Food Stamp Program: Quality Control Provisions of the Mickey Leland Childhood Hunger Relief Act

SUMMARY: This action proposes changes to Food Stamp Program regulations

based on section 13951 of the Mickey Leland Childhood Hunger Relief

Act. This action proposes to modify the quality control system of the

Food Stamp Program in the following areas: timeframes for completion of

all review activity, exclusion of variances resulting from the

application of new regulations, the tolerance level for excessive error

rates, the calculation of liability amounts, interest charges on

liability amounts, good cause relief from liabilities, and the

authority of the Administrative Law Judges to determine good cause.

This action proposes to incorporate these legislative provisions into

the Food Stamp Program regulations.

DATES: Comments must be received by August 22, 1995 to be assured of

consideration.

ADDRESSES: Send comments to Quality Control Policy Section, Quality

Control Branch, Food Stamp Program, Food and Consumer Service, USDA,

3101 Park Center Drive, Room 904, Alexandria, Virginia 22302.

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

Branch, Program Accountability Division, Food and Consumer Service,

USDA, 3101 Park Center Drive, Room 904, Alexandria, Virginia 22302,

(703) 305-2472.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866

This rule has been determined to be significant and was reviewed by

the Office of Management and Budget under Executive Order 12866.

Executive Order 12372

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

Assistance under No. 10.551. For the reasons set forth in the final

rule at 7 CFR 3015, Subpart V and related Notice (48 FR 29115, June 24,

1983), this Program is excluded from the scope of Executive Order 12372

which requires intergovernmental consultation with State and local

officials.

Executive Order 12778

This action 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 ``Implementation'' section of this preamble.

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

application of its provisions, all applicable administrative procedures

must be exhausted. In the Food Stamp Program the administrative

procedures are as follows: (1) For program benefit recipients--State

administrative procedures issued pursuant to 7 U.S.C. 2020(e)(10) and 7

CFR 273.15; (2) for State agencies--administrative procedures issued

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

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

(3) for program retailers and wholesalers-- administrative procedures

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

Regulatory Flexibility Act

This action has been reviewed with regard to the requirements of

the Regulatory Flexibility Act of 1980 (5 U.S.C. 601 through 612).

William E. Ludwig, Administrator of the Food and Consumer Service, has

certified that this rule does not have a significant economic impact on

a substantial number of small entities. The requirements will affect

State and local agencies that administer the Food Stamp Program.

Paperwork Reduction Act

This proposed rule contains information collections which are

subject to review by the Office of Management and Budget (OMB) under

the Paperwork Reduction Act of 1980 (44 U.S.C. 3507). The title,

description, and respondent description of the information collections

are shown below with an estimate of the annual reporting and

recordkeeping burdens. The estimate covers the time that a State agency

will need to complete and transmit a checklist with each request for

arbitration. As FCS will provide the content of the checklist to the

State agency it is believed that any time spent on the design of the

checklist will be minimal. The increase in burden hours reflects

current requirements for the arbitration process which were not

previously submitted for approval.

Title: Arbitration Checklist.

Description: Final regulations published January 21, 1988 (53 FR

1603) required State agencies to provide full documentation of the case

and the policy(s) in question when requesting arbitration. The burden

on the States for providing the documentation necessary for arbitration

under the requirements of that final rule were not submitted for

approval and inclusion under OMB No. 0584-0303 which covers existing

reporting and recordkeeping requirements of 7 CFR part 275. The

existing requirements in OMB No. 0584-0303 have been approved for use

through July 31, 1994. Thus, the following does not represent a change

in actual burden, but rather it reflects a redefinition of what is to

be included as burden under 7 CFR part 275.

Description of Respondents: State agencies.

Estimated Annual Reporting and Recordkeeping Burden:

[[Page 32616]]

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

Average

Annual burden Annual

Section number of Annual per burden

respondents frequency response hours

hours

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

7 CFR 275:

Existing............. 53 1 5.0236 266

Proposed............. 53 10 10.4 5512

Total Existing Burden

Hours: 266

Total Proposed Burden

Hours: 5512

Total Difference: 5246.

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

Send comments regarding this burden estimate or any other aspect of

this collection of information, including suggestions for reducing this

burden to the Department of Agriculture, Clearance Officer, OIRM, Room

404-W, Washington, DC 20250; and to the Office of Management and

Budget, Paperwork Reduction Project (OMB # 0584-A679), Washington, DC

20503, ATTN: Wendy Taylor.

Background

Section 13951 of the Mickey Leland Childhood Hunger Relief Act,

(the ``Leland Act''), Chapter 3, Title XIII of the Omnibus Budget

Reconciliation Act of 1993 (Pub. L. 103-66), revises sections 13(a)(1),

14(a), and 16(c) of the Food Stamp Act of 1977, as amended, (the

``Act'').

Section 13 of the Food Stamp Act is entitled ``Collection and

Disposition of Claims''. Subsection (a)(1) of this section concerns the

settlement and adjustment of claims, including the waiver, for good

cause, of all or a portion of a quality control (QC) liability claim

established against a State agency. This subsection also addresses the

collection of interest on such liability claims. The Leland Act has

amended the Food Stamp Act to remove the authority of the Secretary of

Agriculture's designee, the Food and Consumer Service (``FCS''), to

render good cause determinations. In addition, the timeframes for

charging interest on any unpaid portion of a liability claim has been

changed from two years to one year after the date that a bill for

collection of a liability claim has been received by a State agency.

Section 14 of the Act is entitled ``Administrative and Judicial

Review''. Subsection (a) of this section concerns the authority of

Department of Agriculture Administrative Law Judges (ALJs) to review

liability claims. The Leland Act has amended the Act to grant the ALJs

the authority to determine, upon the request of a State agency, whether

or not good cause exists to waive all or a portion of a liability

claim.

Section 16 of the Food Stamp Act is entitled ``Administrative Cost-

Sharing and Quality Control''. Subsection (c) of this section concerns

payment accuracy and provides for liabilities against State agencies

with payment error rates that exceed established tolerance levels, and

provides for enhanced funding for State agencies with the lowest error

rates. The Leland Act includes a number of provisions which replace key

features of the existing liability/incentive system. The Leland Act

establishes the national average error rate (also referred to as the

national performance measure) for a given fiscal year as the tolerance

level for individual State agency error rates for that year.

Previously, the tolerance level was equivalent to the lowest national

average error rate ever achieved, plus one percentage point. The Leland

Act also modifies the calculation of sanction amounts. Prior to the

Leland Act, a State agency with an individual error rate which exceeded

the tolerance level had a liability equivalent to the difference

between the State agency's error rate and the tolerance level, times

the total value of food stamp issuance by the State agency for that

fiscal year. The Leland Act modifies this calculation by the addition

of another factor, the percentage by which a State agency's error rate

exceeds the tolerance level or 1 (one), whichever is smaller. In

addition, the Leland Act has modified the variance exclusion period for

implementation of new regulations from 60/90 days to 120 days. The

Leland Act has also changed the timeframes for the determination of

final State agency error rates, the national average payment error

rate, and the amounts of liability claims against State agencies. The

Leland Act provides that these figures must be determined, and State

agencies notified, no later than 30 days after the completion of the

case review and arbitration process. The case review and arbitration

process itself will now be required to be completed no later than 180

days after the end of the fiscal year. Finally, the Leland Act adds

specific criteria into the language of section 16(c) of the Food Stamp

Act for what will be considered ``good cause'' for the waiver of

liability claims.

As part of the implementation of the new payment accuracy system,

this proposed rule addresses amendments made by section 13951 of the

Leland Act. Other provisions of section 13951 concerned with the

timeframes involved in the administrative law judge appeal process have

been published in a separate rulemaking.

Time Limits

Section 13951 of the Leland Act amends the Act by specifying that

``not later than 180 days after the end of the fiscal year, the case

review and all arbitrations of State-Federal difference cases shall be

completed''. This means that by March 29th (March 28th in leap years)

each year, all State agency QC reviews must be disposed of and

transmitted into the Integrated Quality Control System, all Federally

subsampled QC reviews must be selected and completed by FCS, and any

disparity between the State agency and Federal review findings must be

resolved. It should be recognized that these activities can, and do,

take place concurrently over the course of the annual review period,

but that they cannot be completed simultaneously. The final Federal

subsample cannot be selected until all State agency reviews have been

disposed of, and final arbitration requests and determinations cannot

be made until all Federal reviews have been completed, and the findings

transmitted to the State agencies. Current regulations at 7 CFR 275.21

provide State agencies with a deadline of January 5th to dispose of all

QC reviews, and regulations at 7 CFR 275.23(e)(8) specify that FCS must

determine final payment error rates, and notify State agencies of these

error rates by June 30th. Current regulations do not specify any

deadline for the completion of the arbitration process. The Department

has determined that the deadlines mandated by section 13951 of the

Leland Act cannot be met without changes in the timeframes for the

completion of QC reviews, and changes [[Page 32617]] in the arbitration

system. The specific Departmental proposals for meeting the deadlines

mandated by the Leland Act are contained in paragraphs entitled

Validation of State Agency Error Rates--Sec. 275.3(c), Arbitration--

Sec. 275.3(c)(4), and Quality control review reports--Sec. 275.21.

