Food Stamp Program; Payment of Certain Administrative Costs of State Agencies

SUMMARY: This proposed rule reduces the Federal reimbursement rate for

certain costs of State agencies in administering the Food Stamp

Program. These changes are mandated by the Mickey Leland Childhood

Hunger Relief Act of 1993 (Leland Act). The Leland Act reduces the

Federal rate of reimbursement for fraud control, automated data

processing development, and Systematic Alien Verification for

Entitlements costs. This rule proposes to amend Food Stamp Program

regulations to comply with Leland Act mandates on these funding

provisions. In addition, this rule proposes to limit the period that a

State agency may retroactively claim Federal funding of administrative

costs for Food Stamp Program activities and allows the costs of

certifying Aid to Families with Dependent Children households for food

stamps to be charged to the Food Stamp Program for Federal

reimbursement purposes.

DATES: Comments must be received on or before January 23, 1995, in

order to be assured of consideration.

ADDRESSES: Comments should be addressed to Cecilia Fitzgerald, Section

Chief, State Management Section, Program Accountability Division, Food

and Nutrition Service (FNS), 3101 Park Center Drive, Alexandria,

Virginia 22302. All written comments will be open to public inspection

during regular business hours (8:30 a.m. to 5 p.m., Monday through

Friday) at 3101 Park Center Drive, Alexandria, Virginia, room 905.

FOR FURTHER INFORMATION CONTACT: Questions concerning this proposed

rulemaking should be addressed to Ms. Fitzgerald at the above address

or by telephone at (703) 305-2386.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866

This proposed rulemaking has been determined to be significant and

was reviewed by the Office of Management and Budget under Executive

Order 12866.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance under No. 10.551 and information on State agency

administrative matching grants for the Food Stamp Program is listed

under No. 10.561. For the reasons set forth in the final rule and

related notice to 7 CFR 3015, subpart V (48 FR 29115), this Program is

excluded from the scope of Executive Order 12372 which requires

intergovernmental consultation with State and local officials.

Executive Order 12778

This rule has been reviewed under Executive Order 12778, Civil

Justice Reform. This rule is intended to have preemptive effect with

respect to any State or local laws, regulations or policies which

conflict with its provisions or which would otherwise impede its full

implementation . This rule is not intended to have retroactive effect

unless so specified in the ``Effective Date'' section of this preamble.

Prior to any judicial challenge to the provisions of this rule or the

application of its provisions, all applicable administrative procedures

must be exhausted. In the Food Stamp Program the administrative

procedures are as follows:

(1) For program benefit recipients--State administrative procedures

issued pursuant to 7 U.S.C. 2020(e)(10) and 7 CFR 273.15;

(2) For State agencies--administrative procedures issued pursuant

to 7 U.S.C. 2023 set out at 7 CFR 276.7 (for rules related to non-QC

liabilities) or Part 283 (for rules related to QC liabilities);

(3) For program retailers and wholesalers--administrative

procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 278.8.

Regulatory Flexibility Act

This action has been reviewed with regard to the requirements of

the Regulatory Flexibility Act of 1980 (Pub. L. 96-354, 94 Stat. 1164,

September 19, 1980). William Ludwig, Administrator of the Food and

Nutrition Service, has certified that this rule does not have a

significant economic impact on a substantial number of small entities.

This rule will affect the State and local agencies which administer the

Food Stamp Program, by modifying the recordkeeping and reporting

requirements applicable to them, and modifying the rates of Federal

funding reimbursement for certain Food Stamp Program activities.

Paperwork Reduction Act

The requirement under the Leland Act to eliminate enhanced funding

levels for certain Program activities, resulted in the need for the

Department to revise forms FNS-366A, Budget Projection, and SF-269,

Financial Status Report to include a column for reporting activities

funded at the 50 percent funding rate. The SF-269 is a nationwide form

required by OMB to be used by all government agencies to report

financial status. The Department regulations at 7 CFR 3015.84

implemented this mandatory use of SF-269. The revisions have been sent

to the Office of Management and Budget (OMB) and have been approved

under OMB No. 0584-0083 for the FNS-366A and 0505-0008 for the SF-269.

OMB also requires the use of form SF-270 when an agency wants to adjust

the Program's financial status when the letter-of-credit is not used.

The Department regulations at 7 CFR 3015.84(b) implemented this

mandatory use of SF-270. A specific reference to the use of form SF-270

for Food Stamp Program purposes appears in Sec. 277.11 of this proposed

action. While the form is approved for use by OMB under OMB No. 0505-

0008, the Department had inadvertently neglected to inform OMB of the

burden hours associated with the use of this form for Food Stamp

Program purposes. For Food Stamp Program purposes only, burden

associated with SF-270 is estimated to average l hour per response.

This estimated burden assumes that each respondent (53 State welfare

agencies) would submit a SF-270 at least three times annually. Thus,

burden associated with OMB No. 0505-0008 will increase an estimated 159

hours annually. Pursuant to the Paperwork Reduction Act of 1980 (44

U.S.C. 3507), the increased burden estimate will be forwarded to OMB

for inclusion into the overall burden estimates approved under OMB No.

0505-0008.

The public reporting burden discussed in the previous paragraphs

for OMB Nos. 0584-0083 and 0505-0008 includes the time for reviewing

instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. Send comments regarding this burden estimate

or any aspect of the information collection requirements, including

suggestions for reducing the burden, to the State Management Section,

Program Accountability Division (address above) and to the Office of

Information and Regulatory Affairs, OMB, Room 10235, New Executive

Office Building, Washington, D.C. 20503, Attn: Wendy Taylor, Desk

Officer for FNS.

The remaining provisions of this proposed rulemaking do not contain

reporting or recordkeeping requirements subject to approval by OMB.

Background

The Leland Act (Pub. L. 103-66), signed on August 10, 1993, made a

number of changes to the Food Stamp Act of 1977, as amended (the Food

Stamp Act). This proposed rulemaking pertains to the administrative

funding rate provisions established in Section 13961 of the Leland Act.

These provisions are discussed in the following paragraphs.

