Alfred H. Varga, CR No. 342 (1994)

$05:Civil Money Penalty

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: Department of Health and Human Services,
- v. -
Alfred H. Varga, Respondent.

DATE: November 8, 1994

Docket No. C-94-353
Decision No. CR342

DECISION

This Debt Collection Act case has come before me pursuant to the
hearing request filed by Administrative Law Judge Alfred H. Varga
(Respondent). Respondent's hearing request is dated April 13,
1994. Respondent acknowledges in his hearing request that he
received an overpayment of $2184.57 from the Department of Health
and Human Services (DHHS). He therefore seeks review of DHHS'
determination that he must repay $3547.96. In his hearing request,
Respondent asks also for a waiver of the overpayment. 1/

As summarized in my Order and Schedule for Filing Briefs and
Documentary Evidence, I held a prehearing conference with the
parties on June 2, 1994, at which the parties identified the issues
as the amount of the overpayment and whether the overpayment should
be waived on the facts of this case. DHHS acknowledged that the
overpayment was issued pursuant to administrative error and not due
to any request or inducement by Respondent. The parties agreed
that the case could be decided on a paper record, and they further
agreed to waive the 60-day deadline for issuing a decision in this
case. See 45 C.F.R. 30.15(j)(7). Accordingly, I established a
schedule by which the parties could present their written arguments
and documentary evidence. I asked the parties also to address the
additional question of whether DHHS had referred Respondent's
request for waiver to me for decision pursuant to 45 C.F.R.
30.15(p).

The parties filed their submissions in accordance with the schedule
I established. 2/ In its Supplemental Brief, DHHS acknowledges
that Respondent's request for waiver had been referred to me. In
his brief, Respondent argued the reasons in support of the waiver
request. He also did not suggest that I lacked jurisdiction over
the issue. Accordingly, I conclude that I have authority to review
the merits of the waiver request filed by Respondent.

In the sections that follow, I will first identify the specific
matters in controversy. I will then issue those findings of fact
that pertain to my jurisdiction over the case and underlie my
adjudication of the disputes presented by the parties. In the next
section of the decision, I will discuss how I resolved those issues
of material fact and reached the following conclusions of law:

I. The net amount of the salary overpayment DHHS erroneously
issued to Respondent is $2184.57.

II. The amount DHHS was initially entitled to collect from
Respondent was $3102.69.

III. Of the $3102.69, DHHS has already collected $545.84
through payroll deductions.

IV. Of the remaining $2556.85, Respondent is entitled to have
$500 waived.

V. Respondent may repay the amount of $2056.85 to DHHS in
one lump sum or in installments consistent with DHHS' rights to
effectuate administrative offsets under 45 C.F.R. 30.15.

VI. If Respondent disagrees with my denial of his request to
waive the portion of his debt that is in excess of the
above-mentioned $500 amount, he has a right of appeal to the
Comptroller General of the United States.

VII. In lieu of repaying DHHS the amount of $2056.85,
Respondent may, at his option, accept the terms of DHHS' settlement
offer.

In addition to the foregoing conclusions, I direct that, as
promptly as possible after receiving Respondent's repayment(s),
DHHS shall provide Respondent with the necessary documents that
will enable him to obtain an appropriate refund or adjustment of
the federal (including Medicare) and State taxes that were paid as
a result of the salary overpayment erroneously issued by DHHS to
Respondent.


ISSUES

The issues before me concern the amount of the debt in existence
and the disposition of Respondent's request for a waiver of his
obligation to repay the debt.

More specifically, the parties disagree on the following matters:

o the amount of the net salary payment erroneously issued
to Respondent;

o the amount of Respondent's indebtedness; and

o whether Respondent should be relieved of his obligation
to repay the debt in part or in whole.


FINDINGS OF FACT

1. At all times relevant to this action, Respondent has been
employed as an administrative law judge at the Detroit, Michigan,
Hearing Office of the Social Security Administration's Office of
Hearings and Appeals (OHA).
DHHS Brief at 1.

2. The Social Security Administration is an agency within DHHS.

3. On July 13, 1993, DHHS electronically transferred the amount of
$2184.57 to Respondent's credit union account. R. Ex. 1; DHHS Ex.
2 at 6.

4. On July 20, 1993, DHHS electronically transferred the amount of
$2059.57 to Respondent's credit union account. R. Ex. 1.

5. DHHS issued Respondent an "Earnings and Leave Statement" for
the amount of $2059.57, showing it to be the net salary payment
Respondent was due for the payroll period that ended on July 10,
1993. R. Ex. 10; DHHS Ex. 2 at 9.

6. Respondent's gross earnings from DHHS for the pay period that
ended July 10, 1993 were $3548. R. Ex. 10; DHHS Ex. 2 at 9.

7. The $2059.57 amount paid to Respondent for the payroll period
that ended July 10, 1993 resulted from those deductions DHHS made
for Respondent's contributions to his health plan, his thrift
savings account, his federal retirement plan (CSRS), and his
purchase of bonds, together with the withholdings DHHS made for his
Medicare, federal, and State taxes. R. Ex. 10; DHHS Ex. 2 at 9.

8. There is no evidence that an "Earnings and Leave Statement" was
issued by DHHS to Respondent with respect to the $2184.57 amount
electronically transferred to Respondent's credit union account on
July 13, 1993.

9. DHHS transferred the $2184.57 amount to Respondent's credit
union account as a net salary payment to Respondent. See DHHS Ex.
3 at 8.

10. DHHS used Respondent's gross earnings of $3548 for the payroll
period that ended on July 10, 1993 to derive the $2,184.57 net
amount. DHHS Ex. 3 at 8.

11. The deductions and withholdings DHHS made that resulted in the
net payment of $2184.57 to Respondent were the same as those listed
in Finding 7, with the exception that no deduction was made for the
purchase of bonds. DHHS Ex. 3 at 8.

12. The payment of two salary checks to Respondent for the same
payroll period, via the electronic transfer of funds, resulted
solely from administrative error on DHHS' part. DHHS Brief at 2.

13. On July 21, 1993, Respondent became aware that there appeared
to be excess money in his account at the credit union. R. Brief at
1.

14. After obtaining from the credit union a printout of the
transactions, Respondent saw that his account was credited with his
regular pay from DHHS on July 8 and July 20, and that, in addition,
he was credited with an additional amount on July 13, 1993. R. Ex.
1; R. Brief at 1.