Validation of State Agency Error Rates--Sec. 275.3(c)

Current regulations at 7 CFR 275.3(c)(1)(iii), published February

17, 1984 (49 FR 6292), specify that FCS Regional Offices shall assist

State agencies in completing case reviews that State agencies were

unable to complete due to refusal on the part of a household to

cooperate with the State agency QC reviewer. It was determined that FCS

Regional Offices should assist State agencies in completing these

difficult cases because of the importance that accepted statistical

practices place on completion of the maximum possible percentage of

sampled cases. Regulations require a State agency to complete 100 per

cent of the cases sampled for QC review. Failure to complete 100 per

cent of the sampled cases results in FCS adjusting a State agency's

regressed error rate (see regulations at 7 CFR 275.23(e)(7)(iii)).

Actual experience since the implementation of these regulations has

shown that FCS Regional Offices are rarely able to gain the cooperation

of a household which has refused to cooperate with the State agency, so

that the results of this effort fail to justify the staff time and

resources dedicated to it. These efforts have also had a negative

impact on the efficiency of the State agency review process in some

instances. Occasionally a household will misinform the FCS Regional

Office that it is willing to cooperate with a State agency QC reviewer.

When the State agency reviewer attempts to contact the household and

complete the review the household again refuses to cooperate. The case

must remain incomplete, and additional State agency staff time and

resources have been expended in the process.

Section 13951 of the Leland Act amends the Food Stamp Act by

specifying that ``not later than 180 days after the end of the fiscal

year, the case review and all arbitrations of State- Federal difference

cases shall be completed.'' The Department has concluded that this

mandated deadline cannot be achieved without maximizing the efficiency

of the QC process at both the State agency and Federal review levels.

Because efforts on the part of FCS Regional Offices to assist State

agencies in completing refusal-to-cooperate cases have proven to be

ineffective the Department is proposing to amend regulations so that an

FCS Regional Office will only assist a State agency in attempting to

complete refusal-to-cooperate cases at the specific request of the

State agency. This will allow the State agency, which is in the best

position to evaluate the probability of success, to determine whether

or not additional efforts should be made to complete reviews in which

the household has refused to cooperate.

Arbitration--Sec. 275.3(c)(4)

Current regulations at 7 CFR 275.3(c)(4), published January 21,

1988 (53 FR 1603), and June 5, 1989 (54 FR 23950) contain the QC

procedures for arbitrating differences in review findings between State

agencies and FCS. Under current procedures a State agency which

disagrees with the FCS review findings for an individual case has a

maximum of 28 calendar days after receipt of the Federal findings to

request reevaluation of the Federal findings by a Regional arbitrator.

The Regional arbitrator has 30 days from the date of such a request to

determine the correctness of the Federal findings or to notify the

State agency of the status of the arbitration case. A State agency

which disagrees with a Regional arbitrator's review findings for an

individual case has a maximum of 28 calendar days after receipt of the

Regional arbitrator's decision to request a reevaluation of the

Regional arbitrator's decision by a National arbitrator. The National

arbitrator has no established time limit for rendering decisions on the

correctness of the Regional arbitrator's findings. As these timeframes

would indicate, arbitration is a process which can routinely take as

many as 86 days to reach the level of national arbitration. This

estimate does not include possible delays when a Regional arbitrator

requests additional information from a State agency. Nor does this

figure contain any time estimate for the completion of the National

arbitrator's evaluation, which can vary greatly depending on

priorities, the workload of the National arbitrator, and the complexity

of the case under review. Section 13951 of the Leland Act amends the

Food Stamp Act by specifying that ``not later than 180 days after the

end of the fiscal year [March 29th, or March 28th in leap years], the

case review and all arbitrations of State-Federal difference cases

shall be completed.'' Granting that the current arbitration process

(not including the National arbitrator's evaluation) can routinely take

86 calendar days, it would be necessary for the arbitration process to

begin earlier than January 2nd following the end of the fiscal year in

order to insure meeting the March 29th deadline. Current regulations at

7 CFR 275.21(b)(2) provide State agencies with 95 days from the end of

a sample month to complete all case reviews. This means that for the

last sample month of the review period (September) the State agencies

final deadline for disposing of all cases for the fiscal year is

January 5th. The Department has concluded that the deadlines mandated

by the Leland Act for the completion of arbitration for a fiscal year

cannot be achieved without a restructuring of the current arbitration

system.

The Department proposes to replace the current two-tier arbitration

process with a one-tier arbitration system. State agencies would submit

requests for arbitration to their appropriate FCS Regional offices

within 10 days of receipt of the Federal QC findings for a case. The

Department considers 10 days to be sufficient for a State agency to

submit requests for arbitration because the State agency has already

completed its review of households' circumstances before the Federal

review was conducted. In preparing its cases for arbitration the State

agency is simply identifying the specific case issue(s) in dispute

between the State agency and FCS, and then ensuring that all

verification, documentation, or other material supporting its findings

are included in its submittal(s). The FCS Regional office QC staff may

also submit to the arbitrator(s) a response to the State agency's

request either agreeing with the State agency or explaining why the

State agency's position is incorrect. The arbitrator(s) would be

allowed a maximum of 35 calendar days from the date a request is

received to render a decision regarding the accuracy of the Federal QC

findings and disposition in a case. Prudence dictates that with the

modification of the arbitration system to a single level of review, the

reviewing official should be allowed the longest possible timeframe to

render decisions.

The Department is proposing a number of other changes to the

arbitration process to maximize the efficiency and accuracy of the

system. The proposed regulations would limit requests for arbitration

to those cases where the State agency's findings or disposition, as

transmitted to the National Computer Center's (NCC) Integrated Quality

Control System (IQCS), differ from the Federal findings or disposition

transmitted to NCC. These cases are commonly referred to as ``disagree

cases''. Under the proposed system State agencies will not be permitted

to arbitrate cases where the [[Page 32618]] State agency's and Federal

findings or disposition are the same. The purpose of the arbitration

system is solely to resolve disagreements between the State agency's

and Federal findings or disposition. State agencies have sometimes used

the arbitration process as a way of registering disagreement with FCS

policy on an issue. In these cases, the State agency agrees that the

findings were correct, but it does not approve of the current Federal

policy. The Department maintains that it is important to dedicate the

limited resources and staff to those cases where there is a difference

between the State agency's and FCS regional office's findings or

disposition of an individual case, rather than those cases where all

parties agree.

As a further expedient to maximizing the efficiency of the

arbitration system, the Department is proposing that State agencies be

required to submit specific documents and to ensure that their

arbitration requests are complete, legible, and understandable. Over

the past several fiscal years, requests for arbitration have frequently

failed to provide arbitrators with the information needed to render

decisions efficiently and accurately without time consuming requests

for additional information or clarification. Common problems have

included: illegible documents, blank photocopied pages, income

calculations that cannot be duplicated, missing information regarding

waivers in effect at the time of the review, and lack of documentation

regarding the reporting and budgeting systems applicable to the case.

When arbitrators confront these problems, they often must recontact

State agencies and Regional offices for clarification. This process has

become both time-consuming and confusing. As a solution to this

problem, the Department proposes to require a standardized set of

documents to accompany each State agency request. The Department

proposes that the following items be required: (1) The request for

arbitration and basic case information, which would include State,

sample month and year, review number, review date, reporting and

budgeting procedure, food stamp procedures for budgeting grants from

the Aid to Families with Dependent Children Program, certification

period, and calendar or fiscal month system; (2) Information about the

certification action under dispute, which would include initial

certification or recertification, legible certification work papers,

legible State agency quality control work papers, and legible regional

office quality control work papers; and (3) Information about the State

agency's specific issues, which would include the element under

dispute, regulatory citations, handbook citations, policy memoranda,

legislative implementation dates, applicable waivers, and verification

of facts. Each arbitration request would also include a checklist

identifying the required items and indicating whether they were

included with the request. The Department is particularly interested in

soliciting comments about the need for such a checklist, the items that

should appear on the checklist, and any alternatives that might be

suggested to enhance the efficiency of arbitration.

