WIC Farmers' Market Nutrition Program

DEPARTMENT OF AGRICULTURE

7 CFR Part 248

RIN 0584-AB43

WIC Farmers' Market Nutrition Program

AGENCY: Food and Nutrition Service, USDA.

ACTION: Interim rule.

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SUMMARY: This interim rule implements the mandates of the WIC Farmers'

Market Nutrition Act of 1992, enacted on July 2, 1992, which

establishes the WIC Farmers' Market Nutrition Program (FMNP or

Program). The purposes of the FMNP are to provide resources to women,

infants, and children who are nutritionally at risk, in the form of

fresh, nutritious, unprepared foods (such as fruits and vegetables)

from farmers' markets; to expand the awareness and use of farmers'

markets; and, to increase sales at such markets.

In accordance with the WIC Farmers' Market Nutrition Act of 1992,

this rulemaking establishes the requirements for the operation and

management of the FMNP. In addition to the requirements of the Act,

these rules were developed based on the results of the Farmers' Market

Coupon Demonstration Project.

EFFECTIVE DATES: March 11, 1994, except for Secs. 248.4, 248.9,

248.10(a), 248.10(b), 248.10(e), 248.10(f), 248.11, 248.14(h),

248.17(b)(2)(ii), and 248.18(b) which contain information collection

requirements which are not effective until approved by OMB. When

approval is received, the agency will publish a notice in the Federal

Register announcing the effective date.

To be assured of consideration, comments on this rule must be

received on or before July 11, 1994.

ADDRESSES: Comments may be mailed to Barbara Hallman, Chief, Policy and

Program Development Branch, Supplemental Food Programs Division, Food

and Nutrition Service, USDA, 3101 Park Center Drive, room 540,

Alexandria, Virginia, 22302, (703) 305-2730. All written submissions

will be available for public inspection at this address during regular

business hours (8:30 a.m. to 5 p.m.) Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Barbara Hallman or Debra Whitford,

Supplemental Food Programs Division, Food and Nutrition Service, USDA,

3101 Park Center Drive, room 540, Alexandria, Virginia 22302, (703)

305-2730.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866

This interim rule is issued in conformance with Executive Order

12866. It has been designated ``not significant'' and did not require

clearance by the Office of Management and Budget.

Executive Order 12372

This program is subject to Executive Order 12372, which requires

intergovernmental consultation with State and local officials (7 CFR

part 3015, subpart V, and final rule-related notice published June 24,

1983 (48 FR 29114)).

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'' paragraph 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 WIC Farmers' Market

Nutrition Program, the administrative procedures are as follows: (1)

Local agencies, farmers, and farmers' markets--State agency hearing

procedures issued pursuant to 7 CFR 248.16; (2) applicants and

participants--State agency hearing procedures issued pursuant to 7 CFR

248.16; and (3) sanctions against State agencies (but not claims for

repayment assessed against a State agency) pursuant to 7 CFR 248.17--

administrative appeal in accordance with 7 CFR 248.19; and (4)

procurement by State or local agencies--administrative appeal to the

extent required by 7 CFR 3016.36.

Regulatory Flexibility Act

The Department has also reviewed this rule in relation to the

requirements of the Regulatory Flexibility Act of 1980 (Pub. L. 96-354,

94 Stat. 1164, September 19, 1980). The Administrator of the Food and

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

significant economic impact on a substantial number of small entities.

Participating farmers and farmers' markets will be affected by the FMNP

requirements and increased sales generated by FMNP participants. In

addition, participating State and local agencies will be affected by

FMNP administration requirements.

Paperwork Reduction Act

The reporting requirements established by this rulemaking in

Sec. 248.23 have been reviewed by the Office of Management and Budget,

in accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.

3507). The reporting and recordkeeping requirements established by this

rulemaking in Secs. 248.4, 248.9, 248.10(a), 248.10(b), 248.10(e),

248.10(f), 248.11, 248.14(h), 248.17(b)(2)(ii), 248.18(b), and

248.23(b) are pending review by the Office of Management and Budget.

Estimated Annual Reporting and Recordkeeping Burden

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Annual No. of Annual Average burden Annual burden

Section of regulations respondents frequency per response hours

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Reporting: .............. .............. .............. ..............

248.4....................................... 11 1 50 550

248.10(a) (2) & (3)......................... 500 1 2 1,000

248.10(b)................................... 250 1 2 500

248.10(e)................................... 50 1 10 500

248.14(h)................................... 11 1 1 11

248.17(b)(2)(ii)............................ 2 1 20 40

248.18(b)................................... 11 1 15 165

248.23(b)................................... 11 2 6.5 143

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Total....................................... 511 .............. .............. 6,802

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Recordkeeping:

248.9....................................... 11 1 1 11

248.10(e)................................... 50 1 1 50

248.10(f)................................... 11 1 5 55

248.11...................................... 11 1 12 132

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Total....................................... 61 1 .............. 289.75

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Total Reporting & Recordkeeping Burden.. .............. .............. .............. 7,091.75

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This interim rule implements legislative mandates of Public Law

102-314, which was enacted on July 2, 1992, and became effective

retroactive to October 1, 1991. Because the FMNP is already operating

in several States, further delay of these rules for notice and comment

would serve no useful purpose. Accordingly, the Administrator of the

Food and Nutrition Service has certified that it is unnecessary and

contrary to the public interest to have prior opportunity for comment.

For the same reasons, the Administrator has found that it would be

impracticable and contrary to the public interest to delay the

effective date of this interim rule. Accordingly, it is effective upon

publication. The Department believes, however, that the rule may be

improved by public comment. Therefore, comments are being solicited on

this rule until July 11, 1994. All comments received will be analyzed,

and any appropriate changes in the rule will be incorporated in the

subsequent publication of a final rule.

Background

Demonstration Projects

Section 501 of the Hunger Prevention Act of 1988 (Pub. L. 100-435),

enacted on September 19, 1988, amended the Child Nutrition Act of 1966

(CNA), 42 U.S.C. 1771 et. seq., to add a new subsection 17(m) which

authorized up to 10 Farmers' Market Coupon Demonstration Projects

(demonstration projects) for a 3-year period. The purpose of the

demonstration projects was twofold: (1) To provide fresh, nutritious,

unprepared foods (such as fruits and vegetables) from farmers' markets

to persons at nutritional risk, and (2) to expand the awareness and use

of farmers' markets.

Under the authority of Public Law 100-435, participants in the

Special Supplemental Food Program for Women, Infants, and Children

(WIC) in selected areas of Connecticut, Iowa, Maryland, Massachusetts,

Michigan, New York, Pennsylvania, Texas, Vermont, and Washington were

provided coupons that could be redeemed for fresh fruits and vegetables

at authorized farmers' markets, in addition to their regular WIC

benefits. The 10 States were selected through a competitive grant

application process which was based on criteria set forth in the law as

well as additional criteria developed by the Department to ensure

accountability and to maximize benefits for farmers and recipients.

Basic features of the initial demonstration projects included: (1)

Only persons currently participating in the WIC Program (excluding

infants 4 months of age or younger) were eligible for Federal benefits

under the demonstration projects.

(2) States could impose other eligibility requirements or

priorities for receiving coupons as they saw appropriate (e.g., most

States limited distribution to specific geographic areas, and some gave

priority to pregnant or breastfeeding women).

(3) The annual value of the Federal share of the benefit could not

be less than $10 or more than $20. If the coupon face value exceeded

the purchase price, farmers were not allowed to give change.

(4) Most recipients received some form of nutrition education

explaining how to buy and prepare fresh fruits and vegetables.

(5) The State grantees were required to provide matching funds for

the demonstration project in an amount equal to not less than 30

percent of the total cost of the demonstration project in the State.

The match could be satisfied by contributions to similar projects

operating in the State.

(6) State grantees were allowed to use up to 12 percent of project

funds for administration.

(7) Each year the availability of demonstration project grant money

was subject to the Federal appropriations process. For Fiscal Year

1989, up to $2 million for demonstration project grants was

appropriated. The Fiscal Year 1990 appropriation was also up to $2

million. The Fiscal Year 1991 appropriation was increased to $2.75

million, providing some expansion over the Fiscal Year 1990

appropriation.

(8) Although authorization for the demonstration projects expired

at the end of Fiscal Year 1991, as part of the Rural Development,

Agriculture, and Related Agency Appropriations Act for Fiscal Year 1992

(Pub. L. 102-142), Congress appropriated up to $3 million to carry on

the projects. As a result, on January 6, 1992, the Food and Nutrition

Service (FNS) announced grant levels totaling $3 million to State

grantees to carry out the demonstration projects another year, through

Fiscal Year 1992.

Evaluation

Public Law 100-435 also amended section 17(m)(9)(A) of the CNA to

mandate an evaluation of the demonstration projects, which was

conducted in two phases. Phase One examined the general management and

accountability of the demonstration projects during their first season

in 1989. It was found that they were generally well-run, particularly

in the areas of accountability, benefit delivery, and overall project

management. Phase Two of the evaluation process assessed the impact of

the demonstration projects and their effectiveness in accomplishing the

legislative goals. Surveys were also completed to obtain information on

the food consumption and purchasing patterns of demonstration project

coupon recipients, and on sales and food purchases at participating

farmers' markets as compared to control groups. Findings from Phase Two

suggested that the demonstration projects may have had a modest

positive effect on farmers' incomes, and on the consumption of fruits

and vegetables by the surveyed women who received demonstration project

coupons. In addition it was found that participating farmers and WIC

recipients strongly supported the demonstration projects. The results

of both phases of the evaluation were submitted in a report to Congress

in April 1991.

WIC Farmers' Market Nutrition Program

History

Based largely on the success of the demonstration projects, Public

Law 102-314 amended section 17(m) of the CNA (42 U.S.C. 1786(m)) to

authorize the FMNP as an independent program. Amended section 17(m)(1)

instructs the Secretary to award grants to States that submit State

Plans for the establishment or maintenance of programs designed to

provide recipients of assistance through the WIC Program, or those who

are on a waiting list to receive WIC benefits, with coupons that may be

exchanged for fresh, nutritious, unprepared foods at farmers' markets.

In order to be eligible for grants, the State Plan must first be

approved by the Secretary. Pursuant to section 17(m)(2) of the CNA, the

Chief Executive Officer of the State or Indian Tribal Organization

(i.e., the Governor or Principal Chief) shall designate the appropriate

State agency or agencies to administer the FMNP in conjunction with the

appropriate nonprofit organizations, and shall ensure coordination

among the appropriate agencies and organizations.

Difference Between Demonstration Project and Program

The newly created FMNP is very similar to the demonstration

projects which operated for 4 years. For example, the annual Federal

value of the coupons issued to FMNP recipients is still restricted to

not less than $10 and not more than $20 per recipient per year, and

each State agency administering the FMNP must provide matching funds in

an amount equal to not less than 30 percent of the total cost of the

program's operation and administration. However, five significant

differences are also included in the authorizing legislation: (1)

Persons who are on a waiting list for WIC Program participation, as

well as current WIC participants, may receive FMNP coupons;

(2) The State agency cap for administrative funds to operate the

FMNP has been increased to 15 percent of the total amount of program

funds, and the Department may permit up to an additional 2 percent,

upon a showing by the State agency of financial need.

(3) During the first year for which a State receives assistance, a

State shall be permitted to use not more than 2 percent of the total

program funds for administration of the FMNP in addition to the 15

percent already established;

(4) A State agency may use not more than 5 percent of its current

year funds during a subsequent fiscal year or to cover expenses

incurred during the prior fiscal year; and

(5) There is no longer a 10-state limit on the number of State

agencies that can administer the Program.

States With Demonstration Projects

Section 17(m)(6)(A) of the CNA effectively authorizes the State

agencies that have operated demonstration projects to continue under

the new FMNP, by stipulating that each State which received Federal

funding in a fiscal year ending before October 1, 1991 (i.e., before

Fiscal Year 1992) shall receive benefits under the new FMNP, provided

that the State agency complies with the requirements established by

Public Law 102-314, as determined by the Secretary. The funding

distribution formula for new State agencies, State agencies currently

participating in the demonstration projects, and requirements for

reallocation will be described in detail in the Distribution of Funds

section of this Preamble. Because the FMNP will operate as an adjunct

to WIC and will utilize standard operating procedures of WIC, this

preamble will only discuss in detail individual provisions of this

interim rulemaking that are unique to the FMNP.

1. Definitions (Sec. 248.2)

``Administrative costs.'' In the FMNP, ``administrative costs'' are

all allowable costs as defined in Sec. 248.12(b). This includes costs

for developing, printing and distributing coupons; costs associated

with managing and monitoring markets; training and authorizing farmers;

preparing materials for recipients such as coupon guidelines and market

guides; and providing nutrition education. It does not include the

value of the coupons themselves.

``Compliance buy.'' Participating State agencies have the option to

conduct compliance buys, which are defined as covert, on-site

investigations in which a FMNP representative poses as a FMNP recipient

and transacts one or more FMNP food coupons. Because the busy, informal

atmosphere of a farmers' market makes it difficult to detect program

violations, compliance buys can provide an objective measure of whether

farmers are following FMNP rules such as not providing change, and

selling only authorized foods to FMNP recipients.

``Coupon.'' In order to distinguish them from the negotiable

financial instruments called ``food instruments'', used in the WIC

Program, the FMNP will use the term ``coupon'' to identify the

negotiable financial instrument by which FMNP benefits are transferred.

Both coupons and checks were used by States as demonstration project

instruments. Some States used negotiable checks that could be deposited

at a bank. While the term ``coupon'' will be used exclusively in this

rulemaking, it should be noted that other terms may be used in some

States participating in the FMNP.

``Demonstration project.'' In 1988, Congress authorized grant

funding for 3-year demonstration projects in 10 States under which food

coupons would be issued, in addition to normal food package benefits,

to WIC recipients for purchases of fresh, nutritious, unprepared foods

at farmers' markets (Public Law 100-435). The 10 States awarded grants

to operate projects were Connecticut, Iowa, Maryland, Massachusetts,

Michigan, New York, Pennsylvania, Texas, Vermont, and Washington. For

Fiscal Year 1992, Public Law 102-142 allowed for an appropriation of up

to $3 million dollars to carry on the projects another year through

1992. This interim rule distinguishes the previously administered

``demonstration projects'' from the permanent WIC Farmers' Market

Nutrition Program by using the term FMNP or Program when referring to

the permanent program.

``Eligible foods.'' Under the FMNP, eligible foods are defined as

fresh, nutritious, unprepared, domestically grown fruits, vegetables

and herbs for human consumption. Eligible foods may not be processed or

prepared beyond their natural state except for usual harvesting and

cleaning processes.

Section 2 of the WIC Farmers' Market Act of 1992 states that one of

the purposes of the Act is to provide women, infants and children at

nutritional risk with ``fresh nutritious unprepared foods (such as

fruits and vegetables).'' The Department notes that a broad variety of

foods are available at farmers' markets that are not fresh and

unprepared, including jams and jellies, baked goods, maple syrup, cider

and fruit juices, and cheese. Accordingly, such foods are not eligible

foods for the FMNP.