Most State agency food stamp administrative costs are reimbursed by

the Department's Food and Nutrition Service (FNS) at the Federal

reimbursement rate of 50 percent. However, certain State agency

activities are reimbursed at higher or ``enhanced'' rates, including

fraud control, automated data processing (ADP) system development, and

Systematic Alien Verification for Entitlement (SAVE). Under the current

rules in 7 CFR 277.4, 277.15, 277.18, and 277.19 of Food Stamp Program

Regulations, the Federal reimbursement rates for these activities were,

until April 1, 1994, 75 percent for fraud control, 75 or 63 percent for

ADP development, and 100 percent for SAVE.

Section 13961 of the Leland Act reduces the Federal reimbursement

rate for fraud control, ADP development, and SAVE costs to the regular

50 percent Federal reimbursement level. The new rate was effective

April 1, 1994 and applies to costs incurred on or after April 1, 1994.

Costs for a particular activity listed above for which a legal

liability to pay existed at or before the close of business on March

31, 1994 may be claimed at the enhanced rate in effect at that time for

the particular activity. Costs satisfying this condition are direct

costs of goods and other property delivered to and accepted by the

State or local agency; direct costs of services rendered to the State

or local agency by employees, contractors, subrecipients and other

payees; and associated indirect costs. All costs incurred on or after

April 1, 1994, including costs for which obligations (encumbrances) but

not liabilities to pay had been created before April 1, 1994, shall be

claimed at the regular 50 percent Federal reimbursement rate unless

written approval is subsequently received from FNS delaying the

effective date, under certain specified circumstances, as explained

below. If FNS grants such approval after the April 1, 1994 effective

date, an appropriate adjustment in Federal funding will be made.

Fraud Control Activity--Sections 277.4, 277.15, 272.2

On August 10, 1979, the Department published a final rule at 44 FR

47037 which allows enhanced Federal reimbursement at the 75 percent

rate for food stamp investigations and prosecutions. Food Stamp Program

regulations also refer to Federal reimbursement as Federal Financial

Participation (FFP). The Department set out the procedures for State

agencies to receive 75 percent FFP for fraud control activity in that

rule.

Section 13961 of the Leland Act amended Section 16 of the Food

Stamp Act (7 U.S.C. 2025) to reduce the Federal reimbursement rate for

fraud control activity from 75 percent to the regular 50 percent rate.

The new rate is effective, by law, on April 1, 1994.

The new rate applies to food stamp investigations, prosecutions,

administrative disqualification hearings, claims collections, and other

allowable fraud control activity. It applies to all such costs incurred

on or after April 1, 1994.

Under current rules at 7 CFR 277.15 of Food Stamp Program

regulations, State agencies are required to submit a fraud control plan

prior to receiving the enhanced funding. A plan is not currently

required under the regulations for standard fraud funding. In Fiscal

Year 1993, all State agencies submitted or extended their current fraud

control plans and all State agencies received enhanced fraud funding.

The Department is proposing to retain the requirement for a fraud

control plan. The Department believes a fraud control plan is an

important management tool in combatting fraud and an important

component of the State agency's Plan of Operation. Further, because

program benefits are fully funded by the Department, the Department has

an interest in seeing that State agencies develop and implement an

effective fraud control plan. However, the Department is proposing to

drop the other specific requirements in Sec. 277.15 (e.g., job title of

Investigator, separate claims units, etc.) that pertain solely to

enhanced funding for fraud control activity. Fraud control activity

performed either by investigators or certification workers would be

eligible for 50 percent funding.

The Department is also proposing to change the timing of the

submission of the fraud control plan. Under current rules the Fraud

Plan is submitted annually to FNS as an attachment to the FNS-366B,

Program Activity Statement, 45 days after the end of the State's fiscal

year. For most States which operate on a July 1 to June 30 fiscal year,

this created an August 15 deadline for the fraud control plan. The

Department is proposing a new Sec. 272.2(e)(10) which would create a

uniform due date of August 15th for all State agencies, regardless of

their State fiscal year. The change will ensure that the fraud control

plan is submitted prior to the start of the Federal fiscal year to

which it applies, and it links submission of the fraud control plan

with the submission of the Budget Projection Statement which is also

due August 15. The Department believes the planning and budgeting of

program activity should be linked since significant changes in planned

activity may also mean changes in Federal funding. The Department is

proposing to make conforming amendments to Sec. 272.2(a), (c)(3), and

(e)(3).

The Department further proposes to remove Sec. 277.15 and

incorporate the retained provisions elsewhere in the regulations. As

noted above, the Department intends to retain the fraud control plan

requirements in Sec. 277.15(c) by incorporating these requirements into

the Plan of Operation requirements at 7 CFR 272.2(d). The Department is

also proposing to make conforming amendments to Sec. 272.2(a)(2),

(c)(3), and (d)(1), as appropriate, related to the due date of the plan

and the relocation of the submission procedure from (c)(3) to (e)(10).

The Department is not proposing to create new requirements for the

fraud control plan but to extend the current requirements and change

the due date for this plan. The Department is proposing to reserve

section 277.15 for future use.

Because the Department is proposing to move the fraud control plan

submission requirement to Sec. 272.2(d)(1)(xi), the current submission

requirement in Sec. 272.2(c)(3)(i) is being deleted. The deletion of

paragraph (i) requires redesignating Sec. 272.2(c)(3)(ii) as

Sec. 272.2(c)(3). Although the wording must be changed slightly to

accomodate the restructuring of the paragraph, the requirements in the

current Sec. 272.2(c)(3)(ii) for submission of certain interagency

agreements are unchanged.

The Department also intends to incorporate the provision regarding

the funding rate for investigations of retail or wholesale food

concerns currently found in Sec. 277.15(f)(2), with a slight

modification for clarity, into a new paragraph (e) of Sec. 277.4.

