Food Stamp Program: Recipient Claims and Automated Data Processing (ADP) Funding Requirements

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272, 273, 276 and 277

[Amdt. No 342]

RIN 0584-AB08

Food Stamp Program: Recipient Claims and Automated Data

Processing (ADP) Funding Requirements

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: This rulemaking implements provisions of the Mickey Leland

Memorial Domestic Hunger Relief Act. The Act amends the timeframe for

household election of a repayment method for intentional Program

violation (IPV) claims, changes retention rates on food stamp recipient

claims for State agencies and reduces the enhanced funding rate for the

costs of planning, designing, developing and installing ADP and

information retrieval systems. This rule also implements a provision of

the Food, Agriculture, Conservation, and Trade Act Amendments of 1991,

relating to household election of repayment method for inadvertent

household error (IHE) claims. This rule also implements a change to ADP

requirements which limits enhanced funding requests for automated

systems to initial development of a ``complete'' system and corrects

errors made in previously published regulations relating to recipient

claims and enhanced ADP funding. In addition, this rule clarifies

exceptions to requirements to provide notice of adverse action when an

allotment is reduced to recoup a recipient claim and clarifies the

Federal funding rate allowed for preparation of a Planning Advance

Planning Document (PAPD). Finally, this rule gives State agencies, at

their request, the option to make payment by check for FNS-209 amounts

due FNS, and to have payments due from FNS to the State made by check

in place of amending the States' letter of credit.

Section 13961 of the Omnibus Budget reconciliation Act of 1993

(OBRA), (Public Law 103-66), Signed August 10, 1993, reduces the

federal reimbursement rate for development of automated data processing

and information retrieval systems development to the standard 50

percent Federal reimbursement level effective April 1, 1994. During the

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

Department issued a memorandum which briefed States on the details of

this change in the law. The memorandum will be followed by conforming

regulations which will be effective April 1, 1994.

DATES: 7 CFR 273.18(d)(4)(ii) is effective retroactive to November 28,

1990. 7 CFR 273.18(d)(4)(i) is effective December 13, 1991. 7 CFR

273.18(h) and (i) are effective October 1, 1990. 7 CFR 277.4(b)(11) and

(b)(12), 277.18(b), (c)(1) introductory text, (c)(1)(ii), (d)(1)(ii),

(g) heading, (g)(1), (g)(2) and (g)(5) introductory text, (g)(2)(ii),

(g)(3), (g)(6), (g)(7), (g)(8) introductory text, (g)(8)(iv), and

(p)(5), and part 277, appendix A, paragraph B(1) are effective October

1, 1991. All remaining amendments are effective February 18, 1994.

FOR FURTHER INFORMATION CONTACT: John Knaus, Chief, Quality Control

Branch, Program Accountability Division, Food and Nutrition Service

(FNS), USDA, 3101 Park Center Drive, Alexandria, Virginia 22302, (703)

756-2474.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866/Secretary's Memorandum 1512-1

This final rule is issued in conformance with Executive Order

12866.

Executive Order 12372

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

Assistance under No. 10.55l. For the reasons set forth in the final

rule and related notice to 7 CFR 3015, subpart V (48 FR 29115), this

Program is excluded from the scope of Executive Order 12372 which

requires intergovernmental consultation with State and local officials.

Executive Order 12778

This rule has been reviewed under Executive Order 12778, Civil

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

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

conflict with its provisions or which would otherwise impede its full

implementation. This rule is not intended to have retroactive effect

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

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

application of its provisions, all applicable administrative procedures

must be exhausted.

Regulatory Flexibility Act

This action has been reviewed with regard to the requirements of

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

September 19, 1980). George Braley, Acting Administrator of the Food

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

significant economic impact on a substantial number of small entities.

This rule will affect recipients who must elect a repayment method for

IPV claims. State and local agencies which administer the Food Stamp

Program will be affected by the change in retention rates on food stamp

recipient claims and the reduction in the enhanced funding rate for

development of ADP system.

Paperwork Reduction Act

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

3507), the reporting and recordkeeping burden associated with the

Notice of Adverse Action and the demand letter for recipient claims is

approved by the Office of Management and Budget (OMB) under OMB number

0584-0064. The reporting and recordkeeping burdens associated with the

collection of claims assessed against food stamp households have been

approved by OMB under OMB number 0584-0069. Information collection

requirements relating to automated data processing and information

retrieval systems have been approved by OMB Approval No. 0584-0083. The

provisions of this rule do not contain any additional reporting and/or

recordkeeping requirements subject to OMB approval.

Background

On September 10, 1991, the Department published in the Federal

Register (56 FR 46127) a Notice of Proposed Rulemaking (NPRM) which

proposed changes to Food Stamp Program recipient claims and ADP funding

requirements as required by the Mickey Le Lano Memorial Hunger Relief

Act, Pub. L. 101-624, (hereinafter ``Pub. L. 101-624''). The Department

received 21 comment letters which addressed provisions of the proposed

rule. FNS has given careful consideration to all comments received. The

major concerns of the commenters are discussed below.

Recipient Claims

Repayment Decision Timeframe

The proposed rule would have shortened the time for participating

households to choose how they would repay inadvertent household error

(IHE) and intentional Program violation (IPV) claims in order to

forestall involuntary reduction of their allotments. The timeframe for

such elections would have been shortened from 30 days to the day of

receipt of the demand letter for repayment unless the adverse action

period for the claim had not elapsed or the household had timely

requested a fair hearing and continued benefits. Public Law 101-624

mandates the shortened timeframe for IPV claims. The proposed rule

would have also applied this timeframe to IHE claims. The preamble to

the proposed rule should be consulted for the complete discussion of

the background of this decision.

