) unremedied despite efforts to do so.
UTA contends that because it has submitted all of the
required audits relied on in the letter/notice, SFAP can
allege only tardiness of submission, and that this does not
and cannot constitute a pervasive pattern of consistent and
egregious violations sufficient to warrant termination under
the Secretary's policy.

UTA states that in apparent recognition in the Secretary's
policy on terminations that termination of an institution's



eligibility is the most severe sanction and should be imposed
only in extreme and extraordinary situations, the governing
regulations at 668.90(a)(2) provide that in a termination
proceeding the hearing official may impose a lesser sanction
than termination, that is:

Docket No. 93-11-ST

...the hearing official may, if
appropriate, issue a decision to fine the
institution or impose one or more
limitations on the institution rather
than terminate its eligibility to
participate.

UTA alleges that termination actions in the past have been
aimed at institutions that have either fraudulently violated
statutes and regulations or have totally ignored their
requirements, even after repeated warnings and attempts by ED
to alleviate violations. According to UTA, this description
does not fit this respondent, and neither does the sanction
of termination.

UTA states that there exists no known reported case where an
institution was terminated under the circumstances present in
this case. To the contrary, according to UTA, data reported
by the Secretary indicates that as of March 1989 some 1,500
institutions had not filed audits during a period going back
to 1981, but the Secretary has not sought to terminate those
institutions. See 54 Fed. Reg. 11356. Also, according to UTA,
an Ed report indicates that during the period October 1992
through June 1993 SFAP initiated 49 termination actions
based, in part, upon the failure of institutions to submit
audits on a timely basis. UTA notes that in half of those
cases the payment of a fine was substituted for the
termination penalty, and UTA speculates that many of the
remaining cases may be resolved in a like manner. UTA
speculates also as to the administrative burden that would
ensue if a termination action were brought against every
institution with missing or late audits, and UTA alleges that
ED must as a practical matter, and probably already has,
established criteria for determining which cases merit an
action for termination and which do not. UTA believes that
its own situation may well fit those criteria, but UTA
contends that it cannot demonstrate that fact because those
criteria have not been disclosed to UTA. To UTA the standards
under which decisions are made to terminate or to not
terminate constitute a body of "secret laws", the formulation
and use of which has been condemned by the courts. See
Coastal States Gas Corp. v. Department of Energy, 617 F.2d
854 (1980).

In UTA's brief there is tacit recognition that the hearing
official's discretion under section 668.90(a)(2) to impose
lesser sanctions than termination is affected by the addition
of subparagraph iv to the regulations. UTA contends, however,
that subparagraph iv is inapplicable in this case. The reason
for this, according to UTA, is threefold:

(1) The letter/notice in this case makes
no mention of subparagraph iv.

Docket No. 93-11-ST

TA points out that 34 CFR 668.86(b)(1)(i) requires that a
termination notice must identify the alleged violations which



constitute the basis for an action, and UTA contends that in
this case the notice failed to comply with this requirement.
UTA regards a termination notice as similar to an indictment,
and contends that SFAP cannot now raise allegations based on
subparagraph iv, which is not the termination notice.

(2) Application to UTA of the subparagraph iv
requirements is contrary to the
presumption against retroactivity.

Nothing in subparagraph iv or in the Secretary's comments
thereon, according to UTA, gives any indication that this
provision is intended to apply other than prospectively. UTA
contends that court decisions are numerous in holding that
regulations will not be applied retroactively without a clear
indication that the administrative agency applying that
regulation intended to diverge from the norm of acting
prospectively. See Simmons v Lockhart, 931 F.2d 1226 (1991),
for example. UTA asserts that retroactive application of this
particular provision would impose manifest injustice on UTA
because the tardy submission of audits results, in part at
least, from inefficiencies on the part of ED in not keeping a
closer control over this function.

(3) Application of subparagraph iv to audits
due prior to the effective date of that
provision

    -    violates the prohibition against Ex
Post

Facto laws.

