[Federal Register Volume 64, Number 24 (Friday, February 5, 1999)]
[Proposed Rules]
[Pages 5728-5736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2762]
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LEGAL SERVICES CORPORATION
45 CFR Part 1641
Debarment, Suspension and Removal of Recipient Auditors
AGENCY: Legal Services Corporation.
ACTION: Proposed rule.
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SUMMARY: This proposed rule implements a provision in the Legal
Services Corporation's (``Corporation'' or ``LSC'') fiscal year 1996
and subsequent fiscal year appropriations acts which authorized the
Office of Inspector General (``OIG'') to ``remove, suspend, or bar an
independent public accountant, upon a showing of good cause, from
performing audit services. * * * after notice to the auditor and an
opportunity for hearing.'' This rule sets out the debarment, suspension
and removal authority of the OIG and informs independent public
accountants performing audit services for LSC recipients of their
rights, and the standards that will apply, in connection with
debarment, suspension and removal actions. The Corporation solicits
public comment on the rule in anticipation of adoption of a final rule.
DATES: Comments must be submitted on or before April 6, 1999.
ADDRESSES: Comments should be submitted to the Office of Inspector
General, Legal Services Corporation, 750 First St. NE., 11th Floor,
Washington, DC 20002-4250. Comments may be submitted by electronic mail
(e-mail) to LTarantowicz@oig.lsc.gov.
FOR FURTHER INFORMATION CONTACT: Laurie Tarantowicz, Counsel, Office of
Inspector General, (202) 336-8830, LTarantowicz@oig.lsc.gov.
SUPPLEMENTARY INFORMATION: The Corporation's fiscal year 1996
appropriations act authorized the LSC Inspector General (``IG'') to
``remove, suspend, or bar an independent public accountant, upon a
showing of good cause, from performing audit services. * * * after
notice to the auditor and an opportunity for hearing.'' Public Law 104-
134, 110 Stat. 1321, Sec. 509(d) (1996). This provision has continuing
effect in fiscal years 1997, Public Law 104-208, 110 Stat. 3009,
Sec. 503(a) (1996) and 1998, Public Law 105-119, 111 Stat. 2440 (1997),
and 1999, Public Law 105-277 (1998). In accordance with the statutory
[[Page 5729]]
direction to ``develop and issue rules of practice,'' 110 Stat. 1321,
Sec. 509(d), the OIG issues this proposed rule.
Pursuant to Executive Order, the Federal government has a
government wide system of suspension and debarment. The Executive
Office of the President, Office of Management and Budget, has issued
guidance setting forth procedures for agencies to follow in
establishing procedures for making suspension and debarment decisions.
Policy Letter 82-1. Based on this guidance, agencies have promulgated
regulations, all substantially similar, implementing suspension and
debarment. These regulations have been developed after extensive public
comment and have withstood considerable judicial scrutiny. This
proposed rule is based on the government wide system, but includes some
modifications based on the OIG's specific statutory authorization to
debar, suspend and remove, and on the particular circumstances of
independent public accountants and their relationship to LSC
recipients.
Section-by-Section Analysis
Subpart A--General
Section 1641.1 Purpose/Applicability
Recipients are required by statute to have an annual audit
conducted by an independent public accountant (IPA). In order to assist
in ensuring that recipients receive acceptable audits, the OIG is
authorized to debar, suspend and remove IPAs from performing audit
services for recipients. This proposed rule sets out that authority and
informs IPAs of their rights, and the standards that will apply, in
connection with debarment, suspension and removal actions. This
proposed rule applies to IPAs performing audit services for entities
which receive LSC funds. LSC recipients and subrecipients are required
to have an audit performed in accordance with guidance promulgated by
the OIG. This is consistent with LSC's general policy extending the
requirements and restrictions which apply to recipients to entities
which receive transfers of LSC funds from recipients, see 45 CFR
1610.7, and with LSC's regulation governing subgrants, 45 CFR Part
1627, which requires subrecipients to obtain an audit in accordance
with LSC's audit policy, 45 CFR 1627.3(c).
Section 1641.2 Definitions
This section defines the key terms used in the proposed rule. Many
of the terms are defined in the proposed rule as they are defined in
the government wide system.
Paragraph (a) defines ``adequate evidence,'' which is the standard
of proof for imposing a suspension, as information sufficient to
support the reasonable belief that a particular act or omission has
occurred. This is a less stringent standard than ``preponderance of the
evidence,'' the standard applicable to debarment and removal actions.
Paragraph (b) defines ``audit services'' as the annual financial
statement audit of a recipient. This is the audit required by section
509(a) of LSC's fiscal year 1996 appropriations act. (As discussed
above, section 509 of the fiscal year 1996 appropriations act has been
incorporated by reference in subsequent fiscal year appropriations acts
and continues to be effective, see, e.g., Public Law 105-277 (1998).
For ease of reference, this provision of law is hereinafter referred to
as ``section 509.''
Paragraph (c) defines ``contract'' as an agreement between a
recipient and an IPA for an IPA to provide audit services to the
recipient. Debarment and suspension affects future contracts between a
recipient and an IPA; removal affects existing contracts.
Paragraph (d) defines ``conviction'' as a judgment or conviction of
a criminal offense by any court, whether entered upon a verdict or
plea, including pleas of nolo contendere. An IPA may be debarred,
suspended or removed if convicted of any offense indicating a breach of
trust, dishonesty or lack of integrity, or conspiracy to do the same,
by any court, whether federal, state, county or municipal. For examples
of such offenses, see the discussion under section 1641.7(d) of this
section-by-section analysis.