We received 13 comments on this part of the proposed rule, 10 from

State agencies, one from the welfare department of a large city, and

two from public interest groups. Five State agencies supported the

proposal; most other commenters objected to it, primarily because it

applied the shortened timeframe to IHE claims.

One commenter stated that since the statute spoke only to IPV

claims, applying the ``same day'' decision timeframe to IHE claims was

against the law. Several commenters objected to the proposal on the

grounds that the shortened decision timeframe for IHE claims would

cause hardship on households, especially those in rural areas, and was

in any event too short to allow adequate time for due process. Two

commenters objected to our statement that the proposal would enhance

conformity with Aid to Families with Dependent Children (AFDC) rules on

claims management. Several commenters stated that if it were

established for either IHE or IPV claims, the ``same day'' standard

would impose significant operational problems on State agencies, and

that a 10-day minimum should be adopted for both types of claims. One

of the operational difficulties cited was the need to track responses

due at varying intervals because of the consideration of such

circumstances as geography. One commenter believed that the proposed

rule required a fair hearing on IPV claims in addition to an

administrative disqualification hearing or comparable action

establishing such claims.

In section 911 of Public Law 102-237, which was signed December 13,

1991, Congress resolved this issue by providing that for an IHE claim,

``the household shall be given notice permitting it to elect another

means of repayment [other than allotment reduction] and given 10 days

to make such an election before the State agency commences action to

reduce the household's monthly allotment.'' The Department understands

by this language that no action to reduce the household's monthly

allotment may be taken by the State agency until the eleventh day

following the household's receipt of notice of the IHE claim.

Typically households first receive notice about IHE claims through

the mail in demand letters. Consequently, there is no practical way to

determine exactly when households receive such notices and, in turn,

the eleventh day afterwards. There is also the problem of allowing for

return mail time. This rule provides that within 20 days of the date of

the demand letter, households must notify State agencies of their

choice of repayment method or be deemed to have elected allotment

reduction. This timeframe should allow for the newly required 10-day

decision timeframe and adequate mail time, five days for delivery to

households and five days for household return mail to State agencies.

As discussed below, the provision is restated to deal with IHE and

IPV claims separately and to clarify that the timeframe for the IHE

claim repayment decision relates both to initial demand letters and to

demand letters following fair hearings which sustain IHE claims.

Finally, to take account of demand letters which may be handed to the

household, the language makes clear that the 20-day period begins on

the date the demand letter is mailed or otherwise delivered to the

household.

Several commenters objected to the statement in the preamble to the

proposed rule to the effect that the claim itself was the adverse

action, not the collection action. (This statement was made in

connection with exempting the initiation of allotment reductions from

the adverse notice requirements when households have been provided

notice about appeal rights on the underlying claim. That proposal is

discussed later in this preamble.) The Department would like to clarify

this matter. Current rules require that households be provided specific

information about their rights to appeal recipient claims. Once this

information is provided, if a fair hearing is requested and a

determination to sustain the claim is made, the household's remaining

decision is how it will pay the claim. Making that decision should take

relatively little time. To clarify how this policy applies to IHE

claims, the final rule provides that in cases of IHE claims, if a fair

hearing sustains the claim, the household must notify the State agency

of its election of repayment method within 20 days of receipt of the

notice of the hearing decision or be deemed to have elected allotment

reduction.

With respect to IPV claims, the final rule provides that households

must elect a method of repayment on the date of receipt of the demand

letter required by 7 CFR 273.16(e)(9), 7 CFR 273.16(f)(3) and (g)(3) of

current rules (or if the date of receipt is not a business day, on the

next business day) or be deemed to have elected allotment reduction.

The final rule requires that for an IPV claim, the first claim demand

letter following an action which establishes the claim, inform the

household about this timeframe for election of a method of repayment

and the consequence of failing to meet it. This is intended to clarify

that the timeframe for electing a repayment option begins with the

demand for repayment.

The final rule also provides that each State agency must, for IPV

claims, determine a deadline for the return of completed election forms

in order to determine if the election is timely. The Department does

not expect State agencies to set such deadlines case by case. State

agencies should establish uniform timeframes for responses to demands

for repayment of IPV claims, if necessary allowing for situations such

as mail time to and from remote areas. The final rule states that the

deadline cannot exceed 10 days from the date that the demand letter is

mailed or otherwise delivered to liable households. The time period is

set at a maximum of 10 days because the law requires a ``same day''

decision from households and a relatively short response time is

appropriate to that statutory requirement.

In addition to these changes, to accommodate the different

requirements for IHE and IPV claims relating to repayment decisions,

the final rule treats IHE and IPV claims in separate sections.

Furthermore, since recoupment is a method of collection which is used

only for participating households, when appropriate, the final rule

refers to ``participating households.'' In 7 CFR 273.18(d)(4), which

contains the policies on repayment decision timeframes, the heading is

changed to ``Further collection actions'' since that more accurately

describes the material in the paragraph. Also, because IHE and IPV

claims are treated in separate subparagraphs, the first sentence of

paragraph (4)(i) of the proposed rule has been deleted to eliminate

potential confusion. This deletion also eliminates the redundant phrase

``do not respond timely or fail to respond.''

The Department was concerned that a significant number of

commenters believed that in reducing the time for electing repayment

for IHE claims the proposed rule would also have abridged the right to

appeal the claim. Consequently, in addition to treating IHE and IPV

claims separately, the final rule sets forth requirements for the

content of the initial demand letter for IHE claims separately from the

content of a demand letter for IHE claims which are sustained by fair

hearings. An initial IHE demand letter needs to inform the household

that it has an option of timely electing a repayment method or

requesting a fair hearing. A demand letter provided after a hearing

decision which sustains the claim would not offer the hearing option.

Similarly, the first demand letter for an IPV claim can only be issued

following an administrative disqualification hearing or other action

which establishes an IPV claim. The rule adds a phrase to clarify this

point.

