# Food Stamp Program: Food Stamp Recipient Claim Establishment and Collection Standards

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URL: https://www.frixlaw.com/law-library/documents/fr%3A98-13848

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** May 28, 1998
- **Citation:** 63 FR 29304

## Text

SUMMARY: The Food and Nutrition Service (FNS) is proposing to revise
Food Stamp Program (FSP) regulations that cover the establishment and
collection of food stamp recipient claims, including collections at the
Federal level. This rule aims to improve claims management in the FSP
while providing State agencies with increased flexibility in their
efforts to increase claims collections. The provisions of the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA)
affecting recipient claims are incorporated into this rulemaking and
this action is consistent with the President's regulatory reform
effort. This proposed rule also strives to achieve a balance between
State agency flexibility and fiscal accountability.
Food stamp recipient claims are established against households that
receive more benefits than they are entitled to receive. The last major
revision to these regulations was in 1983. Recent legislation,
technological advances and changes in Federal debt management
regulations have rendered many portions of the current regulations
obsolete. In addition, the current regulations place unnecessary
burdens on State agencies. The proposed changes are intended to:
incorporate changes mandated by PRWORA; simplify presentation of
policy; incorporate Federal debt management regulations and statutory
revisions into food stamp recipient claim management; and provide State
agencies with additional tools to facilitate the establishment,
collection and disposition of food stamp recipient claims.

DATES: Comments on this proposed rulemaking must be received by August
26, 1998 to be assured of consideration.

ADDRESSES: Comments should be submitted to James I. Porter, Recipient
Claims Coordinator, Program Accountability Division, Food Stamp
Program, Food and Nutrition Service, USDA, 3101 Park Center Drive,
Alexandria, Virginia 22302. Only written comments will be accepted. All
written comments will be open for public inspection during regular
business hours (8:30am to 5:00pm, Monday through Friday) at 3101 Park
Center Drive, Alexandria, Virginia, Room 905.

FOR FURTHER INFORMATION CONTACT: Questions regarding this proposed
rulemaking should be directed to Mr. Porter at the above address or by
telephone at (703) 305-2385.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This proposed 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 FSP 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
Part 3015, Subpart V and related Notice (48 FR 29115, June 24, 1983),
the FSP is excluded from the scope of Executive Order 12372 which
requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

This rule has been reviewed with regard to the requirements of the
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley R.
Watkins, Under Secretary for Food, Nutrition and Consumer Services, has
certified that this rule will not have a significant impact on a
substantial number of small entities.

Executive Order 12988

This proposed rule 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 proposed rule
or the application of its provisions, all applicable administrative
procedures must be exhausted.

Public Law 104-4

This proposed rule contains no Federal mandates under the
regulatory provisions of title II of the Unfunded Mandates Reform Act
of 1995 (UMRA), Pub. L. 104-4, for State, local and tribal governments
or the private sector of $100 million or more in any one year.
Therefore, this rule is not subject to the requirements of sections 202
and 205 of the UMRA.

Paperwork Reduction Act: Recipient Claims and Reporting Format
Redesign

The following constitutes a 60 day notice being issued by FNS,
USDA.
In accordance with the Paperwork Reduction Act of 1995, this notice
invites the general public and other public agencies to comment on this
proposal to consolidate several existing collection burdens by
requesting a new burden.
Written comments must be submitted on or before July 27, 1998.
Send comments and requests for copies of this information
collection to James I. Porter, Recipient Claims Coordinator, Program
Accountability Division, Food Stamp Program, Food and Nutrition
Service, USDA, 3101 Park Center Drive, Alexandria, Virginia 22302 and
to Wendy Taylor, FNS Desk Officer, Office of Information and Regulatory
Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC
20503. For further information regarding this notice, Mr. Porter may be
contacted at (703) 305-2385.
Comments regarding these burden estimates are invited on: (a)
Whether the proposed collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information will have practical utility; (b) the accuracy of the
agency's estimate of the burden of the proposed collection of
information including the validity of the methodology and assumptions
used; (c) ways to enhance the quality, utility and clarity of the
information to be collected; and (d) ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of appropriate automated, electronic, mechanical, or
other technological collection techniques or other forms of information
technology.
All responses to this notice will be summarized and included in the
request for Office of Management and Budget (OMB) approval. All
comments will also become a matter of public record.
Title: Food Stamp Data Collection.
OMB Number: A new burden number is being requested This burden will
consolidate burden associated with 0584-0069, 0584-0080, 0584-0009,
0584-0015, 0584-0081 and 0584-0025. The existing burden under 0584-0064
is not being changed.
Form Number: New request for FNS-695 which will consolidate the
FNS-

[[Page 29305]]

209, FNS-46, FNS-250, FNS-259, FNS-388, FNS-388a and FNS-101 reports.
Type of Request: Consolidation of several collection and record
keeping burdens into one burden.
Abstract: In accordance with the Paperwork Reduction Act of 1995,
the reporting and recordkeeping burden associated with the Notice of
Adverse Action, the demand letter for recipient claims and general
case/claim recordkeeping has been approved by OMB under OMB number
0584-0064. The Department recognizes that, under this proposed rule,
State agencies would be required to track claim referrals. The
Department does not consider this to be an additional recordkeeping
burden because tracking referrals is part of efficient and effective
general case recordkeeping and management that has already been
approved under OMB 0584-0064.
The burden associated with the reporting of claims under OMB number
0584-0069 consists of the submission of the Status of Claims Against
Households (FNS-209) report. In an effort to reduce the number of
reports and/or data elements to be reported, the Department is
proposing to request OMB to combine and consolidate this reporting
function with a number of other FNS reports with the result being one
electronic reporting format. The reports with which the FNS-209 would
be consolidated include the Issuance Reconciliation Report (FNS-46),
Food Stamp Accountability Report (FNS-250), Food Stamp Mail Issuance
Report (FNS-259), State Issuance and Participation Estimates (FNS-388),
Project Area Issuance and Participation Estimates (FNS-388a) and
Participation in Food Programs--by Race (FNS-101) as it pertains to the
FSP. All of these reports, including the FNS-209, currently have
assigned to them a unique OMB burden approval number: 0584-0069 for the
FNS-209; 0584-0080 for the FNS-46; 0584-0009 for the FNS-250; 0584-0015
for the FNS-259; 0584-0081 for the FNS-388 and FNS-388a; and 0584-0025
for the FNS-101. To facilitate the report consolidation effort, the
Department is requesting that OMB cancel all of the above approval
numbers (with the exception of OMB number 0584-0025) and assign a
single burden approval number for the new electronic reporting format.
Since the burden associated with OMB number 0584-0025 also pertains to
activity in the Food Distribution Program, the Department is not
requesting that this number be canceled. However, the portion of this
burden relating to the FSP would be removed and transferred to the
newly assigned number.
The number of annual data reporting elements associated with this
reporting burden will change dramatically. Currently, the forms
proposed to be replaced have a cumulative total of 3,121,124 annual
data reporting elements resulting in a reporting and recordkeeping
burden of 110,122 hours. The proposed reporting format, on the other
hand, would only have 15,300 annual data reporting elements.
Even though the number of data elements would be reduced
significantly, the reporting and recordkeeping burden hours would
increase by an average one hour per State agency per report submission.
This is because much of the data proposed to be reported in the new
reporting format is summational. Under the proposed reporting format,
State agencies would need to retrieve and record the detailed data,
compute the summational amounts and maintain the records necessary for
audit purposes. Many States are already performing this consolidation
function as part of their existing reporting procedures and therefore
would experience no increase in burden. The one-hour increase in burden
is to accommodate the remaining states who would need to perform some
consolidation work to carry out this function.
Affected Public: State and local governments.
Estimated Number of Respondents: 37,973.
Estimated Time per Response: 2.90 hours.
Estimated Total Annual Burden: 110,758 hours.

Paperwork Reduction Act: Federal Collection Methods for Food Stamp
Program Recipient Claims

The following constitutes a 60-day notice being issued by FNS,
USDA.
In accordance with the Paperwork Reduction Act of 1995, this notice
invites the general public and other public agencies to comment on this
proposal to change an information collection burden related to Federal
claims collection methods (FCCM's).
Written comments must be submitted on or before July 27, 1998.
Send comments and requests for copies of this information
collection to James I. Porter, Recipient Claims Coordinator, Program
Accountability Division, Food Stamp Program, Food and Nutrition
Service, USDA, 3101 Park Center Drive, Alexandria, Virginia 22302 and
to Wendy Taylor, FNS Desk Officer, Office of Information and Regulatory
Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC
20503. For further information regarding this notice, Mr. Porter may be
contacted at (703) 305-2385.
Comments regarding these burden estimates are invited on: (a)
Whether the proposed collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information will have practical utility; (b) the accuracy of the
agency's estimate of the burden of the proposed collection of
information including the validity of the methodology and assumptions
used; (c) ways to enhance the quality, utility and clarity of the
information to be collected; and (d) ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of appropriate automated, electronic, mechanical, or
other technological collection techniques or other forms of information
technology.
All responses to this notice will be summarized and included in the
request for Office of Management and Budget (OMB) approval. All
comments will also become a matter of public record.
Title: Federal Collection Methods for Food Stamp Program Recipient
Claims.
OMB Number: 5084-0446.
Expiration date: September 30, 1999.
Type of request: Revision to a currently approved collection.
Abstract: Changes to the collection burden would result from two
changes proposed in this rule. One proposed change is the consolidation
of the 60-day notice for Federal Income Tax Refund Offset Program
(FTROP)(See 7 U.S.C. Sec. 2022(b)(1)(C); 7 CFR 273.18(g)(5)) into an
all inclusive 60-day notice for all types of Federal offsets. The other
is the increased number of 60-day notices due to the proposed inclusion
of agency error (AE) claims as a type of claim subject to collection
under Federal offset.
Estimate of Burden: The proposed rule would increase the annual
burden on State agencies from an average of 450 to 500 hours and for
debtors would decrease from an average of 8 to 6 minutes.
Respondents: The collection would continue to impact two groups,
State agencies that administer the FSP and certain individuals who are
liable for overissued food stamp benefits.
Estimated Number of Respondents: The number of State agency
respondents increase from 52 to 53. The number of debtor respondents
would increase from 370,000 to 425,000.
Estimated Number of Responses per respondent: As under current
rules, for State agencies the number of responses would vary from once
for such activities

[[Page 29306]]

as certifying files to FNS to 380,000 for mailing out due process
notices. For debtors the number of responses would continue to vary
from once for such things as due process notices to three or four in
the case of debtors making informal inquiries and requesting reviews.
Estimated Total Annual Burden on Respondents: Under this proposed
rule the annual reporting and recordkeeping burden would decrease from
72,862 to 71,803 hours (1,059 hours).

Background

The tolerance of abuse, or even the perception of such, undermines
the fundamental mission of the FSP. The efficient and effective
establishment and collection of recipient claims is essential to
program integrity. This rule aims to improve and increase claims
establishment and also to increase the collection rate of established
claims, while providing State agencies with increased flexibility in
their efforts to increase claims collections.
The PRWORA (Pub. L. 104-193) amended the Food Stamp Act of 1977 (7
U.S.C. 2011-2032) (the FSA) in a number of ways. This rule proposes to
implement the provisions of the PRWORA relating to recipient claims.
This rule also proposes to incorporate certain provisions of the
Federal Debt Collection Improvement Act of 1996 (DCIA)(Pub. L. 104-134,
Chapter 10, signed April 26, 1996) as discussed later in this preamble
in connection with Federal claim collection methods. The DCIA amended
the Debt Collection Act of 1982 (31 U.S.C. 3701)(DCA).
In addition to the revisions mandated by the enactment of the
PRWORA, the Department is proposing a number of significant changes in
discretionary FSP policy regarding recipient claims. This rule also
proposes certain changes in FTROP and the Federal Salary Offset
Program, 7 U.S.C. 2022(b)(1)(C)(FSOP), in response to the amended DCA.
Furthermore, this proposed rule would extensively reorganize the
current regulations at 7 CFR 273.18. To assist in the regulatory
reorganization and in the development of the discretionary policy
changes being proposed, the Department, in an effort to maintain
consistency with the treatment of other Federal debts, utilized the
Federal Claims Collection Standards (FCCS) issued by the Department of
Treasury (Treasury) (See 4 CFR Parts 101-105). The Department also drew
upon a number of other sources including the policies and regulations
of other social programs, private and public sector accounting
standards, technological advances, recommendations by the Department's
Office of the Inspector General (OIG) and Office of General Counsel,
and suggestions from State agencies.