Paragraph (e) defines ``debarment.'' Debarment is a decision by the
debarring official to prohibit an IPA from soliciting or entering into
new contracts to perform audit services for recipient(s). Debarment
does not affect existing contracts between a recipient and an IPA. A
debarment must be based on a finding, by a preponderance of the
evidence, that any of the causes for debarment exist. Debarment may
cover an IPA's contracts with all recipients or with one or more
specific recipients.
Paragraph (f) defines ``debarring official.'' This is the official
responsible for debarment, suspension and removal actions. Under the
proposed rule, the debarring official is the OIG legal counsel or
person performing that function regardless of title or his or her
designee. The IG may designate another staff person as the debarring
official if the OIG legal counsel is unavailable.
Because the debarring official may be called upon to render
judgment on compliance with applicable auditing standards, some
consideration was given to changing the debarring official from the OIG
legal counsel to an OIG employee with professional experience in
government auditing. Specifically, consideration was given to
identifying the Assistant Inspector General for Audit (AIGA), a CPA, as
the debarring official. The AIGA, however, will likely be the OIG
official who initially identifies the facts giving rise to a possible
cause for debarment and recommends that a debarment, suspension or
removal action be pursued. The proposed rule identifies the OIG legal
counsel as the debarring official because, weighing the two concerns,
it was determined that fundamental fairness would require that the
process allow for more reflection and some separation of the debarring
official from the immediate audit work. Comments on this issue are
specifically requested.
Paragraph (g) defines ``indictment'' for a criminal offense. An
information or other filing by competent authority charging a criminal
offense shall be given the same effect as an indictment. An IPA may be
suspended if indicted for any offense indicating a breach of trust,
dishonesty or lack of integrity, or conspiracy to do the same.
Paragraph (h) defines ``IPA,'' an independent public accountant.
Paragraph (i) defines ``knowingly'' to mean that an act was done
voluntarily and intentionally and not because of mistake or accident.
This term is used in the proposed rule in the context of prohibiting
recipients from knowingly awarding contracts to, extending or modifying
existing contracts with, or soliciting proposals from IPAs that have
been debarred or suspended.
Paragraph (j) defines ``material fact'' as one which is necessary
to determine the outcome of an issue or case and without which the case
could not be supported. In certain respects, whether material facts are
in dispute determines the extent of the procedures afforded the IPA
under the proposed rule. For example, if the debarring official
determines that the IPA's response to the notice of proposed debarment
does not raise a genuine issue of material fact, the debarment
proceeding will be conducted entirely by written submissions.
Paragraph (k) defines ``preponderance of the evidence,'' which is
the standard of proof for imposing a debarment or removal, as proof by
information that, compared with that opposing it, leads to the
conclusion that the fact at issue is more probably true than not. This
is a more stringent standard than ``adequate
[[Page 5730]]
evidence,'' the standard applicable to suspension actions.
Paragraph (l) defines ``removal.'' Removal is a decision by the
debarring official to prohibit an IPA from performing audit services in
subsequent years of an existing contract. Suppose, for example, that a
recipient has entered into a contract with an IPA under which the IPA
will perform an audit of the recipient for years 1, 2 and 3. If the IPA
is conducting the year-1 audit of the recipient when the IPA is removed
by the OIG, removal of the IPA will not prohibit the IPA from
completing the year-1 audit. Removal will prohibit the IPA from
conducting the year-2 and year-3 audits. Removal must be based on a
finding, by a preponderance of the evidence, that any of the causes for
debarment exist. Removal may cover an IPA's contracts with one or more
recipients.
Paragraph (m) defines ``suspension.'' Suspension is a decision by
the debarring official prohibiting an IPA from soliciting or entering
into new contracts to perform audit services for recipient(s).
Suspension does not affect existing contracts between recipients and
IPAs. A suspension must be based on a finding, by adequate evidence,
that any of the causes for debarment may exist. Suspension may cover an
IPAs contracts with all recipients or with one or more specific
recipients.
Section 1641.3 Scope of debarment, suspension and removal
This section sets out the scope of debarment, suspension or
removal; that is, the effect of such action on the IPA and, for
example, the IPA's divisions and affiliates.
Debarment, suspension or removal of an individual IPA prohibits
that IPA from performing audit services as an individual or as an
employee, independent contractor, agent or other representative of an
IPA firm.
Unless the decision is limited by its terms to specifically
identified divisions or other organizational elements, debarment,
suspension or removal of an IPA firm prohibits that firm and all its
divisions and other organizational elements from performing audit
services. The OIG intends to issue decisions which have an impact on
only those organizational elements of an IPA firm which were materially
involved in the relevant engagement because extending the debarment to
other organization elements would go beyond what is necessary to
achieve the purposes of debarment, suspension or removal.
In addition, the OIG may include in its debarment, suspension or
removal of an IPA firm any firm that is an affiliate, subcontractor,
joint venturer, agent or representative of the IPA firm. Such
affiliates, etc., may be included in the decision only if such firm was
materially involved in the relevant engagement and only if such
affiliate, etc., was specifically named and given notice of the
proposed action and an opportunity to respond.
Similarly, the OIG may include in its debarment, suspension or
removal of an IPA firm an individual officer director or partner
responsible for the engagement, or an individual employee, independent
contractor, agent, representative or other individual associated with
the IPA firm. Such individuals may be included in the decision only if
specifically named and given notice of the proposed action and an
opportunity to respond. If not named in the decision, such individuals
would be prohibited from performing audit services only as a
representative of the debarred firm. Otherwise, such individuals are
not prohibited from performing audit services.
Section 1641.4 Duration of debarment, suspension and removal
This section provides that a debarment, suspension or removal only
becomes effective after the IPA has been provided the opportunity to
avail itself of the procedures outlined in this rule (notice and an
opportunity to be heard) and a decision is issued by the debarring
official.