If a State agency submitted an incomplete request for arbitration

the arbitrator would render a decision based strictly on the merits of

the available information. This does not mean that in instances where

the State agency submits an incomplete request, and the FCS Regional

office submits a response, the arbitrator(s) would automatically decide

in favor of the Federal position because of the incomplete State agency

request. Nor would this apply in the reverse situation. If a State

agency's request for arbitration is complete but the FCS Regional

office does not submit a response, the arbitrator(s) would not

automatically decide in favor of the State agency's position because

the Regional office had not submitted a response. The arbitrator(s)

would make an independent judgement of the request, based upon whatever

information the State agency and Regional office had provided. The

proposed procedure would not permit a State agency to submit a partial

request for arbitration and then supply supporting documentation over a

ten day period.

In order to ensure that the QC process meets the legislated

timeframes the Department is proposing that arbitration be limited to

those cases where the State agency's findings and disposition were

transmitted to the National Computer Center's (NCC) Integrated Quality

Control System (IQCS) in a timely manner. The timeframes for the

transmission of case findings to NCC is discussed in the paragraph

entitled ``Quality control review reports--Sec. 275.21''. The

Department maintains that State agency reviews which are not completed

and transmitted into the IQCS in a timely manner delay the selection

and completion of FCS's Federal QC subsample reviews, and jeopardize

the system's ability to meet the deadlines mandated by the Leland Act

for the completion of all case review and arbitration activity. The

Department proposes to restrict arbitration to those case reviews which

have met the timeframes for transmittal to NCC to ensure that the QC

process is completed in time to meet the mandated deadline of 180

calendar days after the end of the fiscal year. This restriction would

not apply to one exceptional class of case reviews transmitted into the

IQCS in an untimely manner. This class would be cases originally

disposed of (in a timely manner) as incomplete due to refusal to

cooperate on the part of the food stamp household. If the household

later agrees to cooperate with QC and the review is completed and

retransmitted to IQCS on a date after the original deadline for

completing the case, but prior to the final deadline for disposing of

all cases for the review period (December 29th under these proposed

rules) the State agency would retain the right to request arbitration

of the review findings of the completed case (assuming that the

completed case is selected for FCS review, and the Federal review

findings/disposition disagree with the State agency's findings/

disposition). The Department is soliciting comments on additional

categories of case reviews which should be excluded from the timeframe

restrictions for arbitration.

Quality Control Review Reports--Sec. 275.21

Current regulations at 7 CFR 275.21(b), published February 17, 1984

(49 FR 6292), specify the timeframes for State agencies to dispose of

and report the findings of cases selected for QC review. Under current

procedures a State agency has 75 calendar days from the end of a sample

month to dispose of 90 percent of the cases selected for review in that

month; 100 percent of the cases must be disposed of within 95 days of

the end of the sample month. As discussed in the section dealing with

the arbitration process, this means that for the last sample month of

the review period (September) the State agencies final deadline for

disposing of all cases for the fiscal year is currently January 5th.

The Department is proposing an arbitration system which will provide

State agencies the opportunity to submit a request for arbitration of a

case, to be received by the appropriate FCS regional office within 10

days from the date of receipt of the Federal findings, and 35 days for

the arbitrator(s) to render a decision on a case. Thus, arbitration

will be a process which could routinely take up to 45 days to complete.

This is the minimum timeframe which the Department has deemed necessary

to ensure an arbitration process which will render accurate

determinations. Section 13951 of the Leland Act amends the Food

[[Page 32619]] Stamp Act of 1977 by specifying that ``not later than

180 days after the end of the fiscal year [March 29th, or March 28th in

leap years], the case review and all arbitrations of State-Federal

difference cases shall be completed.'' Since the Department has

concluded that the arbitration process requires a minimum of 45

calendar days to ensure accurate decisions being rendered, it would be

necessary for the arbitration process to begin no later than February

12th following the end of the fiscal year in order to insure meeting

the March 29th deadline. With the current State agency deadline for

final case disposition of January 5th, this would leave FCS a total of

38 days to select the final Federal subsample of cases (approximately

1,580 cases, based on one month, or one twelfth, of the Fiscal Year

1991 Federal sample size of 18,982), accumulate the State agency and

local office records necessary for the completion of the Federal

reviews, complete the Federal review, and transmit the Federal review

findings to the appropriate State agencies. The Department concludes

that the deadlines mandated by the Leland Act for case completion (both

State agency and Federal reviews) and arbitration cannot be achieved

without restructuring the current timeframes for case completion.

The Department proposes to modify the deadline for State agencies

to dispose of QC cases and transmit review findings to NCC's IQCS, by

requiring that 100 percent of the cases selected for review be disposed

of within 90 calendar days of the end of the sample month for which the

cases were selected for review. State agencies would continue to be

required to dispose of 90 percent of selected cases within 75 calendar

days of the end of the sample month for which the cases were selected

for review, as provided for in current regulations at 7 CFR

275.21(b)(2). Such a timeframe will result in a final annual deadline

for the completion of State agency reviews of December 29th. This will

provide FCS with approximately 45 days to complete the Federal case

review process and transmit final Federal review findings to the State

agencies. While the Department recognizes that the proposed timeframes

for case completion may require dedication of additional resources by

both State agencies and FCS, only a modification of the case completion

timeframes and adherence to them, in conjunction with the redesign of

the arbitration process, will allow sufficient time to meet the

mandated deadlines contained in the Leland Act. Because of the

importance which accepted statistical practices places on the

completion of the maximum possible number of cases sampled for QC

review, the Department is proposing to restate, in this section of the

regulations, instructions currently contained in 7 CFR 275.12(g),

Disposition of Case Reviews

These instructions specify that without FCS approval a State agency

shall not dispose of a case as not completed based solely on the fact

that the State agency was unable to complete the case in time to meet

the timeframes for the disposal of case reviews.

The Department is also proposing a conforming change to regulations

at 7 CFR 273.2(d)(2), Cooperation with QC Reviewer. This section of the

regulations, published February 17, 1984 (49 FR 6292), currently

specifies that food stamp households which refuse to cooperate with a

quality control reviewer shall be determined ineligible to participate

in the Food Stamp Program until 95 days after the end of the annual QC

review period, or until the household cooperates with the QC reviewer

(whichever is earlier). This 95 day timeframe was established to

correspond to the 95 day timeframe which the State agency has to

dispose of QC reviews. Just as QC has a final deadline for the disposal

of all reviews for an annual review period of 95 days after the end of

the review period, a household which refuses to cooperate with QC is

determined ineligible to participate in the Program until 95 days after

the end of the annual review period. The Department is proposing to

change the period of household ineligibility from 95 to 90 days after

the end of the annual review period, in order to correspond to the

proposed change to the State agencies timeframes for the disposition of

QC reviews. The Department is proposing an additional conforming change

to regulations at 7 CFR 273.2(f)(1)(ix). This section of the

regulations, published February 4, 1987 (52 FR 3402), deals with the

requirement that State agencies verify all factors of eligibility for

households which have been terminated for refusal to cooperate with

quality control. A reference is made in this section to the period of

ineligibility lasting until the 95 day after the end of the annual

review period. The Department is proposing to change the reference from

95 to 90 days after the end of the annual review period, in order to

correspond to the proposed change to the State agencies timeframes for

the disposition of QC reviews.

Variances Excluded From Error Analysis--Sec. 275.12(d)(2)

Prior to the Leland Act, section 16(c)(3) of the Food Stamp Act

specified that any errors resulting from the application of new

regulations promulgated under the Act during the first 60 days (or 90

days at the discretion of the Secretary) from the required

implementation date of such regulations shall be excluded from the

payment error rate. Section 13951 of the Leland Act amends the Act by

changing the timeframe for excluding these errors from 60 (or 90) days,

to 120 days. In response to this change the Department is proposing a

regulatory change at 7 CFR 275.12(d)(2)(vii) to reflect the new

timeframe for excluding variances resulting from the promulgation of

new regulations.

State Agencies' Liabilities for Payment Error--Fiscal Year 1986 and

Beyond--Sec. 275.23(e)(4)

Current regulations at 7 CFR 275.23(e)(4), published November 27,

1991 (56 FR 60045), specify a payment error rate tolerance level for

any fiscal year to be one percentage point added to the lowest national

performance measure announced up to and including that fiscal year. A

State agency which exceeds this tolerance level is subject to a

liability claim equivalent to the difference between the State agency's

payment error rate and the tolerance level, multiplied by the total

value of the allotments issued in the fiscal year by the State agency.