15. The amounts credited to his account on July 13 and 20, 1992
were described in the printout as "DHHS TREAS
. . . FED SALARY . . ." R. Ex. 1.

16. Respondent checked with the credit union for possible mistakes
by that organization. R. Brief at 1.

17. At Respondent's request, the manager of the Detroit Hearing
Office contacted OHA's Travel and Payroll Staff in Falls Church,
Virginia, before and during early August 1993, and made inquiries
concerning the salary payments. DHHS Brief at 2; DHHS Ex. 1; R.
Exs. 3, 6.

18. The Detroit Hearing Office's actions on Respondent's behalf
included forwarding to OHA's Travel and Payroll Section, during
July of 1993, copies of Respondent's Earnings and Leave Statements
for the pay periods ending June 12, June 26, and July 10, 1993. R.
Ex. 3.

19. On September 1, 1993, an unidentified individual told someone
named "Larna" in Respondent's Hearing Office to inform Respondent
that "he needs to pay the money back." DHHS Ex. 1; R. Ex. 3 at 2.

20. Larna Grace is the secretary to the manager of the Detroit
Hearing Office. R. Ex. 6.

21. The evidence does not establish that Respondent was given the
message that he must pay the money back. See R. Ex. 6.

22. On November 23, 1993, an employee of OHA's Travel and Payroll
Staff prepared a memorandum with supporting documents concerning
her determination that Respondent had been overpaid on July 10,
1993 in the amount of $2184.57, and asking that an "overpayment
letter" be sent out to Respondent. DHHS Ex. 2 at 1.

23. On January 18, 1994, the Assistant Director for Personnel and
Pay Systems Division, DHHS, prepared a Certification of Salary
Overpayment, to advise Respondent that he had received a salary
overpayment of $3548, and that, unless he made direct payment in
the full amount of indebtedness within 30 calendar days, salary
deductions would begin to satisfy the debt. DHHS Ex. 3 at 1.

24. The Certification of Salary Overpayment was "to" Respondent,
"thru: Personnel Officer Terminal ID 43." DHHS Ex. 3 at 1.

25. The form "Instructions for Indebtedness Payment" attached to
the Certification of Salary Overpayment states in relevant part:

1. PAYMENT IN FULL - ALWAYS NET AMOUNT

2. PAYMENT BY BIWEEKLY DEDUCTION . . .
- ALWAYS GROSS AMOUNT

* * *

B. If your overpayment is greater than $ 650.00
(gross), your minimum payments are automatically calculated.
Within thirty days from the date this notice was mailed, if the
debt is not paid or you have not entered into a satisfactory
payment arrangement, twenty six equal payments will begin until the
debt is satisfied.

DHHS Ex. 3 at 2.

26. The evidence does not establish that the Certification of
Overpayment dated January 18, 1994 and its attachments were sent to
Respondent or "Personnel Officer Terminal ID 43" on or about said
date.

27. The evidence does not establish that, if the Certification of
Overpayment was sent on or about January 18, 1994, Respondent
received it.

28. Having received nothing in response to the Certification of
Overpayment dated January 18, 1994, DHHS did not begin payroll
withholdings to satisfy the debt within the 30 days specified in
its "Instructions for Indebtedness Payment." See Finding 25.

29. Beginning with the payroll period that ended on March 19,
1994, DHHS made four payroll withholdings in the amount of $136.46
per payroll period in partial satisfaction of the salary
overpayment. DHHS Ex. 4.

30. If the payroll withholdings in the same amount had continued
for a total of 26 pay periods as specified in the Instructions for
Indebtedness Payment, DHHS would have recouped $3547.96 -- an
amount equivalent to (within four pennies of) the gross salary
payment issued to Respondent through administrative error. See
Findings 25, 29.

31. To date, DHHS has recouped $545.84 of the overpayment through
the above-mentioned four payroll withholdings. Finding 29.

32. During the weeks prior to April 13, 1994, Respondent noticed
the payroll withholdings and sought clarifications from several
employees within OHA's payroll office in Falls Church, Virginia,
concerning the withholdings and the overpayment. R. Exs. 4, 6; R.
Brief at 2.

33. On April 12, 1994, the Certification of Salary Overpayment and
attachments were sent by facsimile to the Detroit Hearing Office.
R. Ex. 5.

34. The Detroit Hearing Office did not have a copy of the
Certification of Salary Overpayment and attachments until April 12,
1994. See R. Ex. 5.

35. On April 13, 1994, Respondent sent a letter to the Payroll and
Accounting Operations Group of DHHS to request a hearing on the
amount of the overpayment and on whether the overpayment should be
waived. In the letter, he asked also that the payroll withholdings
be stopped. R. Ex. 6.

36. According to instructions attached to the Certification of
Salary Overpayment sent to Respondent, requests for hearing, waiver
of overpayments, and stay of collection should be sent to the
individual's "current/former Servicing Personnel Office." DHHS Ex.
3 at 4.

37. The instructions indicate that, for debts exceeding $500, an
individual may request a stay in collection while his request for
waiver is being considered. DHHS Ex. 3 at 4.

38. After Respondent sent his letter dated April 13, 1994 to the
Payroll and Accounting Operations Group, DHHS continued to make
payroll withholdings of $136.46 for the pay periods that ended on
April 16 and April 30, 1994. DHHS Ex. 4.

39. On May 4, 1994, OHA's Travel and Payroll Staff received a call
from a U.S. Senator's office, making inquiries on Respondent's
behalf concerning the overpayment. Memorandum to David Marty from
Don Swain dated May 17, 1994 (attached to Hearing Request)(May 17
Memo).

40. Upon being told by the Senator's staff that Respondent had
sent a request for hearing and waiver of overpayment dated April
13, 1994, Mr. Swain, of OHA's Travel and Payroll Staff, contacted
Bill LaPointe, of DHHS' Payroll Accounting Operations Group, on May
5, 1994 and asked for a copy of Respondent's request for hearing
and waiver of overpayment, along with a copy of the payroll audit.
May 17 Memo.

41. On May 10, 1994, DHHS' Payroll Accounting Operations Group
forwarded a copy of the payroll audit for Respondent, but indicated
that it did not receive Respondent's request for hearing and waiver
of overpayment. May 17 Memo.