Among the remaining food choices which meet the fresh, nutritious

and unprepared criteria, the Department has decided to limit eligible

foods to fresh fruits, vegetables and herbs. This is consistent with

the emphasis on fruits and vegetables contained in section 2 of the

Act, as noted above, and in section 3 (section 17(m)(8)(D) of the CNA)

which requires State agencies to report to the Department information

on the ``change in consumption of fresh fruits and vegetables''

resulting from participation in FMNP. As a result, although some foods

in addition to fruits, vegetables and herbs may be considered ``fresh,

nutritious, and unprepared,'' they are excluded as eligible foods.

These include honey, as well as protein foods, such as eggs, raw seeds

and nuts, meats, fish and seafood. In addition to the fact that it is

not a fruit or vegetable, the exclusion of honey is also consistent

with the recommendation by the American Academy of Pediatrics that

infants under 12 months of age not consume honey due to the risk of

infant botulism. American Academy of Pediatrics, Pediatric Nutrition

Handbook, 1993 Edition, (p.17). The Department believes that this

exclusion is necessary given the FMNP's relationship to the WIC

Program, and the likelihood that some FMNP participants will be

infants. The exclusion of the protein foods is consistent with their

generally high cost relative to the limited annual benefit of the FMNP,

and the fact that FMNP in most cases will supplement WIC packages which

already contain significant amounts of protein foods.

Consistent with the WIC Program, and other food assistance programs

administered by the Department, the FMNP values its partnership with

American agriculture and therefore promotes the use of FMNP coupons to

purchase domestically grown produce at participating farmers' markets.

Because the Department intends that the FMNP benefit local or State

farmers, most States participating in the demonstration projects

prohibited the use of coupons to purchase foods grown outside of the

State. Two States in the demonstration project defined locally grown to

include counties outside but adjacent to the State boundary. States may

want to consider the advantages of establishing ``locally grown''

guidelines for the purpose of improving marketing opportunities for

local farmers.

``Farmer.'' Although authorizing legislation refers to

``producer'', the term ``farmer'' will be used in this rulemaking for

clarification, to identify an individual authorized to sell produce at

participating farmers' markets. Individuals who exclusively sell

produce grown by someone else, such as wholesale distributors, cannot

be authorized to participate in the FMNP. This is consistent with the

Department's belief that the FMNP should benefit smaller, local

farmers.

``Farmers' market.'' Pursuant to section 2 of Public Law 102-314,

one of the purposes of the WIC Farmers' Market Nutrition Act of 1992 is

to, ``expand the awareness and use of farmers' markets and increase

sales at such markets''. The Department therefore proposes that

``farmers' market'' for the FMNP be defined as ``an association of

local farmers who assemble for the purpose of selling their produce

directly to consumers.'' In most cases, the Department makes a

distinction between an established farmers' market (one that has

community roots, such as a permanent location, and good support from

non-FMNP sales), and a farmstand. A farmstand is a location at which an

individual farmer sells his or her produce directly to consumers. A

farmstand set up near a WIC clinic would not be eligible to

participate. Since WIC participants cannot rely on the continued

existence of such farmstands, they do little to promote the sustained

patronage of farmers' markets. In contrast, most eligible farmers'

markets have a sufficient number of sellers to provide some measure of

stability, and a wider selection of products so as to create a

competitive environment, which discourages higher prices. In addition,

their stable existence increases the likelihood of continued patronage

by recipients or former recipients, and is more conducive to compliance

monitoring. It should be noted that farmstands may be authorized in

those cases where recipient access to farmers' markets is an issue and

where FNS has granted prior approval. For example, in an urban area

where recipient access to farmers' markets is limited, a farmstand

providing locally grown produce and overseen by a nonprofit agency

could be approved for authorization with the prior consent of FNS.

``Household.'' Household under the FMNP has the same definition as

that of ``family'' defined in Sec. 246.2 of this chapter. Each such

family shall constitute a separate household for FMNP benefit issuance

purposes. As permitted by section 17(m)(11)(c) of the CNA, a recipient

may be either a person or a household, at the State agency's option.

This distinction is discussed in detail in section 5 of this preamble

``Local agency.'' Under the FMNP, a local agency includes any

nonprofit entity or local government location where recipients are

issued FMNP coupons or are provided with nutrition education or

information on other operational aspects of the Program. This may

include the WIC local agency or any other location authorized by the

administering State agency to provide the services indicated above to

recipients.

``Matching requirement.'' All participating FMNP States are

required to provide non-Federal matching funds equal to not less than

30 percent of the total FMNP cost. The calculation for total FMNP cost

and minimum State match is as follows:

Divide the total Federal funds by 0.7. This establishes

the total FMNP cost including both Federal funds and minimum State

match from non-Federal sources.

Multiply the total FMNP cost by 0.3. This establishes the

required State match based on the Federal funding request.

The match may be satisfied through State, local or private

contributions for the FMNP or State, local or private contributions for

similar farmers' market programs which operate at the same time as the

FMNP. Similar programs include other farmers' market programs which

serve women, infants, and children (who need not be WIC participants or

on the waiting list for WIC), as well as other categories of recipients

such as, but not limited to, elderly persons.

``Nutrition education.'' Nutrition education means individual or

group education sessions, and the provision of information and

educational materials, designed to improve health status, achieve

positive change in dietary habits, and to emphasize relationships

between nutrition and health, all in keeping with the individual's

personal, cultural, and socioeconomic preferences.

``Recipient.'' Recipient means a person chosen by the State agency

to receive FMNP benefits. Public Law 102-314 modified the definition of

eligible persons which was used in the demonstration projects to

include persons on the waiting list to receive benefits under the WIC

Program, as well as persons actually participating in WIC. Accordingly,

this interim rule expands the definition of those eligible to

participate (Sec. 248.6(a)) to include the following, individually or

in combination: Women, infants over four months of age, or children who

receive assistance under the WIC Program, or are on the waiting list to

receive benefits under the WIC Program. As permitted by section

17(m)(11)(c) of the CNA, a recipient may be either a person or a

household, at the State agency's option. This distinction is discussed

in detail in section 5 of this preamble.

As set forth in Sec. 248.6 of this interim rule, State agencies may

impose other eligibility requirements or priorities for receiving FMNP

coupons as may be necessary. For instance, most States limit

distribution to specific geographic areas, and some give priority to

pregnant or breastfeeding women. States may preclude WIC ``waiting

list'' persons on the basis of their potentially lower priority status.

State agencies must identify in their State Plan the groups/categories

of WIC or WIC waiting list participants to whom FMNP coupons will be

issued or restricted. Based on the Department's Evaluation Report of

the demonstration projects conducted in 1989, most States distributed

coupons to all categories of eligible WIC participants. Approximately

two-thirds of the coupons were distributed to infants and children

participating in WIC, with the remaining one-third distributed to

women. Three States focused their distribution efforts more heavily on

women participating in WIC because they were considered to be at

highest risk nutritionally.

``Similar programs.'' Similar programs means other farmers' market

projects or programs which serve women, infants and children, as well

as other categories of recipients, such as, but not limited to, elderly

persons. Based on language in section 3 of Public Law 102-314, amending

sections 17(m)(6)(F) (i) and (ii) of the CNA, in selecting States to

participate in the FMNP, the Secretary shall give favorable

consideration to States that have prior experience operating similar

programs.

``State agency.'' Section 3 of Public Law 102-314 amends section

17(m)(2)(A) of the CNA to state that the Chief Executive Officer of the

State shall designate the appropriate State agency or agencies to

administer the FMNP in conjunction with the appropriate nonprofit

organizations. State agency means the agriculture department, the

health department or comparable agency; an appropriate Indian agency as

specified in Sec. 248.2.

``State Plan.'' ``State Plan'' means a plan of FMNP operation and

administration that describes the manner in which the State agency

intends to implement and operate all aspects of the Program within its

jurisdiction in accordance with Sec. 248.4 of this regulation. Prior to

the receipt of Federal funds to operate the FMNP, a State agency

(including those that participated in the demonstration projects), must

submit for approval a State Plan of Operation each November 15, for

operation in the next fiscal year. New FMNP State agencies will be

selected competitively based on State Plans submitted to and approved

by the Food and Nutrition Service and the specific ranking criteria set

forth in section 17(m)(6)(F) of the CNA and Sec. 248.5 of the

regulations.

2. Administration (Sec. 248.3)

FNS is responsible for the administration of the FMNP within the

Department, and will provide assistance to State agencies and evaluate

all levels of Program operations to ensure that the goals of the

Program are effectively and efficiently achieved. The Supplemental Food

Programs Division and the FNS Regional offices are responsible for

administration within FNS. Each State agency is responsible for the

effective and efficient administration of the FMNP within that State,

and shall provide guidance to cooperating WIC State and local agencies

on all aspects of FMNP operations. State FMNP contacts are to

communicate with the designated FMNP contacts in the appropriate FNS

Regional office regarding FMNP operations.

The grant funds will be provided to the administering State agency

or agencies designated by the Chief Executive Officer of the State or

Indian Tribal Organization. A State agency may be the agriculture

department, the health department or comparable agency; an Indian

tribe, band or group recognized by the Department of the Interior; an

intertribal council or group which is an authorized representative of

Indian tribes, bands or groups recognized by the Department of the

Interior and which has an ongoing relationship with such tribes, bands

or groups for other purposes and has contracted with them to administer

the Program; or the appropriate area office of the Indian Health

Service of the Department of Health and Human Services.

The Chief Executive Officer of the State shall ensure coordination

between the agency designated to administer the FMNP, and the WIC State

agency if different, by requiring that a written agreement is entered

into by the two agencies. Because eligibility for the FMNP is limited

to WIC participants or persons on the waiting list for WIC services,

thorough coordination between agencies is necessary for the successful

operation of the Program. In order to further ensure successful

operation, State agencies shall ensure that there are sufficient staff

available to administer an efficient and effective Program and shall

provide an outline of administrative staff and job descriptions for

staff whose salaries will be provided from FMNP funds. An increase in

administrative funding (compared with the demonstration projects) to 15

percent (see Sec. 248.14(g) of this rulemaking) will aid the staffing

and general administrative process as well.

3. State Plan Provisions (Sec. 248.4)

In establishing the FMNP as a permanent program, Congress

established basic standards and requirements for its operation.

Pursuant to section 17(m)(6)(D)(i) of the CNA, each State agency that

desires to receive an FMNP grant, including State agencies previously

participating in the demonstration projects, must submit a State Plan

for approval by the Department. Section 248.4 requires submission of

State Plans by November 15 of each year.

The State plan process replaces the grant application process that

was used for the demonstration projects. Sections 17(m)(6)(D) (ii) and

(iii) of the CNA require that each State Plan submitted to the

Secretary contain the following:

The estimated cost of the FMNP;

The estimated number of individuals to be served by the

FMNP;

A description of the State's plan for complying with the

requirements of section 17(m)(5) of the CNA; and

The criteria developed by the State with respect to

authorization of farmers to participate in the FMNP. Such criteria

shall require any authorized farmer to sell fresh, nutritious,

unprepared fruits, vegetables or herbs to recipients, in exchange for

coupons.

A complete listing of State Plan requirements is contained in

Sec. 248.4.

4. Selection of State Agencies (Sec. 248.5)

Pursuant to section 3 of Public Law 102-314, each State agency that

received assistance under the demonstration projects in a fiscal year

prior to October 1, 1991, and which complies with matching requirements

for funding and other program requirements as determined by the

Department, shall receive assistance under the FMNP. New State agencies

wishing to participate in the FMNP will have their State plans approved

and ranked based on objective criteria consistent with the requirements

established in section 17(m)(6)(F) of the CNA as set forth in

Sec. 248.5.

5. Recipient Eligibility (Sec. 248.6)

Individuals who are eligible to receive Federal benefits under the

FMNP are WIC participants, excluding infants four months of age or

younger, or individuals on the waiting list to receive WIC benefits.

Infants under four months of age are excluded from eligibility in the

FMNP based on the recommendation of the American Academy of Pediatrics

that such infants are not able to consume solids due to the level of

development of their gastrointestinal tract. State agencies have the

option to prioritize WIC participants who will receive FMNP benefits.

For example, a State agency may choose to provide benefits to all

eligible pregnant and breastfeeding women. Section 248.2 defines

recipient as a person chosen by the State agency to receive benefits

under the FMNP. This definition permits State agencies to allocate the

quantity of benefits on a household basis, meaning that the household

could receive fewer benefits as a unit than it otherwise would if

benefits were allocated to individual household members. For example,

in a household where four members of that household are categorically

eligible, the State may choose to allocate benefits on the basis of

fewer than four eligibles. A State agency making the decision to issue

benefits on a household basis would be choosing to spread fewer

benefits among more recipients. State agencies that chose this option

in the demonstration projects have argued that by bringing in more

recipients, they addressed expanding the awareness and use of farmers'

markets for a greater number of households, consistent with one of the

mandated purposes of the FMNP set forth in section (2) of Public Law

102-314. A State agency allocating benefits on a household basis shall

not issue more benefits to a household than it otherwise would if

benefits were allocated to individual recipients within the household.

For those State agencies issuing FMNP benefits on a household basis,

each family as defined in Sec. 246.2 of the WIC Program regulations

shall constitute a separate household. For example, if two pregnant

women (and their children) are living together and WIC has identified

them all as one family (a single economic unit with one participant

identification), then they should all be classified as one household in

the FMNP, if the State agency is allocating benefits on a household

basis. Likewise, if WIC has identified the two pregnant women (and

their children) as two families (two economic units with two

participant identifications), then they should be classified as two

households in the FMNP. State agencies making the decision to issue

benefits by household must do so on a Statewide basis. That is, the

same State agency may not simultaneously issue benefits on both an

individual and household basis. Recognizing that the food benefit has

been issued to certain high-risk individuals to address nutritional

needs, it is not intended that food benefits from the FMNP be shared

with non-FMNP recipients residing in the FMNP recipient household.

If a State agency elects to issue benefits on a household basis,

data concerning number and type of recipients must still be provided as

required by section 17(m)(8)(A) of the CNA.

6. Nondiscrimination (Sec. 248.7)

Because racial and ethnic participation data (as required by title

VI of the Civil Rights Act of 1964) are collected at the time women,

infants, and children are certified for participation in the WIC

Program, the Department has determined that the WIC data collection

effort is sufficient to fulfill the racial/ethnic data collection

requirement for the FMNP. Therefore, no additional data collection is

required.

7. Recipient Benefits (Sec. 248.8)

While this interim rule defines eligible foods as fresh,

nutritious, unprepared fruits, vegetables and herbs, States must

specifically identify in their State plans, which of these foods may be

purchased (Sec. 248.4(a)(10)(vi)). The value of the Federal benefits

received by any recipient under the FMNP may not be less than $10 per

year or more than $20 per year. Most States participating in the

demonstration projects found that the most practical distribution of

coupons for the FMNP is in booklets made up of $1 and $2 denominations.