In response to other comments, the final rule makes several other

changes with respect to the required content of the demand letter for

IHE and IPV claims. One commenter recommended that the proposed list of

repayment methods in 7 CFR 273.18(d)(3)(iii) be expanded to include

repayment in coupons. However, a full list of repayment methods is

already contained in 7 CFR 273.18(g). Paragraph (d)(3)(i) of that

section already requires that the demand letter inform the household of

these methods of repayment. Consequently, in addition to being

incomplete, the proposed list in paragraph (d)(3)(iii) is redundant,

and so the final rule deletes it.

Another commenter pointed out that we do not require that the

demand letter inform households when recoupment would begin and the

amount of benefits the household would then receive. The Department

believes that it would be useful to include this information in the

demand letter. Current rules at 7 CFR 273.18(g)(4) require that prior

to reduction State agencies inform households about the effect of

recoupment on their benefits. Consequently, the final rule provides

that, unless the State agency has otherwise informed the household what

its allotment would be net of the reduction for repaying the claim, it

provide that information in the demand letter.

Current rules at 7 CFR 273.12(c)(2) provide that decreases in

benefits must be made effective no later than the month following the

lapse of the adverse notice period. Consistent with this general policy

and the required timeframe for election of a repayment method, the

final rule provides that the initial demand letter for IHE claims must

inform the household that the reduction will begin with the first

allotment issued after the household either timely elects allotment

reduction or, if it fails to make a timely election, with the first

allotment issued after the expiration of the time for its election.

Demand letters provided subsequent to a fair hearing sustaining an IHE

claim must inform the household that if it fails to make a timely

election, allotment reduction will begin with the first allotment

issued after timely notice of such election is due to the State agency.

Another commenter on this paragraph recommended that we be more

specific about the acceptable ways for households to communicate their

decisions about repayment. The Department is not aware of any

operational difficulties with how State agencies and households

currently communicate about claims collections. Current rules at 7 CFR

273.15(h) provide that requests for fair hearings may be oral or in

writing so long as they are clear and if they are not, State agencies

may ask households for clarification. The Department encourages State

agencies to apply this standard to communications concerning elections

of repayment methods. Consequently, the final rule does not specify

ways households must communicate elections about repayment methods.

The proposed rule would have amended 7 CFR 273.13(b) which lists

exemptions from notices of adverse action. As mentioned earlier in this

preamble, the proposed rule would have added situations where the State

agency initiates allotment reduction against a household which has been

provided notice of its appeal rights for the underlying claim to the

list of exemptions. No commenter objected to this action or indicated

the need for clarification. Consequently, the final rule adopts the

language as proposed in 7 CFR 273.13(b)(14). Several commenters did

remark about an associated statement in the preamble which was that the

claim itself was the adverse action, not the collection action. The

Department believes that the changes in this final rule clarify that

statement. Households are due notice of specific appeal rights

regarding claims such as how the claim arose, the information on which

the claim is based, how the amount of the claim was calculated and the

right to contest the claim. Once those due process requirements have

been met and the claim has been established, State agencies are

expected to proceed to collection activities without additional notices

of adverse action.

Technical Corrections to Current Rules

The Department used the proposed rule to correct two errors in 7

CFR 273.18(d)(3) of current rules which resulted from the final

Administration-Management rule published February 22, 1990 (55 FR

6233). The first correction clarified that a notice of adverse action

is required when a claim is not established in a fair hearing. It

deleted the phrase which limited this requirement to those

circumstances where ``the amount of the claim'' had not been

established. The one comment received on this matter was from a State

agency which indicated it was already in compliance with the broader

requirement. Consequently, the final rule adopts the language as stated

in the proposed rulemaking.

The second correction reinstated a provision in 7 CFR

273.18(d)(4)(iii) allowing other methods of collecting claims for IHE

and State agency error claims. A commenter objected on the grounds that

the law does not authorize other collection methods for IHE claims.

However, section 13(b)(2)(B) of the Food Stamp Act of 1977 (7 U.S.C.

2022(b)(2)(B)) does authorize such collection action for IHE claims.

Accordingly, the final rule adopts the language as stated in the

proposed rulemaking.

State Agency Retention of Claims Against Households

The proposed rule would have reduced the recipient claims retention

rate for State agencies from 50 percent to 25 percent for IPV claims

and from 25 percent to 10 percent for IHE claims. The proposed rule

further specified that the new rates are effective for the period

beginning October 1, 1990 and ending September 30, 1995. Beginning

October 1, 1995 the old rates of 50 percent for IPV claims and 25

percent for IHE claims will again take effect. The proposed rule also

would have allowed State agencies the opportunity to submit a one-time

request for any additional amount due under the old, higher retention

rates by November 30, 1991. Four comments were received on this

section.

As explained in the proposed rule, the Department had previously

directed State agencies to implement the new retention rates for

reporting and payment purposes. This was done in order to comply with

the Act and to minimize the need for revised reporting on the Form FNS-

209, Status of Claims Against Households. Effective with the first

quarter Fiscal Year 1991 FNS-209 report, the Department has been

recovering funds from State agencies at the new retention rates in

accordance with the Act. The Department had also previously advised

State agencies of the procedure for requesting any additional retention

due on collections received prior to October 1, 1990 and the deadline

for filing such requests.

One State and one local agency felt that the retention rates should

be restored to their former levels. The commenters indicated that the

higher retention rates in effect prior to October 1, 1990 were a

significant incentive for States to pursue the collection of Food Stamp

Program claims and felt that the new lower retention rates could result

in a loss of State or local support for collection and fraud control

activity. The local agency stated that it used the money to help

administer the fraud control program and that the cutback would hamper

the county's effort to locate and prosecute food stamp fraud. The new

retention rates were mandated in the Act and do not involve

Departmental discretion. Since the retention rates are mandated by law,

the final regulation retains the new retention rates as specified in

the proposed rule.