42. On May 13, 1994, Mr. Swain informed the Senator's staff member
that neither the OHA "servicing personnel office" nor DHHS' payroll
office had received Respondent's request for hearing and waiver of
overpayment. May 17 Memo.

43. On May 13, 1994, the Senator's office faxed a copy of the
request for hearing and waiver of overpayment, dated April 13,
1994, to Mr. Swain's attention. May 17 Memo.

44. Mr. Swain then forwarded the April 13, 1994 letter from
Respondent to the OHA personnel office for processing. May 17
Memo.

45. For the pay period ending May 14, 1994, DHHS suspended the
deduction of $136.46 from Respondent's salary. DHHS Ex. 4 at 5.

46. On May 24, 1994, Chief of OHA's Personnel Staffing Services
Branch, Bonnie Miller, acknowledged receipt of Respondent's request
for hearing. R. Ex. 7.

47. Ms. Miller stated in her letter that Respondent's request for
hearing was misdirected to DHHS' Payroll and Accounting Operations
Group; however, the request for hearing was brought to her office's
attention by OHA's Division of Budget and Financial Management,
which received a fax of the request via the Senator's office. R.
Ex. 7.

48. Ms. Miller referred Respondent's request for hearing, which
included the request for waiver of the overpayment, to the
Departmental Appeals Board, and the case was docketed accordingly.
R. Exs. 7, 8.

49. "Hearing" means either a review of the record or an oral
hearing. 42 C.F.R. 30.15(b)(2).


ANALYSIS

A. The amount of the debt

Under the Debt Collection Act, debts include salary overpayments to
employees. 45 C.F.R. 30.2. As I noted in my September 15, 1994
Order Denying DHHS' Motion for Summary Judgment, Respondent does
not dispute that he received a salary overpayment for the pay
period ending July 10, 1993. Thus, there is no dispute in this
case that a debt exists. The parties disagree as to the amount of
that debt, however. DHHS claims that it is entitled to collect
from Respondent the gross amount of the salary check that DHHS
erroneously issued to Respondent. E.g., DHHS Reply at 4.
Respondent, by contrast, argues that the amount of the debt is the
net amount of the overpayment reduced by $125, the value of a U.S.
Savings Bond for which DHHS made a deduction but allegedly never
delivered to Respondent. R. Brief at 10 - 11.

For the reasons stated below, I conclude first that Respondent is
not entitled to reduce the amount of his overpayment by offsetting
the value of a savings bond he allegedly never received. Second,
I conclude that DHHS is not entitled to recover from Respondent the
gross amount of the salary overpayment. Third, I conclude that
DHHS' representation that Respondent may satisfy his debt by
repaying the net amount of his indebtedness in one lump sum is, in
effect, a settlement offer, which Respondent may accept or reject
as he chooses. I analyze the waiver question in a separate
section.


1. The net amount of the salary overpayment

I first consider the parties' dispute concerning the net amount of
the salary check DHHS erroneously issued to Respondent for the
payroll period that ended on July 10, 1993. The net amount
Respondent received is the necessary starting point for calculating
both the amount DHHS is entitled to recoup from Respondent and the
amount Respondent would need to repay if he were to accept DHHS'
offer to satisfy the debt by repaying the net amount in one lump
sum. Respondent contends that the net amount is $2059.57. DHHS
contends that the net amount erroneously overpaid to Respondent was
$2184.57. I conclude that the correct net amount is $2184.57, as
contended by DHHS.

The evidence shows that, shortly after the payroll period that
ended on July 10, 1993, DHHS issued two salary payments to
Respondent via electronic transfers to his credit union account:
once on July 13, 1993, and again on July 20, 1993. E.g., DHHS Ex.
2 at 9; DHHS Ex. 3 at 8; R. Ex. 1. DHHS issued an "Earnings and
Leave Statement" that corresponds to the $2059.57 amount paid to
Respondent for the pay period that ended on July 10, 1993. R. Ex.
10. By contrast, there is no "Earnings and Leave Statement"
corresponding to the $2184.57 amount. Other "Earnings and Leave
Statements" for pay periods prior to July 1993, as well as the
printout of Respondent's checking account entries, also show that
Respondent routinely received $2059.57 as his net salary from DHHS.
DHHS Exs. 2 at 10, 11; R. Ex. 1.

Respondent's disagreement with the $2184.57 amount appears to be
tied to his claim that he never received certain U.S. Savings Bonds
to which he is entitled. In his hearing request, Respondent did
state, "The overpayment amount I received was $2,184.57." By
contrast, in his brief he notes that DHHS deducted $125 for the
purchase of U.S. Savings Bonds in issuing him a net salary check
for only $2059.57 during July 1993, but he received no Savings
Bonds from DHHS for the $125 deduction. R. Brief at 10.

While I appreciate Respondent's concerns for the bonds DHHS should
have sent him, the issues before me are limited to those debts owed
to the United States. 45 C.F.R. 30.2. There is no hearing
right in this forum concerning any debt that may be owed by the
United States to its employees. Respondent must seek recourse
elsewhere to recoup any debt allegedly owed to him by DHHS.

For all these reasons, I conclude that the $2184.57 deposited by
DHHS in Respondent's credit union account is the net amount of the
salary overpayment made in error by DHHS. Therefore, it is on
this basis that I proceed to compute the amount of the debt which
DHHS is entitled to recoup from Respondent.

2. The amount DHHS is entitled to recover from Respondent

In this section, I calculate the amount of the debt owed by
Respondent to DHHS. I consider separately below the effect of
DHHS' apparent offer to compromise Respondent's debt for a lump sum
payment of a different amount and the question of whether
Respondent is entitled to waiver of the debt. In calculating the
amount of the debt, I have relied on the General Accounting
Office's (GAO's) opinion letter cited by DHHS. DHHS Ex. 5 at 2 -
5.

There is no doubt that the total amount of money erroneously
disbursed by DHHS on or about July 13, 1993 as a salary payment to
Respondent was $3548. Finding 6. DHHS argues, therefore, that the
total amount of the debt to be collected from Respondent is $3548.
However, based on the contents of the GAO opinion letter, I reject
DHHS' contention that the entire amount of the money wrongly
disbursed by DHHS must be collected from Respondent.