ADP Development--Sections 277.18, 274.12

On June 11, 1982, the Department published a rule at 47 FR 25496 to

implement section 129 of Public Law 96-249, which allowed enhanced FFP

at the 75 percent level for costs associated with the planning, design,

development, acquisition, or installation of ADP systems. On January

19, 1994, the Department published another final rule at 59 FR 2725

which reduced the Federal reimbursement rate to the 63 percent level

effective October 1, 1991 for system proposals which were approved on

or after November 28, 1990 unless the State had an approved Advance

Planning Document and had submitted an Implementation Advance Planning

Document with all the paperwork required for approval prior to November

28, 1990. The requirements and procedures for State agencies for system

development at both the enhanced and standard rates of funding were

codified in 7 CFR 277.18 of Food Stamp Program Rules.

Section 13961 of the Leland Act amends Section 16 of the Food Stamp

Act to reduce the rate of Federal funding for system development to the

regular 50 percent rate. The change in rates is effective, by law, on

April 1, 1994.

The new rate applies to costs associated with the planning, design,

development, acquisition, or installation of ADP systems. The change in

the funding rate applies to new proposals as well as proposals approved

prior to April 1, 1994 at the enhanced rate of either 75 or 63 percent.

Previously approved projects will continue to be reimbursed at the

enhanced rate for costs incurred, as defined in the Background section

of this preamble, only through March 31, 1994. The Federal

reimbursement rate will then drop to the regular 50 percent rate for

the time remaining in the approval period. Modifications on or after

April 1, 1994 to existing systems will be reimbursed at the regular 50

percent rate. All new systems developed on or after April 1, 1994 will

be reimbursed at the regular 50 percent rate.

Under current rules at 7 CFR 277.18(c), the State agency is

required to obtain prior written approval from FNS when it plans to

acquire ADP equipment or services with enhanced Federal funding,

regardless of the cost, or at the regular funding rate if total

acquisition costs meet or exceed $500,000 in Federal and State funds.

By dropping enhanced funding, the dollar threshold before FNS approval

is required for all ADP systems would be the standard $500,000

threshold applicable to the regular funding requirements at

Sec. 277.18(c). As a result of this change, modifications or revisions

to systems and services previously approved at the enhanced funding

rate described at Sec. 273.18(c) but which the total cost of the system

does not meet or exceed $500,000 would no longer be subject to prior

FNS approval beginning April 1, 1994, as long as the total cost of the

system remains under $500,000.

Accordingly, the Department will retain most of the requirements of

Sec. 277.18, but is proposing modifications to that section. The

proposed modifications include the elimination of requirements that

pertain solely to enhanced funding and retention of the baseline

requirements and dollar thresholds for FNS funding systems under the

standard funding at Sec. 277.18(b), (c)(1)-(c)(2), (d)(1)-(d)(2),

(e)(1) and (p)(5). In addition, the Department proposes to retain

certain conditions set forth in Sec. 277.18(g)(1) and (g)(2) that are

currently tied to receipt of enhanced funding since the Leland Act

amendments made these conditions applicable to receipt of funding at

the standard funding rate. Therefore, the Department is proposing that

as a condition of receiving approval for funding at the 50 percent

standard funding rate, the proposed ADP system must: (1) Assist the

State agency in meeting the requirements of the Food Stamp Act; (2)

meet the Model Plan requirements specified in Sec. 272.10 of this part;

(3) provide for more efficient and effective administration of the

program; and (4) be compatible with other such systems used in the

administration of State agency plans under the Aid to Families with

Dependent Children (AFDC) program. Accordingly, the Department proposes

to amend Sec. 277.18(g)(1) and (g)(2) to set out these conditions and

to revise the heading of the section to read ``Conditions for Receiving

FFP.'' The Department is further proposing to extend the requirements

at Sec. 277.18(g)(3) to all ADP systems. That section currently

requires that the proposed ADP systems receiving enhanced funding be

Statewide and integrated with AFDC, unless the State agency can

demonstrate that a local, dedicated or single function system will

provide for more efficient and effective administration of the program.

The Department is proposing to modify this requirement so it applies to

all ADP systems regardless of funding level.

The Department is also proposing to make conforming amendments to

Sec. 274.12(k) to reflect the elimination of enhanced funding for the

development of electronic benefit transfer (EBT) systems which are

components of complete ADP systems to be developed in accordance with

Sec. 277.18(g).

SAVE--Section 277.19

On October 7, 1988 at 53 FR 39433, the Department published a rule

which authorized 100 percent Federal funding for State and local agency

costs incurred in the verification of the documented alien status of

Food Stamp Program applicants through the SAVE program. The

requirements to receive the enhanced funding are at Sec. 277.19.

Section 13961 of Leland Act amends Section 16 of the Act (7 U.S.C.

2025) to reduce Federal funding for SAVE activity from the 100 percent

reimbursement rate to the regular 50 percent rate. The change in rates

is effective, by law, on April 1, 1994.

The new rate applies to State and local agency costs incurred in

the verification of the documented alien status of Food Stamp Program

applicants through the SAVE program. The current rule at Sec. 272.11(e)

requires State agencies to submit a SAVE plan as an attachment to the

State agency's Plan of Operation prior to receiving funding. The

current rule at Sec. 277.19 sets forth the required conditions for

obtaining 100 percent FFP for SAVE. The Department is proposing to

retain the current requirement for a SAVE plan at Sec. 272.11 but is

proposing to delete Sec. 277.19.

The current rule at 7 CFR 277.19 requires FNS approval prior to

acquisition of any ADP equipment for SAVE. The proposal to eliminate 7

CFR 277.19 modifies this requirement so that ADP equipment for SAVE

would require prior approval by FNS only if the cost is above the cost

thresholds in Sec. 277.18. Under current rules in Sec. 277.19, non-ADP

equipment for SAVE having a net unit cost of $25,000 or more must

receive prior FNS approval. However, with the elimination of

Sec. 277.19, the net acquisition cost threshold in Section (B)(3) of

Appendix A to 7 CFR Part 277 would apply. This provision provides that

prior FNS approval would be required for the acquisition of equipment

having a useful life of more than one year and a net acquisition cost

of more than $5,000 per unit after allocation to FNS as projected for

one year after purchase.