Two State agencies commented on the procedure in the proposed rule

of claiming only the new retention rates on the FNS-209 and filing an

adjustment request for any additional retention amount due the State

agency. The proposed rule provided that a one-time request to claim the

higher rates for transactions occurring on or after October 1, 1990 but

involving collections received prior to October 1, 1990, may be filed

with the Department after Fiscal Year 1991 but no later than November

30, 1991. One State agency believed that States should be given the

option of using the old, higher retention rates on the FNS-209 if they

can identify those collections, or the lower retention rates if it is

in the State's best interest. The commenter felt that States should not

be burdened with requesting and justifying higher retention rates in a

special request if their systems are able to identify those collections

that qualify. Another State agency recommended that there be no time

limitation to filing a request and that States should continue to

receive the higher retention amount due under the higher rates in

effect prior to October 1, 1990 if all other conditions are met.

The Department is not adopting the suggestion to allow State

agencies to claim higher retention rates for collections received prior

to October 1990 on the FNS-209 rather than requiring submission of an

adjustment request. The FNS-209 and the FNS automated system which

supports State reporting are structured to recognize one retention

percentage for each type of claim. Edit checks are designed to detect

mathematical errors and inadvertent under- or over-retention for each

claims category prior to the Department accepting the report. Instead

of redesigning the FNS-209 and the automated system, the Department is

permitting State agencies to claim for the additional retention by

submitting an adjustment request after the end of the fiscal year.

The Department is also not adopting the suggestion to eliminate the

time limitation for filing a request for retention adjustment, but has

decided to allow State agencies an additional year to claim any

additional retention. The proposed rule allowed a one-time request for

retention adjustment and specified a deadline of November 30, 1991 for

filing the request. In October 1992, the Department advised State

agencies that it would allow a second round of adjustment requests

after Fiscal Year 1992 which must be filed no later than November 30,

1992. Accordingly, the final rule allows State agencies to submit a

first time request (if they have not previously done so), or second

request for additional retention which must be filed no later than

November 30, 1992. The Department believes the additional year should

be sufficient time for any adjustments, transfers, and refunds of

collections received in Fiscal Year 1990 or earlier to be adjusted and

claimed by State agencies at the old, higher retention rates.

The Department is also using this opportunity to update the

reference in the proposed rule concerning amending the States' letter

of credit for FNS-209 payments to reflect current practice. The

proposed rule restated current policy in that it provided that FNS

would collect amounts due FNS or pay State agencies by amending the

States' letter of credit. Although in most cases the State agency owes

FNS for FNS' share of collections, FNS may owe the State agency in

situations where the retention amount due the State agency exceeds the

cash collection. This occurs when the State agency experiences a

preponderance of non-cash rather than cash collections.

The regulations in 7 CFR 273.18 and 276.2 previously provided that

FNS would collect amounts due FNS for recipient claims collections and

title IV reimbursements and pay State agencies by offsetting or

amending the States' letter of credit. However, in order to accommodate

State and Federal financial management requirements, FNS has accepted

FNS-209 payments by check from a number of State agencies and has sent

checks to State agencies which were owed money. The Department believes

it is appropriate to change the current language to provide for checks

when requested by State agencies rather than require a number of State

agencies to conform to the letter of credit procedure. In the final

rule the Department is allowing State agencies to request that FNS

accept checks from the State for FNS-209 amounts due FNS, or that FNS

pay the State by check for FNS-209 amounts due the State. If such a

request has not been or is not made, payment to the State agency and

collection from the State agency will be made through the letter of

credit. The Department reserves the right to offset any amount due FNS

by letter of credit offset if payment is not made.

The final rule also amends similar provisions relating to title IV

reimbursements in 7 CFR 276.2 and letter of credit offsets in 7 CFR

277.16 to conform with this change. Title IV reimbursements are

reported as a separate line item on the FNS-209 and are used along with

claims collection data in the calculation of the total amount due FNS

from the FNS-209. Thus, a change in the method of collection or payment

of the total amount due from the FNS-209 would also apply to the line

items that make up the total figure. The change in the general

authority for letter of credit offset in 7 CFR 277.16 is a

consolidation of the authority for organization purposes. As noted

above, the regulations in 7 CFR 273.18 and 276.2 previously allowed FNS

to offset from the letter of credit for FNS-209 payments due FNS.

Automated Data Processing (ADP) Enhanced Funding Rate Reduction to 63

Percent

The proposed rule stated that section 1752(a) of Public Law 101-

624, enacted on November 28, 1990, changed the enhanced funding rate

for ADP and information retrieval system development from 75 percent to

63 percent effective October 1, 1991. The proposed rule also stated

that pursuant to section 1752(b) of Public Law 101-624 this change in

the funding rate does not apply to proposals approved prior to the

enactment date of November 28, 1990.

Three comments were received which stated that this reduction is

unreasonable at a time when automation efforts need to be increased to

keep pace with growing caseloads and decreasing resources. One other

commenter stated that this reduction was unfair to those States that

had never requested enhanced funding because they had not previously

had the necessary resources available for development purposes and that

were now in the process of pursuing such development. The reduction in

the enhanced funding rate was mandated by law and does not allow

Departmental discretion. Since the retention rate is mandated by law,

the final regulation retains the 63 percent rate as specified in the

proposed rule.

One commenter requested clarification of whether approval of the

planning advance planning document (PAPD) prior to November 28, 1990,

constituted total project approval at the enhanced funding rate. The

Department believes that the purpose of the PAPD is to determine

whether the developing system would be a viable one and whether

continued system development is appropriate. Therefore, approval for

funding a PAPD is separate from later funding decisions.