If the FMNP coupon face value exceeds the purchase price of produce,

farmers are prohibited from giving cash change to recipients. Instead,

this difference may be made up by providing recipients with extra

eligible foods in the approximate value of the difference.

In the interest of enhancing local revenues, the Department

recognizes a State agency's option in allowing only locally grown

produce, as defined by the State agency, to be purchased by FMNP coupon

recipients. Since States are required to match 30 percent of the total

cost of the FMNP with State or non-Federal contributions, some States

may consider this an attractive option for ensuring that FMNP benefits

remain in the State. State agencies also have the option to define what

they consider to be ``locally grown''. For instance, some State

agencies for various reasons, such as availability of an adequate

volume and variety of produce, may consider produce grown in adjacent

States as locally grown. At the same time, other State agencies may

define locally grown to be produce grown within the State boundaries.

8. Nutrition Education (Sec. 248.9)

Because most FMNP recipients are also WIC participants, in most

cases relevant nutrition education will be delivered to FMNP recipients

by WIC nutritionists at WIC clinics. The Department views the FMNP as

an excellent opportunity to reinforce messages delivered to WIC

participants on the benefits of consuming fresh fruits and vegetables.

When the consumption of fruits and vegetables is included as part of

the regular nutrition education lesson provided by the WIC clinic to

WIC participants who are also FMNP recipients, this may be deemed to

have fulfilled the nutrition education requirement for the FMNP. The

WIC clinic may not seek reimbursement from the administering FMNP State

agency for this service since it is an ongoing and vital component of

the WIC Program. In these situations, the administering FMNP State

agency shall include the provision of nutrition education by the WIC

clinic as part of the cooperative agreement with WIC agencies required

by Sec. 248.3(e) and Sec. 248.9 of these regulations.

If in specific situations FMNP recipients do not receive relevant

nutrition education at WIC clinics, the administering State agency is

responsible for arranging alternative methods for the provision of

relevant nutrition education, which is an allowable cost under the

FMNP. At the option of the FMNP State agency, the nutrition education

provided by WIC to recipients may be supplemented by additional FMNP

nutrition education. The additional FMNP enhancement may be considered

an allowable administrative cost of the FMNP State agency. Provision of

such nutrition education enhancements and reinforcements would be

legitimate justification for the additional 2 percent administrative

funds that are available upon approval by the Department. In addition,

the administering FMNP State agency is responsible for providing

information to recipients on the use of FMNP coupons and the purpose of

the program as required by Sec. 248.4(a)(9)(iii). The costs of

providing this information must be provided by the FMNP and not the WIC

agencies which may be performing this service for the FMNP.

Section 17(m)(8)(D) of the CNA requires the Secretary to collect

from each State that receives a grant under the FMNP, information

relating to, when practicable, the impact of the FMNP on the

nutritional status of recipients by determining the change in

consumption of fresh fruits and vegetables by FMNP coupon recipients.

Because of this requirement, State agencies shall develop minimally

burdensome procedures such as surveys to assess the impact on the

nutritional status of FMNP recipients by obtaining information on the

change in their consumption of fresh fruits and vegetables. This

nutritional information shall be submitted as an addendum to the State

Plan as set forth in Sec. 248.4(a)(15), at such a date specified by the

Secretary. Coordination with the WIC Program will reduce costs and

minimize duplication of effort on this data collection element.

Section 17(m)(8)(E) of the CNA requires that States receiving a

grant under the FMNP submit information on the effects of the FMNP on

the use of farmers' markets and the marketing of agricultural products

at such markets and when practicable, the effects of the FMNP on

recipients' awareness regarding farmers' markets. Pursuant to

Sec. 248.4(a) (16) and (17) of these interim regulations, State

agencies shall submit in their State Plans the methods they will use to

assess this information and shall submit the actual information as an

addendum to the State Plan at such a date specified by the Secretary.

9. Coupon and Market Management (Sec. 248.10)

The State agency is responsible for the fiscal management of, and

accountability for farmers/farmers' markets. Farmers' markets are

authorized by the State agency which may administer the FMNP directly

or through a sub-agency such as a farmers' market association. Each

State agency may authorize individual farmers, farmers' markets or

both. When the State agency authorizes farmers' markets, the farmers'

markets may authorize the farmers within the market to accept FMNP

coupons. The demonstration projects revealed that market managers often

play an important role in the day-to-day management of the FMNP, such

as in the receipt of coupon batches from farmers and the reimbursement

to farmers. According to the demonstration project's evaluation report,

the strongest markets appeared to be those where the market manager had

an active role in farmer training, compliance monitoring, reimbursing

farmers, and redeeming coupons. Farmers at these markets were more

likely to have a sound understanding of the demonstration project, and

to comply strictly with guidelines. In contrast, where the market

manager's role in the demonstration projects was limited, there was

usually greater misunderstanding among participating farmers about

demonstration project operations. Demonstration project participation

was typically lower at markets with only nominal market manager

involvement.

Monitoring techniques varied widely from State to State for the

demonstration projects. All States met the grant requirement to visit

every authorized market at least once during operations, and peer

monitoring was common and effective in most market settings. Peer

monitoring is a system in which farmers watch what their neighbors are

doing, and make complaints to the market manager about suspected

infractions in an effort to prevent competitors from getting an unfair

advantage. State agencies have broad discretion in developing systems

for FMNP coupon and market management. They should keep in mind,

however, that it is the State agency that is ultimately responsible for

the fiscal management of, and accountability for farmers and farmers'

markets. The State agency is responsible for establishing the number

of, and criteria for, the authorization of farmers and/or farmers'

markets as provided by section 17(m)(6)(D)(iii) of the CNA and

Sec. 248.10(a) of these regulations. Because the Department believes

that the FMNP is intended to help small, local farmers, State agencies

may limit the foods eligible for purchase under the FMNP to those

locally grown, as defined by the State. To further support this

objective, individuals who exclusively sell produce grown by someone

else (such as wholesale distributors), are not eligible to participate

in the FMNP. This requirement does not apply to individuals which an

authorized farmer may have employed to sell his produce at the farmers'

market or to individuals hired by a nonprofit organization to sell

produce at urban farmstands on behalf of local farmers.

When FMNP coupon reimbursement is delegated to farmers' market

managers or farmers' market associations or non-profit organizations,

State agencies may establish appropriate bonding procedures for

farmers' market managers, associations or non-profit organizations. The

State agency may determine the best procedure to put in place for

bonding. Costs of such bonding are not reimbursable administrative

expenses. Additional criteria and requirements for authorizing farmers

and farmers markets are identified in Sec. 248.10 of this interim rule.

Section 248.10(b) of this interim rule outlines the contents of the

farmers' market agreement. These agreements may be between the State

agency and an authorized farmer or an authorized farmers' market, and

shall be no more than 3 years in duration. Among its provisions, the

agreement shall require that a farmer or farmers' market shall not

issue cash change for purchases that are in an amount less than the

value of the FMNP coupon(s). Since it is recommended that FMNP coupons

be in $1 or $2 denominations, the difference between the purchase price

and the value of the coupon should be less than $2. The Department,

therefore, encourages farmers to adjust for any difference by adding

more produce to the purchase.

Pursuant to Sec. 248.10(d), State agencies shall conduct annual

training for farmers and farmers' market managers. State agencies have

discretion in determining the method used for training purposes.

Training shall include, at a minimum, dissemination of information

concerning eligible foods, and proper FMNP coupon redemption

procedures, including deadlines for submission of coupons for payment.

Other points which must be covered in training include the following:

Equitable treatment of FMNP recipients, including the

availability of produce to FMNP recipients that is of the same quality

and cost as that sold to other customers;

Civil rights compliance guidelines;

Guidelines for storing FMNP coupons safely; and

Guidelines for cancelling FMNP coupons, such as punching

holes or rubber stamping.

Although these regulations permit State agency discretion in

determining the method of annual training, the State agency is required

to conduct a documented on-site visit prior to, or at the time of

authorization, which shall include at a minimum, information concerning

eligible foods and proper coupon redemption procedures. For example, in

a State with a 3-year agreement, a State agency may conduct an in-

person training prior to or at the time of authorization, and if

reauthorization is granted three years later, conduct another in-person

training at least once during the next 3-year grant agreement period.

Other less comprehensive forms of training such as information handouts

may be more appropriate for State agencies in the second or third years

of operation for a grant agreement.

State agencies are required to conduct on-site monitoring visits to

at least 10 percent of authorized farmers, starting with the highest

risk farmers and working down, and 10 percent of farmers' markets,

starting with the highest risk farmers' markets and working down.

Mandatory high risk indicators are a proportionately high volume of

FMNP coupons redeemed within a farmers' market (as compared to other

farmers within the market or within the State) and recipient

complaints. Participating State agencies have the option to conduct

compliance buys and the Department encourages such activity when

practicable. A State agency may be required to conduct compliance buys

as a follow-up measure when a farmer/farmers' market in a State is

found to be out of compliance during an FNS management evaluation.

Compliance activity can provide an objective measure of whether

farmer training is adequate and whether farmers are following FMNP

rules such as not providing change, selling only authorized foods to

FMNP recipients, and ensuring participation only by authorized farmers.

In addition to this, compliance buys can induce compliance and provide

a justification for sanctions and removal of non-complying farmers.

As set forth in Sec. 248.10(h), the State agency shall identify the

disposition of all FMNP coupons as validly redeemed, lost or stolen,

expired, or not matching issuance records. This identification shall be

determined on a one-to-one reconciliation basis. Validly redeemed

coupons are those that are issued to an authorized recipient and

redeemed by an authorized farmers' market/farmer before the expiration

date. Coupons that are redeemed but cannot be traced to an authorized

recipient or authorized farmer will be subject to claims action in

accordance with Sec. 248.20 of this interim rule. A State agency has

the option to replace lost, stolen, or damaged coupons, and must

describe its system for doing so in the State Plan. A State agency

shall use uniform FMNP coupons within its jurisdiction, which must

include at a minimum, the following information as required by

Sec. 248.10(h)(3):

The last date by which the recipient can use the coupon.

This date shall be no later than November 30 of each year.

A date by which the farmer/farmers' market must submit the

coupon for payment. When establishing this date, State agencies shall

take into consideration the date financial statements are due to the

FNS, and allow time for the corresponding coupon reconciliation that

must be done by the State agency prior to submission of financial

statements. Currently SF-269 financial statements are due to FNS by

January 30.

A unique and sequential serial number.

A denomination (dollar amount).

For each redeeming farmers' market, a farmer identifier on

each coupon and market identifier on the cover of the batched coupons.

For each redeeming farmer, a farmer identifier on each coupon.

Inclusion of individual farmer identifiers on all FMNP coupons is a

requirement in the FMNP, in order to trace coupon redemption to an

authorized farmer, as required by section 17(m)(5)(E)(i) of the CNA.

States have the option to directly authorize either farmers' markets,

individual farmers or both. However, if the State directly authorizes

farmers' markets, and not farmers, an individual farmer identifier must

be included on the coupon and a farmers' market identifier included on

the batched set of coupons submitted by the farmers' market manager for

reimbursement. Those State agencies which have agreements directly with

farmers and not markets must include individual farmer identifiers on

each redeemed coupon. This is a change from the demonstration projects

which required that only a market identifier be included on the coupon.

A farmer identifier will provide protection for the farmers' market,

since it is the individual farmer who may be identified and penalized

for abuse rather than the entire market, if appropriate.

Each FMNP recipient shall receive instructions on the proper use of

coupons, including, but not limited to:

A list of names and addresses of authorized farmers'

markets and/or authorized farmers at which FMNP coupons may be

redeemed.

A description of eligible foods, and the prohibition

against cash change.

Notification that they have the right to complain about

improper farmer/farmers' market practices with regard to FMNP

responsibilities, and the process for doing so.

10. Financial Management System. (Sec. 248.11)

The demonstration projects served as an effective model for the

FMNP in the area of financial management systems. Based on the

evaluation report conducted for the demonstration projects and

submitted to Congress in April 1991, good controls were in place to

account for advanced funds, and effective systems were in place to

recoup leftover funds. Two States used negotiable checks in lieu of

coupons, and six States advanced funds to payment intermediaries to pay

authorized farmers or markets for coupons they had accepted. Payment

intermediaries included market managers, private banks, and various

contracted organizations and associations.

Pursuant to Sec. 248.11(d) of this interim rule, participating

State agencies must implement procedures which ensure prompt and

accurate payment of allowable costs, and ensure the allowability and

allocability of costs in accordance with the cost provisions set forth

in Sec. 248.11 of this rule, 7 CFR part 3016, and FNS guidelines and

Instructions.

11. FMNP Costs (Sec. 248.12)

FMNP costs consist of food and administrative costs. Administrative

costs are those costs associated with providing benefits and services

to recipients. Allowable administrative costs include costs associated

with the provision of nutrition education which meets the requirements

of Sec. 248.9 of this rule. In addition, other allowable administrative

costs include, but are not limited to, the costs of administering the

coupon and market management system, including printing, issuing and

reconciling coupons; and, authorizing, training and monitoring markets,

as well as FMNP outreach, recordkeeping and reporting costs.

12. Distribution of Funds (Sec. 248.14)

As a prerequisite to the receipt of funds, State agencies must

agree to contribute from non-Federal sources at least 30 percent of the

total cost of the FMNP, which may also be satisfied from State

contributions that are made for similar programs which operate during

the same period as the FMNP. Similar programs include other farmers'

market projects or programs which serve women, infants, and children,

as well as other categories of recipients such as, but not limited to,

elderly persons.

Section 17(m)(6)(A) of the CNA, subject to certain limitations and

requirements, provides for authorization of State agencies that

received assistance under the demonstration projects. It stipulates

that each State which received Federal funding in a fiscal year ending

before October 1, 1991 (i.e. before Fiscal Year 1992) shall receive

benefits under the new FMNP, provided that the State complies with the

requirements established by the Act, as determined by the Secretary.

Section (17)(m)(6)(B) mandates that, if sufficient funds are

appropriated by Congress, no State shall receive less Federal funds

than it did in the most recent fiscal year in which it received

assistance, as long as the State continues to provide the requisite

matching funds.

If amounts appropriated for any fiscal year for grants under the

FMNP are not sufficient to maintain prior year funding levels for each

State authorized under section 17(m)(6)(A) of the CNA, each State's

grant shall be ratably reduced, except that, if sufficient funds are

available, each State shall receive at least $50,000 or the amount that

the State received for the prior fiscal year if that amount is less

than $50,000.

Once funds have been set aside to satisfy this requirement, section

17(m)(6)(G) requires that any remaining funds shall be allocated as

follows: (1) An amount equal to 45 to 55 percent shall be made

available to States participating in the FMNP that wish to serve

additional FMNP recipients, and whose State plan to do so is approved

by the Department. If this amount is greater than that necessary to

satisfy approved expansion requests from participating State agencies,

the unallocated amount shall be made available to State agencies that

have not participated in the FMNP in the prior fiscal year, and whose

State Plans have been approved by the Department.