UTA alleges that ED was acting in a legislative capacity when
it added subparagraph iv, because it changed the penalty for
an existing violation by removing the discretion of the
hearing official and imposing instead the penalty of
mandatory termination. UTA acknowledges that termination was
a possible penalty prior to subparagraph iv, but points out
that subparagraph iv removes the possibility of a lesser
penalty and thus operates to the detriment of UTA in that the
standard of punishment under subparagraph iv is more onerous
than the standard in effect when the alleged violations
occurred. The termination of an institution's eligibility, in
UTA's view, is clearly a punishment or penalty, particularly
so when that termination is imposed, as here, in a summary
fashion without prior consideration of mitigating or other
equitable or fairness factors. Thus, UTA insists,
subparagraph iv cannot be applied in this case without
violating the constitutional prohibition against Ex Post
Facto laws.

Docket No. 93-11-ST

UTA regards it as its right to present and have considered
mitigating factors and equitable circumstances in this
matter. Termination of its eligibility would undoubtedly lead
to the closing of the institution, according to UTA, and thus
its situation here is not unlike that of a criminal defendant
facing the death penalty. UTA insists that it has made good
faith efforts to comply with all regulatory requirements, and
that delays in filing audits resulted from extenuating
circumstances, such as a change in administrators at the
institution. With all of its audits filed, UTA contends that
no harm to the public can result, and a lesser sanction than
termination should be imposed. UTA notes that as recently as



August 1988 when ED renewed UTA's eligibility for Title IV
HEA participation, UTA was told that its eligibility would
remain in effect so long as the institution "continues" to
satisfy regulatory requirements, an indication according to
UTA that it had previously satisfied those requirements.

Assuming, arguendo, that subparagraph iv is applicable in this
case, UTA contends that the hearing official is not required
to automatically impose the penalty of termination if he finds
a lack of compliance with section 668.23(c)(4), but is
required to find only that termination is warranted. UTA
points out in this regard that subparagraph (a)(2) of section
668.90 is written, plainly and specifically, in terms of
imposing sanctions, while in (a)(3)(iv) of that same section
there is only the phrase "must find that the termination is
warranted." UTA states that ED is capable of providing for the
automatic imposition of the penalty of termination if it
intends to do so, and contends that in fact ED has not so
provided. According to UTA, ED may not ignore the plain
meaning of subparagraph iv as it must be construed under the
ordinary rules of statutory construction, and cannot simply
misconstrue that regulation to suit its views in this case.
UTA maintains that subparagraph iv permits, indeed requires,
the hearing official to consider mitigating circumstances and
the equities of the situation, and a range of sanctions other
than termination. In support, UTA cites other comments of the
Secretary in the Federal Register at 56 Fed. Reg. 36694 (July
31, 1991), in which the Secretary stated:

    

Docket No. 93-11-ST

The proposed 668.90, while not actually
providing for the automatic termination of
an institution for a violation of the
audit report deadlines...

    ****

     ...the Secretary is
persuaded that the fine. limitation,
suspension, and termination proceedings
in [sections] 668.83, 668.84, 668.85, and
668.88 provide a broad and effective
range of sanctions to deal with
violations of the deadline...

UTA takes the position, in fact, that the Secretary made
clear his intent that the new termination standard alleged
by SFAP to have been created in subparagraph iv should not
be applied to institutions in UTA's situation. UTA notes
that in the same issue of the Federal Register the
Secretary stated:

...proposed 668.90 seemed to state that a
termination would result whenever an
institution missed a deadline...Under the
changes made to the proposed 668.90, the
requirement for [a hearing official] to
uphold a termination could apply to an
institution that misses a single audit report
deadline, but only if the Secretary
believes that the circumstances
surrounding the violation justify the
Secretary's bringing a



    -    termination action against the
institution.

Ordinarily, disputes concerning violations
of
that nature are resolved long before the
dispute reaches the stage of a proceeding
under subpart G.

According to UTA, the thrust of the Secretary's comments is
that the circumstances surrounding a violation must justify
the initiation of a termination action. UTA contends that
such justification is not shown here.