Section 13951 of the Leland Act establishes a new system of payment

error rate goals and consequences. The payment error rate tolerance

level, beginning in Fiscal Year 1992 and applying to Fiscal Year 1992

and all subsequent fiscal years, is the national performance measure

for the fiscal year. The national performance measure continues to be

defined as the sum of the products of each State agency's payment error

rate times that State agency's proportion of the total value of

national allotments issued for the fiscal year using the most recent

issuance data available at the time the State agency is notified of its

payment error rate. A State agency which exceeds this tolerance level

is now subject to a liability claim equivalent to the total value of

the allotments issued in the fiscal year by the State agency,

multiplied by a factor which is the lesser of (1) the ratio of the

amount by which the payment error rate of the State agency for the

fiscal year exceeds the national performance measure for the fiscal

year, to the national performance measure for the fiscal year,

[[Page 32620]] or (2) one. This figure is then multiplied by the amount

by which the payment error rate of the State agency for the fiscal year

exceeds the national performance measure for the fiscal year.

The Department is proposing changes to regulations at 7 CFR

275.23(e) to revise current subparagraph (4) to reflect the fact that

the sanction system mandated by the Hunger Prevention Act of 1988 (Pub.

L. 100-435, enacted September 19, 1988) (the ``Hunger Prevention Act'')

now applies only to Fiscal Years 1986 through 1991. A new paragraph

will be added to reflect the sanction system mandated by the Leland Act

for Fiscal Year 1992, and all subsequent fiscal years. In addition, the

Department proposes to continue the current policy under which, once

announced, the national performance measure for a fiscal year will not

be subject to change. The Leland Act mandates that within 30 days of

the completion of the case review and arbitration process for a fiscal

year (which itself must be completed within 180 days of the end of the

fiscal year) the Department shall determine final error rates, the

national performance measure, and the amounts of liability claims

against State agencies [emphasis added]. The Department concludes that

the intent of the Leland Act is that once individual State agency error

rates, and the national performance measure are announced, they are

final, and that adjustments to these figures cannot be considered.

Good Cause--Sec. 275.23(e)(6)

The Food Stamp Act of 1977, as amended by the Hunger Prevention

Act, allows relief from all or a part of a Quality Control liability as

established under Sec. 275.23(e)(4) when a State agency can demonstrate

that a part or all of an excessive error rate was due to an unusual

event which had an uncontrollable impact on the State agency's payment

error rate. The legislative history for current regulations governing

good cause provides that ``The purpose of good cause under the new

system is to allow the Secretary the discretion to provide relief when

a State with otherwise effective administration has faced an unusual

event with a large uncontrollable impact on errors.'' (House Report

100-828, part 1, page 34).

Although the Leland Act transfers the authority to grant good cause

relief from the Secretary of Agriculture to the Department's

Administrative Law Judges (ALJs), the intent as to what constitutes

good cause has not changed. Congress' intent was made clear in the

legislative history accompanying the Leland Act which states, ``It is

the Committee's intent that the new national performance measure will

provide relief for those factors that are not unique to any one state

agency, such as the effects of recession or program changes. However,

the Committee recognizes that there will be unusual events with an

uncontrollable impact on errors which affect state agencies with

otherwise effective program administration (emphasis added). The

Committee expects that these individual state situations (emphasis

added) will be addressed through the good cause waiver procedures. The

Committee also expects that the Secretary's determination on states'

good cause waiver requests will be based on good cause criteria, and

not on such factors as budget considerations.'' (House Report 103-111,

pg.12). Other than the provision that the determination to waive all or

part of a Quality Control liability will be made by an ALJ, this intent

was adopted by the Conference Substitute. (Statement of Managers). The

language of these reports reaffirms Departmental policy as established

under the provisions of the Hunger Prevention Act.

The Department concludes, therefore, that good cause relief is

intended to ensure that a State agency which otherwise effectively

administers the Food Stamp Program is not held liable for that portion

of an excessive error rate caused by an unusual event which has an

uncontrollable impact on a State agency's payment error rate.

The Leland Act provides good cause consideration for the following

unusual events: (A) a natural disaster or civil disorder that adversely

affects Food Stamp Program operations; (B) a strike by employees of a

State agency who are necessary for the determination of eligibility and

processing of case changes under the Food Stamp Program; (C) a

significant growth in food stamp caseload in a State prior to or during

a fiscal year, such as a 15 percent growth in caseload; (D) a change in

the Food Stamp Program or other Federal or State program that has a

substantial adverse impact on the management of the Food Stamp Program

of a State; and (E) a significant circumstance beyond the control of

the State agency.

This proposed rulemaking adopts the unusual events which qualify

for consideration under good cause relief. As noted above, the

legislative history makes clear that good cause relief based on the

impact of unusual events is limited to individual state situations, and

that allowances for those situations that are not unique to any one

state are made via the national performance measure.

The effects of recession and program changes are specifically

identified in the legislative history as factors that are not

considered unique to any one state. Program changes have therefore been

designated both as an unusual situation for which good cause relief

will be considered and as a condition that is not unique to one state.

From this report language, the Department concludes Congress' intent

was that the five situations are considered ``unusual events'',

appropriate for good cause relief, only if they exceed a national norm.

The preamble to current regulations published September 28, 1992,

(57 FR 44482) discusses further those situations that will not be

considered for good cause relief.

Current regulations at Sec. 275.23(e)(6)(i) describe the criteria

and methodology under which FCS will grant good cause waivers. While

the Secretary or the Secretary's designee will no longer be making the

final determination in good cause appeals, FCS retains the authority to

establish criteria under which good cause is evaluated. The Department

wishes to make it clear that current criteria and methodology, with

modifications, will serve as guidelines for both FCS and the ALJ to

assess, evaluate and respond to claims by the State agency for a good

cause waiver of liability in conjunction with the appeals process. As

under current regulations, an alternate methodology will continue to be

used for certain events when a State agency provides insufficient

information to demonstrate using factual analysis that the unusual

event had an uncontrollable impact on the error rate. However, the

Department is proposing modifications to these alternate methodologies.

While current procedures take into account the duration of an unusual

event, they do not measure the degree of impact that the unusual event

has on Program operations. As a result, a Federally-declared disaster,

for example, is treated the same regardless of size of the counties

affected or amount of issuances for those counties. The Department is

proposing an alternate methodology that will take into account both the

duration of the unusual event and the magnitude or intensity of the

unusual event. The alternate methodologies have also been modified to

include specific procedures for calculating waiver amounts to ensure

equity and consistency in these determinations. The following is a

summary of the modifications to the alternate methodologies:

[[Page 32621]]

Disasters/Civil Disorders and Strikes

Duration will be measured by the number of months the event had an

adverse impact on program operations. Intensity of these unusual events

will be a proportional measurement of the issuances for the counties

affected to the State's total issuance. The amount of the waiver of

liability will be determined using the following linear equation: Ia/Ib

x [M/12 or Mp/18] x L where; Ia is the issuance for the first full

month immediately preceding the unusual event for the county affected;

Ib is the State's total issuance for the first full month immediately

preceding the unusual event; M/12 is number of months in the subject

fiscal year that the unusual event had an adverse impact on program

operations; Mp/18 is the number of months in the last half (April

through September) of the prior fiscal year that the unusual event had

an adverse impact on program operations; L is the total amount of the

liability for the fiscal year.

For example, a tornado hits County A on 5/15, and the County is

declared a Federal disaster area. Program operations in this county

were adversely impacted for 3 months. In addition, a significant number

of program staff from County B were diverted for 1 month to handle the

crises in County A. Issuance figures for the month of April were:

2,000,000 (A); 1,900,000 (B); 38,500,000 (Statewide). The liability for

the fiscal yr. was $3,300,000. The above formula is applied as follows:

County A--[2,000,000/38,500,000] x 3/12 x 3,300,000 OR; .05195 x

.25 x 3,300,000 = $42,858 credit to the liability. County B--

[1,900,000/38,500,000] x 1/12 x 3,300,000 OR; .04935 x .08333 x

3,300,000 = $13,571 credit to the liability. Total credit to the

liability is $56,429 ($42,858 + $13,571). This results in a revised

liability for the State agency of $3,243,571 ($3,300,000--$56,429).

Significant Growth in Food Stamp Caseload

Duration and intensity will be measured by the degree to which

caseload growth, statewide, exceeds 15 percent during the 12 month

period from April of the prior fiscal year through March of the subject

fiscal year, and by the degree to which a State's error rate exceeds

the national performance measure. The amount of waiver of liability

will be determined using a ratio of the percentage of caseload increase

from a 12 month base period to the percentage the State's error rate

exceeds the national performance measure.