(2) An amount equal to 45 to 55 percent shall be made available to

States that have not participated in the FMNP in the prior fiscal year,

and whose State Plans have been approved by the Department. If this

amount is greater than that necessary to satisfy the approved State

Plans for new State agencies, the unallocated amount shall be applied

toward satisfying any unmet need of States that desire to serve

additional recipients, and whose State Plans have been approved by the

Department.

State agencies must return to FNS any unexpended funds made

available for a fiscal year, by February 1 of the following fiscal

year, except that each State agency may retain not more than 5 percent

of the funds made available to the State agency for the fiscal year to

reimburse expenses incurred during the preceding fiscal year or to

reimburse expenses expected to be incurred during the succeeding fiscal

year. The spend forward or carry back provisions are contained in

Sec. 248.14(h) of this interim rule. Any funds that remain available

after satisfying paragraphs (1) and (2) above, shall be reallocated in

accordance with the appropriate method determined by the Secretary.

Subject to requirements of section 17(m)(6) described above, the

Secretary is instructed in section 17(m)(4) to establish a formula for

determining amounts to be awarded to each State with an approved plan

according to the number of recipients proposed to participate as

specified in the State Plan. In determining the amount to be awarded to

new States, the Secretary is further instructed to rank the State Plans

according to the following criteria set forth in section 17(m)(6)(F) of

the CNA. The Secretary shall:

(1) Favorably consider a State's prior experiences with this or

similar programs;

(2) Favorably consider a State's operation of a similar program

with State or local funds that can present data concerning the value of

that program;

(3) Require that if a State receiving funds under the FMNP applies

the Federal grant to a similar program operated in the previous fiscal

year with State or local funds, the State shall not reduce the amount

of such State or local funds previously made available to the similar

program below the level at which the similar program was funded in the

year prior to obtaining FMNP funding.

(4) Give precedence to State Plans that would serve areas in the

State having--

(a) The highest concentration of eligible persons;

(b) The greatest access to farmers' markets;

(c) A broad geographical area;

(d) The greatest number of recipients in the broadest geographical

area within the State; and

(e) Any other characteristics, as determined appropriate by the

Secretary, that maximize the availability of benefits to eligible

persons; and

(5) Take into consideration the amount of funds available and the

minimum amount needed by each applicant State to successfully operate

the FMNP.

In providing funds to serve additional recipients in a State that

received assistance under the FMNP in the previous fiscal year, section

17(m)(6)(C) of the Act requires the Secretary to consider:

(1) The availability of any such assistance not spent by the State

during the FMNP year for which the assistance was received;

(2) Documentation that justifies the need for an increase in

participation; and

(3) Demonstrated ability to satisfactorily operate the existing

FMNP.

The Secretary will review State agency requests for expansion funds

on a case-by-case basis in the evaluation process as set forth in

Sec. 248.14(e). The Secretary shall consider if State agencies

requesting expansion funds have demonstrated their ability to spend at

least 80 percent of their prior year food grant (exclusive of the 5

percent carry forward). In those instances where State agencies are

requesting funds for expansion but have excessive unspent funds, as

determined by the Secretary, during the FMNP year for which the

assistance was received, the State agency may still be eligible for

expansion funds if the Secretary determines there was good cause for

the excessive unspent funds, such as severe weather conditions and

other factors such as unanticipated decreases in participant caseload

in the WIC Program.

Administrative funds are limited by section 17(m)(5)(F) of the Act

and cannot exceed 15 percent, (or 17 percent for a State's first year

of operation or in approved cases thereafter), of the total FMNP funds.

This is consistent with House report No. 102-540(I), page 192,

accompanying Public Law 102-314, which states that the 15-percent

administrative cost allowance is designed to more realistically reflect

the costs of administering the FMNP than the 12 percent permitted under

the demonstration projects. Section 17(m)(5)(F) of the CNA also allows

for an additional 2-percent allowance for a State's first year of

operation (i.e. in Fiscal Year 1993, States which did not operate a

demonstration project prior to October 1, 1992), to cover start-up

costs such as determining which local WIC sites will be utilized;

recruiting farmers to participate in the program; preparing contracts

for farmers and local WIC providers; developing a data processing

system for redemption and reconciliation of food coupons; designing

program training and informational materials; and planning program

implementation and coordination of responsibilities between State

agriculture and health departments.

Section 17(m)(5)(F)(ii) of the Act states that after the first

fiscal year of operation, upon a showing by the State of financial

need, the Secretary may permit the State to use up to an additional 2

percent of the total FMNP funds for administration. In determining

financial need, the Secretary shall take into consideration the State

agency's unique circumstances and proposed enhancements to its

operations. Examples of FMNP enhancements are upgraded nutritional

education and instructional materials, automation of coupon issuance,

and micro-encoding checks. As set forth in Sec. 248.14(g)(3), State

agencies wishing to request the additional 2 percent administration

allowance must submit written justification to FNS for approval as part

of the annual State Plan. Such requests must be resubmitted each year,

since approval of the additional 2 percent allowance one year does not

mean that the additional amount will be granted in subsequent years.

It is up to the State agency to determine what mix of funds

(Federal, State, or both) will be used for the administrative portion,

as long as the administrative funds do not exceed 15 (or 17, where

approved) percent of the total of Federal and State funds allocated.

This means that a State agency can choose to utilize some of the

Federal funds allocated for administrative costs or it can use all of

the Federal funds for food costs. The following example illustrates two

options available to State agencies to provide flexibility regarding

administrative funds within the 30 percent matching requirement:

------------------------------------------------------------------------

Total Food Administration

------------------------------------------------------------------------

Federal Dollars Allocated............. $70 $59.50 $10.50

Minimum State Match................... 30 25.50 4.50

---------------------------------

Total FMNP Cost................. 100 85.00 15.00

=================================

Option:

Federal Dollars................... 70 70.00 0.00

Minimum State Match............... 30 15.00 15.00

---------------------------------

Total FMNP Cost................. 100 85.00 15.00

------------------------------------------------------------------------

In summary, a State agency may not use more than 15 (or 17) percent

of the total (Federal and State) amount of funds for administrative

costs. If a State agency provides funds in excess of the 30 percent

matching requirement, the limit on the use of funds for administration

shall not apply to the funds contributed above the matching

requirement.

List of Subjects in 7 CFR Part 248

Food assistance programs, Food donations, Grant programs, Social

programs, Infants and children, maternal and child health, Nutrition

education, Public assistance programs, WIC, Women.

Accordingly, 7 CFR part 248 is added to read as follows:

PART 248--WIC Farmers' Market Nutrition Program (FMNP)

Subpart A--General

Sec.

248.1 General purpose and scope.

248.2 Definitions.

248.3 Administration.

Subpart B--State Agency Eligibility

248.4 State Plan.

248.5 Selection of new State agencies.

Subpart C--Recipient Eligibility

248.6 Recipient eligibility.

248.7 Nondiscrimination.

Subpart D--Recipient Benefits

248.8 Level of benefits and eligible foods.

248.9 Nutrition education.

Subpart E--State Agency Provisions

248.10 Coupon and market management.

248.11 Financial management system.

248.12 FMNP costs.

248.13 FMNP income.

248.14 Distribution of funds.

248.15 Closeout procedures.

248.16 Administrative appeal of State agency decisions.

Subpart F--Monitoring and Review of State Agencies

248.17 Management evaluations and reviews.

248.18 Audits.

248.19 Investigations.

Subpart G--Miscellaneous Provisions

248.20 Claims and penalties.

248.21 Procurement and property management.

248.22 Nonprocurement debarment/suspension, drug-free workplace,

and lobbying restrictions.

248.23 Records and reports.

248.24 Other provisions.

248.25 FMNP information.

248.26 OMB control numbers.

Authority: 42 U.S.C. 1786.

Subpart A--General

Sec. 248.1 General purpose and scope.

This part announces regulations under which the Secretary of

Agriculture shall carry out the WIC Farmers' Market Nutrition Program.

The dual purposes of the FMNP are: (a) To provide resources in the form

of fresh, nutritious, unprepared foods (fruits and vegetables) from

farmers' markets to women, infants, and children who are nutritionally

at risk and who are participating in the Special Supplemental Food

Program for Women, Infants and Children (WIC) or are on the waiting

list for the WIC Program; and

(b) To expand the awareness, use of and sales at farmers' markets.

This will be accomplished through payment of cash grants to

approved State agencies which administer the FMNP and deliver benefits

at no cost to eligible persons. The FMNP shall be supplementary to the

food stamp program carried out under the Food Stamp Act of 1977 (7

U.S.C. 2011 et seq.) and to any other Federal or State program under

which foods are distributed to needy families in lieu of food stamps.

Sec. 248.2 Definitions.

For the purpose of this part and all contracts, guidelines,

instructions, forms and other documents related hereto, the term:

Administrative costs means those direct and indirect costs,

exclusive of food costs, as defined in Sec. 248.12(b), which State

agencies determine to be necessary to support FMNP operations.

Administrative costs include, but are not limited to, the costs of

administration, start-up, training, monitoring, auditing, the

development of and accountability for coupon and market management,

nutrition education, outreach, eligibility determination, and

developing, printing, and distributing coupons.

Compliance buy means a covert, on-site investigation in which a

FMNP representative poses as a FMNP participant and transacts one or

more FMNP food coupons.

Coupon means a coupon, voucher, or other negotiable financial

instrument by which benefits under the FMNP are transferred to

recipients.

Days means calendar days.

Demonstration project means the Farmers' Market Coupon

Demonstration Project authorized by section 17(m) of the Child

Nutrition Act of 1966 (CNA), (42 U.S.C. 1786(m)), as amended by section

501 of the Hunger Prevention Act of 1988 (Pub. L. 100-435), enacted

September 19, 1988. Public Law 102-314 authorized the Secretary to

competitively award, subject to the availability of funds, a 3-year

grant (which was subsequently extended for an additional year by Public

Law 102-142) to up to 10 States that submitted applications that were

approved for the establishment of demonstration projects designed to

provide WIC participants with coupons that could be exchanged for

fresh, nutritious, unprepared foods at farmers' markets. Those States

are: Connecticut, Iowa, Maryland, Massachusetts, Michigan, New York,

Pennsylvania, Texas, Vermont, and Washington.

Department means the U.S. Department of Agriculture.

Eligible foods means fresh, nutritious, unprepared, domestically

grown fruits, vegetables and herbs for human consumption. Eligible

foods may not be processed or prepared beyond their natural state

except for usual harvesting and cleaning processes. Honey, maple syrup,

cider, nuts, seeds, eggs meat, cheese and seafood are examples of foods

not eligible for purposes of the FMNP.

Farmer means an individual authorized to sell produce at

participating farmers' markets. Individuals who exclusively sell

produce grown by someone else, such as wholesale distributors, cannot

be authorized to participate in the FMNP. For purposes of this part,

the term ``farmer'' shall mean ``producer'' as that term is used in

section 17(m)(6)(D) of the CNA (42 U.S.C. 1786(m)(6)(D)). A

participating State agency has the option to authorize individual

farmers or farmers' markets.

Farmers' market means an association of local farmers who assemble

for the purpose of selling their produce directly to consumers. In

cases where recipient access to farmers' markets is an issue, with

prior FNS approval this definition may be expanded at the State

agency's option to include farmstands at which authorized farmers sell

their produce.

Farmstand means a location at which a single, individual farmer

sells his/her produce directly to consumers. This is in contrast to a

group or association of farmers selling their produce at a farmers'

market. With prior FNS approval, a State agency may authorize a

farmstand or a nonprofit organization operating a farmstand to

participate in the FMNP, where necessary to ensure adequate recipient

access to farmers' markets.

Fiscal year means the period of 12 calendar months beginning

October 1 of any calendar year and ending September 30 of the following

calendar year.

FMNP funds means Federal grant funds provided for the FMNP, plus

the required non-Federal match.

FNS means the Food and Nutrition Service of the U.S. Department of

Agriculture.

Food costs means the cost of eligible supplemental foods.

Household has the same definition as that of ``family'' defined in

Sec. 246.2 of this chapter. Each such family shall constitute a

separate household for FMNP benefit issuance purposes.

Local agency means any nonprofit entity or local government agency

which issues FMNP coupons, and provides nutrition education and/or

information on operational aspects of the FMNP to FMNP recipients.

Matching requirement means non-Federal cash outlays in an amount

equal to, but not less than, 30 percent of the total FMNP costs for the

fiscal year. The match may be satisfied through non-Federal cash

expenditures for the FMNP or for similar farmers' market programs which

operate during the same period as the FMNP. Similar programs include

other farmers' market programs which serve women, infants and children

(who may or may not be WIC participants or on the waiting list for WIC

services), as well as other categories of recipients, such as, but not

limited to, elderly persons.

Nonprofit agency means a private agency which is exempt from income

tax under the Internal Revenue Code of 1986, as amended, (26 U.S.C. 1

et. seq.).

Nutrition education means individual or group education sessions

and the provision of information and educational materials designed to

improve health status, achieve positive change in dietary habits, and

emphasize relationships between nutrition and health, all in keeping

with the individual's personal, cultural, and socioeconomic

preferences.

OIG means the Department's Office of the Inspector General.

Program or FMNP means the WIC Farmers' Market Nutrition Program

authorized by section 17(m) of the CNA (42 U.S.C. 1786(m)), as amended

by Public Law 102-314, the WIC Farmers' Market Nutrition Act of 1992,

enacted on July 2, 1992.

Recipient means a person chosen by the State agency to receive FMNP

benefits. Such person must be a woman, infant over 4 months of age, or

child, who receives benefits under the WIC Program or is on the waiting

list to receive benefits under the WIC Program.

SFPD means the Supplemental Food Programs Division of the Food and

Nutrition Service of the U.S. Department of Agriculture.

Similar programs means other farmers' market projects or programs

which serve women, infants and children, or other categories of

recipients, such as, but not limited to, elderly persons.

State agency means the agriculture department; the health

department or comparable agency of each State; an Indian tribe, band or

group recognized by the Department of the Interior; an intertribal

council or group which is an authorized representative of Indian

tribes, bands or groups recognized by the Department of the Interior

and which has an ongoing relationship with such tribes, bands or groups

for other purposes and has contracted with them to administer the

Program; or the appropriate area office of the Indian Health Service

(IHS), a division of the Department of Health and Human Services.

State Plan means a plan of FMNP operation and administration that

describes the manner in which the State agency intends to implement,

operate and administer all aspects of the FMNP within its jurisdiction

in accordance with Sec. 248.4.

Total FMNP costs means the sum of all allowable costs incurred for

FMNP purposes, whether funded from the Federal or the State matching

share of total FMNP funds.

Total FMNP funds means the sum of the Federal funds provided to the

State agency and non-Federal contributions provided by the State agency

for FMNP purposes.

WIC means the Special Supplemental Food Program for Women, Infants

and Children authorized by section 17 of the Child Nutrition Act of

1966, as amended (42 U.S.C. 1771 et. seq.).

Sec. 248.3 Administration.

