for the supervision of public elementary and secondary schools in a State. In the absence of this officer or agency, it is an officer or agency designated by the Governor or State law.

"Work of art" means an item that is incorporated into facilities primarily because of its aesthetic value.

(Section 408(a)(1) of Pub. L. 90-247, 88 Stat. 559, 560, as amended (20 U.S.C. 1221e3(a)(1)))

[45 FR 22529, Apr. 3, 1980, as amended at 45 FR 37442, June 3, 1980. Redesignated at 45 FR 77368, Nov. 21, 1980, and amended at 45 FR 86298, Dec. 30, 1980]

78.7 Exhaustion of remedies.

Subpart B-Final Audit Determination

WRITTEN NOTICE

78.11 Written notice of a final audit deter

mination.

78.12 Review of the written notice.

APPLICATION FOR REVIEW

78.13 Filing an application for review. 78.14 Acceptance of the application for

review.

78.15 Rejection of the application for

review.

BURDEN OF PROOF

78.16 Burden of proof.

Subpart C-Withholding, Termination, Voiding, and Other Cost Determinations

WRITTEN NOTICE

78.21 Written notice of an intent to withhold or terminate funds, void a grant, or of other cost determinations.

APPLICATION FOR A HEARING

78.22 Filing an application for a hearing. 78.23 Acceptance of the application. 78.24 Rejection of the application.

PANEL PROCEEDINGS

78.61 Authority and responsibilities of

Panels.

Sec.

CEASE AND DESIST

78.85 The cease and desist report and order.

78.86 Enforcement.

AUTHORITY: Sec. 1232 of the Education Amendments of 1978, Pub. L. 95-561, 92 Stat. 2347-2351 (20 U.S.C. 1234).

SOURCE: 46 FR 27305, May 18, 1981, unless otherwise noted.

Subpart A-General

§ 78.1 Purpose.

These regulations contain rules for the conduct of proceedings before the Education Appeal Board which was established in accordance with Section 451 of the General Education Provision Act.

(20 U.S.C. 1234 (a) and (e))

§ 78.2 Jurisdiction.

(a) The Board has jurisdiction to— (1) Review final audit determinations concerning any applicable program (See § 78.3 (Definitions) for the definition of an applicable program.).

(2) Conduct withholding or termination hearings initiated by Department of Education (ED) officials in connection with any applicable program (See § 78.3 (Definitions) for the definition of an applicable program.).

(3) Conduct cease and desist proceedings initiated by authorized ED officials in connection with any applicable program (See § 78.3 (Definitions) for the definition of an applicable program.).

(4) Conduct hearings, in connection with an applicable program (See § 78.3 (Definitions) for the definition of an applicable program), which involve

(1) A determination that a grant is void;

(ii) The disapproval of a recipient's written request for permission to incur an expenditure during the term of a grant; or

(iii) A determination made by an authorized ED official with respect to cost allocation plans negotiated with State and local units of government, and indirect cost rates, computer, fringe benefit, and other special rates negotiated with institutions of postsecondary education, State and local government agencies, hospitals, and other

nonprofit institutions (except for determinations which are the subject of an appeal filed by the grantee to the Grant Services Contract Appeal Board or to the Armed Services Board of Contract Appeals regarding a contract with the Department); and

(5) Conduct other proceedings as designated by the Secretary of Education (the Secretary) in the FEDERAL REGISTER.

(b) The Board also has jurisdiction under Section 182 of Title I of the Elementary and Secondary Education Act of 1965, as amended, to hear an appeal from each State educational agency (SEA) that has received written notice that the Secretary intends to disapprove the SEA's application for Title I funds. An appeal under section 182 shall be conducted as a withholding hearing.

(20 U.S.C. 1234(a), 2832(b))

§ 78.3 Definitions.

"Appellant” means an SEA or other recipient that requests

(a) A review of a final audit determination;

(b) A witholding or termination hearing; or

(c) A hearing regarding a matter described in § 78.2(a)(4) (Jurisdiction).

"Applicable program" means any program administered by an authorized ED official except the following student financial assistance programs authorized by Title IV, and governed by regulations promulgated under Section 487, of the Higher Education Act of 1965, as amended:

(a) National Direct Student Loan Program.

(b) College Work-Study Program.

(c) Pell Grant Program, formerly known as the Basic Educational Opportunity Grant Program.

(d) Supplemental Educational Opportunity Grant Program.

(e) Guaranteed Student Loan Program.

(f) Parent Loans for Undergraduate Students Program.

(g) State Student Incentive Grant Program.