State Agency Implementation

To implement this provision as of April 1, 1994 with minimum

disruption to the Program, State agencies may wish to begin taking

appropriate steps early. State agencies may wish to obtain the

additional State funding from their State legislatures to offset the

reduction in the Federal rate of reimbursement, cut back total

administrative expenses prior to Federal cost sharing as of April 1,

1994, reallocate resources to or realign functions to maintain current

levels of effort and to ensure the efficiency and effectiveness of

overall operations.

Delaying the Effective Date

Section 13971 of the Leland Act allows the April 1, 1994 effective

date for the change in the Federal reimbursement rates to be delayed by

the Secretary of Agriculture in the case where a State's legislature

meets biennially and is not scheduled to meet in calendar year 1994. A

delay may be obtained for such a State only if the State demonstrates

to the satisfaction of the Secretary that there is no mechanism for

appropriating additional State funds prior to the next legislative

session.

It is the Department's intent that State agencies submit their

requests to delay the effective date early, and not wait for the

completion of the rulemaking process. It is in the State agency's

interest to apply early for a delay in the effective date so a decision

on the State agency's request may be made promptly. To allow adequate

time for the review of these requests prior to the effective date, FNS

instructed its regional offices to notify State agencies that they

would need to submit their requests to FNS by December 31, 1993. State

agencies were informed of this deadline in letters which were issued by

FNS regional offices during the last week of October 1993 and the first

week of November. The Department will, however, consider requests

submitted after the deadline.

A final rule will not be published prior to the April 1, 1994

effective date in the Leland Act. The Department has made decisions on

requests for a delay of the effective date based on the policy set out

in the previous notifications to the States and reflected in the

following paragraphs of this section of the preamble. Comments on the

proposed policy are welcomed.

As stated in the previous paragraph, a State agency which believes

it meets the above criteria for a delay of the effective date was

instructed to submit its request to FNS by December 31, 1993 to allow

for adequate time for FNS to review the request prior to the April 1,

1994 effective date. The Department required that the request contain

the following:

(1) Documentation showing that the State legislature meets only

biennially;

(2) Documentation showing that the State legislature does not meet

in calendar year 1994;

(3) Certification by the State's chief legal officer, along with

any supporting documentation, that there is no mechanism under the

State constitution and laws for appropriating funding prior to the next

regular legislative session;

(4) Information as to when the next regular legislative session is

scheduled to start and, if available, is expected to end.

The issue of whether a State's laws permit the appropriation of

funds prior to the next regular legislative session is a legal

question. State agencies must provide supporting documentation where

appropriate such as specific provisions of law dealing with when the

State legislature is scheduled to meet in a regular session, and with

the appropriation process. The wording of the Leland Act essentially

requires State agencies to provide proof that something does not

exist--that no mechanism for appropriating funds prior to the next

regular legislative session exists under the State's constitution and

laws. However, it would be too burdensome for FNS to require that a

State agency provide FNS a complete set of its laws as proof that no

such mechanism exists.

However, in all cases, FNS needs some assurance that a thorough and

accurate review of State law has been made. Accordingly, the Department

proposes that a signed statement from the State's chief legal officer--

the Attorney General or equivalent official--certifying that no such

mechanism exists with brief supporting documentation, if any, should

suffice in most cases. The Department believes it is appropriate and

necessary for State agencies to provide such a certification regarding

the State's laws.

It should be noted here that the Leland Act specifies that there be

no mechanism for appropriating funding prior to the next regular

legislative session in order to qualify for a delay of the effective

date. The language in the Act refers to an appropriating mechanism. If

the State legislature fails to appropriate the additional State funds

in a regular session, no delay in the effective date will be granted.

Also, the Leland Act does not authorize a delay in the effective date

if a State legislature is scheduled to meet in regular session in

calendar year 1994, but sometime after April 1, 1994.

For some State agencies, the State legislature may not be scheduled

to meet in regular session during calendar year 1994, but the State's

laws allow the State legislature to be called into special session or

provide other means (other than a special session) by which the State

may appropriate additional funds. A request for a delay of the

effective date should be submitted if a State with a biennial

legislature which does not meet in calendar year 1994 has no mechanism

to appropriate the additional State funds under State law other than to

call a special legislative session to appropriate the additional State

funds. For purposes of deciding whether or not to grant a request for a

delay in the effective date, the Department is proposing to define

``special legislative session'' to mean a legislative session that is

not scheduled to occur on a regularly scheduled basis. Thus, a

regularly scheduled short legislative session in even number years to

consider necessary or emergency bills would be considered a regular

legislative session. Legislative sessions that are not scheduled on a

standing regular basis and must be called under State law for a

specific purpose would be considered a special legislative session.

The Department is taking this proposed position because it

recognizes that in many cases a special legislative session could cost

a State more than the additional State administrative funding that

would be involved for the Food Stamp Program. In addition, this

position conforms with AFDC's policy and procedures for implementing

Section 13741 of the Leland Act which makes a similar change in Federal

reimbursement rates for the AFDC Program. State agencies should note

that this position treats State agencies with biennial legislatures the

same regardless of whether or not the State has called a special

session in calendar year 1994 for some specific purpose or has chosen

not to call a special session.

The Department has also considered how it would interpret the

criteria in Section 13971 of the Leland Act that a State have ``no

mechanism, under the constitution and laws of the State, for

appropriating the additional funds required * * * before the next such

regular legislative session * * *'' The Act is not clear as to what

kind of appropriating mechanism would meet the test. Webster's Third

New International Dictionary defines an appropriation as a sum of money

set aside or allotted by official or formal action for a specific use.

Accordingly, State appropriation mechanisms could be interpreted to

include the process by which the State legislature or other entities in

the State appropriate funds as well as State procedures to set aside

funds from discretionary or emergency accounts for specific purposes.