SFAP has alleged also that in failing to timely submit its
biennial audit reports UTA failed to meet the standards of
conduct required by 34 CFR 668.82 of a fiduciary in the
administration of Title IV HEA programs. That section
provides that a participating institution acts in the nature
of a fiduciary in its administration of Title IV HEA
programs, and that in that capacity the institution is
subject to the highest standard of care and diligence in
administering the programs and in accounting to the Secretary
for the funds received under those programs. That section
also provides that an institution's

10

    

Docket No. 93-11-ST

failure to administer such programs or to account for funds
received under such programs in accordance with the highest
standard of car and diligence required of a fiduciary
constitutes grounds for a fine, or the suspension, limitation
or termination of the institution's eligibility to
participate in those programs. SFAP alleges that UTA has
blatantly and repeatedly violated fiduciary standards by
failing to submit its required audits to the Secretary when
due, to account for its expenditures of Title IV HEA funds.
Such violation, according to SFAP, constitutes an independent
and additional ground warranting termination of respondent's
eligibility to participate in Title IV HEA programs.

UTA notes in reply that precisely the same acts or failures
to act are relied on by SFAP as grounds for the alleged
violation of both subparagraph iv and section 668.82, the
alleged breach of fiduciary duty. UTA states that it has
shown that untimeliness in the submission of audits is not of
itself a sufficiently serious violation to warrant the
extreme penalty of termination, and UTA contends that
untimeliness in the submission of audits does not in any way
establish a breach of fiduciary duty or constitute a
violation of such seriousness as to warrant a termination of
eligibility.

Responding to issues raised in SFAP's brief, respondent moves
that ED's action to terminate and fine be dismissed, or in
the alternative that this proceeding be stayed until: (a)
RIGA completes its review of UTA's biennial audit reports,
and (b) SFAP discloses to UTA the standards employed in ED to
determine whether to pursue the penalty of termination
against institutions generally, and UTA in particular,
accused of failing to submit audits or of submitting late



audits. Respondent requests that after the RIGA review is
completed and after SFAP discloses the standards, UTA be
given the opportunity to present evidence in this matter at
an oral hearing. At such an oral hearing, also, UTA would
offer evidence that the fine imposed by ED is in excess of
the statutory maximum for fines.

In setting the amount of the fine to be imposed on an
institution in the circumstances described in this decision,
ED takes into consideration both the institution's size and
the gravity of the institution's violations. SFAP regards an
institution's failure to comply with audit regulations as an
extremely grave violation. SFAP states that an audit is an
external means of evaluating the accuracy of an institution's
determinations of student eligibility, and of evaluating the
institution's awarding and disbursing student aid funds and
its refunds of unearned tuition and other costs. SFAP contends
that an institution's failure to submit an audit hampers ED
and increases ED's costs in

11

Docket No. 93-11-ST

determining whether and to what extent liabilities
exist.

In the letter/notice respondent was informed by Lipton in
Part II that Title IV HEA program regulations permit a fine of
$25,000 for each violation, and that in determining the size
of an institution ED bases its determination on:

...the amount of Title IV, HEA program
funds received by or on behalf of
students for attendance at that
institution during the award year(s) in
question.

UTA was further informed that in accordance with applicable
regulations ED uses a fine schedule for failure to submit
audit reports that, as here pertinent, provides for a fine
of $25,000 where the ''Amount of funds received/by
program/by 2-year period" exceeds $1 million, and a fine of
$20,000 where the amount of funds is between $750,001 and $1
million. Based on data derived from ED's Institutional Data
System, Lipton calculated and fixed the amount of fine for
each audit period as follows:

UTA Failure to Submit Timely Biennial Audit
Reports

    for Pell    for Guaranteed    Fines
    Grant Program    student Loan Program    Imposed
    Award yrs 1985/86 & 1986/87        $25,000
        Award yrs 1985/86 & 1986/87    20,000
    Award yrs 1987/88 & 1988/89        25,000
        Award yrs 1987/88 & 1988/89    25,000
    Award yrs 1989/90 & 1990/91        25.000
        Total    120,000

UTA assails the $120,000 fine, calling it excessive, arbitrary
and capricious, and arguing that for a total of only three
biennial audits ED is seeking to impose a total of five fines.



For the late submission in the same award years of audit
reports in different student aid programs, Pell and Guaranteed
Student Loan, according to UTA, ED is imposing separate fines,
and UTA regards such "double fining" as inappropriate. UTA
considers that these are single violations in these award
years and not two separate violations under Pell and under
GSL. UTA also considers these fines, $45,000 for the award
years 1985/86 and 1986/87 as calculated by ED, and $50,000 for
1987/88 and 1988/89, to be well in excess of the statutory
maximum fine of $25,000 per violation. In support UTA cites
the Judge's decision in Hartford School of Modern Welding, No.
90-42-ST, decided January 31, 1991.