Subsection (a) sets out the length of time that a debarment will be
effective. Generally, a debarment should not exceed three years.
Debarment may be effective for less than three years if appropriate
after consideration of the evidence presented by the IPA. Debarment may
exceed three years in extraordinary circumstances. A longer period may
be appropriate, for example, if an IPA has been debarred by a Federal
agency for a longer period, see section 1641.7(b), or if an IPA has
been convicted of an offense referred to in section 1641.7(d) and will
be incarcerated for a period exceeding three years. If a suspension
precedes a debarment, the suspension period will be considered in
determining the debarment period and the debarment may be effective for
less than three years.
After debarment for a specified period has been instituted, the
debarring official may extend the debarment for an additional period if
necessary to protect LSC funds. The debarment period may not be
extended based solely on the facts and circumstances upon which the
initial debarment was based, but must be based on new facts, not
previously in the record, and will be effective only after the
procedures outlined in the proposed rule have been followed.
Subsection (b) defines the duration of suspension. A suspension is
a temporary measure, which may be instituted while debarment
proceedings are being conducted. In addition, an IPA may be suspended
in anticipation of the initiation of debarment proceedings, for
example, upon conclusion of an investigation conducted by either the
OIG or other authority, upon completion of a debarment proceeding
conducted by a Federal agency, pending the outcome of a criminal
prosecution, or pending the outcome of proceedings conducted by a
sanctioning or licensing body with authority over IPAs, such as the
American Institute of Certified Public Accountants (AICPA) or a State
Board of Accountancy. If debarment proceedings are not initiated within
12 months after the date of the suspension notice, the suspension shall
be terminated. However, if a law enforcement official, including the
police or a prosecuting authority, an official from another OIG, a
state licensing body or other organization with authority over IPAs, or
a government agency requests an extension of the suspension in writing,
the suspension may be extended. Unless a debarment has been initiated,
a suspension may not be imposed for more than 18 months.
Subsection (c) defines the duration of removal. A removal is
effective for the years remaining on the existing contract between the
IPA and the recipient. Because removal affects existing contracts,
there is an obvious concern that removal not cause financial harm to
the recipient. Although current contracts between recipients and their
IPAs may vary, the sample contract included as an appendix to the Audit
Guide for Recipients and Auditors (Audit Guide) contains a provision
which may be interpreted to allow the recipient to end its relationship
with the IPA in the event of removal, see Audit Guide, Appendix B. To
clearly address removal (and recognize debarment and suspension), the
OIG intends to publish an amendment to the sample agreement. The OIG
also believes it would be advisable to send out a notice to recipients
when this rule becomes final suggesting that recipients attempt to
modify existing contracts if possible, to specifically address removal.
Such a term would be required in future contracts between recipients
and their IPAs. In the meantime, if a removal action is considered
against an IPA with a current contract that does not include
[[Page 5731]]
such a term, the OIG will consider this when contemplating removal of
the IPA.
Subpart B--Debarment
Section 1641.5 Debarment
The OIG may debar an IPA from performing audit services to all
recipients or may debar an IPA from performing audit services for one
or more specific recipients. This section informs the IPA and
recipients of the effect of both types of debarment. Recipients are
prohibited from knowingly awarding contracts to, extending or modifying
existing contracts with, or soliciting proposals from debarred IPAs.
Although IPAs debarred from providing audit services to selected
recipients may contract with other recipients, the IPA must give prior
written notice to the debarring official before providing such services
to other recipients. In addition, the debarred IPA is required to
provide prior written notice of the debarment to any recipient seeking
its services.
Section 1641.6 Procedures for Debarment
This section sets out the general procedures for debarment. The
specific procedures are set out more fully in subsequent sections. The
OIG shall provide an IPA with an opportunity to be heard prior to
debarring the IPA. Such hearing will be held entirely by written
submissions unless the debarring official finds that there is a genuine
dispute of material fact. In addition, an informal meeting may be held
between the debarring official and the IPA.
Section 1641.7 Causes for Debarment
The subsections in this section set out the causes for debarment.
The causes are based on those set out in the government wide system,
but have been modified to recognize the particular circumstances of
IPAs performing audits of LSC recipients. The existence of a cause for
debarment does not necessarily require that the IPA be debarred; the
seriousness of the IPA's acts or omissions and any mitigating
circumstances shall be considered in making any debarment decisions.
Subsection (a) allows the OIG to debar an IPA that has failed
significantly to comply with government auditing standards established
by the Comptroller General of the United States, generally accepted
auditing standards and/or OIG audit guidance. Under section 509, LSC
recipients are required to have audits conducted in accordance with
guidance established by the OIG. Such guidance appears in the OIG Audit
Guide and audit bulletins issued by the OIG. The OIG audit guidance
incorporates government auditing standards. Under the IG Act, the OIG
is required to ensure that audits are conducted in accordance with
government auditing standards (established by the Comptroller General).
Subsection (b) allows debarment when an IPA is currently debarred
or suspended from contracting with any Federal agency or entity
receiving Federal funds. This would include, for example, where the IPA
has been debarred consistent with the government wide system for
debarment.
Subsection (c) allows debarment if the IPA's license to practice
accounting has been revoked, terminated or suspended by a state
licensing body or other organization with authority over IPAs.
Subsection (d) allows debarment if the IPA has been convicted of
any offense indicating a breach of trust, dishonesty or lack of
integrity, or conspiracy to do the same. Offenses indicating a breach
of trust, dishonesty or lack of integrity include, for example, fraud,
embezzlement, theft, forgery, bribery, falsification or destruction of
records, making false statements, making false claims, or receiving
stolen property.