This proportional measurement is based on procedures similar to the

``sliding scale'' used for the determination of liability amounts, and

incorporates a floating national average which accounts for those

factors that are common to all States. Using the error rate in this

calculation allows greater consideration for a State agency that

effectively manages caseload growth. As a result, a State agency with

an error rate barely exceeding the national performance measure and an

18 percent increase in caseload growth will receive a proportionally

larger waiver amount than a State agency with the same percentage of

caseload growth but with an error rate greatly exceeding the national

performance measure.

Under this alternate methodology, requisite caseload growth will be

determined statewide rather than by individual counties. The Department

recognizes that an individual county, because of its size, may drive

the error rate for the State as a whole. The State agency may still use

the impact of caseload growth in individual counties on the State's

error rate to pursue good cause relief under the primary criterion.

With the improvements in automated systems for data analysis, State

agencies should have little difficulty in demonstrating the impact on

the error rate when the impact is significant. The Department has

designed the alternate methodology for use when the impact of an

unusual event on the error rate is more difficult to isolate and

distinguish.

Caseload growth occurring in the last half of the subject fiscal

year will not be considered under the alternate methodology. The

Department believes caseload growth occurring in the six month period

prior to the subject fiscal year and in the beginning of the subject

fiscal year will have a greater potential for disrupting Program

operations as more months will be affected than will caseload growth

occurring at the end of the fiscal year. For example, an increase in

caseload growth prior to the subject fiscal year will have an impact on

the error rate for the entire 12 months while caseload growth in the

last month of the fiscal year will have an impact for only 1 month. If

the State agency can demonstrate the effects of caseload growth in the

last half of the subject fiscal year, it may do so under primary

criterion.

The Department is proposing to modify the alternate methodology by

using an average of 12 months as the base period from which caseload

growth is measured rather than the 1 month base period that is

currently used. An average of 12 months takes into account normal

fluctuations in growth occurring over a period of time, and provides a

more accurate indication of actual growth than does 1 month.

These methodologies are described in full in the regulatory section

of this proposed rule.

In the application of the criteria and methodology, the mere

existence of an unusual event specified under good cause relief is not,

by itself, sufficient to establish a determination of good cause.

Congressional intent is explicit in stating that a determination of

good cause is contingent upon the following 3 conditions:

(1) An unusual event must occur. As previously stated, good cause

relief is only appropriate for events affecting individual State

agencies and exceeding a national norm. The national performance

measure which floats from year to year provides relief for those

factors that are common to all States. Certain events may be common to

all States but have a significantly different impact on State agencies

for a variety of reasons. For example, while all State agencies are

required to implement new regulations, an individual State agency may

be disproportionately affected by the program change due to the State's

caseload demographics. New regulations affecting Native American

households on reservations, for instance, would have an extensive

impact on State agencies with a large population of such food stamp

households. In these situations, the State agency needs to demonstrate

the disproportionate effect caused by the unusual event. Good cause

relief will be considered to the extent the unusual event has an

uncontrollable impact on a State's error rate beyond the relief that is

already provided through the national performance measure.

(2) The event must have an uncontrollable impact on errors. For

example, during the middle of a review period, several counties within

a state are declared Federal disaster areas due to massive flooding.

This disaster occurs shortly after the expiration of the variance

exclusion period for a new regulation which the State agency

implemented timely but incorrectly. Subsequent to the disaster, there

is a significant increase in the error rate. Data analysis show that

the increase in the error rate was attributable to the State's

incorrect implementation of the regulation. Even though there was a

Federally declared disaster, a good cause determination is not

appropriate, in this example, because the increase in the error rate

resulted from a factor that was not associated with the unusual event.

Good cause relief will be considered only for that portion of the

[[Page 32622]] error rate/liability attributal to the unusual event.

(3) The event must affect a State agency with otherwise effective

Program administration. Under current regulations, otherwise effective

administration is measured and evaluated by the State's error rate

together with any other available error rate data immediately before

and after the unusual event, and by determining the impact of the

unusual event on the error rate. With this proposed rulemaking, the

Department is modifying this measurement to take into consideration the

degree to which the error rate exceeds the national performance

measure.

FCS Timeframes--Sec. 275.23(e)(8)

Prior to the Leland Act, section 16(c)(5) of the Food Stamp Act

specified that the Secretary must make the determinations regarding any

possible incentive payments or claims, and notify the State agencies of

these determinations, within nine months following the end of each

fiscal year. Section 16(c)(6) specified that at the same time that the

State agencies are informed of their error rates and possible incentive

payments or claims, that the Secretary shall announce the national

performance measure (the sum of the products of each State agency's

error rate times that State agency's proportion of the total value of

national allotments issued for a fiscal year).

Section 13951 of the Leland Act amends the Food Stamp Act by

specifying that: ``not later than 180 days after the end of the fiscal

year, the case review and all arbitrations of State- Federal difference

cases shall be completed. Not later than 30 days thereafter, the

Secretary shall determine final error rates, the national average

payment error rate, and the amounts of payment claimed against State

agencies; and notify State agencies of the payment claims.'' In

response to this change the Department is proposing a regulatory change

at 7 CFR 275.23(e)(8) to reflect the new timeframes for the completion

of the QC review process for a fiscal year.

Interest Charges--Sec. 275.23(e)(9)

Prior to the Leland Act, section 13(a)(1) of the Food Stamp Act

specified that interest charges on any unpaid portion of a liability

claim would accrue from the date of the decision on an administrative

appeal of the claim, or from the day two years after the date the bill

for the claim was received by the State agency, whichever was earlier.

Section 13951 of the Leland Act amends the Food Stamp Act by changing

the timeframe for the accruing of interest charges from two years to

one year. The Food Stamp Act now specifies that interest on any unpaid

portion of the claim shall accrue from the date of the decision on the

administrative appeal, or from the day that is one year after the date

the bill is received, whichever is earlier, until the date the unpaid

portion of the payment is received. In response to this change the

Department is proposing a regulatory change at 7 CFR 275.23(e)(9) to

reflect the new timeframe of one year.

In addition, the Department is taking the opportunity to make a

technical correction to the language in this paragraph of the

regulations. The current regulations specify that interest will accrue

from the date that a State agency receives the bill for the liability

claim unless the State agency appeals the claim ``under Sec. 276.7 of

the regulations''. Since regulations at 7 CFR 275.23(e)(9) regarding

interest charges were published (November 27, 1991) (56 FR 60045) the

administrative appeals process for liability claims has been modified

to provide for appeal to a Departmental Administrative Law Judge. The

procedures for appeal of claims to a Departmental Administrative Law

Judge are contained in 7 CFR Part 283 of the regulations. The

Department proposes to change the reference to the appeal process

contained in 7 CFR 275.23(e)(9) from ``under Sec. 276.7 of the

regulations'' to ``under Part 283 of the regulations''.

Miscellaneous Technical Corrections

The Department is proposing to take advantage of the opportunity

presented with the publication of this rule to effect technical

corrections to regulatory references appearing in Part 275 of the

regulations. In a number of paragraphs in Part 275 other paragraphs or

sections of the regulations are cited as a reference for the reader.

Over the years many of these references have become inaccurate due to

revisions and renumbering of various sections of the regulations. The

Department is taking this opportunity to correct references appearing

in the following paragraphs: 275.3(c), 275.11(g), 275.23(d)(1)(iii),

275.23(e)(1), 275.23(e)(7)(i)(D), 275.23(e)(7)(ii),

275.23(e)(7)(iii)(A), 275.23(e)(7)(iii)(B), and 275.23(e)(10)(iii).

Dates

Section 13971 of the Leland Act sets implementation dates for the

various provisions of the law addressed in this proposed rule. The

provisions of section 13951 that amended sections 13(a)(1), 14(a), and

16(c) of the Act are effective on October 1, 1991, with the exception

of the provision regarding exclusion of variances resulting from the

application of new regulations. The provision regarding the exclusion

of variances resulting from the application of new regulations is

effective on October 1, 1992.

List of Subjects

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 275

Administrative practice and procedure, Food stamps, Reporting, and

recordkeeping requirements.

For the reasons set out in the preamble, Parts 273 and 275 of

Chapter II of Title 7 Code of Federal Regulations are proposed to be

amended as follows:

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

1. The authority citation for Part 273 continues to read as

follows:

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

Sec. 273.2 [Amended]

2. In Sec. 273.2:

a. the third sentence of paragraph (d)(2) is amended by removing

the words ``after 95 days'' and adding the words ``after 90 days'' in

their place;

b. the first sentence of paragraph (f)(1)(ix) is amended by

removing the words ``after 95 days'' and adding the words ``after 90

days'' in their place.