Responsibility for Recovering Overpayments

Current regulations at 7 CFR 273.18(a) discuss the State agency's
responsibility for establishing claims as well as the household's
liability for the amount of the claim. It also defines the three types
of claims. The Department is proposing to revise the structure of this
paragraph. The first structural revision would change the title of the
paragraph from Establishing claims against households to Responsibility
for recovering overpayments. This is being proposed because the new
title more accurately portrays the purpose of the paragraph. In
addition, the Department feels that keeping the current title would
lead to confusion because other paragraphs of the proposed rule discuss
``establishing'' claims in much greater detail.
The second structural revision would involve the breakout of the
single introductory paragraph into two paragraphs. The first paragraph
of the proposed rule, Sec. 273.18(a)(1), would establish household
liability for overissuances. Section 273.18(a)(2) would establish State
agency responsibility for establishing and recovering overissuances.
Even though the responsibility for establishment and collection of
overpayments has been delegated to State agencies, food stamp recipient
claims remain debts to the Federal government. Section 273.18(a)(2) of
the proposed rule would specify this in detail. This proposal is not
intended to change policy but simply to clarify existing policy. As
Federal debts, unless superseded by this or other Departmental
regulation, food stamp recipient claims are subject to the same debt
collection processes and procedures as are all other Federal debts.

Claim Types and Definitions

In the current regulations, there are three claim types:
intentional Program violation (IPV), inadvertent household error (IHE)
and administrative error. The proposed rule would keep the same
designations for IPV and IHE claims. Administrative error claims, on
the other hand, would be renamed and referred to as agency error (AE)
claims. This is being proposed to be consistent with the term most
commonly used for this type of claim.
Paragraphs 7 CFR 273.18(a)(1), (a)(2) and (a)(3) of the current
regulations provide the specific definitions for IPV, IHE and AE
claims. As part of the regulatory reorganization, this rule proposes to
split out these paragraphs from 7 CFR 273.18(a) into their own
respective paragraphs: Sec. 273.18(b) for IPV claims; Sec. 273.18(c)
for IHE claims; and Sec. 273.18(d) for AE claims.

IPV Claims

Current regulations at 7 CFR 273.18(a)(3) provide the definition
for an IPV claim. The paragraph contains specific instructions as to
what must have occurred for an overissuance to be handled as an IPV
claim. Since the basis for IPV claims is set by statute, this rule
proposes no change in current policy about the basis for such claims.
However, as part of the regulatory reorganization, the Department is
proposing to list the criteria for defining an IPV claim in separate
paragraphs, Sec. Sec. 273.18(b)(1) through 273.18(b)(4).
The proposed rule contains one change regarding IPV claims in an
area in which the Department has discretion. Current regulations at 7
CFR 273.18(a)(3) mandate that prior to the determination of IPV the
claim shall be handled as an IHE claim. The Department is proposing to
delete this mandate thereby making this practice a State agency option
on a case-by-case basis as long as the claim is established within the
required timeframe (See the Claim Referral and Backlog section of this
preamble for details on timeframe).

IHE Claims

Current regulations at 7 CFR 273.18(a)(1) provide the definition
for an IHE claim. Under these regulations, an IHE claim generally
results from an overissuance that was caused by a misunderstanding or
unintended error on the part of the household. As part of the
regulatory reorganization and in an effort to enhance FSP
simplification, the Department is proposing to eliminate much of the
definitional language in the current regulations and simply use the
specific language at Sec. 273.18(c) in the proposed rule.

AE Claims

Current regulations at 7 CFR 273.18(a)(2) define an AE claim. Under
these current regulations, an AE claim results from an overissuance
that was caused by a State agency action or failure to take action. As
with the proposal regarding the definition of an IHE claim, the
Department is proposing to eliminate unnecessary definitional language
in this paragraph and simply use the specific language at
Sec. 273.18(d) in this proposed rule.
Section 844 of the PRWORA eliminated all legislative limitations on

[[Page 29307]]

the collection options available for AE claims. This ends a previous
inconsistency wherein State agencies were required to collect AE claims
but were precluded from using the most effective and efficient
collection tool, involuntary allotment reduction.
Some groups maintain that, since the reason for the overissuance
resulting in the AE claim was an error by the State agency, the
household should not be responsible for the overissuance under laws in
a number of States under the legal concept of equitable estoppel. The
Department disagrees with this position. The FSP is administered under
Federal law and the Department provides 100 percent of the value of the
benefits. Section 13(a)(2) of the FSA (7 U.S.C. 2022(a)(2)), which was
unchanged by the PRWORA, clearly and unconditionally provides that
adult members of a household that receive any overissuance shall be
jointly and severally liable for the value of the overissuance. Thus,
Federal law permits no exception for equitable estoppel in the case of
an overissuance caused by State agency error.

Claims for Recipient Trafficking

In a significant policy change, the Department is proposing, in
Sec. 273.18(a) of this rule, to provide for establishing a claim
against a household for the value of benefits that are trafficked
rather than redeemed for authorized food purchases.
Trafficking has long been an IPV subject to disqualification from
FSP participation. However, the advent of electronic benefits transfer
(EBT) has provided a source of data that makes it easier to identify
both parties to trafficking transactions. The availability of EBT data
has already increased the number of disqualifications for trafficking.
In addition to disqualification penalties, the Department believes that
trafficking can also be deterred by the development and use of
additional enforcement tools. Assessing a claim for the amount of
trafficked benefits offers such a tool.
The authority for this determination is found in section 13(a)(1)
of the FSA (7 U.S.C. 2022(a)(1)) which states that the Department ``* *
* shall have the power to determine the amount of and settle and adjust
any claim * * * arising under the provisions of this Act or the
regulations issued pursuant to this Act, including, but not limited to,
claims arising from fraudulent and nonfraudulent overissuances to
recipients * * * (emphasis added)'' Generally, a recipient claim is
established when a household receives more coupons than the household
is entitled to receive. However, as indicated above, section 13 of the
FSA (7 U.S.C. 2022) does not limit the Department to establishing
claims against individuals solely because of overissuances. Clearly,
recipient misuse, such as trafficking, falls within the definition of
an IPV as specified in 7 CFR 273.16(c)(2). The Department is thus
proposing in this rule that claims would be established for all IPV's,
including those caused by trafficking offenses.
The Department would like to clarify that this change in policy
would have no effect on the current policy regarding the establishment
and collection of fines and penalties from authorized retailers and
unauthorized third parties who are found to have illegally obtained
coupons via trafficking. (See 7 CFR 278.6). Retailer fines and claims
act as a deterrent and punish retailers and unauthorized third parties
for engaging in prohibited activity. The current regulations on
retailer fines and claims at 7 CFR 278.6 provide for monetary penalties
significantly larger than the amount trafficked. The proposed policy
change providing for recipient trafficking claims, on the other hand,
would directly correlate with the benefit amount that was trafficked.
The procedure for calculating a recipient trafficking claim is
discussed elsewhere in this preamble.
The Department also proposes to establish a second category of
claims for trafficking that is analogous to the inadvertent household
error claim established for household-caused overpayments that do not
warrant IPV determinations. A State agency can assert an
``inadvertent'' misuse claim in situations where the State agency
chooses not to obtain or cannot obtain a formal designation of
trafficking through an administrative or court determination but can
document the transaction sufficiently to sustain the claim. The
Department is therefore proposing that instances of inadvertent
recipient misuse be appropriately treated as IHE's as described in 7
CFR 273.18(a)(1)(i) of the current regulations and Sec. 273.18(c) in
the proposed rule. This rule would provide the authority for State
agencies to specifically include trafficking and recipient misuse in
benefit transactions as a basis for establishing a claim against a
household.

Claim Calculation

Current regulations at 7 CFR 273.18(c)(1) and 7 CFR 273.18(c)(2)
discuss the procedures for calculating the amount of a claim due to an
overissuance. Under the proposed reorganization of 7 CFR 273.18, the
paragraphs on calculating claims would be combined under
Sec. 273.18(e)(1). In addition, some policy revisions are being
proposed in this area and are outlined below. The current paragraph
also does not include a provision for calculating claims for
trafficking. The proposed rule at Sec. 273.18(e)(2) addresses this
issue.

Calculating Recipient Trafficking Claims

The Department is proposing, in Sec. 273.18(e)(2), to include a
procedure for determining the value of a misused benefit caused by
trafficking. The amount of the misused benefit would be the value of
the trafficked benefit as determined by: the individual's admission;
adjudication; or the documentation, such as detailed electronic
benefits transfer (EBT) transaction listings, which forms the basis for
the benefit misuse determination. Trafficking claims could be either an
IPV or IHE claim depending on the nature of the procedure under which
trafficking was established.

Calculating Overissuance Claims

For an IPV claim due to an overissuance, current regulations at 7
CFR 273.18(c)(2) provide the parameters for claim calculation. Current
regulations at 7 CFR 273.18(c)(1) establish the procedures for
calculating claims for IHE and AE overissuances. In an effort to
provide a better structure, the Department is proposing to combine
these paragraphs into a single procedure in Sec. 273.18(e)(1)(i)
through (vi) in this rule. As part of this reorganization and general
streamlining effort, some unnecessary prescriptive language would also
be removed. In addition to these structural and streamlining revisions,
several policy changes are also being proposed in this rule.
The PRWORA included a change in the calculation of claims caused by
unreported earned income. Section 809 of the PRWORA amended section 5
of the FSA (7 U.S.C. 2014) by specifying that the earned income
deduction ``* * * shall not be allowed with respect to determining an
overissuance due to the failure of a household to report earned income
in a timely manner.'' This changed current policy by removing the
stipulation that the failure to properly report income must be willful
or fraudulent. As a result, the Department is proposing, in
Sec. 273.18(e)(1)(iii) of this rule, that, in calculating an IHE claim,
the State agency would not apply the earned income deduction to that
part of any earned income that the household failed

[[Page 29308]]

to report in a timely manner. This would be the same policy that the
Department currently has for calculating IPV claims with unreported
earned income.
In addition to the earned income revision necessitated by the
PRWORA, the Department is proposing two additional policy changes
related to claim calculation: (1) Under the proposed rule, a State
agency would be able to waive up to 20 percent of any claim if the
household cooperates with the establishment of the claim; and (2) the
amount of the claim would be offset by the amount of any expunged EBT
benefits. These two policy revisions are discussed in greater detail in
other sections of this preamble.
Current regulations at 7 CFR 273.18(c)(1)(iii) and (c)(2)(iii)
discuss offsetting the claim amount against any amount of lost benefits
that have not yet been restored to the household. This proposed rule
does not change this policy. However, as part of the regulatory
reorganization and since this area applies more to collecting rather
than calculating claims, the Department proposes to move this paragraph
to the claims collection section of this rule.