(a) Delegation to FNS. Within the Department, FNS shall act on

behalf of the Department in the administration of the FMNP. Within FNS,

SFPD and the FNS Regional Offices are responsible for FMNP

administration. FNS shall provide assistance to State agencies and

evaluate all levels of FMNP operations to ensure that the goals of the

FMNP are achieved in the most effective and efficient manner possible.

(b) Delegation to State agency. The State agency is responsible for

the effective and efficient administration of the FMNP in accordance

with the requirements of this part; the requirements of the

Department's regulations governing nondiscrimination (7 CFR parts 15,

15a and 15b), administration of grants (7 CFR part 3016),

nonprocurement debarment/suspension (7 CFR part 3017), drug-free

workplace (7 CFR part 3017), and lobbying (7 CFR part 3018); and,

Office of Management and Budget Circular A-130, FNS guidelines, and

Instructions issued under the FNS Directives Management System. The

State agency shall provide guidance to cooperating WIC State and local

agencies on all aspects of FMNP operations. Pursuant to section

17(m)(2) of the CNA, State agencies may operate the FMNP locally

through nonprofit organizations or local government entities and must

ensure coordination among the appropriate agencies and organizations.

(c) Agreement and State Plan. Each State agency desiring to

administer the FMNP shall annually submit a State Plan and enter into a

written agreement with the Department for administration of the Program

in the jurisdiction of the State agency in accordance with the

provisions of this part.

(d) State agency ineligibility. A State agency shall be ineligible

to participate in the FMNP if State or local sales tax is collected on

Program food purchases in the area in which it administers the Program,

except that, if sales tax is collected on Program food purchases by

sovereign Indian entities which are not State agencies, the State

agency shall remain eligible so long as any farmers' markets collecting

such tax are disqualified.

(e) Coordination with WIC agency. The Chief Executive Officer of

the State shall ensure coordination between the designated

administering State agency and the WIC State agency, if different, by

ensuring that the two agencies enter into a written agreement. Such

coordination between agencies is necessary for the successful operation

of the FMNP, because WIC participants or persons on the waiting list

for WIC services are the only persons eligible to receive Federal

benefits under the FMNP. The written agreement shall delineate the

responsibilities of each agency, describe any compensation for

services, and shall be signed by the designated representative of each

agency. This agreement shall be submitted each year along with the

State Plan.

(f) State staffing standards. Each State agency shall ensure that

sufficient staff is available to efficiently and effectively administer

the FMNP. This shall include, but not be limited to, sufficient staff

to provide nutrition education in coordination with the WIC Program,

coupon and market management, fiscal reporting, monitoring, and

training. The State agency shall provide an outline of administrative

staff and job descriptions for staff whose salaries will be paid from

program funds in their State Plans.

Subpart B--State Agency Eligibility

Sec. 248.4 State Plan.

(a) Requirements. By November 15 of each year, each applying or

participating State agency shall submit to FNS for approval a State

Plan for the following year as a prerequisite to receiving funds under

this section. The State Plan shall be signed by the State designated

official responsible for ensuring that the Program is operated in

accordance with the State Plan. FNS will provide written approval or

denial of a completed State Plan or amendment within 30 days. Portions

of the State Plan which do not change annually need not be resubmitted.

However, the State agency shall provide the title of the sections that

remain unchanged, as well as the year of the last Plan in which the

sections were submitted. At a minimum, the Plan must address the

following areas in sufficient detail to demonstrate the State agency's

ability to meet the requirements of the FMNP: (1) A copy of the

agreement between the designated administering State agency and the WIC

State agency, if different, for services such as nutrition education,

and documentation of coordinated efforts as required in Sec. 248.3(e),

as well as copies of agreements with agencies other than the WIC State

agency.

(2) Estimated number of recipients for the fiscal year, and

proposed months of operation.

(3) Estimated cost of the FMNP, including a minimum amount

necessary to operate the FMNP.

(4) Description of how the Program will achieve its dual purposes

of providing a nutritional benefit to WIC (or waiting list)

participants and expanding the awareness and use of farmers' markets.

(5) Outline of administrative staff and job descriptions.

(6) Detailed description of the recordkeeping system including, but

not limited to, the system for maintaining records pertaining to

financial operations, coupon issuance and redemption, and FMNP

participation.

(7) Detailed description of the financial management system,

including, but not limited to documentation of how the State will meet

the matching requirement and procedures for obligating funds.

(8) Detailed description of the service area including: (i) The

number and addresses of participating markets and area WIC clinics

including a map outlining the service area and proximity of markets to

clinics; and

(ii) Estimated number of WIC participants and persons on the WIC

waiting list that will receive FMNP coupons.

(9) Description of the coupon issuance system including: (i) How

the State agency will target areas with highest concentrations of

eligible persons and greatest access to farmers' markets within the

broadest possible geographic area;

(ii) Annual benefit amount per recipient;

(iii) Method for instructing recipients on the proper use of FMNP

coupons and the purpose of the FMNP; and

(iv) Method for ensuring that FMNP coupons are only issued to

eligible recipients.

(10) Detailed description of the coupon and farmers' market

management system including: (i) criteria for authorizing farmers'

markets;

(ii) Procedures for training farmers and market managers, at

authorization, and annually thereafter;

(iii) Procedures for monitoring farmers' markets;

(iv) Description of system for identifying high risk farmers and

farmers' markets and procedures for sanctioning farmers and farmers'

markets;

(v) Facsimile of the FMNP coupon;

(vi) Identification of the fresh, nutritious, unprepared fruits,

vegetables, and herbs which are eligible for purchase under the

Program;

(vii) Description of FMNP coupon replacement policy;

(viii) Procedures for handling recipient and farmer/farmers' market

complaints.

(11) Detailed description of the FMNP coupon redemption process

including:

(i) Procedures for ensuring the secure transportation and storage

of FMNP coupons;

(ii) System for identifying and reconciling FMNP coupons;

(iii) Timeframes for FMNP coupon redemption by recipients;

submission for payment by markets, and payment by the State agency;

(12) System for ensuring that FMNP coupons are redeemed only by

authorized farmers/farmers' markets and only for eligible foods.

(13) System for identifying FMNP coupons which are redeemed or

submitted for payment outside valid dates or by unauthorized farmers/

farmers' markets.

(14) A copy of the written agreement to be used between the State

agency and authorized farmers/farmers' markets. In those States which

authorize farmers' markets, but not individual farmers, this agreement

shall specify in detail the role of and procedures to be used by

farmers' markets for monitoring and sanctioning farmers, and the

appropriate procedures to be used by a farmer to appeal a sanction or

disqualification imposed by a farmers' market.

(15) When practicable, information on the impact on the nutritional

status of recipients by determining the change in their consumption of

fresh fruits and vegetables. This information shall be submitted as an

addendum to the State Plan and shall be submitted at such a date

specified by the Secretary.

(16) The method the State agency will use to assess the effects of

the FMNP on the use of farmers' markets, the marketing of agricultural

products, and when practicable the effects of the FMNP on recipients'

awareness regarding farmers' markets.

(17) Information on the effects of the FMNP on the use of farmers'

markets and marketing of agricultural products at such markets and when

practicable, the effects of the FMNP on recipients' awareness regarding

farmers' markets. This information shall be submitted as an addendum to

the State Plan and shall be submitted at such a date specified by the

Secretary.

(18) A description of the procedures the State agency will use to

comply with the civil rights requirements described in Sec. 248.7(a),

including the processing of discrimination complaints.

(19) State agencies which have not previously participated in the

FMNP, shall provide the following additional information: (i) A

statement assuring that if the State agency receives Federal funds, as

specified under Sec. 248.14 to operate the FMNP, and applies those

funds to similar programs operated in the previous fiscal year with

State or local funds, the amount of State and local funds that were

available to similar programs in the fiscal year preceding the first

year of operation shall not be reduced. The State agency shall include

data in the State Plan showing that it did not reduce the amount of

State and local funds available to the similar program in the preceding

fiscal year.

(ii) A capability statement which includes a summary description of

any prior experience with farmers' market projects or programs,

including information and data describing the attributes of such

projects or programs.

(20) For States making expansion requests, documentation which

meets the following requirements: (i) Justifies the need for an

increase in participation;

(ii) Demonstrates the State agency's ability to satisfactorily

operate the existing FMNP;

(iii) Identifies the management capabilities of the State to

expand.

(b) Amendments. At any time after approval, the State agency may

amend the State Plan to reflect changes. The State agency shall submit

the amendments to FNS for approval. The amendments shall be signed by

the State designated official responsible for ensuring that the FMNP is

operated in accordance with the State Plan.

(c) Retention of copy. A copy of the approved State Plan shall be

kept on file at the State agency for public inspection.

Sec. 248.5 Selection of new State agencies.

In selecting new State agencies, the Department shall rank State

Plans submitted in accordance with Sec. 248.4, using the following

criteria in making this ranking: (a) Prior experience of the State with

the demonstration project or similar farmers' market programs;

(b) Prior operation, by the State of a similar program with State

or local funds and ability to present data concerning the beneficial

attributes of such program;

(c) Emphasis on service to areas in the State that have: (1) The

highest concentration of eligible persons;

(2) The greatest access to farmers' markets;

(3) Broad geographic areas;

(4) The greatest number of recipients in the broadest geographical

area within the State; and

(5) Any other characteristics the Department determines that

maximize the availability of benefits to eligible persons.

(d) Consideration of the amount of funds necessary to successfully

operate the FMNP in the State compared with other States and with the

total amount of funds available to the FMNP.

(e) Approval of a State Plan does not equate to an obligation on

the part of the Secretary to fund the FMNP within that State.

Subpart C--Recipient Eligibility

Sec. 248.6 Recipient eligibility.

(a) Eligibility for certification. Individuals who are eligible to

receive Federal benefits under the FMNP are those, excluding infants 4

months of age or younger, who are currently receiving benefits under

WIC or who are on the waiting list to receive benefits from WIC.

(b) Limitations on certification. If necessary to limit the number

of recipients, State agencies may impose additional eligibility

requirements, such as limiting participant certification to certain

geographic areas, or to high priority WIC participants such as pregnant

and breastfeeding women. States may also preclude groups of low

priority persons, such as persons on the waiting list for WIC. Each

State agency must specifically identify these limitations on

certification in its State Plan.

(c) Recipient or household benefit allocation. On a Statewide

basis, State agencies shall elect to allocate and issue benefits either

to recipients or households. A State agency allocating benefits on a

household basis shall not issue more benefits to a household than it

otherwise would if benefits were allocated to individual recipients

within the household. For those State agencies issuing FMNP benefits on

a household basis, each family as defined in Sec. 246.2 of this chapter

shall constitute a separate household. Foods provided, regardless of

method of issuance, are intended for the sole benefit of FMNP

recipients and are not intended to be shared with other non-

participating household members. If a State agency issues benefits on a

household basis, data concerning number and type of recipients must

still be provided as required by Sec. 248.23(b). Recipients shall

receive FMNP benefits free of charge.

Sec. 248.7 Nondiscrimination.

(a) Civil rights requirements. The State agency shall comply with

the requirements of title VI of the Civil Rights Act of 1964, title IX

of the Education Amendments of 1972, section 504 of the Rehabilitation

Act of 1973, the Age Discrimination Act of 1975, Department of

Agriculture regulations on nondiscrimination (7 CFR parts 15, 15a and

15b), and applicable FNS Instructions to ensure that no person shall,

on the grounds of race, color, national origin, age, sex or handicap,

be excluded from participation, be denied benefits, or be otherwise

subjected to discrimination, under the FMNP. Because racial and ethnic

participation data (as required by title VI of the Civil Rights Act of

1964) are collected at the time women, infants, and children are

certified for participation in the WIC Program, the Department has

determined that the WIC data collection effort is sufficient to fulfill

the racial/ethnic data collection requirement for the FMNP. Therefore,

no additional data collection is required. Compliance with title VI of

the Civil Rights Act of 1964, Title IX of the Education Amendments of

1972, section 504 of the Rehabilitation Act of 1973, the Age

Discrimination Act of 1975, and regulations and instructions issued

thereunder shall include, but not be limited to: (1) Notification to

the public of the nondiscrimination policy and complaint rights of

recipients and potentially eligible persons, which may be satisfied

through the Department's required nondiscrimination statement on

brochures and publications;

(2) Review and monitoring activity to ensure FMNP compliance with

the nondiscrimination laws and regulations;

(3) Establishment of grievance procedures for handling recipient

complaints based on sex and handicap.

(b) Complaints. Persons seeking to file discrimination complaints

may file them either with the Secretary of Agriculture, or the

Director, Office of Equal Opportunity, USDA, Washington, DC 20250 or

with the office established by the State agency to handle

discrimination grievances or complaints. All complaints received by

State agencies which allege discrimination based on race, color,

national origin, or age shall be referred to the Secretary of

Agriculture or the Director of the Office of Equal Opportunity, USDA. A

State agency may process complaints which allege discrimination based

on sex or handicap if grievance procedures are in place.

Subpart D--Recipient Benefits

Sec. 248.8 Level of benefits and eligible foods.

(a) General. State agencies shall identify in the State Plan the

fresh, nutritious, unprepared fruits, vegetables and herbs which are

eligible for purchase under the FMNP. Honey, maple syrup, cider, nuts

and seeds, eggs, cheese, meat and seafood are not eligible foods for

purposes of the FMNP. State agencies may limit the eligible foods to

those that are locally grown, as defined by the State.

(b) The value of the Federal benefits received. The value of the

Federal share of the FMNP benefits received by each recipient, or by

each family within a household in those States which elect to issue

benefits on a household basis under Sec. 248.6(c) may not be less than

$10 per year or more than $20 per year.

Sec. 248.9 Nutrition education.

(a) Goals. Nutrition education shall emphasize the relationship of

proper nutrition to the total concept of good health, including the

importance of consuming fresh fruits and vegetables.

(b) Requirement. The State agency shall integrate nutrition

education into FMNP operations and may satisfy nutrition education

requirements through coordination with other agencies within the State.

Such other agencies may include the WIC Program which routinely offers

nutrition education to participants and which may wish to use the

opportunity of the FMNP to reinforce nutrition messages. State agencies

wishing to coordinate nutrition education with WIC shall enter into a

written cooperative agreement with WIC agencies to offer nutrition

education relevant to the use and nutritional value of foods available

to FMNP recipients. In cases where relevant WIC nutrition education

sessions are used to meet this requirement, reimbursement to the WIC

local agency shall not be permitted. In cases where FMNP recipients are

not receiving relevant nutrition education from the WIC Program, the

State agency shall arrange alternative methods for the provision of

such nutrition education which is an allowable cost under the FMNP.

Subpart E--State Agency Provisions

Sec. 248.10 Coupon and market management.

(a) General. This section sets forth State agency responsibilities

regarding the authorization of farmers/farmers' markets. The State

agency is responsible for the fiscal management of, and accountability

for farmers/farmers' markets. Each State agency may decide whether to

authorize farmers individually, farmers' markets, or both farmers and

farmers' markets. All contracts or agreements entered into by the State

agency for the management or operation of farmers/farmers' markets

shall conform with the requirements of 7 CFR part 3016, Uniform

Administrative Requirements for Grants and Cooperative Agreements to

State and Local Governments.