12

Docket No. 93-11-ST

Primarily, UTA is critical of ED's method of determining the
size of an institution for the purpose of calculating the
dollar amount of the fines to be imposed. UTA notes that ED
purports to measure an institution's size by totaling the
amount of applicable Title IV funds received by the
institution during the award years in question. According to
UTA, however, the amount of Title IV funds received by an
institution, and by UTA in particular, cannot with any degree
of accuracy reflect the size of the institution for the
purposes of 34 CFR 668.92(a)(2), which mandates that in
determining the amount of a fine the Secretary and the
hearing official shall take into account the size of the
institution. UTA states that institutions generally and UTA
in particular rely on Title IV funds. For UTA, it contends,
which is highly reliant on such funds, ED's method of
determining size on the basis of the amount of such funds
inevitably falsely inflates the result.

UTA appears to be critical, also, of ED's motivations and
procedures in calculating the amounts of fines to be imposed
in proceedings of this nature. UTA points out in this respect
that the Acting Director, Lipton, testifying in Southern
Vocational College, No. 90-41-ST (decided November 19, 1992),
acknowledged that determining the amount of the fine to be
imposed in cases such as this is an "extremely inexact
science", and that the matter of the size of an institution
for purposes of imposing fines for violations of filing
requirements "is not spelled out in the regulations." See the
discussion in that decision at pages 117 to 120. Lipton's
testimony in that case is construed by UTA as indicating,
among other things, that in the process in which the amounts
of fines to be imposed is calculated by ED, it is
contemplated that the amounts of such fines that may
ultimately be approved and imposed in proceedings, such as
this, before tribunals may be lower in amounts than the
amounts initially sought by ED, so that ED's practice in this
regard is "setting this amount at higher than we can actually
receive as far as a fine..." See Southern Vocational College,
supra., at 118. There seems to be the implication, by UTA at
least, that the amount of the fine set out in Part II of the
letter/notice is no more than the opening ploy of an ongoing
negotiating process.

GENERAL DISCUSSION

I find as a fact, at the outset, that respondent, an
educational institution that participates in student
financial assistance programs under Title IV HEA, has failed
to make timely submission of biennial audits in each of the



Title IV HEA programs in which it participated for the
periods July 1, 1985 through June 30, 1987; July 1, 1987
through June 30, 1989; and July 1, 1989 through June 30,
1991. I find that the failure on the part of

13

Docket No. 93-11-ST

respondent to submit timely biennial audits is contrary to
the requirements of the governing regulations in 34 CFR
Subpart B. I also find, as a matter of fact and law, that
such failure to submit timely biennial audits constitutes
non-compliance with and violation of the said regulations.

I perceive in this record no serious dispute to the
above findings.

True, as pointed out on brief by respondent, there was a time
period during which there existed what has been referred to
by SFAP as a "gap in the regulations", that is, a time period
during which the regulations in effect so far as concerns the
Guaranteed Student Loan program did not contain the
requirement that institutions must submit timely biennial
audits. This was a time period, specifically from November
24, 1986 through February 2, 1988, in which there occurred a
recodification of regulatory provisions, and during which the
biennial audit provision in the 1987 program regulations of
34 CFR Part 682, pertaining to the Guaranteed Student Loan
program, appeared to have been, in the words of SFAP,
"inadvertently deleted." See the discussion commencing at
page 14 in the Judge's decision in SFCMS. It was found in
that decision that the effect of the inadvertent deletion of
audit requirements in the Guaranteed Student Loan program was
eradicated by regulations in force both before and after the
filing deadline, January 31, 1987. A like finding is
warranted, and is made, in the instant proceeding.

I further find on this record, as a matter of fact and law,
that based on its failure to make timely submission of
required biennial audit reports, respondent failed to properly
account for funds it received under Title IV HEA programs, and
as a fiduciary in its administration of Title IV HEA programs
failed to exercise the highest standard of care and diligence
required of a fiduciary, in violation of 34 CFR 668.82, as
alleged in the letter/notice dated December 30, 1992.

