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

Federal RegisterJun 2, 1997

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DEPARTMENT OF AGRICULTURE

Food and Consumer Service

7 CFR Parts 272 and 275

[Amdt. No. 366]

RIN 0584-AB75

Food Stamp Program: Quality Control Provisions of the Mickey

Leland Childhood Hunger Relief Act

AGENCY: Food and Consumer Service, USDA.

ACTION: Final rule.

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SUMMARY: On June 23, 1995 the Department of Agriculture published

proposed changes to Food Stamp Program regulations based on section

13951 of the Mickey Leland Childhood Hunger Relief Act. This final rule

addresses significant comments received in response to the regulatory

changes proposed in the rule published June 23, 1995, and finalizes

regulatory changes to 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. These changes will

enhance the efficiency and equity of the quality control system.

DATES: Effective Dates: Section 13971 of the Mickey Leland Childhood

Hunger Relief Act sets effective dates for the various provisions of

the Leland Act addressed in this rule. The amendment to 7 CFR

275.12(d)(2)(vii) was effective October 1, 1992. The amendments to 7

CFR 275.23(e)(4), and newly designated (e)(5), (e)(7), (e)(9), and

(e)(10)(i) were effective October 1, 1991. The amendments to 7 CFR

272.1(g), 275.3(c) (Introductory text), 275.3(c)(1)(iii), 275.11(g),

275.23(d)(1)(iii), 275.23(e)(1), and newly designated

275.23(e)(8)(i)(D), 275.23(e)(8)(ii), 275.23(e)(8)(iii)(A),

275.23(e)(8)(iii)(B), and 275.23(e)(11)(iii) are effective July 2,

1997. The provisions of Sec. 275.3(c)(4) will become effective after

approval by OMB.

Implementation Dates: With the exception of the provisions

contained in 7 CFR 275.3(c)(4) [Arbitration], 275.23(e)(5) [State

agencies' liabilities for payment error-Fiscal Year 1992 and beyond],

and newly designated 275.23(e)(7) [Good Cause], and 275.23(e)(9)

[Timeframes], all provisions of this rule shall be implemented July 2,

1997. The provisions contained in Secs. 275.3(c)(4), 275.23(e)(5), and

newly designated 275.23(e)(7), and 275.23(e)(9) shall be implemented

after approval of the provisions of Secs. 275.3(c)(4) and newly

designated 275.23(e)(7) by OMB under the Paperwork Reduction Act of

1995.

OMB Submissions: The provisions contained in 7 CFR 275.3(c)(4), and

newly designated 275.23(e)(7) shall be submitted to the Office of

Management and Budget for approval under the Paperwork Reduction Act of

1995. FCS will publish a notice in the Federal Register announcing the

effective and implementation dates, which will be dates occurring after

the publication date of that notice. FCS can not issue billing letters

for the review periods of Fiscal Years 1992 and beyond until such time

as these provisions have been implemented by the publication of the

notice.

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:

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 12988

This action has been reviewed under Executive Order 12988, 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 final 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 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. Sec. 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 final rule contains information collection requirements

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

the Paperwork Reduction Act of 1995 (Pub. L. 104-13). The reporting and

recordkeeping burden associated with the Food Stamp

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Program Quality Control System is approved under OMB No. 0584-0303. The

burden for the Quality Control System is estimated to average 10.4

hours per response. There are 53 respondents. This is an increase of

5246 hours from the previously approved burden.

The Quality Control System contains procedures for resolving

differences in review findings between State agencies and FCS. This is

referred to as the arbitration process. Section 7 CFR 275.3(c) of this

rule modifies the current arbitration process. We believe that the

modifications made by this rule to the arbitration process do not

represent an increase in burden from current practice.

The Quality Control System contains procedures which provide relief

for State agencies from all or a part of a quality control liability

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. Section 7 CFR

275.23(e)(7) of this rule modifies the current good cause process. We

believe that the modifications made by this rule to the good cause

process do not represent an increase in burden from current practice.

FCS will solicit comment on these information collections through a

separate notice published in the Federal Register.

Background

On June 23, 1995 (60 FR 32615) the Department of Agriculture (the

``Department'') proposed regulations to amend the food stamp quality

control (``QC'') system, based on mandatory changes contained in

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), which revised sections

13(a)(1), 14(a), and 16(c) of the Food Stamp Act of 1977, as amended

(the ``Act''). A full explanation of the rationale and purpose of these

regulatory changes was provided in the preamble of the proposed

rulemaking. The Department received comment letters from thirty-four

organizations concerning the proposed rule. The preamble of this final

rule deals with significant issues raised by commenters and the changes

made as a result of comments. It is recommended that the reader

reference the proposed rulemaking, as well as this final rulemaking for

a more complete understanding of the regulatory changes that the

Department is implementing.