PART 275--PERFORMANCE REPORTING SYSTEM

3. The authority citation for Part 275 continues to read as

follows:

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

4. In Sec. 275.3:

a. the last sentence of the introductory text of paragraph (c) is

amended by removing the reference to ``275.23(e)(6)'' and adding in its

place a reference to ``275.23(e)(8)'';

b. paragraph (c)(1)(iii) is revised;

c. paragraph (c)(4) is revised.

The revisions read as follows:

Sec. 275.3 Federal monitoring.

* * * * *

(c) Validation of State Agency Error Rates. * * *

(1) Payment error rate. * * *

(iii) Upon the request of a State agency, the appropriate FCS

Regional Office will assist the State agency in

[[Page 32623]] completing active cases reported as not completed due to

household refusal to cooperate.

* * * * *

(4) Arbitration. (i) Whenever the State agency disagrees with the

FCS regional office concerning individual QC case findings and the

appropriateness of actions taken to dispose of an individual case, the

State agency may request that the dispute be arbitrated on a case-by-

case basis by an FCS Arbitrator, subject to the following limitations.

(A) The State agency may only request arbitration when the State

agency's and FCS regional office's findings or disposition of an

individual QC case disagree.

(B) The arbitration review shall be limited to the point(s) within

the Federal findings or disposition that the State agency disputes.

However, if the arbitrator in the course of the review discovers a

mathematical error in the computational sheet, the arbitration shall

correct the error while calculating the allotment.

(C) The State agency shall only be eligible to request arbitration

of the Federal findings or disposition of an individual case if that

case was disposed of and the findings reported in accordance with the

timeframes specified in Sec. 275.21(b)(2). An exception shall be made

for cases which fail to meet the timeframes specified in

Sec. 275.21(b)(2) if the cases were originally disposed of by the State

agency, in a timely manner, as incomplete due to refusal-to-cooperate

on the part of the household. If the household later agrees to

cooperate with the Quality Control reviewer, and the case is

retransmitted into IQCS as completed, then the secondary disposition/

findings shall not be subject to the timeliness of disposition

restriction.

(ii) The FCS Arbitrator(s) shall be an individual or individuals

who are not directly involved in the validation effort.

(iii) The State agency shall submit a request for arbitration, to

be received by the appropriate FCS regional office within 10 calendar

days of the date of receipt by the State agency of the regional office

case findings. In the event the last day of this time period falls on a

Saturday, Sunday, or Federal or State holiday, the period shall run to

the end of the next work day.

(iv) When the State agency requests arbitration, it shall submit

all required documentation to the appropriate FCS regional office

addressed to the attention of the FCS Arbitrator. The FCS regional

office QC staff may submit a response to the State agency's request to

the FCS Arbitrator.

(A) A complete request is one that contains all of the information

that FCS requires. The following items shall be required:

(1) The request for arbitration and basic case information, which

would include State, sample month and year, review number, review date,

reporting and budgeting procedure, food stamp procedures for budgeting

grants from the Aid to Families with Dependent Children Program,

certification period, and calendar or fiscal month system.

(2) Information about the certification action under dispute, which

would include initial certification or recertification, legible

certification work papers, legible State agency quality control work

papers, and legible regional office quality control work papers.

(3) Information about the State agency's specific issues, which

would include the element under dispute, regulatory citations, handbook

citations, policy memoranda, legislative implementation dates,

applicable waivers, and verification of facts.

(B) If the State agency's request is not complete the arbitrator

shall make a decision based solely on the available documents.

(v) The FCS Arbitrator shall have 35 calendar days from the date of

receipt of a State agency's request for arbitration to review the case

and make a decision.

* * * * *

Sec. 275.11 [Amended]

5. In Sec. 275.11:

a. the third sentence of paragraph (g) is amended by removing the

reference to ``275.25(e)(6)'' and adding in its place a reference to

``275.23(e)(8)'';

b. the fourth sentence of paragraph (g) is amended by removing the

reference to ``275.25(c)'' and adding in its place a reference to

``275.23(c)''.

6. In Sec. 275.12:

a. the introductory text of paragraph (d)(2)(vii) is revised;

b. paragraph (d)(2)(vii)(A) is revised;

c. paragraph (d)(2)(vii)(D) is revised.

The revisions read as follows:

Sec. 275.12 Review of active cases.

* * * * *

(d) Variance identification. * * *

(2) Variances excluded from error analysis. * * *

(vii) Subject to the limitations provided in paragraphs

(d)(2)(vii)(A) through (d)(2)(vii)(F) of this section any variance

resulting from application of a new Program regulation or implementing

memorandum (if one is sent to advise State agencies of a change in

Federal law, in lieu of regulations) during the first 120 days from the

required implementation date.

(A) When a regulation allows a State agency an option to implement

prior to the required implementation date, the date on which the State

agency chooses to implement may, at the option of the State, be

considered to be the required implementation date for purposes of this

provision. The exclusion period would be adjusted to begin with this

date and end on the 120th day that follows. States choosing to

implement prior to the required implementation date must notify the

appropriate FCS Regional Office, in writing, prior to implementation

that they wish the 120 day variance exclusion to commence with actual

implementation. Absent such notification, the exclusionary period will

commence with the required implementation date.

* * * * *

(D) Regardless of when the State agency actually implemented the

regulation, the variance exclusion period shall end on the 120th day

following the required implementation date, including the required

implementation date defined in paragraph (d)(2)(vii)(A) of this

section.

* * * * *

7. In Sec. 275.21:

a. paragraph (b)(2) is revised;

b. the first sentence of paragraph (b)(4) is amended by removing

the words ``pending 95 days'' and adding the words ``pending 90 days''

in their place.

The revision reads as follows:

Sec. 275.21 Quality control review reports.

* * * * *

(b) Individual cases. * * *

(2) The State agency shall dispose of and report the findings of 90

percent of all cases selected in a given sample month so that they are

received by FCS within 75 days of the end of the sample month. All

cases selected in a sample month shall be disposed of and the findings

reported so that they are received by FCS within 90 days of the end of

the sample month. Without FCS approval, no active case shall be

reported as not completed solely because the State agency was unable to

process the case review in time for it to be reported in accordance

with these timeframes.

* * * * *

8. In Sec. 275.23:

a. the last sentence of paragraph (d)(1)(iii) is amended by

removing the reference to ``(e)(6)(iii)'' and adding in its place a

reference to ``(e)(8)(iii)'';

b. paragraph (e)(1) is amended by removing the reference to

``paragraph [[Page 32624]] (e)(6)'' and adding in its place a reference

to ``paragraph (e)(8)'';

c. the heading of paragraph (e)(4) is amended by removing the words

``Fiscal Year 1986 and Beyond'' and adding the words ``Fiscal Years

1986 through Fiscal Year 1991'' in their place;

d. the first sentence of paragraph (e)(4)(i) is amended by removing

the words ``For Fiscal Year 1986 and subsequent years'' and adding the

words ``For Fiscal Year 1986 through Fiscal Year 1991'' in their place;

e. paragraphs (e)(5), (e)(6), (e)(7), (e)(8), (e)(9), and (e)(10)

are redesignated as paragraphs (e)(6), (e)(7), (e)(8), (e)(9), (e)(10),

and (e)(11), respectively, and a new paragraph (e)(5) is added;

f. the newly redesignated paragraph (e)(7) is revised;

g. the first sentence of newly redesignated paragraph (e)(8)(i)(D)

is amended by removing the reference to ``paragraph (e)(7)(iii)'' and

adding in its place a reference to ``paragraph (e)(8)(iii)'';

h. the last sentence of newly redesignated paragraph (e)(8)(ii) is

amended by removing the words ``procedure of Sec. 276.7'' and adding

the words ``procedures of Part 283'' in their place;

i. the first sentence of newly redesignated paragraph

(e)(8)(iii)(A) is amended by removing the reference to ``paragraph

(e)(7)(i)(C)'' and adding in its place a reference to ``paragraph

(e)(8)(i)(C)'';

j. the first sentence of newly redesignated paragraph

(e)(8)(iii)(B) is amended by removing the reference to ``paragraph

(e)(7)(i)(C)'' and adding in its place a reference to ``paragraph

(e)(8)(i)(C)'';

k. the first three sentences in newly redesignated paragraph (e)(9)

are revised;

l. in newly redesignated paragraph (e)(10)(i) the first sentence is

amended by removing the reference to ``275.23(e)(4)'' and adding in its

place a reference to ``275.23(e)(5)''. The second sentence is amended

by removing the reference to ``276.7'' and adding in its place a

reference to ``Part 283''. The fourth sentence is amended by removing

the words ``2 years'' and adding the words ``one year'' in their place.

m. the last sentence of newly redesignated paragraph (e)(11)(iii)

is amended by removing the reference to ``(e)(10)(vi)'' and adding in

its place a reference to ``(e)(11)(vi)''.