The finding above that respondent, as a fiduciary, failed to
exercise the highest standard of care and diligence, is
indeed, as contended by UTA, predicated on precisely the same
conduct that is the basis of my earlier finding. The parties
do not disagree on this, but they view it from different
perspectives. SFAP regards this as an additional ground for
termination of UTA's eligibility. UTA declares, on the other
hand, that inasmuch as the failure to submit timely audits is
not sufficiently serious in and of itself to warrant a
termination of eligibility, neither can any breach of
fiduciary duty based on the same conduct support a
termination, or for that matter a fine.

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Docket No. 93-11-ST

It is very clear that the issue before me in this proceeding
is not whether respondent has failed to comply or to comply



fully with the governing regulations; the record before me
establishes, and I have found, that respondent has failed to
comply therewith, as alleged in the letter/notice. The issue
before me is what are the sanctions, under the regulations
and precedent, that should or must be imposed as a result of
this non-compliance. As articulated by SFAP the selection of
sanctions is extremely limited--the hearing official may
impose a fine and must find that termination of eligibility
is warranted. Respondent, on the other hand, sees other,
lesser sanctions available.

Once it is found by the hearing official in a proceeding such
as this that an institution has failed to comply with the
requirements of section 668.23(c)(4), the language of
subparagraph iv, on its face, precludes consideration by the
hearing official of mitigating circumstances or other like
factors and impels the finding that termination of the
institution's eligibility is warranted. This is in accord
with and is supported by the published comments of the
Secretary and precedent. In Romar the judge noted that the
failure of an institution to submit timely audits as required
under 668.23(c)(4) is not simply a technical or procedural
matter, but rather is a serious regulatory violation which
under subparagraph iv requires mandatory termination of
eligibility, and in SFCMS the judge, and the Secretary,
affirmed that the wording of subparagraph iv allowed for no
discretion on the part of the hearing official, that upon
finding violation of audit regulations the hearing official
must terminate the institution's eligibility. In neither
decision was a distinction recognized, as is here alleged by
UTA, between a mandatory finding that termination is
warranted and the mandatory imposition by the hearing
official of the sanction of termination.

The Secretary's comments as of July 31, 1991, at 56 Fed.
Reg. 36694 are significant. In comments addressed to the
text of subparagraph iv as it was simultaneously adopted,
the Secretary alluded to the text of that provision as it
had been previously published and commented on by others,
and the Secretary noted that the prior text did not actually
provide for the automatic termination of an institution for
violation of audit deadlines. The Secretary went on to state
that various steps were being taken to make the failure to
submit audit reports a rarity, including improvements in
monitoring those filings. The Secretary stated that routine
procedures in subpart G offered to institutions ample
opportunity to demonstrate those factors that caused failure
to meet regulatory deadlines, and gave the

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Docket No. 93-11-ST

Secretary discretion to seek those sanctions suitable to the
severity of the violations, sanctions ranging from fines all
the way to termination. The Secretary further indicated the
anticipation that rarely will violations of deadlines be so
flagrant as to justify the sanction of termination, but that
when institutions ignore deadlines and refuse to explain why,
such violations are considered by the Secretary to be
sufficiently detrimental to effective monitoring of Title IV
HEA programs as to merit the placing of restrictions on a
hearing official's discretion to modify the Secretary's
decision to terminate an institution's participation in those
programs. The Secretary made it quite clear that subparagraph
iv, in the text concurrently adopted, did so restrict the



hearing official's discretion to modify.

I conclude, accordingly, that under regulation and precedent
the time to offer evidence of mitigating circumstances and
the like is before the matter comes to hearing, and that the
hearing official, at and after such hearing, has not the
discretion to consider such evidence since the amendment of
section 668.90.

Respondent has alleged, as previously noted, that
subparagraph iv, even if it is construed to mandate the
sanction of termination, for several reasons may not be
applied in this case. First, according to UTA, subparagraph
iv is inapplicable because "it is not cited" in the
letter/notice. Stated otherwise, under 34 CFR 668.86(b)(1)(i)
ED must notify UTA of its intention to terminate UTA,
identify the alleged violations which are the basis for that
action, and cite the consequences of that action; the
letter/notice purported to accomplish that; and subparagraph
iv, which is not "identified" in the letter/notice, is thus
beyond the parameters of the issues that may be raised by ED
in this case. As pointed out by SFAP, however, the
letter/notice did in fact notify UTA of ED's intention to
terminate eligibility, did identify the alleged violations
which are the basis of the action, and did set out the
consequences of the action, namely, termination and fine. The
letter/notice was sufficient in form and content to satisfy
all of the elements of notice that are required by regulation
and to constitute adequate notice to respondent. Compare the
judge's ruling on notice in. SFCMS, and see also the decision
in Institute of Multiple Technology, No. 92-26-ST, decided
September 30, 1992. UTA's argument in this regard is
rejected.