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

Nineteen organizations provided comments on the proposed regulatory

change to Sec. 275.3(c) regarding the requirement that Food and

Consumer Service (``FCS'') Regional Offices assist State agencies in

completing active 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. Seventeen of the commenters supported the

proposed change making Federal assistance in completing these cases

optional. FCS Regional Offices would only assist a State agency in

attempting to complete a refusal-to-cooperate case at the request of

the State agency. One commenter opposed the proposal, stating that FCS

should either assist 100% of the time, or not at all. The commenter's

concern was the potential for bias which could be introduced into the

quality control system by allowing State agencies to pick which cases

FCS would assist the State agency in completing. One commenter was

neither in favor of, nor opposed to the proposal. This commenter

requested clarification that FCS would continue to review cases that

are dropped for refusal-to-cooperate to determine whether the case was

appropriately dropped. The commenter was concerned that some states

might use an unsupervised system of drops in a way that biases the

sample. The Department has considered the comments and decided to adopt

the provision as proposed. FCS Regional Offices will continue the

current practice of reviewing all cases disposed of by State agencies

as Not Subject to Review, or Not Completed (including those disposed of

as Not Completed due to refusal by the household to cooperate with a

State agency reviewer) in order to insure the validity of the

disposition. It is felt that the continued monitoring of ``drop'' cases

will prevent the possibility of any bias in the QC system. Only upon

the specific request of the State agency will FCS attempt to gain the

cooperation of such households.

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

All thirty-four organizations submitting comments provided remarks

on the proposed regulatory change to Sec. 275.3(c)(4) regarding the

system for arbitrating differences between State agency and Federal

findings and/or disposition in quality control reviews. All the

commenters were opposed to some aspect of the proposed changes to the

system. 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. 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.'' The Department concluded

that the deadlines mandated by the Leland Act for the completion of

arbitration for a fiscal year could not be achieved without a

restructuring of the arbitration system.

The Department proposed to replace the two-tier arbitration process

with a one-tier arbitration system which would require State agencies

to submit requests for arbitration to their appropriate FCS Regional

offices within 10 days of receipt of the Federal QC findings for a

case. The FCS Regional office QC staff would be permitted to 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 was 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.

Thirteen commenters specifically indicated that they opposed a one-

tier system. Four commenters supported a one-tier system, although all

suggested some modification to the one-tier system that was proposed.

Six commenters indicated that a one-tier system should be at the

national level. One commenter indicated a preference for one-tier at

the Regional Office level. Ten commenters proposed an arbitration

system similar to the AFDC Program with informal resolution at the

regional level and formal arbitration by a panel at the national level.

The Department has considered these comments and decided that it must

[[Page 29654]]

adopt a one-tier system, with certain modifications as discussed in the

following paragraphs. The Department has determined that the deadlines

mandated by section 13951 of the Leland Act do not provide sufficient

time for a two-tier system of arbitration, or an arbitration panel. In

regards to the matter of whether arbitration will be conducted at the

Regional Office or National Office level, the Department has decided to

leave the language in the final regulatory change adaptable enough to

allow for one-tier arbitration at either the Regional or National

level. Recognizing that the arbitrator(s) will have a very short time

frame in which to render accurate decisions (as detailed in the

following paragraphs), the Department has determined that the

arbitration system must be structured with the maximum possible

flexibility so that it can respond to fluctuations in the number of

arbitration requests.

Thirty-three commenters expressed serious concern that 10 days was

insufficient to prepare a case for arbitration. Nineteen commenters

offered various suggestions for reducing the amount of time the

arbitrator(s) would have to render a decision, in favor of more time

for the State agency to submit its request. The Department has

considered these comments and has modified the final rules. Instead of

the 10 days contained in the proposed rule, State agencies shall have

20 days from the date of receipt of the Federal quality control

findings to submit requests for arbitration to their appropriate FCS

Regional office. Instead of the 35 days contained in the proposed rule,

the arbitrator(s) shall have 20 days to render a decision. Of the 15

day reduction in the time allotted for the arbitrator(s) to render a

decision, 10 of those days have been allotted to the State agencies as

additional time to submit an arbitration request, and 5 of those days

have been allotted as additional time for State agencies to conduct

reviews and transmit findings to the National Computer Center's (NCC)

