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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A94-28831

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** November 22, 1994

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-28831. Public record. Not legal advice.