Respondent has alleged that application to the facts of this
case of the requirements of subparagraph iv would have
retroactive effect, contrary to the presumption that
regulations are adopted by administrative agencies to apply
prospectively and not retroactively. UTA sees nothing in
subparagraph iv or in the

16

Docket No. 93-11-ST

related comments of the Secretary that demonstrates any
intent that this provision is to be applied other than
prospectively, and UTA compares subparagraph iv with other
regulations in which the intent is clearly evident that such
regulations are to be applied other than prospectively. As
noted, Simmons v. Lockhart, supra., is cited to the effect
that administrative agencies usually act prospectively,
setting general rules for future conduct, and that courts
will not apply regulations retroactively in the absence of
clear indication that an administrative agency intends in a
particular regulation "to diverge from the norm" of acting
prospectively. Yakima Valley Cablevision v. FCC, 794 F.2d 737
(1986) is cited to the effect that when administrative rules
are sought to be applied retroactively, agencies so applying
such a rule must explain why, so that reviewing courts can
determine whether such application of the rule is rational.

According to SFAP, on the other hand, the courts have
construed a retroactive law or regulation to be one that, as
here pertinent, takes away or impairs a party's vested right.
This was discussed at length in SFCMS, and the judge there



concluded that an institution participating in Title IV HEA
programs has no vested right in continuing or future
eligibility to participate in such programs, and that in
SFCMS and like proceedings application of subparagraph iv
does not infringe upon or deprive an institution of any
vested right. The judge in his decision in SFCMS regarded as
dispositive on the issue of the alleged retroactivity of
subparagraph iv a recent decision (November 24, 1992) of the
United States Court of Appeals for the District of Columbia
Circuit, Association of Accredited Cosmetology, 979 F.2d 859
(AACS). The court in AACS reviewed an ED regulation that
required that in determining the future eligibility of an
institution to participate in a Title IV HEA program ED must
look at the institution's past default rates. The court
relied on federal precedent to the effect that a law is not
retroactive simply because it depends on "antecedent facts"
for its operation, and found that ED's regulation was not
retroactive. In so finding, the court made it clear that
participating institutions possess no vested right to future
eligibility to participate in Title IV HEA programs.

I conclude and find here that respondent had no vested right
to continued or future eligibility to participate in Title IV
HEA programs, and that, as a consequence, application of
subparagraph iv to the facts of this case had no retroactive
or unlawful effect as alleged by respondent. I conclude and
find, similarly, that application of subparagraph iv to UTA's
untimely-submitted biennial audit reports did not constitute
a violation, as alleged by UTA, of the "Prohibition Against
Ex Post Facto Laws."

17

Docket No. 93-11-ST

The prohibition relied on by UTA is found in Section 9 of
Article 1 of the Constitution of the United States, namely,
"No...ex post facto Law shall be passed." Section 10 of
Article 1 provides that "No State shall...pass any...ex post
facto Law... n . Blacks Law Dictionary (3rd ea.) in its
definition of the phrase ex post facto states that in the
Constitution that term extends to criminal and not to civil
cases. Under that definition a law is an ex post facto law if
it: (1) punishes a person for doing that which was innocent
when done, (2) increases the malignity of an offense after it
was committed, (3) adds to the punishment after the offense
was committed, and (4) retrenches the rules of evidence after
an offense is committed so as to make conviction easier. The
dictionary indicates that the terms ex post facto and
retrospective are not convertible terms, that the latter is a
term of wider significance than the former, and includes it.