The revisions and additions read as follows:

Sec. 275.23 Determination of State agency program performance.

* * * * *

(e) State agencies' liabilities for payment error rates. * * *

(5) State agencies' liabilities for payment error--Fiscal Year 1992

and beyond. Each State agency that fails to achieve its payment error

rate goal during a fiscal year shall be liable as specified in the

following paragraphs.

(i) For Fiscal Year 1992 and subsequent years, FCS shall announce a

national performance measure within 30 days following the completion of

the case review and the arbitration processes for the fiscal year. The

national performance measure is the sum of the products of each State

agency's payment error rates times that State agency's proportion of

the total value of national allotments issued for the fiscal year using

the most recent issuance data available at the time the State agency is

notified of its payment error rate. Once announced, the national

performance measure for a given fiscal year will not be subject to

change.

(ii) For any fiscal year in which a State agency's payment error

rate exceeds the national performance measure for the fiscal year, the

State agency shall pay or have its share of administrative funding

reduced by an amount equal to the product of:

(A) the value of all allotments issued by the State agency in the

fiscal year; multiplied by

(B) the lesser of--

(1) the ratio of the amount by which the payment error rate of the

State agency for the fiscal year exceeds the national performance

measure for the fiscal year, to the national performance measure for

the fiscal year, or

(2) one; multiplied by

(C) the amount by which the payment error rate of the State agency

for the fiscal year exceeds the national performance measure for the

fiscal year.

* * * * *

(7) Good cause--(i) Events. When a State agency with otherwise

effective administration exceeds the tolerance level for payment errors

as described in this section, the State agency may seek relief from

liability claims that would otherwise be levied under this section on

the basis that the State agency had good cause for not achieving the

payment error rate tolerance. State agencies desiring such relief must

file an appeal with the Department's Administrative Law Judge (ALJ) in

accordance with the procedures established under Part 283 of this

chapter. The 5 unusual events described below are considered to have a

potential for disrupting program operations and increasing error rates

to an extent that relief from a resulting liability or increased

liability is appropriate. The occurrence of an event(s) does not

automatically result in a determination of good cause for an error rate

in excess of the national performance measure. The State agency must

demonstrate that the event had an adverse and uncontrollable impact on

program operations during the relevant period, and the event caused an

uncontrollable increase in the error rate. Good cause relief will only

be considered for that portion of the error rate/liability attributal

to the unusual event. The following are unusual events which State

agencies may use as a basis for requesting good cause relief and

specific information that must be submitted to justify such requests

for relief:

(A) Natural disasters such as those under the authority of the

Stafford Act of 1988 (Pub. L. 100-707), which amended the Disaster

Relief Act of 1974 (Pub. L. 93-288) or civil disorders that adversely

affect program operations.

(1) When submitting a request for good cause relief based on this

example, the State agency shall provide the following information:

(i) The nature of the disaster(s) (e.g. a tornado, hurricane,

earthquake, flood, etc.) or civil disorder(s)) and evidence that the

President has declared a disaster;

(ii) The date(s) of the occurrence;

(iii) The date(s) after the occurrence when program operations were

affected;

(iv) The geographic extent of the occurrence (i.e. the county or

counties where the disaster occurred);

(v) The proportion of the food stamp caseload whose management was

affected;

(vi) The reason(s) why the State agency was unable to control the

effects of the disaster on program administration and errors;

(vii) The Identification and explanation of the uncontrollable

nature of errors caused by the event (types of errors, geographic

location of the errors, time period during which the errors occurred,

etc.).

(viii) The percentage of the payment error rate that resulted from

the occurrence and how this figure was derived; and

(ix) The degree to which the payment error rate exceeded the

national performance measure in the subject fiscal year.

(2) The following criteria and methodology will be used to assess,

evaluate and respond to claims by the State agency for a good cause

waiver of liability in conjunction with the appeals process, and to

determine that portion of the error rate/liability attributable to the

uncontrollable effects of a disaster or [[Page 32625]] civil disorder:

Geographical impact of the disaster; State efforts to control impact on

program operations; the proportion of food stamp caseload affected;

and/or the duration of the disaster and its impact on program

operations. Adjustments for these factors may result in a waiver of

all, part, or none of the error rate liabilities for the applicable

period. As appropriate, the waiver amount will be adjusted to reflect

States' otherwise effective administration of the program based upon

the degree to which the error rate exceeds the national performance

measure. For example, a reduction in the amount may be made when a

State agency's recent error rate history indicates that even absent the

events described, the State agency would have exceeded the national

performance measure in the review period. If a State agency has

provided insufficient information to determine a waiver amount for the

uncontrollable effects of a natural disaster or civil disorder using

factual analysis, the waiver amount shall be evaluated using the

following formula and methodology which measures both the duration and

intensity of the event: Duration will be measured by the number of

months the event had an adverse impact on program operations. Intensity

will be a proportional measurement of the issuances for the counties

affected to the State's total issuance. This ratio will be determined

using issuance figures for the first full month immediately preceding

the disaster. This figure will not include issuances made to households

participating under disaster certification authorized by FCS for a

natural disaster and already excluded from the error rate calculations

under Sec. 275.12(g)(2)(vi). ``Counties affected'' will include

counties where the disaster/civil disorder occurred, and any other

county that the State agency can demonstrate had program operations

adversely impacted due to the event (such as a county that diverted

significant numbers of food stamp certification or administrative

staff). The amount of the waiver of liability will be determined using

the following linear equation: Ia/Ib x [M/12 or Mp/18] x L where:

Ia is the issuance for the first full month immediately preceding the

unusual event for the county affected; Ib is the State's total issuance

for the first full month immediately preceding the unusual event; M/12

is number of months in the subject fiscal year that the unusual event

had an adverse impact on program operations; Mp/18 is the number of

months in the last half (April through September) of the prior fiscal

year that the unusual event had an adverse impact on program

operations; L is the total amount of the liability for the fiscal year.

Mathematically this formula could result in a waiver of more than 100%

of the liability, however, no more than 100% of a State's liability

will be waived for any one fiscal year. Under this approach, unless the

State agency can demonstrate a direct uncontrollable impact on the

error rate, the effects of disasters or civil disorders that ended

prior to the second half of the prior fiscal year will not be

considered.

(B) Strikes by state agency staff necessary to determine Food Stamp

Program eligibility and process case changes.

(1) When submitting a request for good cause relief based on this

example, the State agency shall provide the following information:

(i) Which workers (i.e. eligibility workers, clerks, data input

staff, etc.) and how many (number and percentage of total staff) were

on strike or refused to cross picket lines;

(ii) The date(s) and nature of the strike (i.e. the issues

surrounding the strike);

(iii) The date(s) after the occurrence when program operations were

affected;

(iv) The geographic extent of the strike (i.e. the county or

counties where the strike occurred);

(v) The proportion of the food stamp caseload whose management was

affected;

(vi) The reason(s) why the State agency was unable to control the

effects of the strike on program administration and errors;

(vii) Identification and explanation of the uncontrollable nature

of errors caused by the event (types of errors, geographic location of

the errors, time period during which the errors occurred, etc.);

(viii) The percentage of the payment error rate that resulted from

the strike and how this figure was derived; and

(ix) The degree to which the payment error rate exceeded the

national performance measure in the subject fiscal year.

(2) The following criteria shall be used to assess, evaluate and

respond to claims by the State agency for a good cause waiver of

liability in conjunction with the appeals process, and to determine

that portion of the error rate/liability attributable to the

uncontrollable effects of the strike: Geographical impact of the

strike; State efforts to control impact on program operations; the

proportion of food stamp caseload affected; and/or the duration of the

strike and its impact on program operations. Adjustments for these

factors may result in a waiver of all, part, or none of the error rate

liabilities for the applicable period. For example, the amount of the

waiver might be reduced for a strike that was limited to a small area

of the State. As appropriate, the waiver amount will be adjusted to

reflect States' otherwise effective administration of the program based

upon the degree to which the error rate exceeded the national

performance measure. If a State agency has provided insufficient

information to determine a waiver amount for the uncontrollable effects

of a strike using factual analysis, a waiver amount shall be evaluated

by using the formula described in paragraph (e)(7)(i)(A) of this

section. Under this approach, unless the State agency can demonstrate a

direct uncontrollable impact on the error rate, the effects of strikes

that ended prior to the second half of the prior fiscal year will not

be considered.