The Department was also made aware of concerns about the approval

of funding proposals after November 28, 1990 that were submitted prior

to that date. Specifically, there was a concern that States which had

submitted complete implementation advance planning documents (IAPD)

prior to November 28, 1990, but did not receive approval by FNS until

after that date were being unfairly penalized. The Department reviewed

the legislation in light of this concern and has made a change in 7 CFR

277.4(b)(12) of the final rule. This section now provides that a State

will receive 75 percent enhanced funding for automated system

development, if prior to November 28, 1990, the State had both an

approved (PAPD) and had submitted an IAPD along with all the paperwork

required for approval. However, modifications to approved IAPDs and any

increase in costs which occur after September 30, 1991 (during system

development), will be funded at the 63 percent level. Other than this

modification, 7 CFR 274.4(b)(12) is adopted as proposed.

One-time Enhanced Funding

Nine comments were received on the proposed one-time enhanced

funding provision which provided that all requests for more than one-

time enhanced funding for automated system development in a particular

State be denied. These comments focused on the rapid pace of changes in

technology and the need for federal enhanced funding to allow States to

incorporate these changes into a system once the initial system

development has been completed.

As noted in the proposed rule, a 1988 audit issued by the General

Accounting Office (GAO) interpreted the original legislation

differently than the Department. According to GAO, the funding scheme

was initially designed so that enhanced funding for automation should

only be available for a State's first attempt at automation

development.

FNS recognizes the concern expressed by commenters to keep pace

with the rapid change in computer technology. However, the legislative

history accompanying Public Law 96-249, The Food Stamp Amendments of

1980, specifically addressed the funding of upgrading or modification

of a system originally funded at the enhanced level. In the House

Report the Committee stated that the 75 percent rate for cost sharing

was intended to be one-time and funds were to be strictly limited to

initial development. H.R. Rep. No. 96-788, 96th Cong., 2nd Sess. 112-

113 (1980). Ongoing system utilization or upgrading expenses would be

shared at the 50 percent level applicable to most other administrative

costs.

Based on the House Report and the General Accounting Office (GAO)

audit cited in the proposed rule, the Department has decided that

enhanced funding should not be available for system changes to an

already existing system which was initially developed with enhanced

funding. Accordingly, with some technical corrections described later,

the proposed Sec. 277.18(g)(1) is adopted.

The Department also wants to clarify that it will fund one

``complete'' system development effort at the enhanced level one time,

if the system meets all applicable standards. A ``complete'' system

contains both certification and issuance components that meet existing

standards. For example, a State may receive enhanced funding for the

development of a certification component of a system which meets all of

the applicable functional standards. The State may then also receive

enhanced funding for a subsequent project to ``upgrade'' the system by

adding an issuance component which also meets all of the applicable

functional standards.

States are currently given the opportunity to pay back the

difference between regular and enhanced funding for a partial system

(i.e. certification component only) and then move forward to develop a

``complete'' new system. As of (insert effective date of final rule),

States will no longer be given the opportunity to pay back this

difference. The Department will fund to ``complete'' system development

but will not permit paybacks that allow the State to replace at

enhanced levels a component already funded at the enhanced level which

is no longer useful in the new system design. For example, a State has

received enhanced funding for a certification component and completes

component development. At a later date, the State re-evaluates

automation activity and a decision is made to automate the issuance

function, and to redo the certification component. In this situation,

the Department may allow enhanced funding for the issuance component

but will not allow funding at the enhanced level for a new

certification component. Finally, if a ``complete'' system was funded

at the enhanced level, a replacement system is not eligible for

enhanced funding.

The Department will reimburse States at the enhanced level, if

appropriate, for ``planning efforts'' that did not lead to

implementation of a system. The purpose of the planning effort is to

ensure that the ultimate system development effort is a viable one.

Therefore, a State may qualify a second time for enhanced funding for

planning if the previous planning effort was not successful. However, a

State will not be eligible for enhanced funding for the actual

implementation efforts for the second time if the initial

implementation effort failed to develop a ``complete'' system that

meets all applicable standards. Paybacks by States for failed

implementation attempts will no longer be approved as of (insert the

effective date of the final rule).

Federal Funding for Preparation of the Planning Advance Planning

Document (PAPD)

The Proposed rule provided clarification that the 50 percent rate

of Federal Financial Participation (FFP) would be allowed for State

administrative expense incurred during preparation of the PAPD. Two

commenters felt that the preparation of a PAPD should be funded at the

enhanced rate since the preparation took more time than suggested in

the regulations and resulted in a document more extensive than 6-10

pages. One commenter suggested that a clear description of specific

costs eligible for enhanced funding would help to adequately

differentiate between preparation of the PAPD and the actual planning

phase activities.

The Department is maintaining the requirement that the preparation

of the PAPD by States be funded at the regular FFP rate of 50 percent.

The PAPD is intended to be a brief written plan of action which

describes the State agency's intended activities and proposed budget

for planning phase activities as well as an estimate of the total

project costs. At a minimum, the State agency is required to include

information set forth in 7 CFR 277.18(d) in the PAPD submission.

Planning phase activities will be reimbursed at the enhanced rate only

if the PAPD was approved at that rate. Planning phase activities that

are eligible for reimbursement at the enhanced funding rate are

identified in 7 CFR 277.18(g) of these regulations. In addition, the

Department would like to clarify language in paragraph 277.18(g)(8)(iv)

of that section which may have contributed to the confusion surrounding

the level of FFP allowed for the preparation of a PAPD. The second

sentence in this paragraph has been changed to read as follows: ``The

cost of planning activities which were approved for enhanced funding

under a Planning APD may be funded at the 63 percent level regardless

of final approval or denial of the Implementation APD''.

Miscellaneous Comments

One commenter stated that the Department had failed to provide

recipient protections in ADP systems through the proposed rule and

requested that the Department republish the rule to include provisions

for this concept. Through this rule the Department is addressing only

the automation funding provision of the Public Law 101-624. Public Law

101-624 also contains provisions concerning standards for automated

systems that include concerns about recipient protection. However, this

rule does not implement those provisions.