Integrated Quality Control System (IQCS) (for details of this change

see the paragraph entitled ``Quality Control Review Reports--

Sec. 275.21''). The Department has determined that the increased time

frame for the State agencies to request arbitration would ensure the

continued accuracy of the arbitration process by providing more time to

gather facts and material pertinent to a case. In addition, the

increased time frame for the State agencies to request arbitration

would allow the continuation of the current practice of informal

resolution of differences through discussions between State agency and

FCS Regional office QC staffs. The informal resolution process offers

an alternative to the more time and resource intensive arbitration

process.

Ten commenters recommended putting into the regulations specific

time frames for completion of Federal reviews. Four commenters

recommended that FCS be required to return case records to the State

agencies at the time that Federal findings are transmitted, or that the

time frames for requesting arbitration not start until such time as the

case record is received by the State agency. The FCS-315, Federal

Quality Control Validation Review Handbook, contains specific time

frames for FCS reviewers to complete the review of sub-sampled cases.

In addition, the Handbook contains specific instructions that State

agencies records are to be returned to the State agency no later than

the time that Federal case findings are issued to the State agency. The

Department has determined that inclusion in the regulations of the time

frames for completion of the Federal reviews, and instructions on

returning State agency records, are unnecessary.

Three commenters recommended that State agencies be given the

opportunity to refute any submittal made by the FCS Regional Office to

the arbitrator(s). One commenter recommended that FCS Regional Offices

be prohibited from submitting any additional material or response to

the State agency's arbitration request. The Department has determined

that because of the shortened time frames for rendering the arbitration

decision, the arbitrator(s) will not be able to consider any additional

materials, submitted by the State agency following the arbitration

request. The State agency should ensure that arbitration requests

sufficiently explain and support the position of the State agency

without the need for additional submissions or rebuttals. Further, the

Department has determined that the accuracy of the arbitration system

would be impaired if the FCS Regional Office was prohibited from

submitting material to the arbitrator(s) which set forth the Federal

position in the case under review. For these reasons, the Department

has retained the provisions in the proposed rule that State agencies

will not be allowed to submit additional material after the arbitration

request, and that the FCS Regional Offices will be allowed to submit

material explaining the Federal position.

The Department proposed to limit requests for arbitration to those

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

to the NCC's IQCS, differed from the Federal findings or disposition

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

cases''. Under the proposal State agencies would not be permitted to

arbitrate cases where the State agency's and Federal findings or

disposition were the same (``agree'' cases). Fourteen commenters

expressed concern with the proposal to exclude arbitration of agree

cases. Primarily the commenters argued in favor of being able to

arbitrate agree cases in the interest of maximum accuracy for the QC

system. The argument was that new information may become available

after the completion of both the State agency and Federal reviews which

indicates that the earlier review findings were in error. Given that

the arbitrator(s) will be facing a greatly shortened time frame for

rendering arbitration decisions, the Department has determined that the

potential workload of ``agree'' cases, in addition to the ``disagree''

cases, would adversely impact the accuracy and timeliness of the

arbitration process, and impair the quality control system's ability to

meet the deadlines mandated by section 13951 of the Leland Act. The

Department has determined that State agencies may provide the Federal

quality control reviewer with any new information which becomes

available regarding the circumstances in a case up until the time that

the Federal findings are transmitted to the State agency. In addition,

during the 20 day period following the receipt of Federal review

findings (the period in which a State agency may prepare an arbitration

request on ``disagree'' cases) a State agency may request informal

resolution of any ``agree'' cases. If the FCS Regional Office QC staff

concede through informal resolution that the Federal findings should be

changed, the case will be retransmitted to the State agency (this time

as a ``disagree'' case) which would be eligible for arbitration.

Following the 20 day period for informal resolution, FCS Regional

Offices would not be permitted to reconsider or change the Federal

findings of any ``agree'' case.