(1) Only farmers' markets authorized by the State agency may redeem

FMNP coupons. Only farmers authorized by the State agency or that have

a valid agreement with an authorized farmers' market, may redeem

coupons.

(2) The State agency shall establish criteria for the authorization

of individual farmers and/or farmers' markets. Any authorized farmer/

farmers' market must agree to sell recipients only those foods

identified as eligible by the State agency, in exchange for FMNP

coupons. Individuals who exclusively sell produce grown by someone

else, such as wholesale distributors, cannot be authorized to

participate in the FMNP, except individuals employed by a farmer

otherwise qualified under these regulations, or individuals hired by a

nonprofit organization to sell produce at urban farmstands on behalf of

local farmers.

(3) The State agency shall ensure that an appropriate number of

farmers/farmers' markets are authorized for adequate recipient

convenience and access in the area(s) proposed to be served and for

effective management of the farmers/farmers' markets by the State

agency. The State agency may establish criteria to limit the number of

authorized farmers/farmers' markets.

(4) The State agency shall conduct a documented on-site visit prior

to, or at the time of, authorization of a farmers' market or individual

farmer. The on-site visit shall include at a minimum, provision of

information concerning eligible foods and proper FMNP coupon redemption

procedures.

(5) Authorized farmers shall display a sign stating that they are

authorized to redeem FMNP coupons.

(6) Authorized farmers/farmers' markets shall comply with the

requirements of Title VI of the Civil Rights Act of 1964, title IX of

the Education Amendments of 1972, section 504 of the Rehabilitation Act

of 1973, the Age Discrimination Act of 1975, Department of Agriculture

regulations on nondiscrimination (7 CFR parts 15, 15a and 15b), and FNS

Instructions as outlined in Sec. 248.7.

(7) The State agency shall ensure that there is no conflict of

interest between the State or local agency and any participating

farmer/farmers' market.

(b) Farmers' market agreements. The State agency shall ensure that

all participating farmers' markets enter into written agreements with

the State agency. State agencies which authorize individual farmers

shall also enter into written agreements with the individual farmers.

The agreement shall be signed by a representative who has legal

authority to obligate the farmers/farmers' market. Agreements shall

include a description of sanctions for noncompliance with FMNP

requirements and shall contain at a minimum, the following

specifications, although the State agency may determine the exact

wording to be used:

(1) The farmer/farmers' market shall: (i) Provide such information

as the State agency may require for its periodic reports to FNS;

(ii) Assure that FMNP coupons are redeemed only for eligible foods;

(iii) Provide eligible foods at the current price or less than the

current price charged to other customers;

(iv) Accept FMNP coupons within the dates of their validity and

submit such coupons for payment within the allowable time period

established by the State agency;

(v) In accordance with a procedure established by the State agency,

mark each transacted coupon with a farmer identifier. In those cases

where the agreement is between the State agency and the farmer, each

transacted FMNP coupon shall contain a farmer identifier and shall be

batched for reimbursement under that identifier. In those cases where

the agreement is between the State agency and the farmers' market, each

transacted FMNP coupon shall contain a farmer identifier and be batched

for reimbursement under a farmers' market identifier.

(vi) Accept training on FMNP procedures and provide training to

farmers and any employees with FMNP responsibilities on such

procedures;

(vii) Agree to be monitored for compliance with FMNP requirements,

including both overt and covert monitoring;

(viii) Be accountable for actions of farmers or employees in the

provision of foods and related activities;

(ix) Pay the State agency for any coupons transacted in violation

of this agreement;

(x) Offer FMNP recipients the same courtesies as other customers;

(xi) Comply with the nondiscrimination provisions of USDA

regulations as provided in Sec. 248.7; and

(xii) Notify the State agency if any farmer or farmers' market

ceases operation prior to the end of the authorization period.

(2) The farmers' market/farmer shall not: (i) Collect sales tax on

FMNP coupon purchases;

(ii) Seek restitution from FMNP recipients for coupons not paid by

the State agency;

(iii) Issue cash change for purchases that are in an amount less

than the value of the FMNP coupon(s).

(3) Neither the State agency nor the farmer/farmers' market has an

obligation to renew the agreement. Either the State agency or the

farmer/farmers' market may terminate the agreement for cause after

providing advance written notification.

(4) The State agency may deny payment to the farmer/farmers' market

for improperly redeemed FMNP coupons and may demand refunds for

payments already made on improperly redeemed coupons.

(5) The State agency may disqualify a farmer/farmers' market for

FMNP abuse. The farmer/farmers' market has the right to appeal a denial

of an application to participate, a disqualification, or a FMNP

sanction by the State agency. Expiration of a contract or agreement

with a farmer/farmers' market, and claims actions under Sec. 248.20,

are not appealable.

(6) A farmer or farmers' market which commits fraud or engages in

other illegal activity is liable to prosecution under applicable

Federal, State or local laws.

(7) Agreements may not exceed 3 years.

(c) Farmer agreements for State agencies which do not authorize

farmers. Those State agencies which authorize farmers' markets but not

individual farmers shall require authorized farmers' markets to enter

into a written agreement with each farmer within the market that is

participating in FMNP. The State agency shall set forth the required

terms for the agreement and provide a sample agreement which may be

used.

(d) Annual training for farmers/farmers' market managers. State

agencies shall conduct annual training for farmers/farmers' market

managers participating in the FMNP. State agencies have discretion in

determining the method used for training purposes. At a minimum,

training shall include instruction emphasizing:

(1) Eligible food choices;

(2) Proper FMNP coupon redemption procedures, including deadlines

for submission of coupons for payment;

(3) Equitable treatment of FMNP recipients, including the

availability of produce to FMNP recipients that is of the same quality

and cost as that sold to other customers;

(4) Civil rights compliance and guidelines;

(5) Guidelines for storing FMNP coupons safely; and

(6) Guidelines for cancelling FMNP coupons, such as punching holes

or rubber stamping.

(e) Monitoring and review of farmers/farmers' markets and local

agencies. The State agency shall be responsible for the monitoring of

farmers/farmers' markets, and local agencies within its jurisdiction.

This shall include developing a system for identifying high risk

farmers/farmers' markets and ensuring on-site monitoring, conducting

further investigation, and sanctioning of such farmers/farmers' markets

as appropriate.

(1) Where coupon reimbursement responsibilities are delegated to

farmers' market managers, farmers' market associations, or nonprofit

organizations, the State agency may establish bonding requirements for

these entities. Costs of such bonding are not reimbursable

administrative expenses.

(2) Each State agency shall rank participating farmers and farmers'

markets by risk factors, and shall conduct annual, on-site monitoring

of at least 10 percent of farmers and 10 percent of farmers' markets

beginning with those farmers and markets identified as being the

highest-risk. Mandatory high-risk indicators are a proportionately high

volume of FMNP coupons redeemed by a farmer as compared to other

farmers within the farmers' market and within the State, and recipient

complaints. States are encouraged to formally establish other high risk

indicators for identifying potential problems. If additional high risk

indicators are established, they shall be set forth in the farmers/

farmers' market agreement and in the State Plan.

(3) The following shall be documented for all on-site farmers and

farmers' markets monitoring visits, at a minimum: Names of both farmer/

farmers' market and reviewer; date of review; nature of problem(s)

detected or the observation that the farmer/farmers' market appears to

be in compliance with FMNP requirements; record of interviews with

recipients, market managers and/or farmers; and signature of the

reviewer. Reviewers are not required to notify the farmer/farmers'

market of the monitoring visit during, or immediately after the visit.

The State agency shall do so after a reasonable delay when necessary to

protect the identity of the reviewer(s) or the integrity of the

investigation. After the farmer/farmers' market has been informed of

any deficiencies detected by the monitoring visit, and instances where

the farmer/farmers' market will be permitted to continue participation,

the farmer/farmers' market shall provide plans as to how the

deficiencies will be corrected.

(4) At least every 2 years, the State agency shall review all local

agencies within its jurisdiction. Reviews of FMNP practices at the WIC

local agency may be included in the overall WIC local agency review

conducted by the WIC State agency.

(f) Control of FMNP coupons. (1) The State agency shall control and

provide accountability for the receipt and issuance of FMNP coupons.

(2) The State agency shall ensure that there is secure

transportation and storage of unissued FMNP coupons.

(3) The State agency shall design and implement a system of review

of FMNP coupons to detect errors. At a minimum, the errors the system

must detect are a missing recipient signature, a missing farmer and/or

market identification, and redemption by a farmer outside of the valid

date. The State agency shall implement procedures to reduce the number

of errors in transactions, where possible.

(g) Payment to farmers/farmers' markets. The State agency shall

ensure that farmers/ farmers' markets are promptly paid for food costs.

(h) Reconciliation of FMNP coupons. The State agency shall identify

the disposition of all FMNP coupons as validly redeemed, lost or

stolen, expired, or not matching issuance records. Validly redeemed

FMNP coupons are those that are issued to a valid recipient and

redeemed by an authorized farmers/farmers' market within valid dates.

FMNP coupons that were redeemed but cannot be traced to a valid

recipient or authorized farmer/farmers' market shall be subject to

claims action in accordance with Sec. 248.20.

(1) If the State agency elects to replace lost, stolen or damaged

FMNP coupons, it must describe its system for doing so in the State

Plan.

(2) The State agency shall use uniform FMNP coupons within its

jurisdiction.

(3) FMNP coupons must include, at a minimum, the following

information:

(i) The last date by which the recipient may use the coupon. This

date shall be no later than November 30 of each year.

(ii) A date by which the farmer or farmers' market must submit the

coupon for payment. When establishing this date, State agencies shall

take into consideration the date financial statements are due to the

FNS, and allow time for the corresponding coupon reconciliation that

must be done by the State agency prior to submission of financial

statements. Currently, financial statements are due to FNS by January

30.

(iii) A unique and sequential serial number.

(iv) A denomination (dollar amount).

(v) A farmer identifier for the redeeming farmer when agreements

are between the State agency and the farmer.

(vi) In those instances where State agencies have agreements with

farmers' markets, there must be a farmer identifier on each coupon and

a market identifier on the cover of coupons which are batched by the

market manager for reimbursement.

(i) Instructions to recipients. Each recipient shall receive

instructions on the proper use and redemption of the FMNP coupons,

including, but not limited to: (1) A list of names and addresses of

authorized farmers/farmers' markets at which FMNP coupons may be

redeemed.

(2) A description of eligible foods and the prohibition against

cash change.

(3) An explanation of their right to complain about improper

farmer/farmers' market practices with regard to FMNP responsibilities

and the process for doing so.

(j) Recipients and farmer/farmers' market complaints. The State

agency shall have procedures which document the handling of complaints

by recipients and farmers/farmers' markets. Complaints of civil rights

discrimination shall be handled in accordance with Sec. 248.7(b).

(k) Recipients and farmer/farmers' market sanctions. The State

agency shall establish policies which determine the type and level of

sanctions to be applied against recipients and farmers/farmers'

markets, based upon the severity and nature of the FMNP violations

observed, and such other factors as the State agency determines

appropriate, such as whether repeated offenses have occurred over a

period of time. Farmers/farmers' markets may be sanctioned,

disqualified, or both, when appropriate. Sanctions may include fines

for improper FMNP coupon redemption procedures and the penalties

outlined in Sec. 248.20, in case of deliberate fraud. In those

instances where compliance purchases are conducted, the results of

covert compliance purchases can be a basis for farmer/farmers' market

sanctions. A farmer/farmers' market committing fraud or other unlawful

activities is liable to prosecution under applicable Federal, State or

local laws. State agency policies shall ensure that a farmer that is

disqualified from the FMNP at one market shall not participate in the

FMNP at any other farmers' market in the State's jurisdiction during

the disqualification period.

Sec. 248.11 Financial management system.

(a) Disclosure of expenditures. The State agency shall maintain a

financial management system which provides accurate, current and

complete disclosure of the financial status of the FMNP. This shall

include an accounting for all property and other assets and all FMNP

funds received and expended each fiscal year.

(b) Internal controls. The State agency shall maintain effective

controls over and accountability for all FMNP funds. The State agency

must have effective internal controls to ensure that expenditures

financed with FMNP funds are authorized and properly chargeable to the

FMNP.

(c) Record of expenditures. The State agency shall maintain records

which adequately identify the source and use of funds expended for FMNP

activities. These records shall contain, but are not limited to,

information pertaining to authorization, receipt of funds, obligations,

unobligated balances, assets, liabilities, outlays, and income.

(d) Payment of costs. The State agency shall implement procedures

which ensure prompt and accurate payment of allowable costs, and ensure

the allowability and allocability of costs in accordance with the cost

principles and standard provisions of this part, 7 CFR part 3016, and

FNS guidelines and Instructions.

(e) Identification of obligated funds. The State agency shall

implement procedures which accurately identify obligated FMNP funds at

the time the obligations are made.

(f) Resolution of audit findings. The State agency shall implement

procedures which ensure timely and appropriate resolution of claims and

other matters resulting from audit findings and recommendations.

(g) Reconciliation of food instruments. The State agency shall

reconcile FMNP coupons in accordance with Sec. 248.10(f).

(h) Transfer of cash. The State agency shall establish the timing

and amounts of its cash draws against its Letter of Credit in

accordance with 31 CFR part 205.

Sec. 248.12 FMNP costs.

(a) General.--(1) Composition of allowable costs. In general, a

cost item will be deemed allowable if it is reasonable and necessary

for FMNP purposes and otherwise satisfies allowability criteria set

forth in 7 CFR 3016.22 and this part. FMNP purposes include the

administration and operation of the FMNP. Program costs supported by

State matching contributions must meet the same criteria for

allowability as costs supported by Federal funds. Allowable FMNP costs

may be classified as follows:

(i) Food costs and administrative costs. Food costs are the costs

of food benefits provided to FMNP recipients. Administrative costs are

the costs associated with providing FMNP benefits and services to

recipients and generally administering the FMNP. Specific examples of

allowable administrative costs are listed in paragraph (b) of this

section. Except as provided in Sec. 248.14(g) of this part, a State

agency's administrative costs under the FMNP may not exceed 15 percent

of its total FMNP costs. Any costs incurred for food and/or

administration above the Federal grant level will be the State agency's

responsibility.

(ii) Direct and indirect costs. Direct costs are food and

administrative costs incurred specifically for the FMNP. Indirect costs

are administrative costs that benefit multiple programs or activities,

and cannot be identified to any one without effort disproportionate to

the results achieved. In accordance with the provisions of 7 CFR part

3015, a claim for reimbursement of indirect costs shall be supported by

an approved allocation plan for the determination of such costs. An

indirect cost rate developed through such an allocation plan may not be

applied to a base that includes food costs.

(2) Costs allowable with prior approval. A State or local agency

must obtain prior approval in accordance with 7 CFR 3016.22 before

charging to the FMNP any capital expenditures and other cost items

designated by 7 CFR 3016.22 as requiring such approval.