Pre-Establishment Cost Effectiveness Determination Methodologies

Section 844 of the PRWORA amended section 13 of the FSA (7 U.S.C.
2022(b)) by stating that the collection of any overissuance does not
apply ``* * * if the State agency demonstrates to the satisfaction of
the Secretary * * *'' that it is not cost effective to collect that
claim. This establishes that interest in program integrity must be
tempered by administrative costs considerations. This provision implies
that some test must be established to assess or demonstrate the degree
of cost effectiveness for a claim. However, the Department strongly
believes that this provision (as well as the implementing language in
this rule) by no means implies that a household has an automatic
``right'' to an overpayment without fear of collection, even if the
overpayment is not cost effective for the State agency to pursue
collection. This rule addresses standards for determining which claims
must be pursued. For smaller claims State agencies should continue to
maintain some probability of collection. Knowledge that even small
overpayments may be collected increases payment accuracy by holding
households responsible for accurate reporting of their circumstances.
The Department believes that a cost effectiveness test can be
applied both prior to and after establishing a claim. This section of
the preamble discusses assessing cost effectiveness prior to
establishment and the initiation of collection action. Assessing cost
effectiveness subsequent to the initiation of collection action as a
means to determine whether a claim should be terminated and written off
is discussed elsewhere in this preamble.
In Federal fiscal year 1995 alone, over 775,000 recipient claims
were established nationwide. The Department recognizes that this sheer
volume negates any notion of a State agency demonstrating to FNS the
degree of cost effectiveness for claims on an individual basis.
Therefore, the Department is proposing in this rule that, in lieu of
demonstrating cost-effectiveness to FNS on an individual claim basis,
State agencies would use standards approved by FNS to assess the cost
effectiveness of collecting claims.
In determining these standards, the Department is proposing to
present State agencies with a choice. The first would be for a State
agency to design its own standard (subject to FNS approval). The second
option would be for a State agency to use an updated version of the
existing FNS recipient claim threshold. Both options are discussed
below.

State Agency-Developed Methodology for Cost Effectiveness
Determination

The Department is proposing, in Sec. 273.18(h)(2) of this rule, how
a State agency could adopt its own procedure, threshold, and/or
methodology for use in determining whether to pursue the establishment
of any claim and subsequent collection of the overissuance. A State
agency would need to submit a detailed analysis of costs over time and
obtain prior approval from FNS for use of this procedure, threshold
and/or methodology. Cost effectiveness should reflect total returns to
the Federal and State government and the total cost of the State claims
collection effort.
The concept of having a State agency develop its own methodology is
an expansion of current policy. The reason for this policy expansion is
twofold. First, this option would be consistent with the spirit of
section 844 of the PRWORA which increases State agency control over its
claims. The stipulation requiring prior FNS approval of the methodology
to be utilized would be needed because the provision in the PRWORA
requires that cost effectiveness be demonstrated to the satisfaction of
FNS, thus reinforcing the Federal government's interest in State
stewardship of FSP resources.
The second reason for this policy expansion is that cost
effectiveness varies significantly from one State agency to another
depending on factors such as the degree of automated processing, the
amount of historical case record information, the degree of
centralization, features of administrative structures, salaries, and
the number and size of claims established. This observation is
supported by a contracted study released by FNS in June 1996 entitled,
``Optimal Thresholds in the Collection of Food Stamp Program Claims.''
While State agencies have a responsibility to adopt cost-effective
claims management systems, this proposal would allow a State agency to
establish a cost-effectiveness methodology (subject to FNS approval) to
reflect the State agency's own situation and expenses.

FNS Threshold for Establishing and Collecting Overissuances

Current regulations at 7 CFR 273.18(d)(1)(i)(A) require that,
except for those IHE and AE claims which (1) are collected through
offset of restored benefits or (2) are less than $35 and cannot be
collected through allotment reduction, State agencies shall initiate
collection action on all IHE and AE claims. This $35 exception
represents the current FNS threshold for recipient claim collection.
Since 1982, 12 State agencies participating in the FSP have
received waivers increasing the $35 FNS threshold. State agencies have
maintained that the current threshold is too low because the cost of
establishing and collecting claims exceeded the thresholds.
Administrative costs relating to claims actions are the cost of
establishing a claim; calculating the claim; posting the claim into the
State agency accounting and reporting system; initiating the various
demand letters and notices; and managing collections. Economic factors,
such as inflation, in addition to fluctuations in salary and staffing
levels and automation start-up and maintenance costs cause changes
(usually increases) in the amount of administrative funding expended
for food stamp claim activity within each respective State agency over
a given time period. In addition, the aforementioned contractor study
on recipient claim collection thresholds found that the optimal
thresholds in the State agencies surveyed were higher than the current
collection threshold. The study also found that it was more appropriate
to apply the threshold to the costs of the combined process of
establishing and collecting claims. Including only the cost of
collection led

[[Page 29309]]

to setting too low a threshold from an economic perspective.
As a result, the Department is proposing to increase the FNS
threshold for collecting food stamp recipient IHE and AE claims. In
addition, the Department is proposing to extend this threshold to IPV
claims. The Department is also proposing utilizing the same threshold
for both establishing and collecting claims. Current regulatory
language refers only to the collection of claims and implies there is
no threshold below which claims need not be established.
In its reorganization of 7 CFR 273.18, the Department is proposing
to break out and expand the paragraph in the current regulations
dealing with the threshold, 7 CFR 273.18(d)(1)(i)(A), into
Sec. 273.18(g)(2)(ii) of the proposed rule. In Sec. 273.18(g)(2)(ii),
the threshold would be defined as the maximum dollar amount of a claim
or a claim referral that a State agency may decide not to pursue
establishment and/or collection solely based on the amount of the
referral. The purpose of the threshold is to maximize cost
effectiveness in the establishment, pursuit and recovery of
overissuances in the FSP. The Department originally considered
proposing to raise this threshold from $35 to $100. Then the Department
considered establishing a threshold that would change periodically
depending on the rate of inflation or some similar economic factor. The
Department decided to strike a balance between increased State costs
and the uncertainty of a fluctuating threshold by proposing a fixed
threshold of $125. This proposed threshold is reflected in
Sec. 273.18(g)(2)(ii) of this rule.
In addition, as noted earlier and reflected in
Sec. 273.18(g)(2)(ii) of the proposed rule, this threshold would also
apply to IPV claims. The authority to include IPV's under the threshold
is found in section 13(a)(1) of the FSA (7 U.S.C. 2022(a)(1)) which
provides the Department with the authority to delegate to State
agencies the power to ``* * * settle and adjust any [recipient] claim *
* * if the [Department] determines that to do so would serve the
purposes of this Act.'' The proposed inclusion of IPV claims under the
threshold would increase the waiver authority delegated to State
agencies.
Currently, procedures for establishing and pursuing IPV claims vary
significantly from jurisdiction to jurisdiction. By including IPV
claims under the threshold, the Department would like to reduce this
degree of variability. However, the Department would like to emphasize
that no jurisdiction would be prevented from establishing and/or
pursuing the collection of any claim that falls under this threshold.
State agencies are encouraged to pursue claims on selected bases which
would act as a deterrent or be in the best interest of the FSP or
agency to establish or collect.
Finally, the current regulations at 7 CFR 273.18(d)(1)(i)(A) do not
allow the FNS threshold to be applied to claims that can be recovered
by reducing the household's allotment. Since the utilization of this
claim collection method incurs relatively little post-establishment
costs, the Department is not proposing any changes to this policy.
The Department is interested in receiving comments on these
proposals concerning the determination of cost effectiveness for the
establishment and collection of recipient claims. In addition, the
Department is particularly interested is receiving actual cost data
from State agencies.

Claim Establishment

Claim Referral and Backlog

Under current regulations, no time frame exists for State agencies
to follow for initiating collection action by establishing claims. This
has resulted in a number of State agencies either not establishing or
not enforcing internal time frames for addressing potential claims,
thereby causing a backlog of claim referrals. These claim referral
backlogs have been cited as deficiencies and problem areas in Federal
and State-level management evaluations and audits conducted by the
Department's OIG. Potential debts that are not timely developed into
claims become less collectible the longer they remain undeveloped.
In an effort to reduce the number of claims which are not
established in a timely manner, the Department believes that it is
necessary to develop a minimum timeliness standard for establishing
claims which incorporates a standardized methodology for measuring the
length of time it takes to establish a claim after the potential
overissuance is discovered. To accomplish this, the Department must
initially set the parameters by defining the starting and ending points
of the process.
The Department is proposing that the starting point for calculating
the length of time that it takes to establish a claim would be the date
the potential claim is initially detected. This would be known as the
date of discovery and is being defined as such in Sec. 273.18(f) of
this proposed rule.
The Department considered and rejected one other alternative in its
determination of the appropriate starting point. This alternative was
to use the date of occurrence of the change that caused the
overissuance. For example, if a household was overissued benefits
because of a decrease in household size, the starting point would be
the date that the individual(s) left the household. The Department
decided not to propose this alternative because the State agency may
not become aware of the change that caused the overissuance for some
time.
In addition to proposing a starting point to gauge the length of
time it takes to establish a claim after the potential overissuance is
discovered, the Department is also proposing to define an ending point
for tracking and reporting purposes. This would be the date of
establishment. The Department is proposing, in Sec. 273.18(f)(3) of
this rule, to have the date of establishment be the date that the
initial written claim notification or demand letter is issued to the
household. This is being proposed because the Department feels that
this is the final step in establishing a claim.
The Department considered one other alternative as the ending
point. This alternative would define the date of establishment as the
date that the claim is posted as a receivable in the State agency's
claim collection and tracking system. However, while it is integral to
the establishment of a receivable, this is not being proposed because
the Department believes that a claim is not truly established until the
demand letter is sent to the household.
The Department is proposing that the length of time it takes to
establish the claim would simply be the number of days between the date
of discovery (starting point) and the date of establishment (ending
point).
Now that the mechanism for measuring the length of time it takes to
establish a claim has been proposed, the Department is proposing a
standard for the timely establishment of claims.
Originally, the Department considered a 90-day standard for
establishing claims with an allowance for up to 180 days if the State
agency needs to secure additional documentation from uncooperative
sources. However, this was not considered feasible because it would be
difficult to track and gauge its effectiveness given the additional
time allowance that would be allotted for certain claim referrals.
Instead, the Department is proposing in Sec. 273.18(f) of this rule to
conform with time frames used in other assistance programs. The
proposed rule would have the same standard as one that was in place for

[[Page 29310]]

initiating collection action in the Aid to Families with Dependent
Children (AFDC) Program in July of 1996. Specifically, claims would
need to be established before the end of the quarter following the
quarter of the discovery of the claim. As an example, if the date of
discovery is in October, November or December, the last day for sending
the demand letter in a timely manner would be March 31.
The Department is aware that a number of State agencies are either
not establishing or not consistently enforcing internal time frames for
addressing potential claims. This has resulted in what many State and
Departmental officials perceive as a ``backlog'' of claim referrals.
However, the measure of what actually constitutes a claim referral
backlog has never been defined by the Department and State agencies
have no clear regulatory guidance on this issue. With its proposed time
frame for establishing claims, the Department feels that it now has the
mechanism to propose clear guidance as to what would constitute a claim
backlog.
The Department is proposing in Sec. 273.18(f) of this rule to
define a claim backlog as existing when more than 10 percent of the
claim referrals are not established in a timely manner. The Department
chose 10 percent because it feels that an absolute zero tolerance in
this area would not account for the claims which would not be able to
be timely established based on circumstances (such as uncooperative
employers, etc.) which would be out of the State agency's control. The
Department did not choose a percentage greater than 10 percent because
it felt it would be too tolerant and condone inefficient and
ineffective claim management.
The Department would like to emphasize that the purpose of
establishing a standard for what is considered an acceptable as opposed
to an excessive backlog is not to penalize a State agency with an
excessive backlog but to provide a management tool for gauging the
State agency's claim establishment efforts.
The Department is proposing in Sec. 273.18(f) that State agencies,
in order to assess the age of referrals, be required to record the date
of discovery and the establishment date in the claim case file and/or
referral tracking system. The Department feels that this is not placing
an additional or unnecessary burden on a State agency as prudent claim
management would dictate that the State agency would have a system to
internally track referrals already in place.
Even though the Department is proposing a new standard for
determining the existence of a claim backlog, the Department would not
require State agencies to report this information to FNS. Monitoring
would be achieved in the same manner that other areas of the FSP are
reviewed and evaluated. The Department feels that the most effective
way for State agencies to address a deficiency in this area would be to
initially concentrate on preventing future backlogs by adhering to the
standards proposed in this rule. Once this is accomplished, corrective
action for the elimination of existing backlogs could be addressed.
The Department is interested in receiving comments on the proposed
standard for establishing claims and measuring a claims backlog.