Subsection (e) allows debarment if the IPA has been found subject
to a civil judgement for any action indicating a breach of trust,
dishonesty or lack of integrity, or conspiracy to do the same.
Section 1641.8 Notice of Proposed Debarment
This section sets out the information which must be included in the
notice of proposed debarment sent to the IPA. Because the IPA will have
a specified time from receipt of the notice to respond, see section
1641.18, notice will be sent in such a way as to ensure that the OIG
receives evidence of the IPA's receipt of the notice. Under this
section, a copy of the notice is sent to any affected recipient and the
recipient may comment on the proposed action within the time that the
IPA has to respond under section 1641.9.
Section 1641.9 Response to Notice of Proposed Debarment
This section gives the IPA 30 days from receipt of the notice
within which to respond. Such response must be in writing and should
include information and argument in opposition to the proposed
debarment. The response may request a meeting with the debarring
official to permit the IPA to discuss issues of fact or law relating to
the proposed debarment or to otherwise resolve the matter. Although the
meeting shall take such form as the debarring official deems
appropriate, if requested, the meeting shall be an in person meeting at
LSC headquarters. The meeting must be held within 20 days of the
response.
Under subsection (d), if the IPA fails to respond to the notice,
this shall be deemed an admission of the existence of the cause(s) for
debarment set out in the notice and an acceptance of the period of
debarment, and the debarring official may enter a final decision
without further proceedings.
Section 1641.10 Additional Proceedings as to Disputed Material Facts
If the debarring official finds that the IPA's submission raises a
genuine dispute of material fact and the action is not based on a
conviction or civil judgment under section 1641.7(d) or (e), the IPA
will be afforded an opportunity to appear (with counsel), submit
documentary evidence, present witnesses, and confront any witnesses the
OIG presents. Where there is no genuine dispute of material fact, an
evidentiary hearing is not warranted. In the case of a conviction or
civil judgment, the facts underlying the conviction or civil judgment
would have been fully adjudicated in another forum and a hearing on
those facts would be inappropriate. In addition, there should be no
dispute about the existence of the conviction or civil judgment.
If, on the other hand, the debarring official finds that the IPA's
submission does not raise a genuine issue of material fact, no such
additional proceedings will be provided and the hearing shall be held
entirely by written submissions (except to the extent a meeting is held
under section 1641.9(c)).
If additional proceedings are to be held, the IPA shall be
notified, and such notice shall identify the procedures under which the
proceeding will be conducted. A transcribed record of such proceedings
shall be prepared, with a copy provided to the IPA without cost. At the
debarring official's discretion, disputed material facts may be
referred to a fact finder for analysis and recommendation. Such fact
finder need not be a member of the OIG staff.
Subpart C--Suspension
The sections in this subpart set out the causes, procedures and
effect of a suspension. Suspension procedures are similar to those for
debarment. However, the procedures have been streamlined by shortening
the time
[[Page 5732]]
periods and providing for a strictly show cause procedure, entirely by
written submissions, except that an informal meeting may be held.
Section 1641.11 Suspension
A suspension is for a temporary period pending the completion of an
investigation or other legal, administrative or debarment proceedings.
This section applies section 1641.5, regarding debarment, to
suspension. The OIG may suspend an IPA from performing audit services
to all recipients or may suspend an IPA from performing audit services
for one or more specific recipients. This section informs the IPA and
recipients of the effect of both types of suspension.
Section 1641.12 Procedures for Suspension
Before suspending an IPA, the OIG will provide a show cause hearing
held entirely by written submissions (except that a meeting between the
IPA and the debarring official may be held). The specific procedures
are set out more fully in subsequent sections.
Section 1641.13 Causes for Suspension
The causes for suspension are the same as those for debarment. In a
suspension, however, there must be adequate evidence that the cause(s)
may exist, rather than a preponderance of the evidence that the
cause(s) exist as in debarment. In addition, an indictment for the
listed types of offenses, rather than a conviction, is sufficient cause
for suspension.
Section 1641.14 Notice of Proposed Suspension
The notice for suspension is the same as that for debarment, except
a suspension notice includes a directive, returnable in 10 days, to
show cause why a suspension should not be instituted.
Section 1641.15 Response to Notice of Proposed Suspension
The IPA's response to the notice of suspension must be received
within 10 days of receipt of the notice. The response should contain
information similar to that discussed under section 1641.9 relating to
debarment. Similar provisions allow for a meeting between the IPA and
the debarring official and describe the effect of not responding.
Subpart D--Removal
Section 1641.16 Removal
The OIG may remove an IPA from performing audit services for one or
more recipients. This section informs the IPA and recipients of the
effect of a removal. Recipients are prohibited from extending existing
contracts with removed IPAs. It is likely that the OIG would
simultaneously debar (or prohibit the IPA from entering into future
contracts with recipients) and remove the IPA, see section 1641.17(b).
Absent complete debarment, IPAs removed from providing audit services
to selected recipients may contract with other recipients. The IPA,
however, must give prior written notice to the debarring official
before providing such services to other recipients. In addition, the
removed IPA is required to provide prior written notice of the removal
to any recipient seeking its services.
Section 1641.17 Notice of Proposed Removal; Response to Notice;
Additional Proceedings
The notice, response and limited availability of additional
proceedings are the same for removal as they are for debarment.
Subpart E--Decisions
Section 1641.18 Decisions of Debarring Official
Subsection (a) sets out the standard of proof for debarment and
removal (preponderance of the evidence) and for suspension (adequate
evidence).
Subsection (b) sets out the information that will be included in
the administrative record, which will form the basis for the decision.
Subsection (c) notifies IPAs that the failure of the OIG to meet a
time requirement does not preclude the OIG from taking the debarment,
suspension or removal action.