In general, State constitutions and laws provide for appropriation

by the State's legislature. However, some State laws also provide other

funding mechanisms such as voter initiatives to appropriate funds,

procedures allowing State officials or emergency commissions to

authorize the spending of funds from the State treasury, another

program's revenue account, or an emergency account, and procedures by

which funds previously appropriated for one program may be transferred

to another program. The Department recognizes that while these

mechanisms may exist under State law, they may not be useable by the

State for several reasons. Voter initiatives to amend the constitution

or law to provide State funding require months just to raise the issue

to a sufficient number of voters and schedule an election and are

beyond the control of the State. Regarding the spending of

discretionary or emergency funds, State officials would be reluctant to

declare an emergency in order to utilize emergency procedures to

transfer funds from the State Treasury or other accounts to the State's

Food Stamp Program for a non-emergency purpose. Further, the

interpretation of what is a State appropriation under State law as

opposed to emergency funds transfer mechanisms varies by State. The

Department believes that State legal officers are in the best position

to determine what are the appropriation mechanisms that are readily

available and useable under the State law. Accordingly, the Department

is proposing to interpret the law to cover only mechanisms by which the

State legislature appropriates funding and not to cover voter

initiative mechanisms and State transfer mechanisms from discretionary

or emergency accounts.

In March 1994, the Department approved enhanced funding extension

requests from four State agencies using this policy. The Department

acted on these requests prior to the rulemaking so the State agencies

affected would know their Federal funding status prior to the April 1,

1994 effective date mandated in the law.

If a decision by FNS to grant a delay is made after April 1, 1994,

an adjustment will be made so an affected State agency can receive

enhanced Federal funding retroactive to April 1, 1994 for eligible

costs.

If approval is granted to delay the effective date, Section 13971

of the Leland Act provides that the delayed effective date would be the

first day of the first calendar quarter which begins after the close of

the State's regular legislative session. In such a case, State agencies

would be required to promptly advise FNS in writing as to the actual

date the next regular session of the State legislature is completed

once such session is completed so the delayed effective date can be

determined.

Enhanced Funding for Low Payment Error Rates

Under Section 16(c) of the Food Stamp Act and the current rules at

Sec. 277.4(b), the Federal share of administrative costs specified in

section 16(a) of the Food Stamp Act may be enhanced from the regular 50

percent rate to a maximum of 60 percent after the end of the Federal

fiscal year if the State agency qualifies by achieving a low payment

error rate. Costs which were eligible for greater enhanced funding

rates under section 16 (a), (g), and (j) of the Act (fraud control

costs, ADP development, and SAVE) were ineligible for the 60 percent

enhancement. With the drop in the funding rate to 50 percent, these

three activities now become eligible along with other costs funded at

the 50 percent rate for the increased Federal reimbursement rate of up

to 60 percent if the State agency meets the low payment error rate

specified in Sec. 277.4. The enhanced funding may only be paid on costs

shared at the 50 percent level to State agencies who qualify. The

Department proposes to amend Sec. 277.4, to allow these three new

activities to become eligible for the 60 percent enhanced funding by

removing Sec. 277.4 (b)(1), (b)(10), (b)(11) and (b)(12), redesignating

the remaining provisions, and by revising newly designated paragraph

(b)(7).

Deadline for Filing Claims for Retroactive Funding--Section 277.11

Current rules at Sec. 277.11 do not limit State agencies from

making claims for prior year administrative costs. The one exception is

that the provision at Sec. 277.15(b) limits 75 percent funding for

fraud control activities to prior year costs incurred in the Federal

fiscal year during which a State agency initially applied for 75

percent funding. However, State agencies may make claims for prior year

fraud control activities at the 50 percent Federal reimbursement rate

with no time limit.

State agencies are currently required at Sec. 277.11 to submit a

Form SF-269, Financial Status Report, on a quarterly basis to report

program costs and to support the claims made for Federal funding. Final

reports are due December 30 for the preceeding Federal fiscal year

which runs from October 1 through September 30. In addition, after the

fiscal year is over, State agencies may request retroactive funding for

past years or pay back FNS for inadvertent overclaims by submitting an

SF-270, Request for Advance or Reimbursement. It is the SF-270

adjustments which, under current rules potentially may go on without

end. In Fiscal Years (FY) 1991 through 1993, FNS received SF-270

requests for retroactive funding from State agencies going back as far

as FY 1981 and SF-270 payments from State agencies to FNS going back to

FY 1979 and prior years for the Food Stamp Program.

The Department proposes to amend Sec. 277.11 to add a new paragraph

(d)(1) which would limit the time period during which State agencies

may file a request for retroactive funding. The intended effect of this

proposal is to limit State agency and FNS resources toward the present

operation of the program. The Department believes State agencies have a

responsibility to properly claim Federal funding on a timely basis.

Other Federal programs currently have claim limitations in place.

The U.S. Department of Health and Human Services (DHHS) has claim

limits on grants to State agencies for the Aid to Families with

Dependent Children and Medicaid Programs. For example, in those

programs, DHHS will reimburse a State agency only if the State agency

files a claim for an expenditure within two years after the calendar

quarter in which the State agency made the expenditure. In this rule,

the Department is proposing a similar limitation for the Food Stamp

Program.

The Department proposes in new Sec. 277.11(d)(3) to provide, that

subject to the availability of funds, FNS would reimburse a State

agency for an allowable expenditure at the appropriate Federal

reimbursement rate only if the State agency files a claim with FNS for

that expenditure within two years after the calendar quarter in which

the State agency obligated the funds. In the case of 75 percent funding

for fraud control activity, the same two-year limit would apply to

claims for retroactive 75 percent fraud funding but there would be an

additional limit in that the retroactive funding would not be available

prior to the year in which the State agency applied for 75 percent

funding.

Further, the Department proposes in new Sec. 277.11(d)(2) to

provide that subject to the availability of funds and any required FNS

approval related to the Advance Planning Document under 7 CFR

277.18(c), FNS would reimburse State agencies for the purchase of

automated data processing (ADP) equipment and services at the

appropriate reimbursement rate in effect at the time the equipment or

service was received only if the State agency files a claim with FNS

for that expenditure within two years after the calendar quarter in

which the State agency obligated the funds. This proposed time limit

applies to ADP expenditures approved for funding at the enhanced rate

and at the regular rate.