(C) A significant growth in food stamp caseload in a State prior to

or during a fiscal year, such as a 15 percent growth in caseload.

Caseload growth which historically increases during certain periods of

the year will not be considered unusual or beyond the State agency's

control.

(1) When submitting a request for good cause relief based on this

example, the State agency shall provide the following information:

(i) The amount of growth (both actual and percentage);

(ii) The time the growth occurred (what month(s)/year);

(iii) The date(s) after the occurrence when program operations were

affected;

(iv) The geographic extent of the caseload growth (i.e. Statewide

or in which particular counties);

(v) The impact of caseload growth;

(vi) The reason(s) why the State agency was unable to control the

effects of caseload growth on program administration and errors;

(vii) The percentage of the payment error rate that resulted from

the caseload growth and how this figure was derived; and

(viii) The degree to which the error rate exceeded the national

performance measure in the subject fiscal year.

(2) The following criteria and methodology shall be used to assess,

evaluate and respond to claims by the State agency for a good cause

waiver of liability in conjunction with the appeals process, and to

determine that portion of the error rate/liability attributable to the

uncontrollable effects of unusual caseload growth: Geographical impact

of the caseload growth; State efforts to control impact on program

operations; the proportion of food stamp caseload

[[Page 32626]] affected; and/or the duration of the caseload growth and

its impact on program operations. Adjustments for these factors may

result in a waiver of all, part, or none of the error rate liabilities

for the applicable period. As appropriate, the waiver amount will be

adjusted to reflect States' otherwise effective administration of the

program based upon the degree to which the error rate exceeded the

national performance measure. For example, a reduction in the amount

may be made when a state agency's recent error rate history indicates

that even absent the events described, the State agency would have

exceeded the national performance measure in the review period. Under

this approach, unless the State agency can demonstrate a direct

uncontrollable impact on the error rate, the effects of caseload growth

that ended prior to the second half of the prior fiscal year will not

be considered. If the State agency has provided insufficient

information to determine a waiver amount for the uncontrollable effects

of caseload growth using factual analysis, the waiver amount shall be

evaluated using the following five step calculation: first, determine

the average number of households certified to participate statewide in

the Food Stamp Program for the base period consisting of the twelve

consecutive months ending with March of the prior fiscal year; second,

determine the percentage of increase in caseload growth from the base

period (step 1) using the average number of households certified to

participate statewide in the Food Stamp Program for the twelve month

period beginning with April of the prior fiscal year and ending with

March of the current fiscal year; third, determine the percentage the

error rate for the subject fiscal year as calculated under paragraph

(e)(5)(i) of this section exceeds the national performance measure

determined in accordance with paragraph (e)(5)(i) of this section;

fourth, divide the percentage of caseload growth increase arrived at in

step 2 by the percentage the error rate for the subject fiscal year

exceeds the national performance measure as determined in step 3; and

finally, multiply the quotient arrived at in step 4 by the liability

amount for the current fiscal year to determine the amount of waiver of

liability. Under this methodology, caseload growth of less than 15%

and/or occurring in the last half of the subject fiscal year will not

be considered. Mathematically this formula could result in a waiver of

more than 100% of the liability, however, no more than 100% of a

State's liability will be waived for any one fiscal year.

(D) A change in the food stamp program or other Federal or State

program that has a substantial adverse impact on the management of the

food stamp program of a State. Requests for relief from errors caused

by the uncontrollable effects of unusual program changes other than

those variances already excluded by Sec. 275.12(d)(2)(vii) will be

considered to the extent the program change is not common to all

States.

(1) When submitting a request for good cause relief based on

unusual changes in the Food Stamp or other Federal or State programs,

the State agency shall provide the following information:

(i) The type of change(s) that occurred;

(ii) When the change(s) occurred;

(iii) The nature of the adverse effect of the changes on program

operations and the State agency's efforts to mitigate these effects;

(iv) Reason(s) the State agency was unable to adequately handle the

change(s);

(v) Identification and explanation of the uncontrollable errors

caused by the changes (types of errors, geographic location of the

errors, time period during which the errors occurred, etc.);

(vi) The percentage of the payment error rate that resulted from

the adverse impact of the change(s) and how this figure was derived;

and

(vii) The degree to which the payment error rate exceeded the

national performance measure in the subject fiscal year.

(2) The following criteria will be used to assess, evaluate and

respond to claims by the State agency for a good cause waiver of

liability in conjunction with the appeals process, and to determine

that portion of the error rate/liability attributable to the

uncontrollable effects of unusual changes in the Food Stamp Program or

other Federal and State programs: Geographical impact of the unusual

changes in the Food Stamp Program or other Federal and State programs;

State efforts to control impact on program operations; the proportion

of food stamp caseload affected; and/or the duration of the unusual

changes in the Food Stamp Program or other Federal and State programs

and the impact on program operations. Adjustments for these factors may

result in a waiver of all, part, or none of the error rate liabilities

for the applicable period. As appropriate, the waiver amount will be

adjusted to reflect States' otherwise effective administration of the

program based upon the degree to which the error rate exceeded the

national performance measure.

(E) A significant circumstance beyond the control of the State

agency. Requests for relief from errors caused by the uncontrollable

effect of the significant circumstance other than those specifically

set forth in this paragraph will be considered to the extent that the

circumstance is not common to all States, such as a fire in a

certification office.

(1) When submitting a request for good cause relief based on

significant circumstances, the State agency shall provide the following

information:

(i) The significant circumstances that the State agency believes

uncontrollably and adversely affected the payment error rate for the

fiscal year in question;

(ii) Why the State agency had no control over the significant

circumstances;

(iii) How the significant circumstances had an uncontrollable and

adverse impact on the State agency's error rate;

(iv) Where the significant circumstances existed (i.e. Statewide or

in particular counties);

(v) When the significant circumstances existed (provide specific

dates whenever possible);

(vi) The proportion of the food stamp caseload whose management was

affected;

(vii) Identification and explanation of the uncontrollable errors

caused by the event (types of errors, geographic location of the

errors, time period during which the errors occurred, etc.);

(viii) The percentage of the payment error rate that was caused by

the significant circumstances and how this figure was derived; and

(ix) The degree to which the payment error rate exceeded the

national performance measure in the subject fiscal year.

(2) The following criteria shall be used to assess, evaluate and

respond to claims by the State agency for a good cause waiver of

liability in conjunction with the appeals process, and to determine

that portion of the error rate/liability attributable to the

uncontrollable effects of a significant circumstance beyond the control

of the State agency, other than those set forth in paragraph

(e)(7)(i)(E) of this section: Geographical impact of the significant

circumstances; State efforts to control impact on program operations;

the proportion of food stamp caseload affected; and/or the duration of

the significant circumstances and the impact on program operations.

Adjustments for these factors may result [[Page 32627]] in a waiver of

all, part, or none of the error rate liabilities for the applicable

period. As appropriate, the waiver amount will be adjusted to reflect

States' otherwise effective administration of the program based upon

the degree to which the error rate exceeded the national performance

measure.

(ii) Adjustments. When good cause is found under the criteria in

paragraphs (e)(7)(i)(A) through (e)(7)(i)(E) of this section, the

waiver amount may be adjusted to reflect States' otherwise effective

administration of the program based upon the degree to which the error

rate exceeds the national performance measure.

(iii) Evidence. When submitting a request to the ALJ for good cause

relief, the State agency shall include such data and documentation as

is necessary to support and verify the information submitted in

accordance with the requirements of paragraph (e)(7) of this section so

as to fully explain how a particular significant circumstance(s)

uncontrollably affected its payment error rate.

(iv) Finality. The initial decision of the ALJ concerning good

cause shall constitute the final determination for purposes of judicial

review without further proceedings as established under the provisions

of Sec. 283.17 and Sec. 283.20 of this chapter.

* * * * *

(9) FCS Timeframes. FCS shall determine, and announce the national

average payment error rate for a fiscal year within 30 days following

the completion of the case review process and all arbitrations of State

agency-FCS difference cases for that fiscal year, and at the same time

FCS shall notify all State agencies of their individual payment error

rates and payment error rate liabilities, if any. The case review

process and the arbitration of all difference cases shall be completed

not later than 180 days after the end of fiscal year. FCS shall

initiate collection action on each claim for such liabilities before

the end of the fiscal year following the end of the fiscal year

reporting period in which the claim arose unless an administrative

appeal relating to the claim is pending. * * *

* * * * *

Dated: June 16, 1995.

Ellen Haas,

Under Secretary, Food, Nutrition, and Consumer Services.

[FR Doc. 95-15460 Filed 6-22-95; 8:45 am]

BILLING CODE 3410-30-U