DHHS asserts that the amount of Respondent's debt is the gross
amount of the overpayment because it is a prior year debt. DHHS
claims that the GAO letter supports its policy "to collect
overpayment debts in the gross amount for prior year debts, and in
the net amount for current year debts." DHHS Ex. 5 at 1. I find
this policy unreasonable and lacking in legal support as applied to
the past year debt pending before me.

The GAO letter contains the following statement:

The amount to be collected is the gross amount of the
overpayment; that is, the total of all improper payments made
directly to the employee and payments made on the employee's
behalf.

DHHS Ex. 5 at 2 - 3. However, the GAO letter does not state that
the gross amount of the overpayment must be collected solely from
an employee in Respondent's situation. DHHS overlooks the fact
that GAO was addressing both the issue of what is the amount of an
overpayment to be collected by the agency as well as the issue of
what is the amount of the overpayment the agency should recoup from
an employee in Respondent's position. These are distinct issues,
as DHHS' right to collect debts is not limited to actions against
its employees. Under DHHS' regulations, "debts" include, "but are
not limited to . . . salary overpayments to employees," and a
"debtor" means also an "organization, association, partnership,
corporation . . . indebted to" DHHS. 45 C.F.R. 30.2 (emphasis
added). Therefore, while DHHS must indeed recover the gross amount
of overpayment it had erroneously made in July of 1993 ($3548),
that fact does not lead to the conclusion that DHHS has a right to
collect the gross amount of overpayment from Respondent.

GAO stated and illustrated by very clear examples 3/ that, in the
case of a past year debt such as Respondent's, the employee would
repay the agency (or have deducted from his salary check) only the
following:

o the net overpayment amount; and

o the withholdings the agency made for Medicare, federal
taxes, State taxes, and local taxes.

DHHS Ex. 5 at 4. The employee is required to repay the Medicare
and tax withholdings because the agency's records have already been
balanced with the tax authorities for the prior year, and the W-2
already issued to the employee showed the actual withholdings of
the prior year. Id. However, after the employee has repaid the
agency for these prior year withholdings, the agency would then
issue the employee a letter explaining the changes for the
employee's use in dealing with the tax authorities to recover the
excess withholdings. Id.

In the example GAO used to illustrate how the agency collects the
gross amount of the overpayment, the employee would not repay
deductions the agency erroneously made for his retirement policy,
life insurance policy, or savings plan. To "collect" the foregoing
types of deductions erroneously made by the agency during a prior
year, "[d]eductions reported on behalf of the employee would be
reduced [by the agency] the next time they were transmitted . . .,"
just as is done when the overpayment is corrected in the same
calendar year as it was made. Id. If the employee has changed
benefit programs or is no longer on the rolls, the agency is to
make reductions in the benefit accounts in effect at the time of
overpayment. DHHS Ex. 5 at 5.

The contents of the GAO letter are logical and reasonable. The
line drawn in GAO's examples between the extent of the employee's
financial obligations for the overpayment and the agency's
obligation to make adjustments and corrections in the payroll
systems under its control illustrates the fact that the total
amount of overpayment to be collected from Respondent is not the
gross amount of the overpayment, $3548. Instead, the amount of
overpayment to be recouped from Respondent is only the "total of
all improper payments made directly to the employee and [those]
payments made on the employee's behalf" which were mandated by law
and not within DHHS' power to collect from elsewhere. DHHS Ex. 5
at 3. Medicare, federal, State, and local income taxes must be
withheld by an employing agency pursuant to law, whether or not a
salary check is issued in error. The evidence introduced by the
parties does not suggest any practical means by which DHHS can, on
its own, recoup the improper Medicare, federal, State and local tax
withholdings from anyone except the employee after DHHS has
balanced its accounts with the taxing authorities for a prior year
and issued the employee a W-2 form containing the incorrect
withholdings for his tax filings. Therefore, as explained in the
GAO letter, the employee should repay the agency the amount of such
withholdings (along with the net amount he actually received) for
a prior year debt and use the document the agency provides to
obtain the appropriate refunds from the taxing entities.

Even though it may be possible for DHHS to use other means to
achieve the same end described by GAO, I find unreasonable DHHS'
approach of placing upon Respondent the burden of repaying the
entire overpayment amount of $3548. First, it is inequitable for
DHHS to require Respondent to repay any duplicative deductions DHHS
made to his retirement, savings, or health plans. Respondent was
not required by law to have deductions made for health insurance,
and he need not have elected to contribute to a thrift savings
plan. Respondent never authorized DHHS to make more than one
deduction per payroll period for his contribution to each plan, and
he never authorized these plans to receive two identical
contributions for the same payroll period from DHHS.

Respondent has already been greatly inconvenienced by the mistakes
made by DHHS. As the GAO letter pointed out, if DHHS wishes to
recoup the money it erroneously paid out during a prior year to the
employee's federal retirement plan, insurance policy, and thrift
savings account, DHHS is capable of making the necessary reductions
or adjustments within its own systems to compensate for such money.
In addition, DHHS has admitted its capability for reducing all
improper deductions withheld and reported on behalf of Respondent.
DHHS Brief at 10. The equities are in favor of DHHS' correcting
its own errors with as little inconvenience to Respondent as
possible.

In addition, if Respondent were to repay his gross salary of $3548
as urged by DHHS, Respondent's money would have paid for one extra
pay period's worth of contributions to his retirement plan, health
plan, and thrift savings plan. There is no allegation that
Respondent has derived any benefit from having had two payments
(instead of one) made to his health plan or CSRS retirement plan
for the pay period that ended on July 10, 1993. DHHS has made no
commitment to refunding the duplicative contributions to Respondent
should he repay the $3548. DHHS also has set forth no means by
which Respondent may be able to recoup these extra contributions
made by DHHS in his name if he should pay DHHS his gross salary
amount. While DHHS is capable of making the reductions and payroll
system adjustments in the manner described by GAO, there is no
evidence that Respondent will be able to stop his voluntary
contributions to such plans for only one pay period in order to
achieve the same result.