The Department's proposal in new Sec. 277.11(d)(4) would provide

for certain exceptions to the two-year limit. State agencies may

request a waiver of the time limit in writing in advance of the

deadline. In order to be granted by FNS, the request must include

supporting explanation, justification and documentation. In addition,

as set forth in proposed Sec. 277.11(d)(5) the time limit would not

apply to audit exceptions, or where FNS determines there was good cause

resulting from circumstances beyond the State agency's control for

filing a late claim. An audit exception means a proposed adjustment by

the Department to any expenditure claimed by a State agency by virtue

of an audit. Finally, the Department's proposal would limit the time

period for the use of the SF-270 to repay FNS for an overclaim to three

years from the end of the Federal fiscal year unless litigation, an

audit, or a claim is pending at the end of the three-year period. FNS

reserves the right to assert a claim against State agencies for amounts

due when an SF-270 is not submitted by the State agency to repay any

money due FNS.

Note that under the current program rules at Sec. 277.12, State

agencies are required to maintain all financial records for three years

unless there is pending litigation, or an unresolved audit or claim. If

any litigation, claim, or audit is started before the expiration of the

three-year period, the applicable records shall be retained until these

have been resolved. The Department is not proposing any changes to

these record retention requirements in this rule.

AFDC/Food Stamp Certification Costs--Section 277.9

The Department is also proposing amendments to current regulations

to correspond to current practice related to the charging of certain

food stamp certification costs to the Food Stamp Program.

The current regulations at Sec. 277.9 provide that any cost related

to determining the Food Stamp Program eligibility of Aid to Families

with Dependent Children (AFDC) cases is to be included as part of the

AFDC determination costs and claims and not as an allowable cost for

FNS reimbursement. However, beginning October 1, 1983, as a result of a

Memorandum of Understanding between the Department and DHHS, the

Department changed this policy, but not the regulatory provision, so

that the incremental cost of certifying AFDC households for Food Stamp

Program benefits shall be charged to FNS, not to the Office for Family

Assistance, DHHS. State agencies were notified by FNS regional offices

of this change in August 1983. Beginning October 1, 1983, State

agencies have been allowed to charge such costs to FNS.

The Department is proposing that this longstanding practice be

codified in the Food Stamp Program Regulations. The Department proposes

to amend Sec. 277.9(b) to provide that the incremental cost of

certifying AFDC cases for food stamp benefits would be an allowable

cost for FNS reimbursement at the standard Federal reimbursement rate.

This proposed provision modifies program regulations so that they

conform to current policy and practice.

Effective Dates and Implementation Requirements

The Department is proposing that all the provisions in Sec. 277.11

regarding time limits for State agencies to file claims to amend a

prior expenditure report to request retroactive funding for costs

previously incurred will be effective the first day of the first

calendar quarter occurring not less than 60 days following publication

of the final rule.

The Department proposes that the provision at Sec. 277.9(b) on the

charging of food stamp certifications of AFDC households become

effective 30 days following publication of the final rule since it does

not require any special implementation efforts on the part of State

agencies since the change merely conforms the regulations to current

practice.

Pursuant to Section 13971 of the Leland Act, the reduction in FFP

rates mandated by Section 13961 of the Leland Act was effective on

April 1, 1994, unless the Department grants a delay in certain limited

circumstances, as specified in this proposed rule.

In the last week of October and the first week of November 1993,

the Department briefed State agencies administering the Food Stamp

Program on how to implement the new Federal funding rates for FNS-366A,

Budget Projection, and SF-269, Financial Status Report, actual cost

reporting and payment purposes effective April 1, 1994. The prompt

implementation was necessary prior to rulemaking to comply timely with

the Leland Act's mandate to reduce the Department's share of State

agency administrative costs to the mandated rate as of April 1, 1994,

and to minimize the need for revised reporting by State agencies

related to budget projections for FY 1994 and actual cost reporting on

or after April 1, 1994. It also gave lead time to State agencies opting

to seek from their State legislatures additional State funds to offset

the reduction in the rate of Federal funding. State agency budget

projections for FY 1994 should take into account the new funding rate

as of April 1, 1994. Beginning April 1, 1994, State agencies began

drawing down Federal funds for expenditures based on the new funding

rate for these activities. Effective with the third quarter Fiscal Year

1994 SF-269 report, State agencies will begin reporting costs using the

new funding rate for these activities.

Costs incurred by the State or local agency on or after April 1,

1994 will be claimed at the regular 50 percent Federal reimbursement

rate. State agencies currently report the amount of Federal funds

requested on the FNS-366A, Budget Projection, and actual costs on the

SF-269, Financial Status Report. For reporting purposes, the Department

is proposing to require State agencies to begin reporting budget and

cost information using the new lower Federal reimbursement rate for

costs incurred for periods beginning on or after April 1, 1994.

Section 13961 of the Leland Act, which reduces the enhanced funding

for fraud control, ADP development, and SAVE costs, applies, by its

terms, to costs incurred on or after April 1, 1994. The deadline for

submitting a request to delay the effective date for the reduction in

enhanced funding is December 31, 1993 as specified in letters sent by

FNS regional offices to State agencies in the last week of October and

the first week of November 1993. However, the Department will consider

requests submitted after that date.

The conforming amendments to Food Stamp Program regulations in

Secs. 272.2, 272.11, 272.13, 274.12, 277.4, 277.15, 277.18, and 277.19

will be effective 30 days following publication of the final rule.

Public Comments

This rule proposes to bring the regulations into conformity with

the Leland Act. Publication of the rule does not change the

implementation guidance which was issued by the Department beginning in

late October 1993. The Department is merely proposing to incorporate

the new Federal reimbursement rate for these activities into the

regulations. Although the Department has taken action to ensure prompt

implementation of the new reimbursement rate effective April 1, 1994,

this rulemaking is still necessary in order to conform the regulations

to the new rate.

The Department requests public comments because they may be

beneficial to the rulemaking. However, commenters should note that the

new Federal reimbursement rate and the implementation date for the

reduction in the Federal reimbursement rate were mandated in the Act

and are not items involving Departmental discretion. Only the decision

of whether a State agency has demonstrated that it meets the criteria

for a delay of the effective date involves some degree of Departmental

discretion. Any comments received by the deadline stated above for

comments will be considered prior to publication of a final rulemaking.