To maximize the efficiency of the arbitration system, the

Department proposed that State agencies be required to submit specific

documents to ensure that their arbitration requests were complete. Five

commenters supported the proposal for a checklist. Sixteen commenters

opposed the requirement for a specific checklist for arbitration. Many

of the commenters indicated that the state agencies are in a better

position to determine what information must be

[[Page 29655]]

submitted in order to support State findings in arbitration. The

commenters considered the checklist to be burdensome in light of the

reduced time frame for submittal of arbitration requests. The

Department is dropping the proposal to require State agencies to submit

a specific checklist of documents as a part of each arbitration

request. It should be noted that guidelines and recommendations for the

submittal of arbitration requests are contained in the FCS-310, The

Food Stamp Program Quality Control Review Handbook. As indicated in the

proposed rule, if a State agency submits an incomplete request for

arbitration the arbitrator(s) will render a decision based on the

available information. The shortened time frames for rendering the

arbitration decision will not allow for the request (by the

arbitrator(s)) or submission (by the State agency) of any additional

materials following the arbitration request. The arbitrator(s) will

make an independent judgment of the request, based upon the information

the State agency and Regional office have provided.

The Department proposed that arbitration be limited to those cases

where the State agency's findings and disposition were transmitted to

the NCC's IQCS in a timely manner. The Department maintained that State

agency reviews which were not completed and transmitted into the IQCS

in a timely manner impaired the QC system's ability to meet the

deadlines mandated by the Leland Act for the completion of all case

review and arbitration activity. Twenty-six commenters opposed the

proposal to restrict arbitration to cases which have been timely

submitted to IQCS. In general, the commenters argued in favor of being

able to arbitrate these cases in the interest of maximum accuracy for

the QC system. The commenters indicated that the cases most likely to

be in need of arbitration are the cases which take longer to complete

(due to uncooperative households, the need for follow-up investigations

or field work, or the need for intricate policy analysis) and are more

likely to be submitted to IQCS late. Based upon these comments, the

Department has modified the original proposal. State agencies may

continue to request arbitration of cases transmitted late to the IQCS.

However, the number of days that a State agency has to submit such a

request will be reduced by the number of days that the State agency was

late transmitting the case to the IQCS. As an example: If a State

agency does not submit the review findings of a case until the 100th

day after the end of the sample month for the case (5 days late), then

the State agency would have 15 days from the date of receipt of the

Federal findings (the standard 20 days provided for by this rule minus

the 5 days that the case was submitted late in the IQCS) to request

arbitration. The Department has determined that this alternative

responds to the concerns raised by the commenters, and ensures that the

quality control system's ability to meet the deadlines mandated by the

Leland Act are met. The Department has also determined that because of

the withdrawal of the proposal to limit arbitration to cases which have

been timely submitted to IQCS, there is no longer any need to exempt

certain cases from the restriction, as was considered in the proposed

rule (cases in which household members had refused to cooperate with

the quality control reviewer was the class of such cases identified in

the proposed rule).

Quality Control Review Reports--Sec. 275.21

Thirty organizations provided comments on the proposed regulatory

change to Sec. 275.21 regarding 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. The Department proposed

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. The Department also proposed conforming changes to regulations

at 7 CFR 273.2(d)(2) and 7 CFR 273.2(f)(1)(ix). These sections of the

regulations specify 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). The Department

proposed 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. Twenty-five of the thirty organizations

providing comments on the proposal to reduce the timeframes for State

agencies to dispose of and report the findings of cases selected for QC

review were opposed to the proposal. The remaining five commenters

recognized that changes were necessary to meet legislatively mandated

timeframes, but expressed strong concern about the proposed reduction

in time. Six commenters remarked on the fact that the proposed

deadlines were moving away from conformity with the AFDC program, and

that this caused particular difficulties when reviews were conducted

jointly between the Food Stamp and AFDC programs. Fifteen commenters

recommended that the timeframe for the arbitrator to render a decision

be reduced, or that the federal re-reviewers be put under a strict

timeframe for the completion of the federal reviews. Fourteen

commenters indicated that the proposed timeframe would negatively

impact on review accuracy. Twelve commenters specifically indicated

that due to staffing and resource limitations it would be extremely

difficult to meet the shortened deadlines. Nine commenters recommended

that the 90 day deadline be made to apply only to the last month of the

review period. Based upon these comments, the Department has decided to

withdraw the proposal to reduce the timeframe for State agencies to

dispose of and report the findings of cases selected for QC review. The

current procedures, under which 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, and 95 days to dispose of 100

percent of the cases will be retained. Strict adherence to the current

75/95 day deadlines and modification of the proposals regarding the

arbitration system (see the paragraph entitled ``Arbitration--

Sec. 275.3(c)(4)'' for details) will allow FCS and the State agencies

to meet the deadlines mandated by the Leland Act without shortening the

timeframe for disposing of QC reviews.