Initiating Collection Action When the Household Cannot Initially Be
Located

The current regulations at 7 CFR 273.18(d)(1) contain the criteria
for initiating collection action on IHE and AE claims. This criteria
includes applying the dollar threshold for collecting claims, not
taking action on households that cannot be located and postponing
collection action on suspected IPV's. Proposed changes to the dollar
threshold and the treatment of suspected IPV's are discussed in detail
elsewhere in this preamble. In addition to these changes, the
Department is also proposing a change in policy on initiating
collection action if the household cannot be located.
The current regulations at 7 CFR 273.18(d)(1)(i)(B) provide that
the State agency shall initiate collection action for IHE and AE claims
unless the household cannot be located. The Department is proposing to
delete this paragraph and have the State agency initiate collection
action on these claims. The reason for this is that, with the advent of
innovative collection methods such as Federal and State tax refund
offset, it is much easier for State agencies to eventually locate the
household and collect the claim. In addition, the household would be
subject to allotment reduction if it returns to the FSP prior to the
claim being terminated and written off. Terminating and writing off
claims is discussed elsewhere in this preamble.
The current regulations at 7 CFR 273.18(d)(2) discuss the criteria
for initiating collection action on IPV claims. This criteria includes
making personal contact with the household. The Department is proposing
to delete this clause. This is being proposed to increase the
flexibility afforded State agencies in their collection efforts.
As with IHE and AE claims, the Department is also proposing to
delete the clause in 7 CFR 273.18(d)(2) that allows State agencies not
to pursue collection action against IPV claims if the household cannot
be located. The reason for this being proposed is the same as with IHE
and AE claims: the increased possibility of collection via Federal and
State tax refund offset and the possibility of allotment reduction if
the household returns to the FSP before the claim is terminated.

Household Notification

Requirements at Certification

In the Department's efforts to afford State agencies maximum
flexibility, the Department is taking steps to ensure that household
notification requirements (as required by the Privacy Act of 1964 at 5
U.S.C. 552a and the Debt Collection Act of 1982 (DCA), as amended by
the DCIA at 31 U.S.C. 3716(a)) are not compromised. Proper notification
involves informing the household of its rights regarding the claim and
informing the household at the time of FSP application of the potential
uses of information provided by the household to collect the claim.
Households initially provide identifying information (such as
names, addresses and social security numbers) as well as other
information regarding household circumstances at the time of
application. This information is used by State agencies for program
purposes including verification and eligibility and to refer delinquent
claims to other agencies for various collection tools and methodologies
such as tax refund, salary and administrative offset. The Department is
proposing in this rule to require that State agencies inform households
of this potential use of provided information at the time of
application in a new paragraph, Sec. 273.2(b)(4).

Demand Letter Requirements

Under the proposed rule at Sec. 273.18(g)(3), a State agency would
simply develop and use its own demand letter for claim notification and
repayment solicitation. The Department is proposing several
requirements to ensure that proper notification and due process
conditions are met when the household is informed of the existence of
the claim via the demand letter.
The first requirement being proposed by the Department in this rule
is that the claim notification or initial demand letter would continue
to contain a notice of adverse action (see Sec. 273.18(g)(3)(v)). This
notice of adverse action can either be an attachment or

[[Page 29311]]

contained in the body of the initial demand letter itself. This notice
would also provide the household with the opportunity for a fair
hearing on the validity and amount of the claim. At a fair hearing (or
at an administrative disqualification hearing for some IPVs), the
household currently is provided the opportunity to inspect and copy
agency records and review with the agency the circumstances relating to
the claim. This conforms with the information availability requirements
in the DCA at 31 U.S.C. 3716(a)(2) and (a)(3). The current regulations
regarding fair hearings (7 CFR 273.15) and administrative
disqualification hearings (7 CFR 273.16) are not affected by this
proposed rule.
In addition, to ensure proper notification per 31 U.S.C. 3716(a)(1)
and (a)(4), the demand letter or accompanying notice of adverse action
would contain information to provide the household with written notice
of: (1) The type and amount of the claim, the intent to collect the
claim, if not paid, by referral to other agencies, including private
collection agencies, for various claims collection actions including,
but not limited to, administrative offset, tax refund offset and salary
offset; (2) the opportunity to inspect and copy the records related to
the claim; (3) the opportunity for an administrative review (fair
hearing) of the decision related to the claim; and (4) the opportunity
to make a written agreement to repay the amount of the claim prior to
the claim being referred for Federal collection methods. The Department
is also proposing that the demand letter contain language specifying
that, if the claim becomes delinquent, the household may be subject to
additional delinquent and/or processing charges. Finally, the
Department is proposing that the demand letter provide notification
that all adult household members are equally liable for the claim and
that the claim, if not otherwise collected, may be referred to the
Department of Justice for litigation. These proposals are reflected in
Sec. 273.18(g)(3)(iii) and (g)(3)(iv) of this rule.

Elimination of Repayment Option Choice in the Demand Letter

Prior to the enactment of the PRWORA, section 13(b) of the FSA (7
U.S.C. 2022(a)(1)) contained the stipulation that the household had the
option of selecting the method of payment. This resulted in the
formulation of detailed regulations at 7 CFR 273.18(d)(3) implementing
this legislative requirement. In section 844 of the PRWORA, Congress
removed all references in section 13 of the FSA (7 U.S.C. 2022) which
pertained to allowing the household to select the method of payment. In
their place, Congress provided the State agency (and not the household)
with the prerogative to select the appropriate payment method. In
addition, section 844 of the PRWORA gave the State agency the authority
to establish its own requirements for providing notice to a household
with an overissuance. Although State agencies will have greater
flexibility in providing notice, the Department is proposing the
minimum due process notice requirements specified in the DCA, as
discussed above, in order to assure that collection through Federal
administrative offset and other methods are available to State
agencies. These changes are reflected in Sec. 273.18(g)(3) of this
proposed rule.
In addition, other prescriptive language in 7 CFR 273.18(d)(3)
regarding demand letter content unrelated to household notification
rights discussed above would also be removed to conform to allow for
greater State agency flexibility in this area.

Claim Management

Delinquency and Due Date

In most accounts receivable systems, certain actions beyond the
original demand letter or claim notification generally occur when a
receivable is not paid timely and becomes delinquent. These actions
usually facilitate further collection action and/or disposition of the
receivable. The Department believes that the processing of food stamp
recipient claims should be no different from other receivables in this
regard.
The Department is proposing in this rule to clearly define what
constitutes delinquency in food stamp recipient claims. This is being
proposed in an effort to increase consistency among State agencies in
the treatment of food stamp claims with outstanding balances. This lack
of consistency undermines the integrity of the aggregate receivable
data compiled by the Department as part of its financial statement. The
Department also feels that standardization is necessary in this
instance because recipient claims are ultimately Federal debts and the
individualized approach by State agencies results in inconsistent
treatment. In addition, the proper aging of claims (which is a Treasury
requirement for all Federal debts) facilitates optimal claim management
from establishment through collection and final disposition. Therefore,
the first step in effective and consistent post-establishment claims
management requires a definition of delinquency that then triggers
subsequent steps in the claims collection process.
The current regulations governing food stamp recipient claims at 7
CFR 273.18 do not define or even utilize the terms delinquent or
delinquency. Delinquency, however, is defined at 4 CFR 101.2(b) in
Treasury's FCCS as occurring when a claim ``* * * has not been paid by
the date specified in the agency's initial written notification* * *
unless other satisfactory payment arrangements have been made by that
date, or if, at any time thereafter, the debtor fails to satisfy
obligations under a payment agreement with the creditor agency.'' The
Department is planning to use this definition as a basis for defining
delinquency for food stamp recipient claims.
Delinquency, in the FCCS's definition, is determined contingent
upon the non-receipt of payment by the ``date specified'' in the
notification unless other arrangements have been made. The ``date
specified'' is commonly known as the due date. To have a delinquent
claim based on the initial demand letter, according to the FCCS, the
agency should have a due date specified in its initial demand letter.
Therefore, in an effort to establish delinquency in conformance with
the FCCS on this issue, the Department is proposing in
Sec. 273.18(g)(3)(v) to require that all initial demand letters contain
a due date in their text. The due date would be up to 30 days after the
date of the initial demand letter. This conforms with the response time
frame established by the FCCS at 4 CFR 102.2(b).
The paragraph at 7 CFR 273.18(g)(2) in the current regulations
governing recipient claims discusses the procedures when a household
fails to make an installment payment in accordance with the established
repayment schedule. This is the same situation as specified in the
second part of the FCCS's definition of delinquency which states that a
claim is considered delinquent when ``* * * the debtor fails to satisfy
obligations under a payment agreement* * * '' In this instance, the due
date would be the date that payment was to have been received in
accordance with the installment agreement. The Department is therefore
proposing, in Sec. 273.18(g)(4) of this rule, that all repayment
agreements specify when payments are to be due and that the claim will
be considered delinquent and may be subject to involuntary collection
actions if payment is not received by the due date.

[[Page 29312]]

The proposals in this rule to require a due date in both initial
demand letters and installment agreements would give the Department the
ability to define delinquency in a manner that is consistent with the
FCCS's definition. While the Department recognizes that it has the
authority to define terms and establish policy that differ from the
FCCS, it feels that it would be in the best interest of the FSP to be
consistent with the FCCS on this issue. Therefore, the Department, in
Sec. 273.18(g)(5) of this rule, is proposing to define a delinquent
food stamp recipient claim as a claim: (1) Which has not been paid by
the due date specified in the State agency's initial written demand
letter and a satisfactory payment arrangement has not been made; or (2)
if a satisfactory payment arrangement has been made, a claim for which
a payment has not been paid by a date required payment in accordance
with an established repayment schedule. A claim would remain delinquent
under either of these criteria until payment is received in full, a
satisfactory payment agreement is negotiated (or renegotiated), or
allotment reduction is invoked.
The Department is proposing to have two exceptions to its
definition of delinquency. The first exception involves multiple
claims. The Department is proposing in Sec. 273.18(g)(5)(iv) that a
claim would not be considered delinquent if another claim or claims for
the same household exists and the other claim(s) is currently being
paid either through an installment agreement or allotment reduction. In
addition, the State agency would have to expect to begin collection on
the claim once the other claim(s) is settled. This is being proposed to
ensure that claims that are collectible and simply ``waiting their
turn'' would not be subjected to activities such as involuntary
collection actions and termination.
The second exception to the definition of delinquency involves IPV
claims where the collection is coordinated through the court system.
The Department is proposing this exception in Sec. 273.18(g)(5)(iv)
because it recognizes that the State agency which is responsible for
overall food stamp recipient claim collecting and reporting may be
limited in its control over this type of claim. This exception to the
definition would be optional depending upon the collection system and
coordination between the court and State agency.
The Department is interested in receiving comments on this proposal
to define delinquency.