The Department is primarily interested in the use of automated

systems to provide more timely and accurate benefits to recipients as

well as more program and system accountability and the APD process, the

Department is emphasizing recipient protection when a system is under

development as well as when the system is operational. Notices,

expedited service and processing procedures are being emphasized.

One commenter requested clarification regarding whether

``development'' of an automated system includes transfer and

modification of an existing State system in an enhanced funding

situation. The Department believes that current regulations at

Secs. 272.10(a)(3) and 277.18(d)(2)(ii) adequately address the

requirement that a State, as part of the development of its automated

system, assess whether the transfer or modification of an existing

State system is cost effective. Transfer or modification may be

reimbursed at either the regular or enhanced funding levels according

to the criteria discussed above.

Other Revisions

An additional change is contained in these final provisions in

order to correct language in 7 CFR 277.4 and 277.18 of current

regulations. There is a typographical error in 7 CFR 277.4(b) (11) and

(12), 277.18(b), under the definitions for enhanced funding or enhanced

FFP and regular funding or regular FFP, and in 7 CFR 277.18(g)(1) and

277.18(g)(3). The word ``or'' appearing after the word ``development''

and before the word installation in these sections has been changed to

``and''.

Implementation

The provisions of this action relating to household election of

repayment method for IPV claims at 7 CFR 273.18 are effective

retroactive to November 28, 1990, when Public Law 101-624 was enacted.

The provisions at 7 CFR 273.18 relating to household election of

repayment method for IHE claims is effective December 13, 1991, the

date of enactment of Public Law 102-237. The provisions at 7 CFR 273.18

which reduce State agency retention rates on claim collections applies,

by its terms, to the period beginning October 1, 1990 and ending

September 30, 1995. Therefore, the new retention rates are effective

retroactively to October 1, 1990. The provision at 7 CFR 277.18 which

reduces the enhanced funding level for ADP is effective retroactively

to October 1, 1991 for costs incurred on that date and thereafter and

does not apply to ADP plans approved prior to November 28, 1990. The

corrections to the Administration Management final rule, the correction

to the reference to enhanced ADP funding, the change to FNS-209 methods

of payment and the amendments relating to one-time enhanced funding and

to Federal funding for preparation of Planning APD's are effective 30

days following the date of publication of this final rule.

List of Subjects

7 CFR Part 272

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

Reporting and recordkeeping requirements.

7 CFR Part 273

Administrative practice and procedure, Aliens, claims, Food stamps,

Fraud, Grant programs-social programs, Penalties, Records, Reporting

and recordkeeping requirements, Social Security, Students.

7 CFR Part 276

Administrative practice and procedure, Food stamps, Fraud, Grant

programs-social programs, Penalties.

7 CFR Part 277

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

Investigations, Records, Reporting and recordkeeping requirements.

Accordingly, 7 CFR parts 272, 273, 276 and 277 are amended as

follows:

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

1. The authority citation for part 272 continues to read as

follows:

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

2. In Sec. 272.1, a new paragraph (g)(130) is added in numerical

order to read as follows:

Sec. 272.1 General terms and conditions.

* * * * *

(g) Implementation. * * *

(130) Amendment (342). The provision relating to household election

of repayment method for IPV claims at Sec. 273.18(d)(4)(ii) is

effective retroactive to November 28, 1990. The provision relating to

household election of repayment method for IHE claims at

Sec. 273.18(d)(4)(i) is effective December 13, 1991. The provisions for

State agency retention rates on claim collections at Sec. 273.18(h)(2)

and (i) are effective retroactive to October 1, 1990. The provisions at

Sec. 277.18 which reduce the enhanced funding level for ADP is

effective October 1, 1991 for costs incurred on that date and

thereafter and does not apply to ADP funding approved prior to November

28, 1990.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

3. The authority citation for part 273 continues to read as

follows:

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

4. In Sec. 273.13, a new paragraph (b)(14) is added to read as

follows:

Sec. 273.13 Notice of adverse action.

* * * * *

(b) Exemptions from notice. * * *

(14) The State agency initiates recoupment of a claim as specified

in Sec. 273.18(g)(4) against a household which has previously received

a notice of adverse action with respect to such claim.

5. In Sec. 273.18:

a. The third sentence and the last sentence of the introductory

text of paragraph (d)(3) are amended by removing the words ``the amount

of'';

b. Paragraph (d)(3)(iii) is revised, paragraphs (d)(3)(iv) through

(d)(3)(viii) are redesignated (d)(3)(vi) through (d)(3)(x) respectively

and new paragraphs (d)(3)(iv) and (d)(3)(v) are added;

c. The heading of paragraph (d)(4) and paragraph (d)(4)(i) are

revised, paragraphs (d)(4)(ii) and (d)(4)(iii) are redesignated

(d)(4)(iii) and (d)(4)(iv) respectively; and a new paragraph (d)(4)(ii)

is added;

d. Newly redesignated paragraph (d)(4)(iv) is amended by adding a

new sentence following the first sentence;

e. Paragraphs (h) through (l) are redesignated as paragraphs (i)

through (m) respectively, and a new paragraph (h) is added; and

f. Newly redesignated paragraph (i)(1) is revised in its entirety.

The revisions and additions read as follows:

Sec. 273.18 Claims against households.