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

Eighteen organizations provided comments on the proposed regulatory

change to Sec. 275.12(d)(2) regarding the exclusion of any errors

resulting from the application of new regulations promulgated under the

Act during the first 120 days from the required implementation date.

Seventeen commenters approved of the proposed change. One commenter

offered remarks that were neither in favor of, nor opposed to the

proposal. Two commenters recommended that the time frame be extended to

180 days. The

[[Page 29656]]

Department has considered this recommendation and determined that it

cannot be adopted. The Food Stamp Act, as modified by the Leland Act,

specifies: ``The following errors may be measured for management

purposes but shall not be included in the payment error rate: (A) Any

errors resulting in the application of new regulations promulgated

under this Act during the first 120 days from the required

implementation date for such regulations'' [7 U.S.C. 2025(c)(3)]. The

Department has determined that the Act mandates a 120 day variance

exclusion period, and therefore, a 180 day variance exclusion period

cannot be considered.

Five commenters supported the proposal, but the comments clearly

indicated that the writers thought that the 120 day variance exclusion

period was to provide relief while a State agency implemented a new

regulation. The Department wishes to clarify that the 120 day variance

exclusion can only apply to State agencies which have implemented a new

regulation. The Department has concluded that an error cannot result

from the application of a new regulation (as specified in the Act) if a

State agency has not implemented the new regulation. The current

regulatory provision at 7 CFR 275.12(d)(2)(vii)(B) which specifies: ``A

State agency shall not exclude variances which occur prior to the

States implementation'' has been retained. As an example: If a State

agency does not implement a new regulation until 100 days after the

required implementation date then the State agency would have only a 20

day variance exclusion period (the 120 day exclusion period minus the

100 days that the new regulation had not been implemented), starting

with the day the new regulation is actually implemented. The Department

has determined that the provision regarding a 120 variance exclusion

period for the application of a new regulations must be adopted as

proposed.

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

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

Fifteen organizations provided comments on the proposed regulatory

change to Sec. 275.23(e)(4) regarding the new system of payment error

rate goals and liabilities. 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 for that fiscal year 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 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, 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. Fourteen of the commenters

approved of the proposed change. The remarks of one commenter were

unclear, and FCS was unable to determine if this commenter was in favor

of or opposed to the proposed provision. The Department has considered

the comments and determined that the provision must be adopted as

proposed. These changes have been mandated by Section 13951 of the

Leland Act.

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

Eighteen organizations provided comments on the proposed regulatory

change to Sec. 275.23(e)(6) regarding 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. Three commenters were in favor

of the proposed provisions concerning good cause and three others

offered remarks which were neither in favor of, nor opposed to the

proposed provisions. Twelve of the commenters were opposed to some

aspect of the proposed provisions.

The Department proposed to transfer the authority to determine good

cause, and grant waivers of liabilities, from FCS to the Departmental

Administrative Law Judges (``ALJs''). This transfer of authority was

mandated by section 13951 of the Leland Act. Ten commenters were in

favor of this transfer of authority. There were no commenters who

opposed it. Therefore the provision pertaining to the transfer of

authority to determine good cause and grant liability waivers from FCS

to the ALJs is adopted in final form as it was proposed.

Section 13951 of 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. The Department

proposed to codify into the regulations the unusual events specified in

the Leland Act which qualify for consideration under good cause relief.

Eight commenters specifically recommended the addition of new computer

systems as an unusual event which would qualify a State agency for good

cause relief. While the Department appreciates the difficulties that

State agencies may encounter in implementing new computer systems, the

Department is unable to adopt these comments. The statutory criteria

for determining good cause (criterion E of the Leland Act specifies

that it must be ``a significant circumstance beyond the control of the

State agency'') precludes the Department from considering a new

computer system as a circumstance which could qualify a State agency

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

FCS will no longer be making the final determination in good cause

appeals, FCS retains the authority to establish guidelines under which

good cause is evaluated. The Department proposed that current criteria

and methodology, with certain modifications, would continue to serve as

guidelines for States, FCS, and the ALJs to assess and evaluate good

cause in conjunction with the appeals process. As under current

regulations, it was proposed that an alternate methodology would

continue to be used for certain events when a State agency provided

insufficient information to demonstrate that the unusual event had an

uncontrollable impact on the error rate. The Department proposed an

alternate methodology that would take into account both the duration of

the unusual event and the magnitude or

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intensity of the unusual event. The proposed alternate methodologies

were also modified to include specific procedures for calculating

waiver amounts to ensure equity and consistency in these

determinations. It is recommended that the reader reference the

proposed rulemaking for a more complete understanding of the

alternative methodologies that the Department proposed.