Delinquency and Fair Hearing Requests

Current regulations governing fair hearing requests at 7 CFR
273.15(g) state that the ``* * * household shall be allowed to request
a (fair) hearing on any action * * * which occurred in the prior 90
days.'' For food stamp recipient claims, the 90-day fair hearing
standard is applicable to the initial demand letter. Therefore, the
Department is proposing in Sec. 273.18(g)(6) of this rule to specify
that, once a household timely requests a fair hearing, all attempts to
collect the claim would cease. This would be done to protect the rights
of the household. If, when the hearing decision is rendered, it is
determined that a claim does, in fact, exist against the household, the
household would be sent another demand letter. This demand letter may
be combined with the notice of the hearing decision. The determination
of delinquency would then be based on whether payment is received or an
agreement to pay is reached by the due date on this subsequent demand
letter.
If, when the hearing decision is rendered, it is determined that a
claim does not exist, the Department is proposing in Sec. 273.18(g)(8)
that the claim be terminated and written-off. This is discussed in
greater detail in another section of this preamble.

Claim Termination and Write-off

Section 13(a)(1) of the FSA (7 U.S.C. 2022(a)(1)) authorizes the
Department to settle and adjust all or part of any food stamp recipient
claim if it serves the purposes of the FSP. Current regulations at 7
CFR 273.18(e) specify the conditions by which collection action on
claims may be suspended and terminated. Suspended claims are claims in
which no more collection action will be actively taken. A suspended
claim may be terminated after it has been held in suspense for three
years.
In many State agencies, claims that are currently under
``suspension'' are being or soon will be subjected to a variety of
collection methods. These methods include such collection alternatives
as salary offset and State and Federal tax refund offset. The
Department feels that, with the introduction of these innovative
collection methods, it would be unlikely in an effective claims
collection environment for a claim to fall under the definition of a
suspended claim as per 7 CFR 273.18(e) in the current regulations.
Therefore, the Department is proposing in this rule to eliminate all
references to the concept of suspending food stamp recipient claims.
Having a designation for claims that will be inactive for three years
without any subsequent collection action being planned serves no
purpose, especially with the advent of the additional collection
methods.
In the current regulations, there is no requirement to terminate
claims and there is no clear definition of this term. The regulations
at 7 CFR 273.18(e)(ii)(3) simply state that a ``* * * claim may be
determined uncollectible after it is held in suspense for 3 years
(emphasis added).'' The lack of a requirement or clear definition has
resulted in a large number of uncollectible claims being included in
reports submitted to FNS and sizable account receivables being
unnecessarily maintained in State agencies' ledgers. In addition,
efficient and effective claims management advocates timely and
aggressive action on a debt but with a quick disposition through
termination when the probability of collection proves low.
A study released by a Departmental contractor in August 1994
entitled, ``Standard Operating Principles and Detailed Standard
Operating Procedures for Food Stamp Recipient Claims,'' recommended
that terminating and writing-off claims be made a requirement if the
claims meet certain criteria. The study compared the current approach
to food stamp recipient claim accounting with generally accepted
accounting principles. These generally accepted accounting principles
included statements from the Federal Accounting Standards Advisory
Board, Acts of Congress, Treasury regulations (including the FCCS), and
other authoritative documents. Page 15 of the Departmental contractor
study specified that an organization's termination and write-off policy
should ``* * * include the collection agent's definition of an
uncollectible claim specifying which circumstances require a claim to
be written-off and under which circumstances a claim may be deemed
uncollectible by the decision of management. The write-off policy * * *
should be strictly applied.''
The Department, in Sec. 273.18(g)(9) of this rule, is therefore
proposing to define a terminated claim as one in which all collection
action has ceased. Under the proposed rule, a terminated claim would be
immediately written-off, that is, it would be no longer considered a
receivable subject to continued Federal and State agency collection and
reporting requirements. A claim would have to fit one of the five
criteria listed below to be terminated and written-off.
In determining which criteria should be used to terminate a claim,
the Department considered the

[[Page 29313]]

requirements found in 4 CFR 104.3 in the current FCCS published by
Treasury. This paragraph of the FCCS contains five specific standards
for terminating and writing-off claims: (a) The inability to collect
any substantial amount; (b) the inability to locate the debtor; (c) the
cost will exceed recovery; (d) the claim is legally without merit; or
(e) the claim cannot be substantiated by evidence.
In determining the Department's termination and write-off policy,
FCCS standard (a), the inability to collect any substantial amount, was
considered as it is of fundamental concern when the debtors primarily
consist of households which are currently participating or were
recently eligible to participate in a means tested program such as the
FSP.
FCCS standard (b), the inability to locate the debtor, was also
considered in the development of the Department's proposed termination
and write-off policy. The Department's termination and write-off policy
being proposed in this rule takes into account the capabilities of the
tax refund and other automated offset programs that are very effective
in collecting from difficult-to-locate household members.
FCCS standard (c), cost will exceed recovery, is certainly a factor
in the Department's proposal. Food stamp claims, by nature, are usually
relatively small with the average claim established in Federal fiscal
year 1995 being $464. This is also a predominant factor in a proposal
discussed in another section of this preamble regarding cost
effectiveness determination prior to claim establishment.
Food stamp recipient claim terminations and write-offs that may be
applicable under FCCS standards (d), claim legally without merit, and
(e), claim cannot be substantiated by evidence, are usually handled
under the fair hearing process in the FSP. Administrative
disqualification hearing and court determinations that specifically
find that no overissuance occurred are also pertinent to these
standards.
Taking into account FCCS standards (a) through (e), the Department
is proposing in Sec. 273.18(g)(9) to require State agencies to
terminate and write-off a food stamp recipient claim if it meets any
one of the following five criteria: (1) Any claim which is found to be
invalid in a fair hearing, administrative disqualification hearing or
court determination; (2) Any claim in which all adult household members
are deceased and the State agency is not planning to pursue collection
from the estate; (3) Any claim which has an outstanding balance of $25
or less and has been delinquent for 90 days or more; (4) Any claim that
the State agency has determined is not cost effective to collect; or
(5) Any claim that has been delinquent for three years.
The fourth Departmental criterion states that any claim that the
State agency has determined not to be cost effective to collect shall
be terminated and written off. To determine cost effectiveness, the
Department believes that a State agency should use the standards
already in use for food stamp recipient claims. If no standards
currently exist, the State agency shall develop standards subject to
FNS approval.
In the fifth Departmental criterion, a State agency would be
required to terminate and write-off any claim that has been delinquent
for three years. The decision to require termination and write-off
after three years of delinquency is based on a recommendation in the
aforementioned contractor study (August 1994). Page 16 of the study
specifies that ``* * * three years of delinquency is a reasonable
amount of time to collect on outstanding debts, and that debts
exceeding this time limit will likely not be collected with additional
effort or time and should be written-off.''
In addition, for the fifth criterion, the Department is proposing
to add a qualifier that the State agency may opt not to terminate a
claim which has been delinquent for three years or more if prior
collections have been realized through Federal or state tax refund
offset, salary offset or any other similar collection mechanism. This
proposed qualifier was added because, even though these claims
technically remain delinquent, the probability of collection via offset
in the future may be relatively high because a portion of the claim has
already been collected via this collection method.
An issue has been raised concerning the possible reinstatement of
terminated claims if an additional collection methodology is introduced
or an event (such as lottery winnings) occurs to substantially increase
the likelihood of future collections. In such cases State agencies may
reinstate the claim.

Compromising Claims

The areas in the current regulations at 7 CFR 273.18(g)(2) and
(g)(4) concerning compromising claims would be consolidated into its
own section, Sec. 273.18(g)(7) in the proposed rule. The Department is
proposing two revisions in this area to increase consistency with the
FCCS at 4 CFR Part 103. The first proposed revision would limit the
authority to compromise to claims under $20,000. The second proposed
revision would provide that, if a claim becomes delinquent, any
compromised portion of that claim would be reinstated to the claim
balance.

Acceptable Forms of Payment

Current regulations at 7 CFR 273.18(g) indicate that payments for
claims shall be accepted in various forms of cash, food coupons,
offsets, intercepts and reductions to the household's allotment. The
Department is proposing some policy clarifications and changes in this
area.

``Cash'' Payments

The Department would like to clarify in Sec. 273.18(h)(2)(i) of
this rule that acceptable ``cash'' payments for food stamp claims
actually take several forms. In addition to traditional forms of cash
payments such as cash, check or money order, the Department also
considers payments made via credit and/or debit cards as acceptable
methods of payment if the State agency has the capability to accept
such payments. Payment in these and other generally accepted formats
are acceptable for both lump sum and installment payments. Offering
alternative forms of payment increases the possibility of collection
and State agencies are encouraged to explore these alternative payment
methods.
Currently, no policy exists regarding the issue of crediting cash
collections received as general lump sum or installment payments for
joint food stamp/other social service program recipient claims. In an
effort to ensure that each program receives its fair share in joint
collections, the Department is proposing, in Sec. 273.18(h)(2)(ii) of
this rule, to require that each program receive its appropriate pro
rata share of any installment collection. For example, under the
proposed rule, if a $700 public assistance and $300 food stamp claim
were combined into a $1,000 claim, 30 percent of an undesignated
payment would be credited to the food stamp portion of the claim while
70 percent would be credited to the public assistance portion. This
proposal would not pertain to any designated payment or agreement that
includes the specific withholding of public assistance or food stamp
benefits to satisfy a claim.

Coupon and EBT Payments

The Department is not proposing any changes to the current
regulations regarding payments made using paper food coupons. The
Department is also not proposing any changes regarding the handling of
coupons or coupon books collected as payments. However, EBT

[[Page 29314]]

benefits are also included under the definition of coupon in the
current regulations at 7 CFR 271.2. The Department believes that the
distinctive characteristics of EBT, as opposed to those of the
traditional paper food coupon system, warrant special attention in the
area of recipient claims collection.
An active EBT benefit account is one in which benefits have been
accessed within the last three months. The Department is proposing, in
Sec. 273.18(h)(4)(iii) of this rule, to make the policy concerning
active EBT benefit accounts and claims collection consistent with the
current policy regarding claim repayment via paper coupons. This would
allow a household to voluntarily pay all or part of its outstanding
claim with funds taken from its EBT benefit account. This would differ
from allotment reduction in that the payment is being made subsequent
to the allotment being issued and credited to the household's EBT
benefit account.
The actual methodology and procedure to enact this transaction
regarding the use of Point-of-Sale devices, administrative terminals or
any other acceptable method to conduct these transactions would be
determined by the State agency and included in its EBT system design.
In addition to the above, the Department is proposing an additional
requirement to safeguard the rights of households by ensuring that
involuntary payments would not be made from EBT benefit accounts. The
proposed rule, in Sec. 273.18(h)(4)(iii), would require that the State
agency secure and retain a statement or document signed by a household
member or representative authorizing the transaction. A signed document
for each transaction would not be necessary, however, if each
transaction was completed in accordance with a signed repayment
agreement or similar document. The signed agreement would serve as
adequate documentation.
The same policy that applies to active EBT benefit accounts also
applies to inactive or stale EBT benefit accounts. Inactive or stale
EBT benefit accounts are those accounts that have not been accessed for
three months or longer and have yet to be expunged. The Department, in
Sec. 273.18(h)(4) of this rule, is proposing that voluntary payments
from inactive or stale accounts be accepted once the account is
reactivated at the request of the household in accordance with 7 CFR
274.12(f)(7).
The Department recognizes that some State agencies may have
difficulty assimilating this change into already existing EBT
environments. However, State agencies, by complying with the current
requirements in 7 CFR 274.12(e)(1), should already have a system in
place to administratively adjust amounts in EBT benefit accounts.
Adapting this system for paying off claims may not be a major
undertaking. The Department believes that, in addition to maintaining
consistency with the current policy regarding paper coupons,
cooperating households should be afforded maximum flexibility in their
efforts to voluntarily repay a claim.
The Department would also like to take this opportunity to stress
that the collection of claims using EBT benefits is considered a non-
cash collection and corresponding funds should not be drawn from the
Federal EBT benefit account by the State agency when this type of
collection is made.
EBT benefit accounts that have not been accessed by the household
for one year are expunged and households lose all entitlement to these
benefits. These benefits are then returned to FNS in accordance with 7
CFR 274.12(f)(7) of the current regulations. The Department considered
allowing State agencies to treat already expunged EBT benefits as a
``collection'' and therefore allow State agencies to retain their
appropriate share of the collection. However, since the accounts were
already expunged and returned to FNS, a complex system and reporting
mechanism would need to be designed and implemented to ensure that
these ``collected'' but expunged (and therefore essentially
nonexistent) funds are properly accounted for in FNS and State agency
reporting. The Department feels that this would be inefficient and not
cost effective from both a Federal and State agency perspective.
However, the Department does recognize that these are benefits that
the household never used. This presents the possibility that a
household may have consciously not used its benefits because it was
aware of the existence of an overissuance and, essentially placed these
funds ``in escrow'' to make good on the error. The Department believes
that including this amount in a claim to repay the overissuance is
inappropriate. Therefore, the Department is proposing, in
Sec. 273.18(e), to allow a State agency to subtract the value of
expunged EBT benefits from overissuances prior to the establishment of
the claim. This would be the final step in the claim calculation
process and would not be considered a ``collection'' for Federal
reporting purposes. In instances where the claim is already established
and benefits become expunged, the State would subtract the amount of
the expunged benefits from the claim balance. This is reflected in
Sec. 273.18(h)(4)(v) of this proposed rule. Again, this adjustment
would not be considered a ``collection'' for Federal reporting
purposes.
The Department is interested in receiving comments on the use of
funds from EBT benefit accounts to repay outstanding recipient claims.

