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NORTHEASTERN EDUCATIONAL INTERMEDIATE UNIT NO. 19 v. COMMONWEALTH PENNSYLVANIA (08/15/84)

decided: August 15, 1984.

NORTHEASTERN EDUCATIONAL INTERMEDIATE UNIT NO. 19, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, OFFICE OF THE AUDITOR GENERAL AND AL BENEDICT, THE AUDITOR GENERAL OF THE COMMONWEALTH OF PENNSYLVANIA, RESPONDENTS



Appeal from the Order of the Auditor General of Pennsylvania and the Office of the Auditor General in the case of Northeastern Educational Intermediate Unit No. 19, dated September 21, 1983.

COUNSEL

Paul L. Stevens, with him, Jeffrey T. Tucker and Ellis H. Katz, Curtin and Heefner, for petitioner.

Charles D. Shields, Jr., with him, Alan Kohler and James L. McAneny, for respondents.

Judges Williams, Jr., Doyle and Blatt, sitting as a panel of three. Opinion by Judge Williams, Jr. Judge Doyle concurs in the result only.

Author: Williams

[ 84 Pa. Commw. Page 532]

Petitioner, Northeastern Educational Intermediate Unit No. 19 (NEIU), an educational unit under the provisions of the Public School Code, Act of March 10, 1949, P.L. 30, as amended, 24 P.S. § 9-951 to § 9-971,*fn1 was established to provide educational services to children who are residents of the twenty school districts located in Lackawanna, Wyoming, Wayne and Susquehanna Counties. Like all entities which receive funding from the Commonwealth of Pennsylvania, NEIU is subject to financial audits in accordance with the Pennsylvania Constitution, Article 8, § 10.*fn2 Such an audit of NEIU's financial affairs for the 1979-80 through 1981-82 school years was performed by Al Benedict, the Pennsylvania Auditor General, pursuant

[ 84 Pa. Commw. Page 533]

    to his statutory authority under Section 403 of the Fiscal Code.*fn3 The report of that audit, which was formally released on September 21, 1983, identified numerous deficiencies in the management, fiscal and accounting procedures of NEIU. Among the deficiencies identified were: failure of NEIU to recover over $600,000 in tuition and transportation costs expended to provide educational services to children from other states; misallocation of funds earmarked for special education programs in order to defray deficits incurred for data processing; failure to comply with state and federal regulations regarding proper bidding procedures for purchases of equipment and services; expenditure of $56,490 for leased space which was inaccessible and unusable; maintenance of unauthorized bank accounts, and inadequate controls and accounting for sales, expenditures and inventory in connection with a greenhouse which NEIU operated

[ 84 Pa. Commw. Page 534]

    as part of its special education curriculum; and expenditures in excess of $100,000 to a special consultant whose hiring was never approved by NEIU's board. In his report, covering some 63 pages, the Auditor General made numerous recommendations to NEIU regarding means of correcting the cited deficiencies. Also included in the report were several recommendations to the Commonwealth Department of Education regarding what the Auditor General considered to be an appropriate departmental response to the findings. None of the recommendations was binding on either NEIU or the Department of Education. NEIU has petitioned this Court for review of the audit report on the grounds that the Auditor General exceeded his statutory authority in preparing and issuing the report, that the procedures utilized by the Auditor General violated NEIU's right to due process, and that the statements and findings contained in the report are biased, discriminatory, and erroneous.

An important threshold inquiry must precede, and perhaps preempt, any consideration of whether the audit report was authorized or fair. That inquiry is whether the issuance of this audit report is an "adjudication" within the intendment of the Administrative Agency Law,*fn4 such that an appeal may be taken. NEIU relies on our opinions in Auditor General of Pennsylvania v. East Washington Borough, 23 Pa. Commonwealth Ct. 382, 351 A.2d 687 (1976) and School District of Lancaster v. Commonwealth Department of Education, 73 Pa. Commonwealth Ct. 246, 458 A.2d 1024 (1983) in asserting that the audit report

[ 84 Pa. Commw. Page 535]

    constitutes an adjudication. The Auditor General, on the other hand, argues strenuously that East Washington Borough is inapposite to this case inasmuch as, in East Washington Borough, the Auditor General exercised independent authority to deny an appropriation on the basis of findings made in his audit report, while in this case, the Auditor General has no independent authority to implement any of the recommendations made in the audit report. With respect to Lancaster, the Auditor General contends that, to the extent that the case is read to ascribe adjudicatory significance to all audit reports issued by the Auditor General's office, the holding undermines an orderly administrative review process and should be abandoned. ...


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