Five commenters specifically objected to the inclusion of the

``sliding scale'' in the alternative formula for determining the amount

of relief for which a State agency would qualify in the event of

unusual caseload growth. Suggested alternatives were elimination of the

``sliding scale'' from the formula, or elimination of the formula

(meaning a State agency would qualify for total relief of any liability

claim if it could demonstrate caseload growth of 15%). The Department

has not adopted these comments. The Department must emphasize that the

formula in which the ``sliding scale'' appears is only an alternative

methodology for demonstrating the extent to which excessive error rates

can be attributed to caseload growth. If a State agency demonstrates

(as determined by the ALJ), through other means or data, the impact

that these events have had on their payment error rate, then the

formula containing the sliding scale need not be applied.

Three commenters specifically objected to the fact that the

alternative formula disregarded caseload growth in the second half

(April through September) of a fiscal year in determining whether a

State agency qualified for good cause relief. Suggested alternatives

included altering the formula to include caseload growth in the second

half of the fiscal year, and elimination of the formula altogether. The

Department has decided to modify the final rules by including up to a

possible nine months of a fiscal year in the formula. Step 2 of the

formula has been modified to provide for the consideration of any

twelve consecutive month period falling in the 15 month interval

between April of the previous fiscal year, and June of the liability

fiscal year. This will allow caseload growth in as many as nine months

(October through June) of the current fiscal year to be included in the

calculations for good cause relief. The Department continues to believe

that caseload growth in the last three months of a fiscal year would

rarely have a significant impact on the error rate for that year. In

addition, the Department again must emphasize that the formula is only

an alternative methodology for demonstrating the extent to which

excessive error rates can be attributed to caseload growth.

Two commenters specifically objected to the fact that the

alternative formula disregarded caseload growth at any geographic level

below that of the State as a whole. One commenter emphasized that some

geographic areas (counties, districts, regions, etc.) within the larger

states issue more benefits and serve more recipients than an entire

smaller state. A suggested alternative was the modification of the

formula or evaluation criteria to provide good cause relief if a State

agency can demonstrate excessive caseload growth at a lower (project

area) geographic level. The Department has considered these comments,

but decided not to adopt them. The Department must again emphasize that

the formula is only an alternative methodology for demonstrating the

extent to which excessive error rates can be attributed to caseload

growth. If a State agency demonstrates (as determined by the ALJ),

through other means or data, the impact that caseload growth has had on

their payment error rate, then the formula evaluating only statewide

growth need not be applied. It was the Department's expectation, as

expressed in the preamble of the proposed rule, that with modern

automated systems for data analysis, State agencies would have little

difficulty in demonstrating the impact on the payment error rate from

geographic subdivisions within the state, when that impact is

significant.

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

Four organizations provided comments on the proposed regulatory

change to Sec. 275.23(e)(8) regarding the provision of Section 13951 of

the Leland Act that specifies 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.'' All four of the commenters were opposed to the proposed time

frames. It was the opinion of the commenters that the time frames

specified in the Leland Act were a mistake, and they urged the

Department to work with Congress towards passing new legislation which

would return the deadline for the announcement of error rates to June

30th in the year following the end of the quality control review

period. One commenter has recommended that the Department delay

implementation of these changes until legislation can be adopted to

repeal the Leland Act provision that requires this regulatory change.

The Department understands the commenters concerns, but until the

provisions are amended the provision must be adopted as proposed. This

change was mandated by Section 13951 of the Leland Act, and the

Department cannot delay implementing the provisions of the law.

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

Five organizations provided comments on the proposed regulatory

change to Sec. 275.23(e)(9) regarding the interest charges on any

unpaid portion of a liability claim. Section 13951 of the Leland Act

amends the Food Stamp Act by providing that interest will accrue from

the date of the decision on an administrative appeal of the claim, or

from the day one year after the date the bill for the claim was

received by the State agency, whichever is earlier. Four of the

commenters disapproved of the proposed change. One commenter offered

remarks that were neither in favor of nor opposed to the proposed

provision. The Department has considered the comments and determined

that the provision must be adopted as proposed. This change was

mandated by Section 13951 of the Leland Act.

Miscellaneous Technical Corrections

No comments were received regarding the Department's proposal to

effect technical corrections to various 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 has decided to adopt all of the

technical reference changes as proposed.

Implementation

Effective Dates: Section 13971 of the Mickey Leland Childhood