Collection and Payment Methods

Section 844 of the PRWORA made significant changes to the FSA (7
U.S.C. 2011-2032) in the areas of collections and payments. One
revision to section 13 of the FSA (7 U.S.C. 2022) states that a State
agency shall collect a claim ``* * * in accordance with requirements
established by the State agency for * * * electing a means of payment,
and establishing a time schedule for payment.'' This change is
significant in two areas. First, the State agency, and not the
household, now determines the appropriate collection method, including
whether to provide options to the household, when the claim is
initially established. Second, this revision also provides the State
agency with the ability to involuntarily subject all claims to all
collection methods--including those such as allotment reduction for AE
claims that, until the enactment of the PRWORA, could only be collected
on a voluntary basis. These changes are reflected in each applicable
paragraph in Sec. 273.18(i) in this proposed rule.
The PRWORA addresses specific collection methodologies by stating
that a claim shall be collected by ``* * * (A) reducing the allotment
of the household; (B) withholding amounts from unemployment
compensation * * *; (C) recovering from Federal pay or Federal income
tax refund * * *; or (D) any other means.'' The PRWORA further states
that these methods shall not be applicable if the State agency can
demonstrate ``* * * that all of the means are not cost effective.''
This proposed rule includes a paragraph in Sec. 273.18(i) for each of
the collection methods (allotment reduction, unemployment compensation,
and Federal salary and Federal income tax refund offsets) specified in
the PRWORA. Federal salary and Federal income tax refund offsets are
also discussed in much greater detail elsewhere in this preamble and in
Sec. 273.18(p). In addition, other means of payment, notably lump sum
and via installments, are included in Sec. 273.18(i). Cost
effectiveness is addressed in the detailed discussion for each payment
method as well as in the discussions in

[[Page 29315]]

this preamble regarding pre-establishment cost effectiveness
determination and claim termination and write-off.

Allotment Reduction

A major change in section 13 of the FSA (7 U.S.C. 2022) brought
about by section 844 of the PRWORA involves the use of allotment
reduction to collect claims. Prior to the enactment of the PRWORA, a
participating household with any type of claim could opt to pay its
claim using a method other than allotment reduction. In addition, a
State agency was statutorily prohibited from invoking involuntary
allotment reduction against a household with an AE claim. Section 844
of the PRWORA removed the household's right to choose the payment
option for any type of claim. As a result, this places allotment
reduction, which is widely recognized by State and local agencies as
the most cost effective and efficient food stamp recipient claim
collection method, in the forefront as the primary collection method.
This is being reflected in this rule. The Department is proposing,
in Sec. 273.18(i)(1), to require that a State agency automatically
collect payment from a participating household for any established
claim, including an AE claim, through allotment reduction. There would
only be two stipulations to this proposal. The first would be that the
household would need to be initially notified of the existence of the
claim. This is discussed in greater detail elsewhere in this preamble.
The second stipulation would be that a household's initial allotment
shall not be reduced to collect the claim. This stipulation is included
because the initial allotment is usually pro rated and therefore has
already been reduced. This is not a change from current policy.
Some may argue that it is unfair to a household to collect an AE
claim through involuntary allotment reduction since the reason for the
overissuance was not the fault of the household. The Department
believes that, since Congress specifically removed the prohibition from
the FSA, that it is clearly the intent of Congress to allow this type
of collection.
In addition to the above, the Department is proposing to make three
additional policy and several structural revisions to the paragraph
governing allotment reduction at 7 CFR 273.18(g)(4) in the current
regulations. The structural revisions are being proposed to avoid
repetition by eliminating much of the language in the introductory
paragraph that may be found elsewhere in the rule. This includes the
notification procedures and the acceptance of lump sum payments.
Two of the three additional policy changes in allotment reduction
being proposed concern the current benefit reduction procedures and IPV
claims. The current regulations at 7 CFR 273.18(g)(4)(i) provide that
benefit reduction for an IHE claim is to be computed from the monthly
allotment. The allotment is the benefit level that the household is
scheduled to receive. Benefit reduction (in current 7 CFR
273.18(g)(4)(iii)) for an IPV claim, on the other hand, is to be
computed from the monthly entitlement. The entitlement is the benefit
amount that the household would have received if the household member
was not disqualified for committing the IPV. Several State agencies
have obtained waivers to use the allotment rather than the entitlement
as the basis for reducing the household's benefits. For the purposes of
administrative efficiency, which was the basis for the Department
approving the waivers, this rule, in Sec. 273.18(i)(1)(ii), would allow
all State agencies to determine the benefit reduction amount for IPV
claims based on either the allotment or entitlement as long as all
areas within the State handles the calculation of benefit reductions in
the same manner.
Current regulations at 7 CFR 273.18(g)(4)(iii) limit the reduction
amount for an IPV claim to the greater of 20 percent of a household's
monthly entitlement or $10 per month. In the second policy change, the
Department is proposing, in Sec. 273.18(i)(1)(ii), to increase the
maximum recoupment amount for an IPV claim to the greater of $20 per
month or 20 percent of a household's monthly entitlement or allotment.
This is being proposed as an effort to expedite the collection of
claims stemming from intentional violations. The rule also proposes in
Sec. 273.18(i)(1)(i) to provide that individuals in households subject
to allotment reduction are not subject to involuntary collection by any
other methods.
The final policy change being proposed in this rule is to
specifically include a paragraph (Sec. 273.18(i)(1)(v)) which would
provide a State agency with the prerogative to pursue additional
collection methods against individuals who are past household members
and who are severally responsible for repayment of this claim. This is
being proposed because of the dynamic nature of households in regard to
make-up and participation in the FSP.

Intercept of Unemployment Compensation Benefits

Current regulations at 7 CFR 273.18(d)(3)(vi) state that a State
agency may implement the intercept of unemployment compensation
benefits as a voluntary payment option for IPV claims. In addition, the
current regulations at 7 CFR 272.12 also discuss collecting claims via
this method. In an effort to streamline this area of the regulations,
the Department is proposing, in this rule, to remove the paragraph
currently at 7 CFR 272.12.
In addition to the above streamlining effort, a change in policy,
brought about by section 844 of the PRWORA, is being proposed regarding
collection via an intercept of unemployment compensation benefits.
Currently, the intercept of unemployment benefits is allowed only
for IPV claims. Section 273.18(i)(5) of the proposed rule would extend
this collection method to any claim. This is being proposed to conform
with the requirement in section 840 of the PRWORA that provides for a
State agency to use any collection method to collect any type of claim.
Currently, unemployment compensation intercept is optional and
State agencies are not mandated to use this collection method. The
Department is not proposing to change this policy in this rule. The
reason for the Department not proposing to mandate this collection
method is that the intercept of unemployment compensation benefits is
State-specific and therefore it may not be cost effective to implement
in some State agencies. Even though this would remain an option under
this proposed rule, the Department strongly urges State agencies to
pursue this avenue of claims collection.

Coordination with Federal Claim Collection Methods

Current rules specify requirements for FTROP and FSOP at 7 CFR
273.18(g)(5) and (g)(6). This rule would include proposed requirements
for these as well as other Federal collection programs such as the
Treasury Offset Program (TOP) at Sec. 273.18(p). To the extent that it
is feasible, the Department wants State agencies to use these and other
Federal collection methods concurrently with State agency methods.
Accordingly, this rule proposes at Sec. 273.18(i)(7) to authorize such
concurrent collection.

Lump Sum Payments

Current regulations at 7 CFR 273.18(g)(1)(i) through (iii) allow
for the full or partial collection of claims via a

[[Page 29316]]

lump sum cash or coupon payment. As part of the regulatory
reorganization, these three paragraphs would be consolidated into one
paragraph (Sec. 273.18(i)(3)) in the proposed rule. The proposed rule
would also include using funds in an EBT benefit account as a lump sum
payment. This is discussed in greater detail elsewhere in this
preamble.

Installment Payments

Current regulations at 7 CFR 273.18(g)(2) provide the procedures
for installment payments. The Department is not proposing to make any
substantial change to the procedure found in the first paragraph (7 CFR
273.18(g)(2)(i)) of this section. Paragraphs (ii) through (iv) of 7 CFR
273.18(g)(2) in the current regulations provide detailed procedures for
when the household fails to make a scheduled payment. These procedures
currently call for providing a household with another notice and an
opportunity to renegotiate its payment schedule if it fails to make a
payment. The Department, in an effort to streamline this area of the
regulations, is proposing to increase State agency flexibility by
eliminating much of the language contained in these paragraphs.
The Department believes that installment payments should be made
available but also should be at least as efficient and effective as
allotment reduction and other collection methods. Consequently, the
proposed rule at Sec. 273.18(i) would permit a State agency to take
whatever action it feels is appropriate if a household fails to make an
installment payment provided the household was previously notified of a
potential adverse action if payments are not made in accordance with
the terms of the original repayment agreement.

Additional Collection Actions

The Department is proposing in Sec. 273.18(i)(6) to add a paragraph
stating that State agencies may employ any additional collection
methods to collect claims. These actions would include, but would not
be limited to, referral to a collection agency, state tax refund and
lottery offsets, wage garnishments, property liens and small claims
court. This is being proposed to clarify that State agencies are able
to employ any other means of collection for all types of claims.

Retention Rates

The applicable retention rates in the current regulations at 7 CFR
273.18(h) for collections by a State agency are 50 percent for IPV
claims and 25 percent for IHE claims. Section 844 of the PRWORA changes
these rates by amending section 16(a) of the FSA (7 U.S.C. 2025(a)) to
replace the current rates with 35 percent retention for IPV claims and
20 percent retention for IHE claims. In addition, as indicated in
section 13 of the newly amended FSA (7 U.S.C. 2025), if an IHE claim is
collected via unemployment compensation, that collection would also
have a 35 percent retention rate. The Department is proposing, in
Sec. 273.18(m) of this rule to make the adjustments in the rates
accordingly.