Accordingly, I conclude that, out of the $3548 salary overpayment
issued by DHHS for the pay period ending on July 10, 1993,
Respondent owed $3102.69 prior to DHHS' effectuating payroll
deductions in March and April of 1994 to offset the debt. I have
calculated the amount as follows:

$2184.57 (net amount Respondent received) plus $ 51.45
(withheld for Medicare) plus
$ 711.62 (withheld for federal taxes) plus
$ 155.05 (withheld for state taxes) equals
$3102.69

See DHHS Ex. 3 at 8. That amount was further reduced by DHHS'
collection of $545.84 through payroll deductions during the months
of March and April of 1994. Findings 29, 31. Therefore, before I
reach the issue of whether the debt should be waived in whole or in
part, the outstanding debt amount owed by Respondent to DHHS under
the Debt Collection Act is $2556.85.

Subject to my ruling on the waiver issue discussed below,
Respondent may satisfy his indebtedness to DHHS by making a lump
sum repayment to DHHS or by making installment payments consistent
with DHHS' rights under 45 C.F.R. 30.15. DHHS must promptly
provide the necessary documents that will enable Respondent to seek
refunds from the State and federal taxing authorities when
Respondent has made the appropriate repayment(s) to DHHS.

3. DHHS' pending offer to accept a lump sum payment of
$1638.73 in satisfaction of Respondent's debt

In the alternative to its demand that Respondent repay the gross
amount of the salary overpayment, DHHS has offered Respondent the
opportunity to satisfy his debt by repaying in one lump sum the net
amount of his debt. When reduced by the amounts already recouped
by DHHS through payroll deductions, the net amount of Respondent's
debt is $1638.73. 4/ DHHS defends this offer based on its asserted
policy, discussed above, to collect past year debts in gross
amounts and to collect present year debts in net amounts. I
conclude that DHHS' position is not supported by the record. In
addition to my conclusion, explained above, that this policy is
contrary to the GAO opinion letter relied on by DHHS, I conclude
also that such a policy is inconsistent with the contents of the
standard "Instructions for Indebtedness Payment" sent by DHHS to
Respondent.

The standard "Instructions" make no distinction between past year
debts and present year debts. The document merely instructs all
debtors that, if they choose to repay in full, they need only send
the net amount; if they choose to make repayment in installments
through biweekly payroll deductions, they need to repay the gross
amount. DHHS Ex. 3 at 2. By the time the "Instructions for
Indebtedness of Payment" were issued to Respondent in 1994 pursuant
to the certification of overpayment by DHHS' Assistant Director for
Personnel and Pay Systems Division, Respondent's debt already
constituted a prior year debt. Finding 23.

DHHS is aware of these inconsistencies but claims that Respondent
should not have been offered the opportunity to repay only the net
amount. DHHS Brief at 10 n.4. However, while alleging that
Respondent should have been required to repay the gross amount
instead of the net amount of a past year debt, DHHS also claims
that Respondent's repayment of the net amount would still result in
his "refund[ing] the gross amount of the overpayment; in this case
$3,548.00." DHHS Brief at 10. DHHS' position is that, if
Respondent repays the net amount, DHHS will recoup the remainder of
the gross amount from Respondent by making adjusted payroll
deductions or reports on his accounts with other agencies. Id.

I find DHHS' explanations of these matters unpersuasive and
incomplete. First, DHHS' explanations in this proceeding imply
that, in addition to DHHS Exhibit 3, other form notices to debtors
are in use. There is no support in the record for such an
implication. More importantly, issues concerning potential tax
consequences to Respondent, for example, were not addressed by
DHHS' representation that, if Respondent were to repay the
outstanding net amount of his salary overpayment in one lump sum
(i.e., the $2184.57 in net salary less the $545.84 already recouped
by DHHS), DHHS would then recover the remaining sums by "reducing
the deductions withheld and reported on behalf of the employee to
the various agencies in subsequent pay periods." DHHS Brief at 10.

For these reasons, no legal or factual support exists for DHHS'
asserted policy to collect past year debts in their gross amounts
and present year debts in their net amounts. Therefore, I construe
DHHS' statements as, at best, a settlement offer. DHHS has stated
for the record that it remains willing to accept a lump sum payment
of the net amount still owed by Respondent ($1638.73), subject to
DHHS recouping the remaining gross salary overpayment amount by
reducing those portions of Respondent's subsequent salaries that
DHHS transfers or reports to various agencies on Respondent's
behalf. DHHS Brief at 10. Since Respondent has never rejected
this offer, Respondent may, if he chooses, make a lump sum payment
of $1638.73 under the terms specified by DHHS. If Respondent
chooses to accept DHHS' terms, his actions would render moot the
debt amount and waiver issues presently before me.

I make clear to the parties that, here, I am merely finding that
Respondent has a right to accept the terms of the offer made by
DHHS. The parties are at liberty to negotiate their own settlement
terms even though, as discussed herein, I find no legal support of
record for DHHS' asserted policy of collecting the gross amount of
the overpayments from its employees when the debt accrued during a
previous year. It is also apparent that, in setting forth its
offer in this record, DHHS has not stated whether or how it will
assist Respondent in correcting the records of Respondent's income
with the Internal Revenue Service or in seeking any tax refunds due
Respondent. Therefore, Respondent is cautioned to decide the
merits of DHHS' offer for himself.

B. Respondent's waiver request

In cases where the United States has a claim against an individual
due to an erroneous disbursement of pay, the overpayment may be
waived either in whole or in part if its collection would be
against equity and good conscience and not in the best interests of
the United States. 5 U.S.C. 5584(a). However, collection of
the debt may not be waived if there exists "an indication of fraud,
misrepresentation, fault, or lack of good faith on the part of the
employee or any other person having an interest in obtaining a
waiver of the claim . . . ." 5 U.S.C. 5584(b)(1). There is no
presumption that collection will be waived merely because an
overpayment resulted from administrative error. Federal Personnel
Manual - HHS 550-8-30.B.1. (DHHS Attachment 6 at 3). Instead,
all waiver requests must be decided on a case by case basis. Id.

The authority to grant or deny waiver requests under the statute
rests with the Comptroller General of the United States, except
that the head of an agency (or, as in this case, the official to
whom the Secretary of DHHS has referred the waiver request) may
waive the collection of an amount not in excess of $1500. 4 C.F.R.
91.4(c)(1). With respect to requests for waiver of an amount in
excess of $1500, the head of an agency or her designate may make an
appropriate recommendation to the Comptroller General, or the head
of an agency or her designate may deny the waiver request as it
pertains to any amount in excess of $1500. 4 C.F.R.
91.4(c)(1), (2); 92.2(c). If waiver is denied, the individual is
entitled to have the denial reviewed by the Comptroller General.
Id.