List of Subjects

7 CFR Part 272

Alaska, Civil rights, Food stamps, Grant programs--social programs,

Reporting and recordkeeping requirements.

7 CFR Part 274

Administrative practice and procedure, Food stamps, Fraud, Grant

Programs--social programs, Reporting and recordkeeping requirements.

7 CFR Part 277

Food stamps, Government procedure, Grant programs--social programs,

Investigations, Records, Reporting and recordkeeping requirements.

Accordingly, 7 CFR Parts 272, 274 and 277 are proposed to be

amended as follows:

1. The authority citation for Parts 272, 274 and 277 continues to

read as follows:

Authority: 7 U.S.C. 2011-2032.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

2. In Sec. 272.2:

a. The last sentence of paragraph (a)(2) is amended by adding the

words ``and the fraud control plan'' to the end of the sentence;

b. Paragraph (c)(3) is revised;

c. New paragraphs (d)(1)(xi) and (d)(3) are added;

d. The first sentence of paragragh (e)(3) is amended by removing

the reference ``Sec. 272.2(c)(3)(ii)'' and adding in its place the

reference ``Sec. 272.2(c)(3)'' and the second sentence is removed; and

e. New paragragh (e)(10) is added.

The addition and revisions read as follows:

Sec. 272.2 Plan of Operation.

* * * * *

(c) Budget Projection Statement and Program Activity Statement. * *

*

(3) Additional Attachments. Attached for informational purposes

(not subject to approval as part of the plan submission procedures) to

the Program Activity Statement and submitted as required in

Sec. 272.2(e)(3) shall be the agreements between the State agency and

the United States Postal Service for coupon issuance, and between the

State agency and the Social Security Administration for supplemental

security income/food stamp joint application processing and for routine

user status.

(d) Planning Documents.

(1) * * *

(xi) A plan for fraud control as specified in paragraph (d)(3) of

this section.

* * * * *

(3) Fraud Control Plan. State agencies shall develop and use a

fraud control plan to assure that food stamp investigations and

prosecutions are conducted as appropriate. The fraud control plan shall

contain the identification of the organizational units involved

including units outside the State agency, with a brief description of

the intentional Program violation investigation, disqualification

hearing, or prosecution function assigned; a copy of the statutes or

court decisions under which intentional Program violation cases are

prosecuted; a detailed description of the coordination between the

investigative units and the prosecuting units, and the process by which

prosecuting officials present indictments regarding intentional Program

violation cases; an agreement that investigative reports, prepared by

the investigation or prosecution units, and other related records will

be made available to USDA upon request; and assurance that the

administrative disqualification hearing activity is conducted in

accordance with Sec. 273.16.

(e) Submittal Requirements. * * *

(10) The Fraud Control Plan shall be signed by the head of the

State agency and submitted to FNS annually no later than August 15.

* * * * *

Sec. 272.11 [Amended]

3. In Sec. 272.11:

a. Paragraph (d)(1)(iii) is amended by removing the reference to

``Sec. 277.19'' and adding in its place a reference to ``Sec. 277.18

and Appendix A''.

b. Paragraph (e)(2) is amended by removing from the first sentence

the words ``, as outlined in Sec. 277.19(e)''.

PART 274--ISSUANCE AND USE OF COUPONS

Sec. 274.12 [Amended]

4. In Sec. 274.12, paragraphs (k)(2) and (k)(3) are removed and

paragraphs (k)(4) through (k)(6) are redesignated as paragraphs (k)(2)

through (k)(4) respectively.

PART 277--PAYMENT OF CERTAIN ADMINISTRATIVE COSTS OF STATE AGENCIES

5. In Sec. 277.4:

a. Paragraphs (b)(1), (b)(10), (b)(11), and (b)(12) are removed;

b. Paragraphs (b)(2) through (b)(9) are designated as paragraphs

(b)(1) through (b)(8) respectively;

c. The second sentence in newly redesignated paragraph (b)(7) is

revised; and

d. New paragraph (g) is added.

The revision and addition reads as follows:

Sec. 277.4 Funding.

* * * * *

(b) Federal Reimbursement Rate * * *

(7) * * * The rates of Federal funding for the activities

identified in paragraphs (b)(2) and (b)(3) of this section shall not be

reduced based upon the agency's payment error rate.

* * * * *

(g) Investigations of authorized retail or wholesale food concerns

when performed in coordination with the USDA Office of Inspector

General and FNS shall be funded at the 50 percent Federal reimbursement

rate.

* * * * *

6. In Sec. 277.9, paragraph (b) is revised to read as follows:

Sec. 277.9 Administrative Costs Principles.

* * * * *

(b) The incremental cost of certifying AFDC households for Food

Stamp Program benefits are allowable costs for FNS reimbursement.

* * * * *

7. In Sec. 277.11, a new paragraph (d) is added to read as follows:

Sec. 277.11 Financial Reporting Requirements.

* * * * *

(d) Time Limit for State Agencies to File Claims.

(1) After the deadline in paragraph (c)(4) of this section for the

final Form SF-269 report, State agencies shall use the Form SF-270,

Request for Advance or Reimbursement, as needed within three years of

the end of the Federal fiscal year to amend a prior expenditure report

pertaining to such Federal fiscal year. The three-year reporting

deadline may be extended by FNS if litigation, an audit, or a claim is

unresolved at the end of the three-year period. The SF-270 shall be

used to amend prior expenditure reports, and to request reimbursement

for any additional funding due or to pay back to FNS any inadvertent

prior overclaim. Requests for reimbursement will only be honored if the

claim is filed within the timeframe in paragraph (d)(2) of this

section. FNS reserves the right to bill State agencies for amounts due

FNS due to an overclaim even if no SF-270 has been submitted.

(2) Subject to the availability of funds from the appropriation for

the year in which the expenditure was incurred, FNS may reimburse State

agencies for an allowable expenditure only if the State agency files a

claim with FNS for that expenditure within two years after the calendar

quarter in which the State agency obligated the funds. FNS will

consider non-cash expenditures such as depreciation to have been made

in the quarter the expenditure was recorded in the accounting records

of the State agency in accordance with generally accepted accounting

principles.