Submission of Payments

Current regulations at 7 CFR 273.18(i) discuss the procedures for
the submission of State agency payments for claims collections to FNS
and payments from FNS to the State agency. The only change that the
Department is proposing in this area is to eliminate the State agency
option of receiving a Federal check for payment of claims collection
retention and replace it with electronic funds transfer. The Department
is proposing this change to comply with the DCIA. The DCIA requires
Federal agencies to convert from checks to electronic funds transfer.
In addition, as part of the regulatory reorganization, much of the
prescriptive language would be removed and this paragraph would be
moved to Sec. 273.18(n) in this proposed rule.
The current regulations at 7 CFR 273.18(i)(4) discuss providing
refunds for overpaid claims. As part of the regulatory reorganization,
this is broken out into its own paragraph, Sec. 273.18(j), in the
proposed rule.

Bankruptcy

Current regulations at 7 CFR 273.18(k) discuss the procedures for
proceeding against households with claims which file for bankruptcy.
The current policy authorizes State agencies to act on FNS's behalf to
recover claims when households file for bankruptcy. The Department is
not proposing to make any changes in policy regarding this area of the
regulations. However, as part of the regulatory reorganization, this
paragraph would be moved to Sec. 273.18(l) in this rule.

Accounting Procedures

Current regulations at 7 CFR 273.18(l) discuss the accounting
requirements and procedures to be maintained by State agencies. Further
procedural clarification is being provided on this issue and this
paragraph is being moved to in Sec. 273.18(o) in this rule.

Interstate Claim Collection

Current regulations at 7 CFR 273.18(m) discuss the continuation of
collection action against households that have an outstanding claim and
move from one State agency's jurisdiction to another. The regulations
state that a receiving State agency should initiate or continue
collection action when it ascertains that the originating State agency
does not intend to pursue collection. Feedback received from State
agencies indicates that this policy has not been successful in
recovering interstate claims and needs to be strengthened to assure
cooperation among State agencies. A number of State agencies have
entered into claim-transferring agreements among themselves on their
own initiative but it has not been a nationwide effort. This has
resulted in a household being able to avoid paying its claim simply by
relocating to another State. Federal tax refund offset does address
this issue to some extent by conducting a nationwide search and
subsequently collecting claims against household members regardless of
where they currently reside. However, Federal tax refund offset is
limited to those households with members who file a Federal income tax
return and are due a refund.
The Department believes that food stamp recipient claims, as
Federal debts, should be more vigorously pursued by State agencies when
households move across State borders. Therefore, the Department is
proposing to amend 7 CFR 273.18(m) by breaking it out into separate
paragraphs to specifically outline the responsibilities of the
originating and receiving State agencies. This amendment is intended to
maximize collection potential while maintaining State agency
flexibility.
The Department is proposing that, unless an actual interstate
transfer takes place, the originating State agency will continue to
have the responsibility for collection action on any recipient claim
regardless of whether the household remains in its jurisdiction. State
agencies, however, would be able to formally transfer this
responsibility for individual claims to receiving State agencies under
certain circumstances. The types of interstate transfers being proposed
are discussed in the succeeding paragraphs of this preamble.
To strengthen the interstate claim collection process for
participating households, the Department is proposing to further amend
7 CFR 273.18(m) to require that a State agency must accept the transfer
of the remaining balance of any claim from another State agency if it
is discovered that the household is participating in the FSP in the
receiving State. This ensures efficient claims collection since
allotment reduction, a highly effective

[[Page 29317]]

collection tool, is available to the receiving State agency. Once the
transfer takes place, the claim would then no longer be the
responsibility of the originating State agency and the receiving State
agency would be able to retain any applicable retention amounts for
subsequent collections. The amended regulatory text being proposed is
being designated as its own paragraph, Sec. 273.18(k)(3) in the
proposed rule.
In addition, to facilitate this process, the Department is
proposing, in a new paragraph, Sec. 273.18(k)(2), to require that State
agencies timely respond to inquiries concerning household participation
received from State agencies who have reason to believe that a
household or adult members of a household with an outstanding claim
have relocated to that State. A response would be considered timely if
a determination is made within 30 days. If an examination of the
receiving State agency's caseload does reveal that the household (or
any of its adult members) are, in fact, receiving benefits in that
State, the State agency would then accept the transfer of the claim
balance from the originating State agency and continue collection
action efforts including allotment reduction. The receiving State would
keep any retention amounts for transferred claims.
The Department is also proposing to add another new paragraph,
Sec. 273.18(k)(4), to allow, but not require, receiving State agencies
to accept the transfer of any claim if the household is not
participating. This policy is being maintained to maximize flexibility
as well as facilitate the new claim termination process being proposed
in another section of this rule.

Federal Claim Collection Methods (FCCM's)

This rule proposes changes to current regulations on FTROP and
FSOP. These changes are proposed to incorporate certain legislative
changes and to implement certain other changes based on experience
operating these programs. The Department believes that these changes
will enhance the collection of recipient claims and will make that
collection more efficient, especially for State agencies. In summary,
these changes would:

--Require all State agencies to use FCCM's (unless the methods are
shown to be not cost beneficial).
--Require that all claims that meet the criteria, including AE claims,
be submitted for collection under FCCM.
--Provide that claims may be collected by FTROP and/or administrative
offset (ADOP), or by FSOP and/or ADOP.
--Provide that FTROP 60-day notices and FSOP advance notices advise
debtors that their claims are subject to ADOP.
--Comply with the hearing requirements for ADOP with the hearing
opportunities currently provided under FTROP and FSOP.

Federal Claim Collection Methods (FCCM's)

This rule would introduce the phrase ``Federal claim collection
methods'' and its acronym ``FCCM's'' at Sec. 273.18(p)(1). Currently
there are two such collection methods, FTROP and FSOP. As discussed
later in this preamble, this rule is proposing an additional collection
method that would be operated at the Federal level. The new method is
ADOP. There are several policies and procedures that would become
common to these three collection methods. As discussed in this preamble
several paragraphs below, FNS plans to develop a single manual which
for all three programs would contain such things as computer system
record layout and production schedules and guidance on procedures for
handling special cases and for fiscal and accounting matters. The rule
would also specify that under FCCM's State agencies would retain their
recipient claims responsibilities, that would provide certain
information on claims subject to FCCM's and would receive amounts
collected based on the currently authorized retention rates.

Mandated Participation

Section 844 of PRWORA amended section 13(b) of the FSA (7 U.S.C.
2022(b)) to require that, unless State agencies can demonstrate that
the methods are not cost effective, they must collect overissued food
coupons (recipient claims) from Federal pay or Federal income tax
refunds.
Currently, these two collection methods, FTROP and FSOP are
optional for State agencies. Regulations at 7 CFR 273.18(g)(5)(i)
provide that State agencies which choose to implement FTROP must submit
an amendment to their Plan of Operation stating that they will comply
with FTROP regulations. Choosing to implement FTROP entails
implementing FSOP because current regulations at 7 CFR 273.18(g)(6)(i)
provide that all claims submitted for FTROP are also subject to FSOP.
This rule proposes to delete the language on State agency option to
implement FTROP. At Sec. 273.18(p)(2)(i), the rule would require that
all State agencies submit all claims which meet certain criteria for
collection by FCCM's.
Mandatory implementation of FCCM's will affect few State agencies.
In calendar year 1998, of the 52 State agencies who could use FCCM's,
47 are doing so. As discussed under the paragraph on Implementation at
the end of this preamble, this rule would be required to be implemented
180 days after its publication is final. The Department expects that
this implementation period would be sufficient for State agencies to
implement FCCM's during calendar year 1999.
Consistent with mandatory implementation of FCCM's, this rule
proposes deleting the requirement (in current rules at 7 CFR
272.2(a)(2) and (d)(1)(xii) and 7 CFR 273.18(g)(5)(i)(A)) that State
agencies choosing to implement FTROP and FSOP submit an amendment to
their Plan of Operations.

Administrative Offset

Prior to the DCIA, under administrative offset, debts owed by
persons to the Federal government are collected from payments due those
persons from the Federal government. The DCA at 31 U.S.C. 3716 as
amended by the DCIA greatly expanded the Federal government's authority
to collect Federal debts through ADOP.
The Department believes that implementing the DCIA's provisions
relating to ADOP would significantly enhance collection of FSP
recipient claims. First, the amended DCA at 31 U.S.C. 3716(c)(1)(A)
requires that, with certain exceptions, disbursing officials of Federal
government agencies must at least annually offset from Federal payments
claims submitted by creditor agencies. Heretofore, while there has been
general authority for administrative offset, there has not been a
general requirement that Federal payments due to individuals be offset
against debts those individuals owe the Federal Government. Second, the
amended DCA at 31 U.S.C. 3716(c)(3)(A)(ii) provides that, except for a
$9,000 annual exemption, all payments due a debtor under the Social
Security Act are subject to ADOP. Third, the amended DCA at 31 U.S.C.
3716(c) centralized the ADOP procedures in a single Federal agency, the
Department of the Treasury.
Accordingly, as discussed in detail later in this preamble, this
rule proposes to add ADOP to FTROP and FSOP by modifying the required
due process and privacy notices to notify the debtor that, in addition
to being subject to collection from tax refunds and Federal wages, the
claim in question is also subject to

[[Page 29318]]

collection from other payments due the debtor from the Federal
government. The Department expects that there will be little work
impact on State agencies related to referring claims for ADOP. FNS will
refer for collection by ADOP claims submitted by State agencies. FSOP
claims referred to FNS for notices of intent which are referred for
collection from Federal salaries will also be referred for collection
by ADOP. Funds collected through ADOP will be transferred to State
agencies and reported with FTROP and FSOP collections. Current
regulations on FTROP specify update requirements for State agencies,
and FNS has provided State agencies update procedures for FSOP. This
rule proposes a general requirement for updating records of claims
submitted for collection through FCCM's.

Cross Servicing

The amended DCA at 31 U.S.C. 3711(g) requires that debt delinquent
over 180 days be transferred to the Secretary of the Treasury for
``cross servicing.'' Under cross servicing, the Department of the
Treasury (Treasury) would pursue a variety of claims collection actions
such as referring the claim under FTROP and FSOP. Treasury would refer
debts to debt collection centers (selected Federal agencies) which
would pursue these actions.
The Department is currently working with Treasury to determine the
best way to implement this collection strategy. As such, this rule does
not propose adding procedures for cross servicing at this time.

Claims Subject to FCCM's

As part of administrative offset provisions, the amended DCA now
requires at 31 U.S.C. 3716(c)(6) that any Federal agency that is owed a
past due, legally enforceable nontax debt that is over 180 days
delinquent, including nontax debt administered by a third party acting
as an agent for the Federal Government, must notify the Secretary of
the Treasury of all such debt for purposes of administrative offset
(emphasis added). Currently, rules for FTROP and Salary Offset set
criteria for claims which may be submitted for collection under these
procedures. This rule proposes that, subject to two conditions
discussed just below, all delinquent recipient claims be submitted for
collection under FCCM's. The Department is proposing this requirement
because FCCM's are extremely effective. For example, net dollar
collections under FTROP (voluntary payments and collections from
Federal tax refunds less offset fees and Treasury reversals) exceed 20
percent of the dollar value of claims submitted. FSOP offers the only
way to locate and pursue collection against the salaries of Federal
employees who are liable for overissued food stamp benefits. (The
Internal Revenue Service (IRS) currently prohibits referral of debts
for FTROP which can be collected from Federal employees' salaries.)
Finally, and especially with the addition of ADOP, FCCM's provide State
agencies access to sources of significant collections not otherwise
available to them.
In addition, this rule proposes that, unless no liable individual
can be located, State agencies must pursue one or more State agency
claim collection method before submitting a claim for collection under
FCCM's. The rule proposes to specify that demand letters sent to liable
individuals at the most current address known to the State agency and
returned as undeliverable would be sufficient to show that no liable
individual could be located. The requirement for State agency
collection initiative as a condition to the use of FCCM's is being
proposed to make the procedures for the other components of FCCM
consistent with the FTROP requirement that the (Federal) agency satisfy
the Secretary of the Treasury that the agency has made reasonable
efforts to obtain payment of the debt. (See 31 U.S.C. 3720A(b)(4).) In
addition, the Department believes that it is most efficient for State
agencies to attempt collection action with methods available to them
and that if those methods are not successful relatively soon after
initiation, debts should be referred for collection through FCCM's.
As stated above, the amended DCA at 31 U.S.C. 3711(c)(6) requires
that claims 180 days delinquent be submitted for ADOP. State agencies
are establishing claims at a rate of over 775,000 per year. To have a
State agency submit each claim for FCCM's as soon as that claim is 180
days delinquent is not administratively or logistically possible at
this time. Therefore, the Department is proposing that State agencies
be required to submit claims for FCCM's at intervals to be determined
by the Department. The Department will continue to work with Treasury
to fine tune this process to implement this aspect of the DCIA.
Accordingly, this rule proposes at Sec. 273.18(p)(1)(i) that all
claims would be subject to collection by FCCM's only after the State
agency has initiated one or more State agency collection methods. The
rule also proposes that the requirement for a State agency collection
effort will not apply when no liable individual can be located as
indicated by such evidence as demand letters returned as undeliverable.
Finally, in this regard, the rule proposes that State agencies must
submit all delinquent claims for collection by FCCM's.