In the present case, DHHS referred the entire contents of
Respondent's hearing request for adjudication by me. Finding 48.
Respondent sought a hearing on the issue of the amount of his debt
and whether the debt should be waived. Finding 35. "Hearing," as
defined by the relevant regulation, includes a review of the
documentary evidence of the record. Finding 49. Therefore, I
conclude that I have been delegated the responsibility for
disposing of the waiver issue to the same extent that the Secretary
of DHHS has authority to do so under the laws and regulations
described above.

Respondent contends that he is entitled to have the collection of
his debt waived pursuant to 5 U.S.C. 5584. R. Brief at 13.
Respondent points out that he was in no way responsible for the
erroneous issuance of an overpayment to him. Moreover, he has
expended considerable efforts in investigating whether and how an
overpayment occurred, and he elicited the assistance of a Senator's
staff in order to obtain clarifications and information from DHHS.
R. Brief at 1 - 3, 13 - 22; Findings 16 - 18, 39, 43. He therefore
believes that there is no indication of fraud, misrepresentation,
fault, or lack of good faith that would preclude the granting of
his waiver request. R. Brief at 13 - 22. Respondent believes also
that granting his waiver request will promote accountability in
government and "punish the people involved in this matter," who, in
Respondent's view, did not do their jobs or did not do their jobs
correctly. R. Brief at 14. Respondent does not specify to what
extent the collection of his debt should be waived. Respondent's
letter dated September 19, 1994.

DHHS acknowledges that the debt was created by an administrative
error, and it was not caused by any fraud or misrepresentation.
DHHS Brief at 2. DHHS argues, however, that Respondent is at
fault, and therefore not entitled to a waiver of his debt, because
he knew or should have known that the overpayment was erroneous or
that he was not entitled to retain it. DHHS Brief at 6 (citations
omitted). DHHS also uses the handwritten note of an unidentified
person to support its assertion that an employee of OHA's Travel
and Payroll Staff in Falls Church, Virginia, did tell someone to
tell Respondent to pay the money back. DHHS Brief at 2 (citing
DHHS Ex. 1). 5/ DHHS contends that, "[a] reasonable person,
particularly an administrative law judge, may not rely upon lack of
response to a telephone inquiry to justify retention of an
overpayment to which he knows he is not entitled." DHHS Brief at
6 - 7.

The problem in DHHS' position is that it could place at fault any
individual who came to the realization that the agency made an
error, in good faith brought the error to the agency's attention,
sought and awaited instructions from the agency on how to correct
the agency's error, and declined to make repayments in advance of
exercising his right to contest the amount of the debt claimed
against him.

The facts in this case establish that Respondent realized he had
been overpaid by the agency shortly after his bank account was
credited with surplus money. All the steps he took before and
after coming to that realization were reasonable and prompted by
the exigencies of the circumstances. Findings 13 - 18, 21, 26, 27,
32 - 35. All that he did was in accord with DHHS' expectations of
a responsible employee. DHHS Attachment 6 at 3. 6/ Even though
the record reveals that no biweekly Earnings and Leave Statement
was issued for the overpayment, Respondent made inquiries with his
credit union and then had the Hearing Office Manager's staff
contact the agency's central payroll office concerning the
overpayment. His actions do not indicate that, after he became
aware that he was overpaid, he resorted to misrepresentations to
DHHS or attempted to defraud DHHS out of the overpayment.

Respondent did not voluntarily repay the amount owed to DHHS
because he received no instructions on repayment from DHHS at
first; after he received such instructions, he had legitimate
reasons to dispute the amount sought by DHHS. Findings 26, 27, 32
- 35. As I have noted above, even some of DHHS' written
instructions to him were at odds with the policies and procedures
claimed by DHHS in these proceedings. To date, Respondent has
availed himself of those rights and remedies that are available to
him as a citizen and as an agency employee.

I find no basis for placing Respondent at fault under the waiver
provisions of the law merely because he became aware he had
received an overpayment, made inquiries in good faith, sought
instructions from DHHS on how the error should be corrected, and
declined to repay the incorrect amount demanded by DHHS. Under the
Comptroller General's regulations, there is no automatic preclusion
of a waiver request under facts similar to those of this case:

Generally, waiver is precluded when an employee
. . . receives a significant unexplained increase in pay or
allowances, or otherwise knows, or reasonably should know, that an
erroneous payment has occurred, and fails to make inquiries or
bring the matter to the attention of the appropriate officials.

4 C.F.R. 91.5(b)(1993). Under the regulation, it is
unreasonable ignorance or inactivity that may impute fault to an
overpaid employee; it is not the prompt awareness of an
administrative error or the good faith inquiries of responsible
officials that places an overpaid employee at fault.

DHHS has misplaced reliance upon two 1971 opinions from the
Comptroller General's office for the proposition that, whenever an
employee knows or has reason to know he received an overpayment,
then he is at fault even though he had reported the error to the
agency. See DHHS Brief at 6. First of all, Respondent received
one salary overpayment from the agency, not the repeated and
consecutive salary overpayments involved in the cases cited by
DHHS. In one of the 1971 cases cited by DHHS, the Comptroller
General cited certain regulatory guidelines published in 1968 and
sustained the denial of the waiver request where the debtor had
accepted the same amount of overpayments six consecutive pay
periods after having notified his supervisor of the error.
Theodore F. Nathan, B-171944 (March 23, 1971) (DHHS Attachment 4).
In the second 1971 case relied upon by DHHS, the debtor accepted
the same amount of overpayment during all pay periods from November
4, 1965 to March 5, 1966. Robert L. Raybon, B-171487 (January 26,
1971) (DHHS Attachment 5). In addition, contrary to what is argued
by DHHS, the Comptroller General reversed the decision below and
granted the debtor's waiver request after finding that the debtor
did make immediate inquiries upon becoming aware of the problem and
that the errors were not corrected by the agency until some months
later. Id.