(3) Unallowable costs. Costs that are not reasonable and necessary

for FMNP purposes, or that do not otherwise satisfy the cost principles

of 7 CFR 3016.22, are unallowable. Notwithstanding any other provision

of part 3016 or this part, the cost of constructing or operating a

farmers' market is unallowable. Unallowable costs may never be claimed

for Federal reimbursement or counted toward the State matching

requirement.

(b) Specified allowable administrative costs. Allowable

administrative costs include the following: (1) The costs associated

with the provision of nutrition education which meets the requirements

of Sec. 248.9 of this part.

(2) The costs of FMNP coupon issuance, or recipient education

covering proper coupon redemption procedures.

(3) The cost of outreach services.

(4) The costs associated with the food delivery process, such as

printing FMNP coupons, processing redeemed coupons, and training market

managers on the food delivery system.

(5) The cost of monitoring and reviewing Program operations.

(6) The cost of FMNP training.

(7) The cost of required reporting and recordkeeping.

Sec. 248.13 FMNP income.

Program income means gross income the State agency earns from grant

supported activities. It includes fees for services performed and

receipts from the use or rental of real or personal property acquired

with Federal grant funds, but does not include proceeds from the

disposition of such property. The State agency shall retain Program

income earned during the agreement period and use it for Program

purposes in accordance with the addition method described in 7 CFR

3016.25(g)(2). Fines, penalties or assessments paid by local agencies

or farmers/farmers' markets are also deemed to be FMNP income. The

State agency shall ensure that the sources and applications of Program

income are fully documented.

Sec. 248.14 Distribution of funds.

(a) Conditions for receipt of Federal funds.--(1) Matching of

funds--(i) Match amount. As a prerequisite to the receipt of Federal

funds, a State agency must agree to contribute from non-Federal sources

at least 30 percent of its total FMNP cost. The State agency may

contribute more than this minimum amount. Non-federal contributions for

similar programs as defined in Sec. 248.2 may satisfy the State

matching requirement. If a State receiving funds under the FMNP applies

the Federal grant to a similar program operated in the previous fiscal

year solely with State or local funds, the State shall not reduce in

any fiscal year the amount of State or local funds made available to

the similar program below the level at which the similar program was

funded in the year prior to obtaining FMNP funding.

(ii) Sources of matching contributions. A State agency may count

any form of cash contribution authorized by 7 CFR 3016.24(a)(1) toward

the State matching requirement.

(iii) Failure to match. A State agency's failure to meet the State

matching requirement will result in the establishment of a claim for

the amount of Federal grant funds not matched. The matching requirement

will be considered satisfied if State or other non-Federal matching

contributions reported on the final closeout report required by

Sec. 248.15(a) of this part amount to at least 30 percent of the total

FMNP costs.

(2) State Plan and agreement. A State agency shall have its State

Plan approved and shall execute an agreement with the Department in

accordance with Sec. 248.3(c) of this part.

(b) Distribution of FMNP funds to previously participating State

agencies. Provided that sufficient FMNP funds are available, each State

agency that participated in the FMNP in the previous year or in the

case of Fiscal Year 1993 operations, in a demonstration project, shall

receive not less than the amount of funds the State agency received in

the most recent fiscal year in which it received funding, if it

otherwise complies with the requirements established in this part.

(c) Ratable reduction. If amounts appropriated for any fiscal year

for grants under the FMNP are not sufficient to pay to each previously

participating State agency at least an amount as identified in

paragraph (b) of this section, each State agency's grant shall be

ratably reduced, except that, if sufficient funds are available, each

State agency shall receive at least $50,000 or the amount that the

State agency received for the prior fiscal year if that amount is less

than $50,000.

(d) Expansion of participating State agencies and establishment of

new State agencies. Any FMNP funds remaining for allocation after

meeting the requirements of paragraph (b) of this section shall be

allocated in the following manner: (1) An amount not less than 45

percent and not more than 55 percent of the remaining funds shall be

made available to State agencies already participating in the FMNP that

wish to serve additional recipients. If this amount is greater than

that necessary to satisfy all State plans approved for additional

recipients, the unallocated amount shall be applied toward satisfying

any unmet need in paragraph (d)(2) of this section.

(2) An amount not less than 45 percent and not more than 55 percent

of the remaining funds shall be made available to State agencies that

have not participated in the FMNP in the prior fiscal year. If this

amount is greater than that necessary to satisfy the approved State

Plans for new States, the unallocated amount shall be applied toward

satisfying any unmet need in paragraph (d)(1) of this section. The

Department reserves the right not to fund every State agency with an

approved State Plan.

(3) In any fiscal year, any FMNP funds that remain unallocated

after satisfying the requirements of paragraphs (d) (1) and (2) of this

section, shall be reallocated in accordance with paragraph (j) of this

section.

(e) Expansion for current State agencies. In providing funds to

serve additional recipients in State agencies that participated in the

FMNP in the previous fiscal year, the Department shall consider on a

case-by-case basis, the following: (1) Whether a State agency utilized

at least 80 percent of its prior year food grant (exclusive of the 5

percent carry forward). States that did not spend at least 80 percent

of their prior year food grant (exclusive of the 5 percent carry

forward), may still be eligible for expansion funding if, in the

judgment of the Department, good cause existed which was beyond the

management control of the State, such as severe weather conditions, or

unanticipated decreases in participant caseload in the WIC Program.

(2) Documentation that justifies the need for an increase in

participation. This documentation must be set forth in the State Plan

as outlined in Sec. 248.4(a)(20).

(3) Demonstrated ability to satisfactorily operate the existing

FMNP. Supporting documentation must be set forth in the State Plan as

outlined in Sec. 248.4(a)(20).

(4) Documentation that identifies the management capabilities of

the State to expand. This documentation must be set forth in the State

Plan as outlined in Sec. 248.4(a)(20).

(f) Funding of new State agencies. Funds will be awarded to new

State agencies in accordance with Sec. 248.5.

(g) Administrative funding. A State agency may convert

administrative funds into food funds, but may not convert food funds

into administrative funds. The State agency may determine what mix of

funds (Federal, State, or both) will be used for the administrative

portion. A State agency shall have available for administrative costs

an amount not greater than 15 percent of total FMNP funds, except that:

(1) a State agency shall be authorized to use up to an additional 2

percent of total FMNP funds for administrative costs incurred during

the first year in which it receives a grant under this part. The

additional 2 percent is intended to cover start up costs to new States

such as, but not limited to: (i) Determining which local WIC sites will

be utilized;

(ii) Recruiting and authorizing farmers/farmers' markets to

participate in the FMNP;

(iii) Preparing contracts for farmers/farmers' markets and local

WIC providers;

(iv) Developing a data processing system for redemption and

reconciliation of FMNP coupons;

(v) Designing program training and informational materials;

(vi) Conducting FMNP training; and

(vii) Coordinating FMNP implementation responsibilities between

designated administering agencies.

(2) After the first year in which a State agency receives a grant

under this part, and upon showing by the State agency of financial

need, the Secretary may permit the State agency to use up to an

additional 2 percent of the total of FMNP funds toward FMNP

administration. In determining financial need, the Secretary shall take

into consideration any circumstances unique to the State agency, and

any proposed enhancements to its operations.

(3) State agencies wishing to request the additional 2 percent

administration allowance in paragraph (g)(2) of this section must

submit written justification to FNS for approval as part of the annual

State Plan. Approvals, if granted, are only valid for one year.

(4) A State agency's failure to effectively and efficiently manage

the FMNP within the 15 percent administrative allowance shall not be an

appropriate justification for authorizing the additional 2 percent

increase in administrative funding.

(5) The 15 percent administrative cost limitation, and the

provisions of paragraphs (g)(1) and (2) of this section shall not apply

to any funds that a State agency may contribute in excess of its

minimum matching requirement. A State agency may use any non-Federal

contributions over the 30 percent matching requirement for food and/or

administrative costs.

(h) Transfer of funds. A State agency may use not more than 5

percent of the Federal FMNP funds made available for the fiscal year to

reimburse expenses incurred by the FMNP during a preceding fiscal year,

or to reimburse expenses expected to be incurred by the FMNP during the

succeeding fiscal year. The State agency shall provide such

justification for its request to carry forward or spend back funds

under this paragraph as FNS may require.

(i) Recovery of unused funds. State agencies shall return to FNS

any unexpended funds made available for a fiscal year, by February 1 of

the following fiscal year, except as provided in paragraph (h) of this

section.

(j) Reallocation of funds. Any funds recovered under paragraphs

(d)(3) and (i) of this section will be reallocated in accordance with

the appropriate method determined by FNS.

Sec. 248.15 Closeout procedures.

(a) General. State agencies shall submit to FNS a final closeout

report for the fiscal year on a form prescribed by FNS on a date

specified by FNS.

(b) Grant closeout procedures. When grants to State agencies are

terminated, the following procedures shall be performed in accordance

with 7 CFR part 3016.

(1) FNS may disqualify a State agency's participation under the

FMNP, in whole or in part, or take such remedies as may be appropriate,

whenever FNS determines that the State agency failed to comply with the

conditions prescribed in this part, in its Federal-State Agreement, or

in FNS guidelines and instructions. FNS will promptly notify the State

agency in writing of the disqualification together with the effective

date.

(2) FNS may disqualify the State agency or restrict its

participation in the FMNP when both parties agree that continuation

under the FMNP would not produce beneficial results commensurate with

the further expenditure of funds.

(3) Upon termination of a grant, the affected agency shall not

incur new obligations after the effective date of the disqualification,

and shall cancel as many outstanding obligations as possible. FNS will

allow full credit to the State agency for the Federal share of the

noncancellable obligations properly incurred by the State agency prior

to disqualification, and the State agency shall do the same for

farmers/farmers' markets.

(4) A grant closeout shall not affect the retention period for, or

Federal rights of access to, FMNP records as specified in

Sec. 248.24(b) and (c). The closeout of a grant does not affect the

responsibilities of the State agency regarding property or with respect

to any FMNP income for which the State agency is still accountable.

(5) A final audit is not a required part of the grant closeout and

should not be needed unless there are problems with the grant that

require attention. If FNS considers a final audit to be necessary, it

shall so inform OIG. OIG will be responsible for ensuring that

necessary final audits are performed and for any necessary coordination

with other Federal cognizant audit agencies or State or local auditors.

Audits performed in accordance with Sec. 248.18 may serve as final

audits providing such audits meet the needs of requesting agencies. If

the grant is closed out without an audit, FNS reserves the right to

disallow and recover an appropriate amount after fully considering any

recommended disallowances resulting from an audit which may be

conducted later.

Sec. 248.16 Administrative appeal of State agency decisions.

(a) Requirements. The State agency shall provide a hearing

procedure whereby recipients, local agencies and farmers/farmers'

markets adversely affected by certain actions of the State agency may

appeal those actions. A recipient may appeal disqualification/

suspension of FMNP benefits. A local agency may appeal an action of the

State agency disqualifying it from participating in the FMNP. A farmer/

farmers' market may appeal an action of the State agency denying its

application to participate, imposing a sanction, or disqualifying it

from participating in the FMNP. Expiration of a contract or agreement

shall not be subject to appeal.

(b) Postponement pending decision. An adverse action may, at the

State agency's option, be postponed until a decision in the appeal is

rendered.

(1) In a case where an adverse action affects a local agency or

farmer/farmers' market, a postponement is appropriate where the State

agency finds that recipients would be unduly inconvenienced by the

adverse action. In addition, the State agency may determine other

relevant criteria to be considered in deciding whether or not to

postpone an adverse action.

(2) In a case where a recipient appeals the termination of

benefits, that recipient shall continue to receive FMNP benefits until

the hearing official reaches a decision or the expiration of the

current FMNP season, whichever occurs first. Applicants who are denied

benefits may appeal the denial, but shall not receive benefits while

awaiting the decision.

(c) Procedure. The State agency hearing procedure shall at a

minimum provide the recipient, local agency or farmer/farmers' market

with the following:

(1) Written notification of the adverse action, the cause(s) for

the action, and the effective date of the action, including the State

agency's determination of whether the action shall be postponed under

paragraph (b) of this section if it is appealed, and the opportunity

for a hearing. Such notification shall be provided within a reasonable

timeframe established by the State agency and in advance of the

effective date of the action.

(2) The opportunity to appeal the action within the time specified

by the State agency in its notification of adverse action.

(3) Adequate advance notice of the time and place of the hearing to

provide all parties involved sufficient time to prepare for the

hearing.

(4) The opportunity to present its case and at least one

opportunity to reschedule the hearing date upon specific request. The

State agency may set standards on how many hearing dates can be

scheduled, provided that a minimum of two hearing dates is allowed.

(5) The opportunity to confront and cross-examine adverse

witnesses.

(6) The opportunity to be represented by counsel, or in the case of

a recipient appeal, by a representative designated by the recipient, if

desired.

(7) The opportunity to review the case record prior to the hearing.

(8) An impartial decision maker, whose decision as to the validity

of the State agency's action shall rest solely on the evidence

presented at the hearing and the statutory and regulatory provisions

governing the FMNP. The basis for the decision shall be stated in

writing, although it need not amount to a full opinion or contain

formal findings of fact and conclusions of law.

(9) Written notification of the decision in the appeal, within 60

days from the date of receipt of the request for a hearing by the State

agency.

(d) Continuing responsibilities. Appealing an adverse action does

not relieve a farmer/farmers' market or local agency permitted to

continue in the FMNP while its appeal is pending, from responsibility

for continued compliance with the terms of the written agreement or

contract with the State agency.

(e) Judicial review. If a State level decision is rendered against

the recipient, local agency or farmer/farmers' market and the appellant

expresses an interest in pursuing a further review of the decision, the

State agency shall explain any further State level review of the

decision and any available State level rehearing process. If neither is

available or both have been exhausted, the State agency shall explain

the right to pursue judicial review of the decision.

(f) Additional appeals procedures for State agencies which

authorize farmers' markets and not individual farmers. A State agency

which authorizes farmers' markets and not individual farmers shall

establish procedures to be used when a farmer seeks to appeal an action

of a farmers' market denying the farmer's application to participate,

or sanctioning or disqualifying the farmer. The procedures shall be set

forth in the State Plan and in the agreements entered by the State

agency and the farmers' market and the farmers' market and the farmer.

Subpart F--Monitoring and Review of State Agencies

Sec. 248.17 Management evaluations and reviews.

(a) General. FNS and each State agency shall establish a management

evaluation system in order to assess the accomplishment of FMNP

objectives as provided under these regulations, the State Plan, and the

written agreement with the Department. FNS will provide assistance to

State agencies in discharging this responsibility, and will establish

standards and procedures to determine how well the objectives of this

part are being accomplished, and implement sanction procedures as

warranted by State FMNP performance.

(b) Responsibilities of FNS. FNS shall establish evaluation

procedures to determine whether State agencies carry out the purposes

and provisions of this part, the State Plan, and the written agreement

with the Department. As a part of the evaluation procedure, FNS shall

review audits to ensure that the FMNP has been included in audit

examinations at a reasonable frequency. These evaluations shall also

include a review of each local agency, and on-site reviews of selected

farmers/farmers' markets. These evaluations will measure the State

agency's progress toward meeting the objectives outlined in its State

Plan and the State agency's compliance with these regulations.