* * * * *

(d) Collecting claims against households. * * *

(3) Initiating collection on claims. * * *

(iii) For inadvertent household error claims, the first demand

letter to a participating household shall inform the household:

(A) That unless it elects a method of repayment and informs the

State agency of its election within the time specified in paragraph

(d)(4)(i) of this section, or timely requests a fair hearing and

continued benefits, its allotment will be reduced;

(B) How allotment reduction will affect household benefits, if the

State agency has not otherwise informed the household about this

matter;

(C) That if the household timely elects allotment reduction, such

reduction will begin with the first allotment issued after such

election, as provided in Sec. 273.12(c)(2) of this part; and

(D) That if the household fails to make a timely election, or to

timely request a fair hearing and continued benefits, the reduction

will begin with the first allotment issued after timely notice of such

election or request is due to the State agency, as provided in

Sec. 273.12(c)(2) of this part.

(iv) For inadvertent household error claims, a demand letter

provided to a participating household subsequent to a fair hearing

which sustains the claim shall inform the household:

(A) That unless it elects a method of repayment and informs the

State agency of its election within the time specified in paragraph

(d)(4)(i) of this section, its allotment will be reduced;

(B) How allotment reduction will affect household benefits, if the

State agency has not otherwise informed the household about this

matter;

(C) That if the household timely elects allotment reduction, such

reduction will begin with the first allotment issued after such

election, as provided in Sec. 273.12(c)(2) of this part; and

(D) That if the household fails to make a timely election, the

reduction will begin with the first allotment issued after timely

notice of such election is due to the State agency, as provided in

Sec. 273.12(c)(2) of this part.

(v) For intentional Program violation claims, the first demand

letter provided a participating household following the action which

establishes the claim, as required in Sec. 237.16 of this part, shall

inform the household:

(A) That it must elect a method of repayment and inform the State

agency of its election within the time specified in paragraph

(d)(4)(ii) of this section, or its allotment will be reduced;

(B) How allotment reduction will affect household benefits, if the

State agency has not otherwise informed the household;

(C) That if the household timely elects allotment reduction, such

reduction will begin with the first allotment issued after such

election, as provided in Sec. 273.12(c)(2) of this part; and

(D) That if the household fails to make a timely election, the

reduction will begin with the first allotment issued 10 days after the

date of the demand letter, as provided in Sec. 273.12(c)(2) of this

part.

* * * * *

(4) Further collection actions. (i) Inadvertent household error

claims. Participating households which are liable for inadvertent

household error claims shall be deemed to have elected allotment

reduction unless they notify the State agency of their choice of

repayment method within 20 days of the date an initial demand letter,

or a demand letter for payment following a fair hearing which sustains

the claim, is mailed or otherwise delivered to them.

(ii) Intentional Program violation claims. Participating households

which are liable for intentional Program violation claims shall elect a

method of repayment on the date of receipt of the demand letter

required in Sec. 273.16(e)(9) and (g)(3) of this part (or if the date

of receipt is not a business day, on the next business day) or be

deemed to have elected allotment reduction. Each State agency shall

determine a deadline for receipt of such elections for them to be

considered timely. In no event shall that deadline exceed 10 days from

the date the demand letter is mailed or otherwise delivered to liable

households.

* * * * *

(iv) * * * The State agency may also pursue other collection

actions, as appropriate, to obtain restitution of a claim against any

household which fails to respond to a written demand letter for

repayment of any inadvertent household error or administrative error

claim. * * *

* * * * *

(h) Retention rates. The following retention rates shall apply for

claims collected by the State agency, including the value of allotment

reductions for the purpose of collecting claims but not allotment

reductions due to disqualification:

(1) For amounts collected prior to October 1, 1990, the State

agency shall retain 25 percent of the value of inadvertent household

error claims collected and 50 percent of the value of intentional

Program violation claims collected;

(2) For amounts collected during the period October 1, 1990 through

September 30, 1995, the State agency shall retain 10 percent of the

value of inadvertent household error claims collected and 25 percent of

the value of intentional Program violation claims collected;

(3) For amounts collected on or after October 1, 1995, the State

agency shall retain 25 percent of the value of inadvertent household

error claims collected and 50 percent of the value of intentional

Program Violation claims collected;

(4) The State agency shall not retain any percentage of the value

of administrative error claims collected.

(i) Submission of payments. (1) The State agency shall retain the

value of funds collected for inadvertent household error, intentional

Program violation, or administrative error claims rather than

forwarding the payments to FNS. This amount includes the total value of

allotment reductions to collect claims, but does not include the value

of benefits not issued as a result of a household member being

disqualified. The State's grant and letter of credit will be

established or amended on a quarterly basis to reflect the State

agency's retention of the value of claims collected as specified in

paragraph (h) of this section unless the State agency requests or has

requested that payment be by check. The State agency may request that

FNS accept checks from the State for FNS-209 amounts due FNS, or that

FNS pay the State by check for FNS-209 amounts due the State. If the

State agency fails to pay FNS the amount due as reported on the FNS-

209, FNS shall offset the amount due from the State's letter of credit.

For FNS-209 reporting purposes, State agencies shall calculate the

retention amount using the appropriate rate specified in paragraph (h)

of this section which is in effect during the reporting period for the

report. For those claims collected in Fiscal Year 1990 or earlier for

which adjustments are made and reported in Fiscal Year 1991 or 1992,

States may request a correction to reflect the difference between the

old, higher rate (paragraph (h)(1) of this section) which is applicable

to those claims, and the new, lower rate (paragraph (h)(2) of this

section) at which the adjustments to those claims were reported on the

FNS-209. One request for correction for each of fiscal years 1991 and

1992 may be filed with FNS after the fiscal year, but no later than

November 30, 1991 for Fiscal Year 1991 reporting and no later than

November 30, 1992 for Fiscal Year 1992 reporting. The request must be

in writing, must include appropriate verifying documentation, and must

reflect the net effect of all increases and decreases resulting from

the application of the old retention rate.

* * * * *

PART 276--STATE AGENCY LIABILITIES AND FEDERAL SANCTIONS

6. The authority citation for part 276 continues to read as

follows:

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

7. In Sec. 276.2 paragraph (e)(3) is revised to read as follows:

Sec. 276.2 State agency liabilities.