The additional case cited by DHHS 7/ re-emphasizes the fact that,
at bottom, equity, good conscience, and the best interests of the
United States are controlling on the issue of whether a waiver
should be granted. 5 U.S.C. 5584(a). As explained by
regulation, "[g]enerally these criteria will be met" by the finding
that the overpayment resulted from an administrative error and
there is "no indication of" fraud, misrepresentation, fault, or
lack of good faith. 4 C.F.R. 91.5(b)(emphasis added). Contrary
to DHHS' arguments, there is no bright-line test on whether a
waiver request should be granted.

In Respondent's case, waiving the entire amount of Respondent's
debt would not be in accord with equity, good conscience, and the
best interests of the United States even though the debt was
created by agency error and DHHS' attributions of fault to
Respondent are unpersuasive. Despite the inconvenience to
Respondent and his natural anger over his ordeal (e.g., R. Brief at
14), equity and good conscience do not entitle him to retain the
entire amount of the overpayment. The tenor of his September 19,
1994 letter indicates merely that he is seeking to be treated
fairly. Moreover, there is no evidence that waiving the entire
amount of Respondent's debt will serve the purposes earlier
advanced by Respondent: i.e., to promote accountability in
government and to punish those who did not do their jobs properly.
See R. Brief at 13 - 14. Unfortunately, the money at issue was
never the personal property of those who created or perpetuated the
problems concerning the overpayment to Respondent. Therefore,
waiving the collection of Respondent's debt in full will unjustly
punish the American people, whose tax dollars were used to make the
overpayment to Respondent.

Respondent's arguments show that he is not seeking to unjustly
enrich himself. As the cases relied upon by DHHS show (and as I
think Respondent recognizes), an employee cannot create any right
or enforceable expectation to retain an overpayment even where he
has promptly and properly reported his receipt of an erroneous
overpayment. Instead, the granting or denying of a waiver request
is a discretionary matter, decided on the particular circumstances
of each case as measured against the statutory criteria of equity,
good conscience, and the best interests of the United States.
In his filing dated September 19, 1994, Respondent states that he
is requesting a waiver because he is "an innocent party" who should
not be "punish[ed]" for an error he did not cause. The facts in
this case persuade me that waiving $500 of the debt owed by
Respondent would be in accord with the standards specified in 5
U.S.C. 5584(a). Respondent has expended his time and efforts to
remedy DHHS' errors, and even after he has repaid the debt to DHHS,
he will need to file various tax refund requests if he wishes to
negate the effects of DHHS' erroneous withholdings. According to
Respondent's payroll records, his time is worth between $45 to $50
per hour to DHHS. DHHS Ex. 4 ($49.40 in 1994); R. Ex. 10 ($44.35
in 1993). 8/ I believe that Respondent's uncompensated efforts,
past and future, in this overpayment matter will total
approximately 10 hours.
Even though the actual amount of time Respondent has spent on the
matter to date may differ from my estimate, I note that some of his
efforts properly took place at the Hearing Office and with the
assistance of Hearing Office employees during work hours. E.g., R.
Exs. 2, 4, 6. I have not included such time in my calculation of
the 10 hours that Respondent has or will put into the matter during
his off-duty hours. Therefore, permitting Respondent to retain
$500 of the overpayment would be in accord with the equities of the
circumstances before me.

Not permitting Respondent to retain $500 would be against good
conscience and would amount to treating Respondent the same as an
employee who had induced an overpayment through fraud or
misrepresentation and, therefore, should rightfully spend his or
her own time to sort out the resultant problems. Forcing an
employee in Respondent's situation to spend his own time to undo
the agency's errors serves no legitimate interest of the United
States, in whose behalf the debt is to be collected. I therefore
find that waiving collection of $500 from Respondent's debt to DHHS
would also be in accord with good conscience, and the best
interests of the United States.

Accordingly, Respondent's debt of $2556.85 to DHHS is further
reduced by the amount of $500. If Respondent disagrees with my
decision to deny him the waiver of that amount of his debt in
excess of $500, he may request review by the Comptroller General.

_____________________________
Mimi Hwang Leahy
Administrative Law Judg

APPENDIX

RECITATION OF THE RECORD THAT WAS REVIEWED

I admitted the following exhibits in this case:

DEPARTMENT OF HEALTH AND HUMAN SERVICES'S EXHIBITS

DHHS Ex. 1 August 4, 1993 handwritten note of telephone call
with Johnnie Gorham; an August 13, 1993 handwritten note of
telephone call with Johnnie Gorham; and a September 1, 1993
handwritten note of telephone call with Larna Grace.

DHHS Ex. 2 November 23, 1993 routing and transmittal slip
regarding indebtedness of Alfred H. Varga from Theresa Lucas,
Travel and Payroll; a November 24, 1993 messenger receipt card; an
undated quarterly listing of pay data of Alfred H. Varga (page
number 208,180); an undated quarterly listing of pay data of Alfred
H. Varga (page number 208,181); an undated quarterly listing of pay
data of Alfred H. Varga (page number 73,767); a July 21, 1993 bank
statement of Alfred H. Varga (548270VA-001); a July 21, 1993 bank
statement of Alfred H. Varga (548270VA-002); a June 26, 1993
bi-weekly listing of pay data of Alfred H. Varga; an undated
earnings and leave statement of Alfred H. Varga (pay period ending
July 10, 1993); an undated earnings and leave statement of Alfred
H. Varga (pay period ending June 12, 1993); and an undated earnings
and leave statement of Alfred H. Varga (pay period ending June 26,
1993).
DHHS Ex. 3 January 18, 1994 certification of salary overpayment
to Alfred H. Varga from Joseph V. Colantuoni, Assistant Director
for Personnel and Pay Systems Division, with attachments.


DHHS Ex. 4 Undated earnings and leave statements of Alfred H.
Varga (pay periods ending March 19, 1994, April 2, 1994, April 16,
1994, April 30, 1994, and May 14, 1994).

DHHS Ex. 5 June 24, 1994 Memorandum to Donald Rising, Assistant
Special Counsel, Office of Hearings and Appeals, from Joseph V.
Colantuoni, with attachment.

RESPONDENT'S EXHIBITS

R. Ex. 1 July 21, 1993 bank statement of Alfred H. Varga
(548270VA-001). This bank statement is the same as the one
mentioned in DHHS Ex. 2.

R. Ex. 2 September 1, 1993 handwritten note of telephone call
with Theresa Lucas and an attached November 23, 1993 routing and
transmittal slip regarding indebtedness of Alfred H. Varga from
Theresa Lucas. This transmittal slip is the same as the one
mentioned in DHHS Ex. 2.