(1) If FNS determines that the State agency has failed, without

good cause, to demonstrate efficient and effective administration of

its FMNP or has failed to comply with the requirements contained in

this section or the State Plan, FNS may withhold an amount up to 100

percent of the State agency's administrative grant.

(2) Sanctions imposed upon a State agency by FNS in accordance with

this section (but not claims for repayment assessed against a State

agency) may be appealed in accordance with the procedures established

in Sec. 248.20. Before carrying out any sanction against a State

agency, the following procedures will be followed: (i) FNS will notify

the chief departmental officer of the administering agency in writing

of the deficiencies found and of FNS' intention to withhold

administrative funds unless an acceptable corrective action plan is

submitted by the State agency to FNS within 45 days after mailing of

notification.

(ii) The State agency shall develop a corrective action plan,

including timeframes for implementation to address the deficiencies and

prevent their future recurrence.

(iii) If the corrective action plan is acceptable, FNS will notify

the chief departmental officer of the administering agency in writing

within 30 days of receipt of the plan. The letter will advise the State

agency of the sanctions to be imposed if the corrective action plan is

not implemented according to the schedule set forth in the approved

plan.

(iv) Upon notification from the State agency that corrective action

has been taken, FNS will assess such action, and, if necessary, perform

a follow-up review to determine if the noted deficiencies have been

corrected. FNS will then advise the State agency of whether the actions

taken are in compliance with the corrective action plan, and whether

the deficiency is resolved or further corrective action is needed.

Compliance buys can be required if during FNS management evaluations by

regional offices, a State agency is found to be out of compliance with

its responsibility to monitor and review farmers/farmers' markets.

(v) If an acceptable corrective action plan is not submitted within

45 days, or if corrective action is not completed according to the

schedule established in the corrective action plan, FNS may withhold

the award of FMNP administrative funds. If the 45-day warning period

ends in the fourth quarter of a fiscal year, FNS may elect not to

withhold funds until the next fiscal year. FNS will notify the chief

departmental officer of the administering State agency.

(vi) If compliance is achieved before the end of the fiscal year in

which the FMNP administrative funds are withheld, the funds withheld

may be restored to the State agency. FNS is not required to restore

funds withheld beyond the end of the fiscal year for which the funds

were initially awarded.

(c) Responsibilities of State agencies. The State agency is

responsible for meeting the following requirements: (1) The State

agency shall establish evaluation and review procedures and document

the results of such procedures. The procedures shall include, but are

not limited to: (i) Annual monitoring reviews of participating farmers/

farmers' markets, including on-site reviews of a minimum of 10 percent

of farmers and 10 percent of farmers' markets, starting with the

highest risk farmers and farmers' markets and working down. More

frequent reviews may be performed as the State agency deems necessary.

(ii) Conducting monitoring reviews of all local agencies within the

State agency's jurisdiction at least once every 2 years. Monitoring of

local agencies shall encompass, but not be limited to, evaluation of

management, accountability, certification, nutrition education,

financial management systems, and coupon management systems.

(iii) Instituting the necessary follow-up procedures to correct

identified problem areas.

(2) On its own initiative or when required by FNS, the State agency

shall provide special reports on FMNP activities, and take positive

action to correct deficiencies in FMNP operations.

Sec. 248.18 Audits.

(a) Federal access to information. The Secretary, the Comptroller

General of the United States, or any of their duly authorized

representatives, or duly authorized State auditors shall have access to

any books, documents, papers, and records of the State agency and their

contractors, for the purpose of making surveys, audits, examinations,

excerpts, and transcripts.

(b) State agency response. The State agency may take exception to

particular audit findings and recommendations. The State agency shall

submit a response or statement to FNS as to the action taken or planned

regarding the findings. A proposed corrective action plan developed and

submitted by the State agency shall include specific time frames for

its implementation and for completion of the correction of deficiencies

and problems leading to the deficiencies.

(c) Corrective action. FNS shall determine whether FMNP

deficiencies identified in an audit have been adequately corrected. If

additional corrective action is necessary, FNS shall schedule a follow-

up review, allowing a reasonable time for such corrective action to be

taken.

(d) State sponsored audits. State and local agencies shall conduct

independent audits in accordance with 7 CFR part 3015, 3016.26 or part

3051, as applicable. A State or local agency may elect to obtain either

an organization-wide audit or an audit of the Program if it qualifies

to make such an election under applicable regulations.

Sec. 248.19 Investigations.

(a) Authority. The Department may make an investigation of any

allegation of noncompliance with this part and FNS guidelines and

instructions. The investigation may include, where appropriate, a

review of pertinent practices and policies of any State and local

agency, the circumstances under which the possible noncompliance with

this part occurred, and other factors relevant to a determination as to

whether the State and local agency has failed to comply with the

requirements of this part.

(b) Confidentiality. No State or local agency, recipient, or other

person shall intimidate, threaten, coerce, or discriminate against any

individual for the purpose of interfering with any right or privilege

under this part because that person has made a complaint or formal

allegation, or has testified, assisted, or participated in any manner

in an investigation, proceeding, or hearing under this part. The

identity of every complainant shall be kept confidential except to the

extent necessary to carry out the purposes of this part, including the

conducting of any investigation, hearing, or judicial proceeding.

Subpart G--Miscellaneous Provisions

Sec. 248.20 Claims and penalties.

(a) Claims against State agencies. (1) If FNS determines through a

review of the State agency's reports, program or financial analysis,

monitoring, audit, or otherwise, that any FMNP funds provided to a

State agency for food or administrative purposes were, through State

agency negligence or fraud, misused or otherwise diverted from FMNP

purposes, a formal claim will be assessed by FNS against the State

agency. The State agency shall pay promptly to FNS a sum equal to the

amount of the administrative funds or the value of coupons so misused

or diverted.

(2) If FNS determines that any part of the FMNP funds received by a

State agency; or coupons, were lost as a result of theft, embezzlement,

or unexplained causes, the State agency shall, on demand by FNS, pay to

FNS a sum equal to the amount of the money or the value of the FMNP

coupons so lost.

(3) The State agency shall have full opportunity to submit

evidence, explanation or information concerning alleged instances of

noncompliance or diversion before a final determination is made in such

cases.

(4) FNS is authorized to establish claims against a State agency

for unreconciled FMNP coupons. When a State agency can demonstrate that

all reasonable management efforts have been devoted to reconciliation

and 99 percent or more of the FMNP coupons issued have been accounted

for by the reconciliation process, FNS may determine that the

reconciliation process has been completed to satisfaction.

(b) Interest charge on claims against State agencies. If an

agreement cannot be reached with the State agency for payment of its

debts or for offset of debts on its current Letter of Credit within 30

days from the date of the first demand letter from FNS, FNS will assess

an interest (late) charge against the State agency. Interest accrual

shall begin on the 31st day after the date of the first demand letter,

bill or claim, and shall be computed monthly on any unpaid balance as

long as the debt exists. From a source other than the FMNP, the State

agency shall provide the funds necessary to maintain FMNP operations at

the grant level authorized by FNS.

(c) Penalties. In accordance with section 12(g) of the National

School Lunch Act, whoever embezzles, willfully misapplies, steals or

obtains by fraud any funds, assets or property provided under section

17 of the Child Nutrition Act of 1966, as amended, whether received

directly or indirectly from USDA, or whoever receives, conceals or

retains such funds, assets or property for his or her own interest,

knowing such funds, assets or property have been embezzled, willfully

misapplied, stolen, or obtained by fraud shall, if such funds, assets

or property are of the value of $100 or more, be fined not more than

$10,000 or imprisoned not more than five years, or both, or if such

funds, assets or property are of a value of less than $100, shall be

fined not more than $1,000 or imprisoned for not more than one year, or

both.

Sec. 248.21 Procurement and property management.

(a) Requirements. State agencies shall comply with the requirements

of 7 CFR part 3016 for procurement of supplies, equipment and other

services with FMNP funds. These requirements are adopted by FNS to

ensure that such materials and services are obtained for the FMNP in an

effective manner and in compliance with the provisions of applicable

law and executive orders.

(b) Contractual responsibilities. The standards contained in 7 CFR

part 3016 do not relieve the State agency of the responsibilities

arising under its contracts. The State agency is the responsible

authority, without recourse to FNS, regarding the settlement and

satisfaction of all contractual and administrative issues arising out

of procurements entered into in connection with the FMNP. This

includes, but is not limited to, disputes, claims, protests of award,

source evaluation, or other matters of a contractual nature. Matters

concerning violation of law are to be referred to such local, State or

Federal authority as may have proper jurisdiction.

(c) State regulations. The State agency may use its own procurement

regulations which reflect applicable State and local regulations,

provided that procurements made with FMNP funds adhere to the standards

set forth in 7 CFR part 3016.

(d) Property acquired with program funds. State and local agencies

shall observe the standards prescribed in 7 CFR part 3016 in their

utilization and disposition of real property and equipment acquired in

whole or in part with FMNP funds.

Sec. 248.22 Nonprocurement debarment/suspension, drug-free workplace,

and lobbying restrictions.

The State agency shall ensure compliance with the requirements of

the Department's regulations governing nonprocurement debarment/

suspension (7 CFR part 3017), drug-free workplace (7 CFR part 3017),

and the Department's regulations governing restrictions on lobbying (7

CFR part 3018), where applicable.

Sec. 248.23 Records and reports.

(a) Recordkeeping requirements. Each State agency shall maintain

full and complete records concerning FMNP operations. Such records

shall comply with 7 CFR part 3016 and the following requirements: (1)

Records shall include, but not be limited to, information pertaining to

financial operations, FMNP coupon issuance and redemption, equipment

purchases and inventory, nutrition education, and civil rights

procedures.

(2) All records shall be retained for a minimum of 3 years

following the date of submission of the final expenditure report for

the period to which the report pertains. If any litigation, claim,

negotiation, audit or other action involving the records has been

started before the end of the 3-year period, the records shall be kept

until all issues are resolved, or until the end of the regular 3-year

period, whichever is later. If FNS deems any of the FMNP records to be

of historical interest, it may require the State agency to forward such

records to FNS whenever the State agency is disposing of them.

(3) Records for nonexpendable property acquired in whole or in part

with FMNP funds shall be retained for three years after its final

disposition.

(4) All records shall be available during normal business hours for

representatives of the Department of the Comptroller General of the

United States to inspect, audit, and copy. Any reports resulting from

such examinations shall not divulge names of individuals.

(b) Financial and recipient reports. State agencies shall submit

financial and FMNP performance data on a yearly basis as specified by

FNS and required by section 17(m)(8) of the CNA. Such information shall

include, but shall not be limited to:

(1) Number and type of recipients (Federal and non-Federal).

(2) Value of coupons issued.

(3) Value of coupons redeemed.

(c) Source documentation. To be acceptable for audit purposes, all

financial and FMNP performance reports shall be traceable to source

documentation.

(d) Certification of reports. Financial and FMNP reports shall be

certified as to their completeness and accuracy by the person given

that responsibility by the State agency.

(e) Use of reports. FNS will use State agency reports to measure

progress in achieving objectives set forth in the State Plan, and this

part, or other State agency performance plans. If it is determined,

through review of State agency reports, FMNP or financial analysis, or

an audit, that a State agency is not meeting the objectives set forth

in its State Plan, FNS may request additional information including,

but not limited to, reasons for failure to achieve these objectives.

Sec. 248.24 Other provisions.

(a) No aid reduction. The value of benefits or assistance available

under the FMNP shall not be considered as income or resources of

recipients or their families for any purpose under Federal, State, or

local laws, including, but not limited to, laws relating to taxation,

welfare and public assistance programs. Section 17(m)(7)(B) of the CNA

provides that any programs for which a grant is received under this

subsection shall be supplementary to the food stamp program carried out

under the Food Stamp Act of 1977 as amended (7 U.S.C. 2011 et seq.) and

to any other Federal or State program under which foods are distributed

to needy families in lieu of food stamps.

(b) Statistical information. FNS reserves the right to use

information obtained under the FMNP in a summary, statistical or other

form which does not identify particular individuals.

(c) Confidentiality. The State agency shall restrict the use or

disclosure of information obtained from FMNP applicants and recipients

to persons directly connected with the administration or enforcement of

the WIC Program or the FMNP, including persons investigating or

prosecuting violations in the WIC Program or FMNP under Federal, State

or local authority.

Sec. 248.25 FMNP information.

Any person who wishes information, assistance, records or other

public material shall request such information from the State agency,

or from the FNS Regional Office serving the appropriate State as listed

below:

(a) Connecticut, Maine, Massachusetts, New Hampshire, New York,

Rhode Island, Vermont: U.S. Department of Agriculture, FNS, Northeast

Region, 10 Causeway Street, room 501, Boston, Massachusetts 02222-1068.

(b) Delaware, District of Columbia, Maryland, New Jersey,

Pennsylvania, Puerto Rico, Virginia, Virgin Islands, West Virginia:

U.S. Department of Agriculture, FNS, Mid-Atlantic Region, Mercer

Corporate Park, 300 Corporate Boulevard, Robbinsville, New Jersey,

08691-1598.

(c) Alabama, Florida, Georgia, Kentucky, Mississippi, North

Carolina, South Carolina, Tennessee: U.S. Department of Agriculture,

FNS, Southeast Region, 77 Forsyth Street, SW., suite 112, Atlanta,

Georgia 30303.

(d) Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin: U.S.

Department of Agriculture, FNS, Midwest Region, 77 West Jackson

Boulevard--20th floor, Chicago, Illinois 60604-3507.

(e) Arkansas, Louisiana, New Mexico, Oklahoma, Texas: U.S.

Department of Agriculture, FNS, Southwest Region, 1100 Commerce Street,

room 5-C-30, Dallas, Texas 75242.

(f) Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North

Dakota, South Dakota, Utah, Wyoming: U.S. Department of Agriculture,

FNS, Mountain Plains Region, 1244 Speer Boulevard, suite 903, Denver,

Colorado 80204.

(g) Alaska, American Samoa, Arizona, California, Guam, Hawaii,

Idaho, Nevada, Oregon, Trust Territory of the Pacific Islands, the

Northern Mariana Islands, Washington: U.S. Department of Agriculture,

FNS, Western Region, 550 Kearny Street, room 400, San Francisco,

California 94108.

Sec. 248.26 OMB control number.

The collecting of information requirements of Sec. 248.23(b) have

been approved by the Office of Management and Budget and assigned OMB

control number 0584-0477. The collecting of information requirements in

Secs. 248.4, 248.9, 248.10(a), 248.10(b), 248.10(e), 248.10(f), 248.11,

248.14(h), 248.17(b)(2)(ii), and 248.18(b) are pending approval by the

Office of Management and Budget.

Dated: March 2, 1994.

William E. Ludwig,

Administrator, Food and Nutrition Service.

[FR Doc. 94-5568 Filed 3-10-94; 8:45 am]

BILLING CODE 3410-30-U