(3) For Automated Data Processing (ADP) expenditures approved under

Sec. 277.18(c), subject to the availability of funds and required FNS

approval related to the Advance Planning Document, FNS may reimburse

State agencies for allowable expenditures at the appropriate rate in

effect at the time the equipment or service was received only if the

State agency files for a claim with FNS within two years after the

calendar quarter in which the funds were obligated. FNS will consider

non-cash expenditures such as depreciation to have been made in the

quarter the expenditure was recorded in the accounting records of the

State agency in accordance with generally accepted accounting

principles.

(4) Waiver requests for an extension of the deadline in paragraphs

(d)(2) and (d)(3) of this section may be granted by FNS only if the

request was submitted in writing to FNS prior to the applicable

deadline. The State agency's request for a waiver must include a

specific explanation, justification, and documentation of why the claim

will be late and when the claim will be filed.

(5) The time limits in paragraphs (d)(2) and (d)(3) of this section

will not apply to any of the following:

(i) Any claim for an adjustment to prior year costs previously

claimed under an interim rate concept;

(ii) Any claim resulting from an audit exception;

(iii) Any claim resulting from a court-ordered retroactive payment.

However, this provision does not bind FNS to a State or Federal

decision when FNS was not a party to the action;

(iv) Any claim for which FNS determines there was good cause for

the State agency's not filing it within the time limit. Good cause is

lateness due to circumstances beyond the State agency's control such as

Acts of God or documented action or inaction of the Federal Government.

It does not include neglect or administrative inadequacy on the part of

the State, State agency, legislature, or any of their offices or

employees.

Sec. 277.15 [Removed and Reserved]

8. Section 277.15 is removed and reserved.

9. In Sec. 277.18:

a. In paragraph (b), the definition of ``Enhanced funding or

enhanced FFP rate'' is removed and the definition of ``Regular funding

or regular FFP rate'' is amended by removing the words ``except for the

75 percent funding rate for State agency planning, design, development

or installation of computerized systems, as specified at

Sec. 277.4(b)(1)(ii)'';

b. Paragraph (c)(1) is revised and paragraphs (c)(2)(ii)(A) and

(c)(2)(ii)(B) are amended by removing the words ``at the regular

funding rate or $100,000 at the enhanced funding rate,'';

c. The introductory text of paragraphs (d)(1) and (d)(2) are

amended by removing the words ``at the regular or enhanced funding

rate'';

d. Paragraph (d)(1)(ii) is amended by removing the last sentence;

e. The third sentence of paragraph (d)(1)(v) is amended by removing

the words ``thresholds of Sec. 277.18(c)(1) are met'' and adding the

words ``threshold of Sec. 277.18(c)(1) is met'' is their place;

f. The first sentence of paragraph (e)(1) is revised;

g. The heading of paragraph (g) is revised;

h. Paragraphs (g)(1) and (g)(2) are revised and paragraphs (g)(3)

through (g)(8) are removed; and

i. Paragraph (p)(5) is revised.

The revisions read as follows:

Sec. 277.18 Establishment of an Automated Data Processing (ADP) and

Information Retrieval System.

* * * * *

(c) General acquisition requirements.--(1) Requirement for prior

FNS approval. A State agency shall obtain prior written approval from

FNS as specified in paragraph (c)(2) of this section when it plans to

acquire ADP equipment or services which it anticipates will have total

acquisition costs of $500,000 or more in Federal and State funds.

However, a State agency shall obtain prior written approval from FNS

for the acquisition of ADP equipment or services to be utilized in an

EBT system regardless of the cost of acquisition. A State agency shall

also obtain prior written approval from FNS when it plans to

noncompetitively acquire ADP equipment or services from a

nongovernmental source which cost more than $100,000 in Federal and

State funds. The State agency shall request prior FNS approval by

submitting the Planning APD or Implementation APD signed by the

appropriate State official to the FNS Regional Office.

* * * * *

(e) APD Update.--(1) General sub- mission requirements. The State

agency shall submit an APD Update for FNS approval for all approved

Planning and Implementation APD's when total acquisition costs exceed

$1 million. * * *

* * * * *

(g) Conditions for Receiving FFP.--(1) A State agency may receive

FFP at the 50 percent reimbursement rate for the costs of planning,

design, development or installation of ADP and information retrieval

systems if the proposed system will:

(i) Assist the State agency in meeting the requirements of the Food

Stamp Act;

(ii) Meet the program standards specified in Sec. 272.10(b)(1),

(b)(2) and (b)(3) of this chapter, except for the requirements in

Sec. 272.10 (b)(2)(vi), (b)(2)(vii) and (b)(3)(ix) of this chapter to

eventually transmit data directly to FNS;

(iii) Be likely to provide more efficient and effective

administration of the program; and

(iv) Be compatible with other such systems utilized in the

administration of State agency plans under the program of Aid to

Families with Dependent Children (AFDC).

(2) State agencies seeking FFP for the planning, design,

development or installation of automated data processing and

information retrieval systems shall develop Statewide systems which are

integrated with AFDC. In cases where a State agency can demonstrate

that a local, dedicated, or single function (issuance or certification

only) system will provide for more efficient and effective

administration of the program, FNS may grant an exception to the

Statewide integrated requirement. These exceptions will be based on an

assessment of the proposed system's ability to meet the State agency's

need for automation. Systems funded as exceptions to this rule,

however, should be capable to the extent necessary, of an automated

data exchange with the State agency system used to administer AFDC. In

no circumstances will funding be available for systems which duplicate

other State agency systems, whether presently operational or planned

for future development.

* * * * *

(p) * * *

(5) Costs. Costs incurred for complying with the provisions of

paragraphs (p)(1) through (p)(3) of this section are considered regular

administrative costs which are funded at the regular FFP level.

Sec. 277.19 [Removed]

10. Section 277.19 is removed.

Dated: November 15, 1994.

Ellen Haas,

Under Secretary, Food, Nutrition, and Consumer Services.

[FR Doc. 94-28831 Filed 11-21-94; 8:45 am]

BILLING CODE 3410-30-U