Subsection (d) sets forth the information that will be contained in
the debarring official's decision. Among other things, this includes
notifying the IPA that the decision will become a matter of public
record. In the government wide system for suspension and debarment, the
General Services Administration (GSA) is required to maintain and
distribute a current list of all entities debarred or suspended by
Federal agencies or by the General Accounting Office (GAO). Although we
cannot include IPAs which the OIG debars on this GSA list, the OIG
plans to maintain a list of debarred, suspended and removed IPAs, to
distribute the list to recipients, and to maintain the list on the OIG
website.
Subsection (e) sets out the debarring official's authority to
withdraw the notice of debarment, suspension or removal, where
appropriate, or to terminate the proceedings, and subsection (f) sets
out the debarring official's authority to settle the action and to
place appropriate conditions on the IPA.
Section 1641.19 Exceptions to Debarment, Suspension and Removal
In unique circumstances, where there are compelling reasons to use
a particular IPA for a specific task, the recipient requiring such
services may submit to the OIG a request to except the IPA from the
effects of the debarment, suspension or removal. The Inspector General
may provide an exception for a particular contract upon a written
determination that a compelling reason exists for using the IPA in a
particular instance. Under certain circumstances, a compelling reason
may be that the recipient is in a rural area and there are no other
IPAs within a reasonable distance from the recipient.
Section 1641.20 Appeal and Reconsideration of Debarring Official
Decisions
This section allows for appeal or reconsideration of the debarring
official's decision to debar, suspend or remove an IPA.
Appeals are decided by the Inspector General, who may uphold,
reverse or modify the debarring official's decision. A written appeal
may be filed by a debarred or removed IPA within 30 days of receipt of
the decision and by a suspended IPA within 15 days of receipt. At his
discretion, the Inspector General may stay the effect of the debarring
official's decision pending the conclusion of review, after determining
that a compelling reason to do so exists.
Requests for reconsideration are decided by the debarring official.
Such requests must be in writing and supported by documentation
justifying the action on reconsideration. Modification of the decision
on reconsideration is appropriate only in the circumstances set out in
the proposed rule.
List of Subjects in 45 CFR Part 1641
Accounting, Grant programs, Hearing and appeal procedures, Legal
services.
For reasons set forth in the preamble, LSC proposes to amend
Chapter XVI of Title 45 by adding part 1641 as follows:
PART 1641--DEBARMENT, SUSPENSION AND REMOVAL OF RECIPIENT AUDITORS
Subpart A--General
Sec.
1641.1 Purpose/Applicability.
1641.2 Definitions.
1641.3 Scope of debarment, suspension and removal.
[[Page 5733]]
1641.4 Duration of debarment, suspension and removal.
Subpart B--Debarment
1641.5 Debarment.
1641.6 Procedures for debarment.
1641.7 Causes for debarment.
1641.8 Notice of proposed debarment.
1641.9 Response to notice of proposed debarment.
1641.10 Additional proceedings as to disputed material facts.
Subpart C--Suspension
1641.11 Suspension.
1641.12 Procedures for suspension.
1641.13 Causes for suspension.
1641.14 Notice of proposed suspension.
1641.15 Response to notice of proposed suspension.
Subpart D--Removal
1641.16 Removal.
1641.17 Notice of proposed removal; response to notice; additional
procedures.
Subpart E--Decisions
1641.18 Decisions of debarring official.
1641.19 Exceptions to debarment, suspension and removal.
1641.20 Appeal and reconsideration of debarring official decisions.
Authority: 42 U.S.C. 2996e(g); Pub. L. No. 105-277 (1998),
incorporating by reference Pub. L. No. 104-208, Sec. 503(a), 110
Stat. 1321, Sec. 509(d) (1996).
Subpart A--General
Sec. 1641.1 Purpose/Applicability.
In order to assist in ensuring that recipients receive acceptable
audits, this rule sets out the authority of the Legal Services
Corporation (``LSC'') Office of Inspector General (``OIG'') to debar,
suspend and remove independent public accountants (``IPAs'') from
performing audit services for recipients. This rule informs IPAs of
their rights to notice and an opportunity to be heard on actions
involving debarment, suspension and removal, and the standards upon
which such actions will be taken. This part applies to IPAs performing
audit services for recipients, subrecipients or other entities which
receive LSC funds and are required to have an audit performed in
accordance with guidance promulgated by the OIG.
Sec. 1641.2 Definitions.
(a) Adequate evidence means information sufficient to support the
reasonable belief that a particular act or omission has occurred.
(b) Audit services means the annual financial statement audit of a
recipient.
(c) Contract means agreement between a recipient and an IPA for an
IPA to provide audit services to the recipient.
(d) Conviction means a judgment or conviction of a criminal offense
by any court, whether entered upon a verdict or plea including pleas of
nolo contendere.
(e) Debarment means a decision by the debarring official to
prohibit an IPA from soliciting or entering into new contracts to
perform audit services for recipient(s) based upon a finding by
preponderance of the evidence that any of the causes for debarment set
out in Sec. 1641.7 exist. Debarment may cover an IPA's contracts with
all recipients or with one or more specific recipients.
(f) Debarring official is the official responsible for debarment,
suspension and removal actions under this part. The OIG staff person
performing the function of legal counsel or his or her designee is the
debarring official. In the absence of an OIG legal counsel, the
debarring official shall be the OIG staff person designated by the
Inspector General.
(g) Indictment means an indictment for a criminal offense. An
information or other filing by competent authority charging a criminal
offense shall be given the same effect as an indictment.
(h) IPA means an independent public accountant.
(i) Knowingly means that an act was done voluntarily and
intentionally and not because of mistake or accident.