* * * * *

(e) Title IV reimbursements. * * *

(3) The State agency shall reimburse FNS through an adjustment to

the Letter of Credit (LOC) unless it requests or has requested that it

be allowed to pay by check. The reimbursement amount shall be reported

quarterly on the Form FNS-209, Status of Claims Against Households, to

be offset against LOC credit adjustments reported on that form. The

State agency may request that FNS accept checks from the State for the

amount due FNS. If a State agency fails to pay FNS the amount due as

reported on the FNS-209, FNS shall offset the amount due from the State

agency's Letter of Credit. The State agency shall maintain monthly

records which detail the computation of reimbursement amounts reported

on the Form FNS-209 for audit purposes.

PART 277--PAYMENTS OF CERTAIN ADMINISTRATIVE COSTS OF STATE

AGENCIES

8. The authority citation for part 277 continues to read as

follows:

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

9. In Sec. 277.4:

a. Paragraph (b)(1) is revised; and

b. New paragraphs (b)(11) and (b)(12) are added. The revision and

additions read as follows:

Sec. 277.4 Funding.

* * * * *

(b) Federal Reimbursement Rate. * * *

(1) A 75 percent Federal reimbursement is payable for Food Stamp

Program allowable costs incurred for State fraud investigations,

prosecutions, and fraud hearings upon presentation and approval of a

State Plan addendum as outlined in Sec. 277.15.

* * * * *

(11) A 63 percent Federal reimbursement is payable for Food Stamp

Program allowable costs incurred for State agency planning, designing,

developing, and installing of computerized systems as described in

Sec. 277.18 and approved for enhanced funding by FNS after September

30, 1991.

(12) A 75 percent Federal reimbursement is payable for Food Stamp

Program allowable costs incurred for State agency planning, designing,

developing, and installing of computerized systems as described in

Sec. 277.18 and submitted for approval for enhanced funding by FNS

before November 28, 1990. Those proposals, including modifications and

cost increases, which received approval at the 75 percent level during

the period from November 28, 1990 through September 30, 1991, shall be

reimbursed at the 75 percent rate for costs incurred through September

30, 1991, and at the 63 percent rate for costs incurred thereafter. All

modifications approved after September 30, 1991 and any cost increases

which occur after this date shall be reimbursed at 63 percent

regardless of when the original system was approved. For purposes of

this paragraph, no system shall be funded at 75 percent unless all

required paperwork for enhanced funding is (or was) either approved by

FNS prior to the appropriate date contained in this paragraph or a

planning advance planning document (PAPD) was approved and an

implementation advance planning document (IAPD) was submitted with all

the required paperwork for enhanced funding to FNS prior to November

28, 1990. The required paperwork is described in Sec. 277.18.

* * * * *

10. In Sec. 277.16, paragraphs (c)(1)(ii) and (c)(1)(iii) are

revised and a new paragraph (c)(1)(iv) is added.

The revisions and addition read as follows:

Sec. 277.16 Suspension, disallowance and program closeout.

* * * * *

(c) Offsets to the Letter of Credit. (1) * * *

(ii) Unallowable costs resulting from audit or investigation

findings;

(iii) Amounts owed which have been billed to the State agency and

which the State agency has failed to pay without cause acceptable to

FNS; or

(iv) Amounts owed to FNS for title IV reimbursements and recipient

claims collections which were reported on the FNS-209 and which the

State agency has failed to pay.

* * * * *

11. In Sec. 277.18:

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

enhanced FFP rate'' and ``Regular funding or regular FFP rate'' are

amended by removing ``75 percent'' and adding ``63 percent'' in their

place. The reference to ``Sec. 277.4(b)(1)(ii)'' in both of these

definitions is removed and a reference to ``Sec. 277.4(b)(11) and

(b)(12)'' is added in its place. These definitions are further amended

by removing the word ``or'' after the word ``development'', and adding

the word ``and'' in its place;

b. The introductory text of paragraph (c)(1), paragraphs (c)(1)(ii)

and (d)(1)(ii), the heading of paragraph (g), paragraph (g)(1), the

introductory text of paragraphs (g)(2) and (g)(5), paragraphs (g)(6)

and (g)(7), the introductory text of paragraph (g)(8), and paragraphs

(g)(8)(iv) and (p)(5) are amended by removing all references to ``75

percent'' and adding the words ``63 percent'' in their place;

c. Paragraph (g)(1) is further amended by adding the words ``one

time'' after the word ``reimbursement''; by removing the word ``or''

after the word development, and adding the word ``and'' in its place;

d. Paragraph (g)(2)(ii) is amended by removing the reference to

``(g)(2)(vi), (g)(2)(vii), and (g)(3)(ix)'' and adding in their place

reference to ``(b)(2)(vi), (b)(2)(vii), and (b)(3)(xi)'';

e. The first sentence of paragraph (g)(3) is amended by removing

the word ``or'' after the word development, and adding the word ``and''

in its place; and

f. The last sentence of paragraph (g)(8)(iv) is revised to read as

follows:

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

Information Retrieval System.

* * * * *

(g) * * *

(8) * * *

(iv) * * * The cost of planning activities, which were approved for

enhanced funding under a planning APD, may be funded at the 63 percent

level regardless of final approval or denial of the Implementation APD.

* * * * *

Appendix A to Part 277 [Amended]

12. In part 277, appendix A in the section titled ``Standards for

Selected Items of Cost'', paragraph B (1) is amended by removing the

words ``75 percent'' and adding the words ``63 percent'' in their

place.

Dated: December 27, 1993.

Ellen Haas,

Assistant Secretary for Food and Consumer Services.

[FR Doc. 94-613 Filed 1-18-94; 8:45 am]

BILLING CODE 3410-30-U