"Authorized ED official” means— (a) The Secretary; or

13-112 0-83--19

(b) A person employed by ED who has been designated to act under the Secretary's authority.

"Board" means the Education Appeal Board of ED.

"Board Chairperson" means the Board member designated by the Secretary to serve as administrative officer of the Board.

"Cease and desist" means to discontinue a prohibited practice or initiate a required practice.

"Final audit determination" means a written notice issued by an authorized ED official disallowing expenditures made by a recipient.

"Hearing" means any review proceeding conducted by the Board. A hearing may include a conference, a review of written submissions, an oral argument, or a full evidentiary hearing.

"Panel" means an Education Appeal Board Panel (See § 78.5, (Panels)).

"Panel Chairperson" means the person designated by the Board Chairperson to serve as the presiding officer of a Panel.

"Party" means—

(a) The recipient requesting or appearing at a hearing under these regulations;

(b) The authorized ED official who issued

(1) The final audit determination being appealed, the notice of an intent to withhold or terminate funds, or the cease and desist complaint; or

(2) Any other determination that is the subject of a proceeding before the Board (See § 78.2(a)(4) (Jurisdiction) for a list of these determinations.); and

(c) Any person, group, or agency that files an acceptable application to intervene (See § 78.43 (Intervention)). "Recipient" means the named party or entity that initially receives Federal funds under an ED grant or cooperative agreement. For example, for a State-administered program conducted under Title I of the Elementary and Secondary Education Act of 1965, as amended, the SEA is the recipient. This definition does not extend to procurement contracts.

"Suspension" means temporarily stopping payment of Federal funds to a recipient and stopping the recipi

ent's authority to charge costs to a program pending the outcome of a withholding or termination hearing. "Termination"

means ending the payment of Federal funds to a recipient and ending the recipient's authority to charge costs to a program before the recipient's authority to charge costs to a program expires.

"Withholding" means stopping payment of Federal funds to a recipient and stopping the recipient's authority to charge costs to a program, for the period of time the recipient is in violation of a requirement.

(20 U.S.C. 1234 (a) and (e))

(a) (1) For each proceeding before the Board, the Board Chairperson selects a Panel, consisting of at least three members of the Board, and designates one of the Panel members as Panel Chairperson.

(2) The Board Chairperson may designate the entire Board to sit as a Panel for any case or class of cases.

(b) A majority of the members of a Panel must be members of the Board who are not full-time employees of the Federal Government.

(c) No Board member who is a party to, or has had any responsibility for the particular matter assigned to a Panel, may serve on that Panel.

(20 U.S.C. 1234 (a), (d), and (e)) § 78.6 Eligibility for review.

(a) Review under these regulations is available to a recipient that receives a written notice from an authorized ED official of

(1) A final audit determination;

(2) An intent to withhold or terminate funds;

(3) A cease and desist complaint; (4) A determination that a grant is void;

(5) The disapproval of a recipient's written request for permission to incur

an expenditure during the term of a grant;

(6) A determination with respect to cost allocation plans negotiated with State and local units of government, and indirect cost rates, computer, fringe benefits, and other special rates negotiated with institutions of postsecondary education, State and local government agencies, hospitals, and other nonprofit institutions (except for determinations which are the subject of an appeal filed by the grantee to the Grant Services Contract Appeal Board or to the Armed Services Board of Contract Appeals regarding a contract with the Department); or

(7) Any other proceeding designated by the Secretary.

(b) Review under these regulations is also open to an SEA that has received written notice that the Secretary intends to disapprove the SEA's application for funds under Title I of the Elementary and Secondary Education Act of 1965, as amended. The review shall be conducted as a withholding hearing.

(20 U.S.C. 1234 (a) and (e), 20 U.S.C. 2832(b))

878.7 Exhaustion of remedies.

(a) If a recipient receives a written notice referred to in § 78.6 (Eligibility for review) and brings a lawsuit to challenge that notice, the recipient has failed to exhaust administrative remedies and the Secretary may move for dismissal of the lawsuit on that basis.

(b) If the Panel assigned to hear an appeal finds that there are no issues in the appeal within the Board's jurisdiction, the Panel may, at the request of a party or Panel member, issue a decision or order to that effect (See Subpart F-Decisions and Orders). (20 U.S.C. 1234 and 1234(d))

Subpart B-Final Audit Determination

WRITTEN NOTICE

878.11 Written notice of a final audit determination.

(a) An authorized ED official may issue a written notice of a final audit determination to a recipient in connec

tion with an applicable program (See § 78.3 for the definition of applicable program.)