(j) Material fact means one which is necessary to determine the
outcome of an issue or case and without which the case could not be
supported.
(k) Preponderance of the evidence means proof by information that,
compared with that opposing it, leads to the conclusion that the fact
at issue is more probably true than not.
(l) Removal means a decision by the debarring official to prohibit
an IPA from performing audit services in subsequent years of an
existing contract with one or more specific recipients based upon a
finding by a preponderance of the evidence that any of the causes
referred to in Sec. 1641.17 exist.
(m) Suspension means a decision by the debarring official, in
anticipation of a debarment, to prohibit an IPA from soliciting or
entering into new contracts to perform audit services for recipient(s)
based upon a finding of adequate evidence that any of the causes
referred to in Sec. 1641.13 exist. Suspension may cover an IPA's
contracts with all recipients or with one or more specific recipients.
Sec. 1641.3 Scope of debarment, suspension and removal.
An IPA may be debarred, suspended or removed under this part only
if the IPA is specifically named and given notice of the proposed
action and an opportunity to respond in accordance with this part.
(a) Actions against individual IPAs. Debarment, suspension or
removal of an individual IPA, debars, suspends or removes that
individual from performing audit services as an individual or as an
employee, independent contractor, agent or other representative of an
IPA firm.
(b) Actions against IPA firms. (1) Debarment, suspension or removal
of an IPA firm under this rule constitutes debarment, suspension or
removal of all its divisions and other organizational elements, unless
the decision is limited by its terms to one or more specifically
identified divisions or other organizational elements.
(2) The debarment, suspension or removal action contemplated in
paragraph (b)(1) of this section may include any firm that is an
affiliate, subcontractor, joint venturer, agent or representative of
the IPA firm only if such firm was materially involved in the relevant
engagement and is specifically named and given notice of the proposed
action and an opportunity to respond in accordance with this part.
(3) The debarment, suspension or removal action contemplated in
paragraph (b)(1) of this section may include an individual officer,
director, or, partner responsible for the engagement, or an individual
employee, independent contractor, agent, representative or other
individual associated with an IPA firm only if such individual is
specifically named and given notice of the proposed action and an
opportunity to respond in accordance with this part.
Sec. 1641.4 Duration of debarment, suspension and removal.
A debarment, suspension or removal is effective as set out in the
debarring official's decision to debar, suspend or remove, issued
pursuant to Sec. 1641.18.
(a) Debarment. (1) Debarment generally should not exceed three
years, but may be for a shorter period based on a consideration of the
evidence presented by the IPA. Debarment may exceed three years in
extraordinary circumstances.
(2) If a suspension precedes a debarment, the suspension period
shall be considered in determining the debarment period.
(3) The debarring official may extend an existing debarment for an
additional period if the debarring official determines, based on
additional facts not previously in the record, that an extension is
necessary to protect LSC funds. The standards and procedures in
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this part shall be applied in any proceeding to extend a debarment.
(b) Suspension. (1) Suspension shall be for a temporary period
pending the completion of an investigation or other legal or debarment
proceedings, including a proceeding conducted by a state licensing body
or other organization with authority over IPAs.
(2) If debarment proceedings are not initiated within 12 months
after the date of the suspension notice, the suspension shall be
terminated unless a law enforcement official, an investigative or audit
official from another OIG, a state licensing body or other organization
with authority over IPAs, or a government agency requests its extension
in writing. In such cases, the suspension may be extended for an
additional six months. In no event may a suspension be imposed for more
than 18 months, unless debarment proceedings have been initiated within
that period.
(3) OIG shall notify the appropriate official, state licensing body
or other organization with authority over IPAs, or appropriate
government agency, if any, of an impending termination of a suspension
at least 30 days before the 12-month period expires to allow an
opportunity to request an extension. Providing such notification
follows Federal policy.
(4) The limit on the duration of a suspension in paragraph (b)(2)
of this section may be waived by the affected IPA.
(c) Removal. Removal shall be effective for the years remaining on
the existing contract(s) between the IPA and the recipient(s).
Subpart B--Debarment
Sec. 1641.5 Debarment.
(a) IPAs debarred from providing audit services for all recipients
are prohibited from soliciting or entering into any new contracts for
audit services with recipients for the duration of the specified period
of debarment. Recipients shall not knowingly award contracts to, extend
or modify existing contracts with, or solicit proposals from, such
IPAs. Debarred IPAs also are prohibited from providing audit services
to recipients as agents or representatives of other IPAs.
(b) IPAs debarred from providing audit services for one or more
specific recipient(s) are prohibited from soliciting or entering into
any new contracts for audit services with such recipient(s) for the
duration of the period of debarment as determined pursuant to this
part. The affected recipient(s) shall not knowingly award contracts to,
extend or modify existing contracts with, or solicit proposals from,
such IPAs. Debarred IPAs also are prohibited from providing audit
services to the affected recipient(s) as agents or representatives of
other IPAs, and are required to provide prior written notice to the
debarring official before providing such services to other recipients
Debarred IPAs also must provide prior written notice of the debarment
to any such recipient.
Sec. 1641.6 Procedures for debarment.
Before debarring an IPA, the OIG shall provide the IPA with a
hearing in accordance with the procedures set out in Secs. 1641.7
through 1641.9. Such hearing shall be held entirely by written
submissions, except:
(a) Additional proceedings shall be held under Sec. 1641.10 if the
debarring official finds there is a genuine dispute of material fact;
and/or
(b) A meeting may be held under Sec. 1641.9(c).
Sec. 1641.7 Causes for debarment.