R. Ex. 3 July 22, 1993 routing and transmittal slip to
Theresa Lucas from Larna Grace; an August 3, 1993 handwritten note
of a telephone call with Theresa Lucas; and a September 1, 1993
handwritten note of a telephone call with Theresa Lucas. This
September handwritten note is the same as the one mentioned in R.
Ex. 2.

R. Ex. 4 Undated sheet of various names and telephone
numbers.

R. Ex. 5 January 18, 1994 certification of salary overpayment
to Alfred H. Varga from Joseph V. Colantuoni, with attachments.
This certification is the same as the one mentioned in DHHS Ex. 3.
A facsimile transmittal sheet addressed to Larna Grace from Theresa
Lucas is attached to the front of this document.

R. Ex. 6 April 13, 1994 letter to the Payroll and Accounting
Operations Group, Personnel and Pay Systems Division, from Alfred
H. Varga.

R. Ex. 7 May 24, 1994 letter to Alfred H. Varga from Bonnie
L. Miller, Chief, Personnel Staffing Services Branch.

R. Ex. 8 May 24, 1994 letter to Alfred H. Varga and Donald A.
Rising from Gerald P. Choppin, Chief, Civil Remedies Division; and
a May 24, 1994 Departmental Appeals Board, Civil Remedies Division,
order and notice of prehearing conference.

R. Ex. 9 January 18, 1994 certification of salary overpayment
to Alfred H. Varga from Joseph V. Colantuoni, without attachments.
This certification is the same one mentioned in DHHS Ex. 3 and R.
Ex. 5.

R. Ex. 10 Undated earnings and leave statement of Alfred H.
Varga (pay period ending July 10, 1993). This earnings and leave
statement is the same one mentioned in DHHS Ex. 2.

1. In the hearing request, Respondent also objects to DHHS'
making deductions of $136.46 per payroll period to satisfy the
asserted debt of $3547.96. As I find below, DHHS had made four
payroll deductions for the purpose of recouping the overpayment in
issue. Finding 29. The deductions began because DHHS did not
receive any response to the instructions on repayment intended for
Respondent. See Finding 28. Moreover, DHHS ceased such deductions
once Respondent forwarded a hearing request. Finding 45. The
amount recouped by DHHS through such deductions is far less than
the overpayment amount identified by Respondent in his hearing
request. Finding 31. For these reasons, I conclude that DHHS'
cessation of the deductions have rendered moot Respondent's
objection that DHHS made deductions in an arbitrary manner.

2. DHHS initially filed a document entitled DHHS' Motion and
Brief for Summary Judgment (DHHS Brief). Respondent filed his
Answer to DHHS' Motion and Brief for Summary Judgment (R. Brief).
DHHS then filed its Reply to Respondent's Answer to DHHS' Motion
and Brief for Summary Judgment (DHHS Reply). Thereafter,
Respondent sent a letter containing additional arguments; however,
he later requested to withdraw his letter. DHHS did not object to
the request. Therefore, I granted Respondent's motion to withdraw
his letter brief.

In light of the fact that DHHS had agreed at the prehearing
conference that this case should be decided on a paper record, I
sought clarification on whether DHHS had correctly styled its
motion and brief. Counsel for DHHS confirmed that DHHS wished me
to rule on whether it was entitled to judgment as a matter of law
and, if not, as to what material facts remained in dispute.
Therefore, on September 15, 1994, I issued a Ruling Denying DHHS'
Motion for Summary Judgment. I gave the parties the opportunity to
file additional submissions, which they did.

DHHS' briefs were accompanied by documents marked as exhibits and
attachments. In the absence of any objections from Respondent, I
have admitted into evidence all of DHHS' proposed exhibits (DHHS
Ex. 1 to 4). In addition, I have redesignated DHHS Attachment 7 as
DHHS Ex. 5, and I admit it into evidence as well.

I have admitted into evidence also the documents submitted by
Respondent (R. Ex. 1 to 10).


3. The examples used by GAO parallel Respondent's situation.
In the examples, the agency made withholdings for federal
retirement and life insurance, Medicare and federal income taxes,
State taxes, and local taxes; and the agency deducted contributions
to the employee's thrift savings plan. In Respondent's case, DHHS
made withholdings for Respondent's retirement plan (CSRS), Medicare
taxes, federal taxes, and State taxes. In addition, DHHS deducted
contributions to Respondent's thrift savings plan. DHHS Ex. 3 at
8.

4. The $1638.72 represents the erroneous net salary payment to
Respondent of $2184.57, less the payroll deductions totaling
$545.00 previously made by DHHS.


5. On the basis of the record before me, I conclude that DHHS
has not proven that the message from the Travel and Payroll Staff
was received by Respondent. See Findings 19 - 21.

6. According to DHHS' personnel manual instructions,

Currently, each employee receives from the Pay Systems
Division a biweekly Earnings and Leave Statement. Employees are
responsible for reviewing their statement and notifying their
supervisors and their personnel officers of any unexplained changes
in their pay.

Federal Personnel Manual - Health and Human Services
550-8-30.B.3. (DHHS Attachment 6 at 3).

7. DHHS attached to its Supplemental Brief the Comptroller
General's reconsideration decision in Erik Brett Sager, B-218981
(October 7, 1986) (DHHS Attachment 8). In this case, the facts
were in dispute as to whether Mr. Sager had reported his erroneous
overpayment to the appropriate authorities, and the adjudicator in
the initial decision had found against Mr. Sager on this issue in
denying his waiver request. On reconsideration, the Comptroller
General affirmed the denial of waiver by noting, inter alia:

The waiver statute authorizes the waiver of overpayments
resulting from administrative error only in limited circumstances,
when the employee is without fault in causing and reporting the
error, and collection action would otherwise be "against equity and
good conscience and not in the best interests of the United
States."

DHHS Attachment 8 at 2.

8. I use these records to place a value on Respondent's time
because no other possible valuation method is before me. In my
Order Denying DHHS' Motion for Summary Judgment and Limiting the
Hearing to a Paper Record Review, I notified the parties of the
pending issue concerning "[w]hether the facts of this justify a
waiver of the overpayment" and, "[i]f so, the amount that should be
waived." Neither party has submitted any argument specifically
addressing the amount that should be waived.