UTA recognizes that the ex post facto doctrine applies only to
"criminal or penal law", but contends that the threatened
termination of UTA's eligibility would be injurious to the
public and that the termination thus would be a penal matter,
endangering UTA's very existence. As seen, in UTA's view
subparagraph iv purports to change the punishment for a
violation after the violation was committed by removing the
discretion of the hearing official to determine the
appropriate sanction to be imposed. It follows, according to
UTA, that subparagraph iv cannot be applied in this case
without violating the prohibition against ex post facto laws.
A like argument was made on behalf of the involved institution
in SFCMS. The judge there, in somewhat similar circumstances,
concluded that termination is a civil penalty, and that



application of subparagraph iv to the facts of the case does
not violate the constitutional prohibition against ex post
facto laws. Compare, also, the decision in AACS. A like
conclusion is reached on the instant record.

Cognizance is taken at this point of UTA's allegation that
ED, in electing to bring this termination action against UTA
and not against other like institutions that also failed to
submit timely audits, may have established and used its own
criteria for determining which cases merit an action for
termination and which do not. UTA characterizes these
criteria as a body of "secret laws", and contends that such
secret laws have been condemned in the courts. UTA offered no
evidence, however, that such a body of laws has been
formulated or used, nor is there any showing that UTA was
singled out or that the action against it was initiated on
any other basis than the belief by ED's officials that UTA's
alleged violations merit such an action. It is a matter of
common knowledge that numerous termination actions have been
brought by ED and that many are pending. This proceeding is
not before me for the purpose of enquiring into the overall

18

    

Docket No. 93-11-ST

efficiency of ED's enforcement operations, or to determine
whether, in attempting to deal with the 1,500 or more
institutions that are said to be in various stages of
delinquency in the submission of biennial audits, ED should
have proceeded with some other case or cases than this one.
All that is before me is whether in the instant case there is
shown justification for this termination action, and I have
already found that there is. I conclude that UTA's
allegations with regard to the "secret laws" constitute no
more than speculation, and they will not be further
considered.

Under 34 CFR 668.34 the Secretary may impose a fine of up to
$25 000 on an institution that violates any provision of
Title IV HEA or any regulation implementing that title.
Section 668.92 directs the Secretary, and the hearing
official, in determining the amount of a fine to take into
account the gravity of the institution's violation and the
size of the institution. Subparagraph (b) of the latter
provision permits the Secretary, upon the request of the
institution, to compromise the fine. Turning once again to
Black's Law Dictionary, the term "compromise" is defined in
its usual sense as the settling of a dispute on the basis of
what the parties regard as acceptable terms. It is apparent
on this record that no compromise has been reached or made
with respect to the fines here involved.

It is well established that fines are imposed to punish an
offender, to discourage future offenses by that offender, and
to serve as a warning to other potential offenders. In this
case, as seen, the fine under consideration is to be
accompanied by the termination of this particular offender's
ability to offend again, so that punishment of the offender
and warning to others are the only purposes to be served by
the fines. The fines to be imposed should be high enough in
amount to effectively serve those purposes. But if higher in
amount than they need be, the fines tend to become arbitrary
or capricious, and thus unreasonable. As has been



acknowledged by knowledgeable persons, the process of
determining the appropriate amount of a fine in particular
circumstances is far from being an exact science. This is
confirmed in many of the decisions that were cited on brief
by both parties.

UTA disputes that a fine should be imposed in this case, but
does not dispute that if a fine is imposed the guidelines
appear in section 668.92, that is, that there must be taken
into account the gravity of the violations and the size of
the institution. As to the former factor, the gravity of the
violations, it has been previously noted that UTA views
untimeliness in the submission of biennial audits as a
violation of little gravity, in fact of very little gravity.
However, there is ample

19

Docket No. 93-11-ST

authority to the contrary. In Maurice Charles Academy of
Hair Styling, No. 91-18-ST, decided May 17, 1993, it was
stated that:

The failure to submit audits is an
extremely grave violation as it increases
ED's costs and hampers its determination
of whether an institution is properly
administering the financial assistance
programs...

See, also, Hartford School of Modern Welding, supra., and
SFCMS.