The debarring official may debar an IPA from performing audit
services in accordance with the procedures set forth in this part upon
a finding by a preponderance of the evidence that:
(a) The IPA has failed significantly to comply with government
auditing standards established by the Comptroller General of the United
States, generally accepted auditing standards and/or OIG audit
guidance;
(b) The IPA is currently debarred or suspended from contracting
with any Federal agency or entity receiving Federal funds, including
where the IPA has stipulated to such debarment or suspension;
(c) The IPA's license to practice accounting has been revoked,
terminated or suspended by a state licensing body or other organization
with authority over IPAs;
(d) The IPA has been convicted of any offense indicating a breach
of trust, dishonesty or lack of integrity, or conspiracy to do the
same; or
(e) The IPA has been found subject to a civil judgment for any
action indicating a breach of trust, dishonesty or lack of integrity,
or conspiracy to do the same.
Sec. 1641.8 Notice of proposed debarment.
(a) Before debarring an IPA, the OIG shall send it written notice
of the proposed debarment. Such notice shall:
(1) State that debarment is being considered;
(2) Identify the reasons for the proposed debarment sufficient to
put the IPA on notice of the conduct or transaction(s) upon which a
debarment proceeding is based;
(3) Identify the regulatory provisions governing the debarment
proceeding; and
(4) State that debarment may be for a period of up to three years
or longer under extraordinary circumstances. If the OIG has determined
that extraordinary circumstances warranting debarment in excess of
three years may exist, the notice shall so state.
(b) A copy of the notice also shall be sent to the affected
recipient(s), if any, which may comment on the proposed action in the
time frame set out in Sec. 1641.9.
Sec. 1641.9 Response to notice of proposed debarment.
(a) The IPA shall have 30 days from receipt of the notice within
which to respond.
(b) The response shall be in writing and may include information
and argument in opposition to the proposed debarment, including any
additional specific information pertaining to the possible causes for
debarment, and information and argument in mitigation of the proposed
period of debarment.
(c) The response may request a meeting with the debarring official
to permit the IPA to discuss issues of fact or law relating to the
proposed debarment, or to otherwise resolve the pending matters. Any
such meeting shall take such form as the debarring official deems
appropriate and shall be held within 20 days of the response. If
requested by the IPA, such meeting shall be an in person meeting at LSC
headquarters.
(d) Failure to respond to the notice shall be deemed an admission
of the existence of the cause(s) for debarment set forth in the notice
and an acceptance of the period of debarment. In such circumstances,
without further proceedings, the debarring official may enter a final
decision stating the period of debarment.
Sec. 1641.10 Additional proceedings as to disputed material facts.
(a) In actions not based upon a conviction or civil judgment under
Sec. 1641.7(d) or (e), if the debarring official finds that the IPA's
submission raises a genuine dispute of material fact, the IPA shall be
afforded an opportunity to appear (with counsel, if desired), submit
documentary evidence, present witnesses, and confront any witnesses the
OIG presents. If the debarring official finds that the IPA's submission
does not raise a genuine issue of material fact, additional proceedings
will not be provided. In such case, the
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hearing shall be held entirely by written submissions, except that a
meeting may be held under Sec. 1641.9(c).
(b) If the debarring official determines additional proceedings to
be warranted, OIG shall notify the IPA. Such notice shall include
notice of the procedures under which such proceedings shall be
conducted.
(c) A transcribed record of any additional proceedings shall be
prepared and a copy shall be made available to the IPA without cost.
(d) The debarring official may refer disputed material facts to a
fact finder, who need not be a member of the OIG staff, for analysis
and recommendation.
Subpart C--Suspension
Sec. 1641.11 Suspension.
(a) A suspension shall be for a temporary period pending the
completion of an investigation or such other legal, administrative or
debarment proceedings as may ensue.
(b) Section 1641.5 applies to a suspension action, except that the
term ``suspension'' shall be substituted for the term ``debarment.''
Sec. 1641.12 Procedures for suspension.
Before suspending an IPA, the OIG shall provide the IPA with a show
cause hearing in accordance with the procedures set out in
Secs. 1641.13 through 1641.15. Such hearing shall be held entirely by
written submissions, except that a meeting may be held under
Sec. 1641.15(c).
Sec. 1641.13 Causes for suspension
The debarring official may suspend an IPA in accordance with the
procedures set forth in this part upon adequate evidence that:
(a) A cause for debarment under Sec. 1641.7 may exist; or
(b) The IPA has been indicted for any offense described in
Sec. 1641.7.
Sec. 1641.14 Notice of proposed suspension.
(a) Before suspending an IPA, OIG shall send it written notice of
cause to suspend. Such notice shall:
(1) Include the information set out in Sec. 1641.8, except the term
``suspension'' shall be substituted for the term ``debarment''; and
(2) Include a directive to show cause, signed by the debarring
official, which shall inform the IPA that unless the IPA responds
within 10 days as provided in Sec. 1641.15, a suspension will be
imposed.
(b) A copy of the notice also shall be sent to the affected
recipient(s), if any, who may comment on the proposed action in the
time frame set out in Sec. 1641.15.
Sec. 1641.15 Response to notice of proposed suspension.
(a) The IPA shall have 10 days from receipt of the notice within
which to respond.
(b) The response shall be in writing and may include information
and argument in opposition to the proposed suspension, including any
additional specific information pertaining to the possible causes for
suspension, and information and argument in mitigation of the proposed
period of suspension.
(c) The response may request a meeting with the OIG official
identified in the notice to permit the IPA to discuss issues of fact or
law relating to the proposed suspension, or to otherwise resolve the
pending matters.
(1) Any such meeting shall take such form as the debarring official
deems appropriate and shall be held within 10 days of the response.