(b) In the written notice, the authorized ED official—

(1) Lists the disallowed expenditures made by the recipient;

(2) Indicates the reasons for the final audit determination in sufficient detail to allow the recipient to respond-for example, by referring to the relevant parts of a separate document, such as an audit report; and

(3) Advises the recipient that it must repay the disallowed expenditures to ED or, within 30 calendar days of its receipt of the written notice, request a review by the Board of the final audit determination.

(c) The authorized ED official sends the written notice to the recipient by certified mail with return receipt requested.

(20 U.S.C. 1234 (a) and (e), 1234a(a))

§ 78.12 Review of the written notice.

(a) The Board Chairperson reviews the written notice of the final audit determination after an application for review is received (See § 78.13 (Filing an application for review)) to insure that the written notice meets the requirements of § 78.11(b) (Written notice of a final audit determination).

(b) If the Board Chairperson decides that the written notice does not meet the requirements of § 78.11(b) (Written notice of a final audit determination), the Board Chairperson returns the determination to the official who issued it so that the determination may be properly modified.

(c) If the official makes the appropriate modifications and the recipient wishes to pursue its appeal to the Board, the recipient shall amend its application for review within 30 calendar days of the date it receives the modification.

(20 U.S.C. 1234 (a) and (e), 1234a(b))

APPLICATION FOR REVIEW

§ 78.13 Filing an application for review.

(a) An appellant seeking review of a final audit determination by the Board shall file a written application

for review with the Board Chairper

son.

(b) The appellant shall attach a copy of the written notice of a final audit determination to the application for review, and shall, to the satisfaction of the Board Chairperson—

(1) Identify the issues and facts in dispute; and

(2) State the appellant's position, together with the pertinent facts and reasons supporting that position.

(c) The appellant shall file the application for review no later than 30 calendar days after the date it receives the written notice of the final audit determination.

(20 U.S.C. 1234 (a) and (e), 1234a(b))

§ 78.14 Acceptance of the application for review.

(a) If the Board Chairperson decides that an application for review satisfies the requirements of § 78.13 (Filing an application for review), the Board Chairperson issues a notice of the acceptance of the application to the appellant and the authorized ED official who issued the final audit determination.

(b) The Board Chairperson publishes a notice of acceptance of the application in the FEDERAL REGISTER prior to the scheduling of initial proceedings.

(c) If an acceptable application is filed, the Board Chairperson refers the appeal to a Panel, arranges for the scheduling of initial proceedings, and forwards to the Panel and parties an initial hearing record that includes

(1) The final audit determination; (2) The application for review; and (3) Other relevant documents, such as audit reports.

(20 U.S.C. 1234 (a) and (e), 1234a(b))

§ 78.15 Rejection of the application for review.

(a) If the Board Chairperson determines that an application for review does not satisfy the requirements of § 78.13 (Filing an application for review), the Board Chairperson returns the application to the appellant, together with the reasons for the rejection, by certified mail with return receipt requested.

(b) The appellant has 20 calendar days after the date it receives the notice of rejection to file an acceptable application.

(c) If an application for review is rejected twice, ED may take appropriate administrative action to collect the expenditures disallowed in the final audit determination.

(20 U.S.C. 1234 (a) and (e), 1234a(b))

BURDEN OF PROOF

§ 78.16 Burden of proof.

The appellant shall present its case first and has the burden of proving the allowability of the expenditures disallowed in the final audit determination.

(20 U.S.C. 1234 (a) and (e), 1234a(b))

Subpart C-Withholding, Termination, Voiding, and Other Cost Determinations

WRITTEN NOTICE

§ 78.21 Written notice of an intent to withhold or terminate funds, void a grant, or of other cost determinations. (a) An authorized ED official may issue a written notice to a recipient under any applicable program (See § 78.3 (Definitions) for the definition of applicable program) of—

(1) An intent to withhold or terminate funds; or

(2) A determination, as described in paragraphs (a)(4) through (a)(6) of § 78.6 (Eligibility for review) that a grant is void, that a request to incur an expenditure during the term of a grant is denied, or a determination with respect to cost allocation plans, indirect cost rates, or other special rates.

(b) In the written notice, the authorized ED official

(1) In the case of an intent to withhold or terminate funds, states the facts that indicate the recipient failed to comply substantially with a requirement that applies to the funds;

(2) In the case of a determination that a grant is void, that an expenditure may not be incurred, or a determination with respect to cost allocation plans, indirect cost rates, or other