Primarily, it is ED's calculations under the second prong of
the 668.92 test, the size of the institution, with which UTA
takes issue. The standard for size used in this case, that is,
determining the size of the institution based on the amount of
Title IV HEA funds received by the institution during the
award years, is assailed by UTA as prejudicial to UTA as an
institution. UTA alleges that the fine imposed by ED is
unrelated to respondent's actual size and therefore excessive,
and as noted, is inflated also by "double fining", and by
inaccurate calculation of the amounts of Title IV HEA funds
received by UTA. The scale by which ED determines whether
particular institutions are deemed to be small, medium or
large is assailed by UTA, which construes Lipton's testimony
in Southern Vocational College, supra., as indicating that the
scale is not used consistently. UTA argues that a scale that
is not used consistently is no scale at all, and makes a sham
of ED's method of assessing fines. UTA does not suggest an
alternate methodology for assessing fines that could be
applied uniformly and fairly to all institutions. UTA points
out, however, that in a decision in Bnai Arugath Habosem, No.
92-131-ST, decided March 2, 1993 (a bench decision) the judge
stated that hearing officials should look to the decisions of
other hearing officials "which represent the views of the
Secretary once they become final."

For the purpose, among others, of assessing fines the decision
in Bnai Arugath Habosem, supra., noted that in Hartford School
of Modern Welding, supra., and in Southern Institute of
Business and Techmology, No. go-62-sT, decided May 3, 1991, an
institution that received Title IV HEA funds of between $1.2
and $1.4 million was deemed to be a school of small-to-medium
size; that an institution that received about $100,000 in



Title IV HEA funds (Katie's School of Beauty Culture &
Barbering, No. 90-68-St, decided March 27, 1991) was a small
school; and that an institution that received $12 million in
such funds was a large school. In Hartford the fine imposed on
account of an audit submitted nine months late was $10,000,
and for an audit 33 months late it was $18,000. In Katie's the
fines imposed were

20

Docket No. 93-11-ST

$1,000 for a 10-months late audit and $2,000 for an audit
that was 32 months late.

The amounts of the fines imposed for failure of institutions
to timely submit biennial audits do vary widely. In SFCMS,
deemed to be a very small institution, the fine was 5,000 per
violation. The decision in that case also found that failure
of an institution to submit Pell grant and Guaranteed Student
Loan audits for an award period constitutes not separate but
a single violation. In this regard see also Southern
Institute of Business and Technology, supra. In both
decisions it was stressed that determination of the amount of
a fine should be made in light of the fact that termination
of eligibility is being concurrently imposed. In Southern
Institute the decision noted that termination "is the
severest of penalties and little purpose would be served by
imposition of an additional significant financial penalty
absent unusual circumstances." In that case a fine of $15,000
was imposed, with the condition, however, that the fine
"shall be annulled" if the institution submits its audit
within 45 days after the decision issues.

In the latter decision the judge noted in footnote 11 at page
14, that an ED official performs various functions in
connection with student financial assistance programs, one of
which is to determine the amount of the fine specified in the
letter/notice sent to the institution. The judge emphasized,
however, that:

Where the fine has been appealed to this
tribunal, it is the tribunal, not the
designated departmental official, which
has the authority to determine the
amount, if any, of the fine.

In Romar, which was decided some two years after Southern
Institute, and in which, as previously noted, the hearing
official found that subparagraph iv mandated termination of
the institution's eligibility, the decision assessed no
specific fine for the late submission of biennial audits.

I have considered the facts of this case and the regulations
applicable thereto. I conclude and find that justification is
shown on this record to require the termination of
respondent's eligibility to participate in Title IV HEA
programs, and that, in fact, in light of the facts of record,
such a finding is mandated by subparagraph iv. I conclude and
find, also, that in view of the foregoing, that is, the
imposition of the most severe remedy that can be imposed
under the regulations, justification is not shown for the
added penalty of a monetary fine in the circumstances of
record. Accordingly, no fine will be imposed.

21



Docket No. 93-11-ST

Other allegations and issues discussed on brief by the
parties have been considered, and are found not relevant or
essential to the disposition of this matter.

I have also considered UTA's request that this proceeding
be stayed, and that respondent be given the opportunity to
present additional evidence at an oral hearing in this
matter. Sufficient justification has not been shown for the
actions requested by respondent, and those requests are
denied.

Based on all of the evidence of record and the findings of
fact and conclusions of law hereinbefore made, it is ORDERED
that the eligibility of the respondent, United Talmudical
Academy of Monsey, to participate in student financial
assistance programs under Title IV of the Higher Education
Act of 1965, as amended, shall be, and it is hereby,
terminated.

By Paul J. Clerman, Administrative Law Judge.

March 14, 1994, at Washington, D.C.

22