(2) No meeting will be held if a law enforcement official, an
investigative or audit official from another OIG, a state licensing
body or other organization with authority over IPAs, or a governmental
agency has advised in writing that the substantial interest of a
governmental unit would be prejudiced by such a meeting and the
debarring official determines that the suspension is based on the same
facts as pending or contemplated legal proceedings referenced by the
law enforcement official.
(d) Failure to respond to the notice shall be deemed an admission
of the existence of the cause(s) for suspension set forth in the notice
and an acceptance of the period of suspension. In such circumstances,
the OIG may proceed to a final decision without further proceedings.
Subpart D--Removal
Sec. 1641.16 Removal.
Removed IPAs are prohibited from performing audit services in
subsequent years under an existing contract(s) with one or more
specific recipients. The affected recipient(s) shall not extend
existing contracts with such IPAs. Removed IPAs also are prohibited
from providing audit services to the affected recipient(s) as agents or
representatives of other IPAs, and are required to provide prior
written notice to the debarring official before providing such services
to other recipients. Debarred IPAs also must provide prior written
notice of the removal to any such recipient.
Sec. 1641.17 Notice of proposed removal; response to notice;
additional procedures.
(a) Sections 1641.6 through 1641.10 apply in the case of a removal
action, except the term ``removal'' shall be substituted for the term
``debarment.''
(b) A Notice of Proposed Removal normally will be accompanied by a
Notice of Proposed Debarment, and the proceedings may be consolidated.
Subpart E--Decisions
Sec. 1641.18 Decisions of debarring official.
(a) Standard of proof. (1) A debarment or removal must be based on
a finding that the cause or causes for debarment or removal are
established by a preponderance of the evidence in the administrative
record of the case.
(2) A suspension must be based on a finding that the cause or
causes are established by adequate evidence in the administrative
record of the case.
(b) The administrative record consists of the portion of any
information, reports, documents or other evidence identified and relied
upon in the Notice of Proposed Debarment, the Notice of Proposed
Suspension, or the Notice of Proposed Removal, together with any
material portions of the IPA's response and any relevant material
submitted by an affected recipient. In the case of debarment, when
additional proceedings are necessary to determine disputed material
facts, the debarring official shall base the decision on the facts as
found, together with consideration of any information and argument
submitted by the IPA or an affected recipient and any other information
in the administrative record.
(c) Failure of the OIG to meet a time requirement of this part does
not preclude the OIG from debarring, suspending or removing an IPA.
(d) Notice of decisions. IPAs shall be given prompt notice of the
debarring official's decision. A copy of the decision also will be sent
to the affected recipient. If the debarring official debars, suspends
or removes an IPA, the decision shall:
(1) Set forth the finding(s) upon which the decision is based;
(2) Set forth the effect of the debarment, suspension or removal
action and the effective dates of the action;
(3) Refer the IPA to its procedural rights of appeal and
reconsideration under Sec. 1641.20; and
(4) Inform the IPA that a copy of the debarring official's decision
will be a public document and the fact of debarment or suspension will
be a matter of public record.
(e) If the debarring official decides that a debarment, suspension,
or removal is not warranted, the Notice may be withdrawn or the
proceeding may be otherwise terminated.
[[Page 5736]]
(f) If the debarring official deems it appropriate, the debarring
official may, at any time, settle by agreement with the IPA a
debarment, suspension, or removal action. Such a negotiated settlement
may include the imposition of appropriate conditions on the IPA.
Sec. 1641.19 Exceptions to debarment, suspension and removal.
Exceptions to the effects of debarment, suspension or removal may
be available in unique circumstances, where there are compelling
reasons to use a particular IPA for a specific task. Requests for such
exceptions may be submitted only by the recipient requiring audit
services. The Inspector General may except a contract from the effects
of debarment, suspension or removal upon a written determination that a
compelling reason exists for using the IPA in the particular instance.
Sec. 1641.20 Appeal and reconsideration of debarring official
decisions.
(a) A debarred, suspended or removed IPA may submit the debarring
official's decision for appeal or reconsideration in accordance with
this section. Within 60 days, IPAs shall be given notice of decisions
on appeal and reconsideration.
(b) Appeal. (1) A debarred, suspended or removed IPA may appeal the
decision to the Inspector General, who may uphold, reverse or modify
the debarring official's decision.
(2) The appeal shall be filed in writing:
(i) By a debarred or removed IPA, within 30 days of receipt of the
decision;
(ii) By a suspended IPA, within 15 days of receipt of the decision.
(3) The Inspector General, at his or her discretion and after
determining that a compelling reason exists, may stay the effect of the
debarment, suspension or removal pending conclusion of his or her
review of the matter.
(c) Reconsideration. (1) A debarred, suspended or removed IPA may
submit a request to the debarring official to reconsider the debarment,
suspension or removal decision, reduce the period of debarment or
removal or terminate the suspension.
(2) Such requests shall be in writing and supported by
documentation that the requested action is justified by:
(i) Reversal of the conviction or civil judgment upon which the
debarment, suspension or removal was based;
(ii) Newly discovered material evidence;
(iii) Bona fide change in ownership or management;
(iv) Elimination of other causes for which the debarment,
suspension or removal was imposed; or
(v) Other reasons the debarring official deems appropriate.
(3) A request for reconsideration based on the reversal of the
conviction, civil judgment, or sanction may be filed at any time.
(4) Requests for reconsideration based on other grounds may only be
filed during the period commencing 60 days after the debarring
official's decision imposing the debarment or suspension. Only one such
request may be filed in any twelve month period.
(5) The debarring official's decision on a request for
reconsideration is subject to the appeal procedure set forth in
paragraph (b) of this section.
Dated: February 2, 1999.
Victor M. Fortuno,
General Counsel.
[FR Doc. 99-2762 Filed 2-4-99; 8:45 am]
BILLING CODE 7050-01-P