Procedures and Schedules

Current rules at 7 CFR 273.18(g)(5)(i)(B) specify that State
agencies submit data for FTROP to FNS in the record formats specified
by FNS and/or Treasury, and according to schedules and by means of
magnetic tape, electronic data transmission or other method specified
by FNS. This rule proposes to apply these procedures to FCCM's in
general.
This rule would require that, in addition to following computer
data-related guidance, State agencies follow other technical and
procedural guidelines as specified by FNS. During the testing of FTROP
and FSOP, FNS conducted several national training sessions during which
FNS provided substantial guidance on computer system operations, policy
requirements and the financial reporting and funds processing for FTROP
and FSOP. Following the training sessions, FNS provided packages of
written responses to questions raised during the sessions. On an
ongoing basis, FNS responds to numerous questions from State agencies
concerning how to handle particular cases with respect to computer
systems, collection policies and financial and accounting procedures.
FNS sees a need to continue to provide this material so that all staff,
Federal and State agency, involved with different aspects of FCCM's,
have a single, consolidated operations manual.
This manual will be called the ``Manual for Federal Claims
Collection Methods for the Food Stamp Program'' (the FCCM manual). The
basis of the FCCM manual would be the current manual used for FTROP and
FSOP data management (the Federal Debt Collection Program Revenue
Procedure Manual 1997). As is the case with the current manual, the
FCCM manual would be a vehicle for providing technical guidance for
complying with established regulatory requirements. (See
Sec. 273.18(p)(1)(ii).)

Identification of Type of Claims

Currently State agencies are not required to identify the type of
claim submitted for FTROP and FSOP. This rule proposes to require that
claims submitted for collection under an FCCM be identified as an IPV,
IHE or AE claim. Instructions on how to make such identification will
be provided in the

[[Page 29319]]

FCCM Manual. The new information would be included in currently
required data submissions and record formats. The rule proposes this
new requirement because, effective with implementation of this rule,
for collection made under FCCM's, FNS intends to transfer to State
agencies the dollar amount of each collection to which the State agency
is entitled based on current retention rates for each type of claim.
Currently, FNS transfers gross collections net of IRS fees from FTROP
and FSOP to State agencies. State agencies then report these
collections to FNS on the FNS-209, Status of Claims Against Households,
retain the percentage of the collections to which they are entitled
under section 16(a) of the FSA (7 U.S.C. 2025(a)) and transfer
appropriate amounts back to FNS. With annual FTROP collections of about
$40 million, this process results in significant amounts of Federal
funds not being as promptly transferred to Treasury as they could be.
Current rules allow State agencies to combine claims for an
individual into one claim in order to try to collect on all of the
claims through FTROP or FSOP. This rule would require that for any
claim submitted for collection under FCCM's which is a combination of
more than one type of claim, the State agency must specify the dollar
amounts due to each type of claim.

File Updates

Current rules at 7 CFR 273.18(5)(ix)(A) require that for FTROP
purposes State agencies update Treasury files. As discussed above, this
rule proposes to make that requirement apply to FCCM's in general.
Accordingly, this rule at Sec. 273.18(p)(1)(iv) proposes to require
that, as instructed in the FCCM manual, State agencies must update
files by reducing the amounts of and deleting claims to reflect
payments received, and by deleting claims which for other reasons are
no longer subject to collection.

Hierarchy of Collection Methods

The mechanisms for ADOP are currently being developed.
Consequently, the Department expects that until those mechanisms are in
place, claims submitted for collection under FTROP and FSOP will be
collected through those methods before any remaining debt is collected
through ADOP from other Federal payments. Once ADOP is operational, a
debt submitted under FTROP, for example, might be collected from
another Federal payment if that payment was identified and available
before the tax refund was offset. Accordingly, this rule proposes to
state at Sec. 273.18(p)(2)(v) that claims submitted under FCCM's would
be offset from Federal payments due to debtors as such payments are
identified and are available for offset.

Federal Income Tax Refund Offset Program (FTROP)

Among other things, this rule proposes to simplify the statement of
criteria for claims subject to collection under FTROP, shorten and
restructure the 60-day notice to eliminate unnecessary material, and to
clarify that the 60-day notice is a demand for payment of a debt.

Limitation to IPV and IHE Claims

Current rules at 7 CFR 273.18(g)(5)(ii)(A)(1) limit the types of
claims subject to FTROP to IPV and IHE claims. As discussed earlier in
this preamble, section 844(a) of the PRWORA amended the FSA to provide
that, subject to a State agency's demonstration that the collection
method is not cost effective, all claims collection methods must be
applied to all types of claims. Accordingly, this rule proposes to
remove the limitation of FTROP to IPV and IHE claims.

Properly Established Claims

The regulatory paragraph cited just above also specifies that
claims submitted under FTROP must be properly established no later than
the date the State agency transmits its final request for Treasury
addresses for the particular offset year. This requirement was made to
assure that claims are not referred for collection under FTROP unless
and until an individual has had an opportunity for a fair hearing and
any fair hearing decision is reached. As discussed above, this rule
proposes at Sec. 273.18(g)(6) to require that State agencies cease any
collection action upon timely receipt of a fair hearing request.
Accordingly, this rule proposes not to reiterate the proposed
requirement with respect to FTROP.

Required Documentation

The same regulatory paragraph cited above also elaborates on the
records required for properly established claims. The Department
believes that this language is unnecessary. State agencies will develop
and retain appropriate records of their claims activities as a result
of the various requirements for those activities proposed in this rule.
In addition, the current regulations at 7 CFR 272.1(f) already require
state agencies to retain fiscal records and accountable documents for 3
years from the date of fiscal or administrative closure. This rule does
not propose any changes to this policy. Accordingly, this rule proposes
not to state a records requirement specifically for FTROP or any other
FCCM.

Collection From All Liable Parties

Current rules at 7 CFR 273.18(g)(5)(ii)(A)(2) specify that for a
claim to be subject to FTROP the State agency must have verified that
no individual who is jointly and severally liable for the claim is also
currently participating in the FSP in the State. Since claims owed by
participating households must be recouped from the monthly allotment,
this requirement prohibited the simultaneous collection of a claim from
a participating household through recoupment and from nonparticipating
household members through FTROP.
State agencies objected to this restriction. They argued that with
the restriction the entire burden of paying the claim fell on
participants. State agencies also objected to the restriction because
collection solely by recoupment meant that claims were often paid more
slowly than they could be when there were liable, nonparticipating
individuals with Federal tax refunds. This rule proposes at
Sec. 273.18(i)(1)(v) to allow simultaneous collection through
recoupment from liable, participating households and through other
means from liable, nonparticipating individuals. In addition, this rule
proposes at Sec. 273.18(i)(1)(i) to prohibit additional involuntary
collection from individuals who are in households subject to allotment
reduction. Accordingly, the rule proposes to delete from current rules
the requirement that for a claim to be subject to FTROP the State
agency must have verified that no individual who is jointly and
severally liable for the claim is also currently participating in the
FSP in the State.

Concurrent Collection Efforts

Current rules at 7 CFR 273.18(g)(5)(ii)(A)(5) state that claims are
not subject to FTROP if the State agency is receiving either regular
voluntary payments or involuntary payments such as wage garnishment. In
addition, the rule specifies that claims for which a State agency has
been receiving regular payments (either voluntary or involuntary) are
considered past due and legally enforceable (and so are subject to
FTROP) if the individual does not respond to a notice of default.
As discussed earlier in this preamble, this rule proposes at 7 CFR
273.18(i)(7) that State agencies may continue (State-based) collection
efforts on claims after submitting them for collection under

[[Page 29320]]

FCCM's. Accordingly, this rule proposes to eliminate the requirement
that claims cannot be submitted for FTROP if the State agency is
receiving voluntary or involuntary payments such as wage garnishment.
Under provisions related to voluntary payments which this rule
proposes at 7 CFR 273.18(i)(4), there would no longer be a requirement
that State agencies send households which fail to make scheduled
payments a notice and an opportunity to renegotiate the payment
agreement.

No Reduction in the Dollar Amounts Submitted

Current rules at 7 CFR 273.18(g)(5)(ii)(B)(1) require that all
claims submitted for collection under FTROP must be reduced by any
amounts subject to collection from State income tax refunds or from
other sources which may result in collections during the offset year.
This rule proposes to eliminate this provision because, as discussed
above, this rule proposes to allow State agencies to continue to pursue
State agency collection efforts on claims submitted for collection
under FCCM's. State agencies will have an increased responsibility to
maintain adequate records of collections in order to minimize over
collections and to promptly refund any which might occur.

Claims Apportioned Among Two or More Individuals

Current rules at 7 CFR 273.18(g)(5)(ii)(B)(3) provide that if a
claim submitted under FTROP is apportioned between two or more
individuals who are jointly and severally liable for the claim, the sum
of the amounts submitted cannot exceed the total amount of the claim.
This rule proposes to eliminate this provision. The apportioning of a
claim as prescribed in this provision was required to conform to an
informal IRS policy. The Department believes that the provision for
joint and several liability established by section 13(a)(2) of the FSA
(7 U.S.C. 2022(a)(2)) establishes the Department's authority to pursue
a claim's full amount from all liable adults until the claim is paid.
Debtors are protected by the requirement for State agencies to promptly
post records and provide refunds of any over collections as this rule
proposes at Sec. 273.18(j).

All Delinquent Claims

Current rules at 7 CFR 273.18(g)(5)(ii) provide that State agencies
may submit claims for collection under FTROP recipient claims which are
past due and legally enforceable. As discussed above, this rule would
require that all claims which are delinquent and have been subject to
one or more State agency collection methods are subject to collection
under FCCM's. Accordingly, this rule proposes to state at
Sec. 273.18(p)(2)(i) that State agencies must submit for collection all
recipient claims which are delinquent, which are legally enforceable
and which meet the criteria specified in the subsequent subparagraphs.

Minimum Dollar Value

Current rules at 7 CFR 273.18(g)(5)(ii)(A)(3) require that claims
submitted under FTROP must meet at least the minimum dollar amount
established by Treasury. This minimum continues to be $25. This rule
would make no change in this requirement. FNS would advise State
agencies if the Treasury minimum changes. The requirement is stated at
Sec. 273.18(p)(2)(i)(A) in this proposed rule.

10-year Limit

Current rules at 7 CFR 273.18(g)(5)(ii)(A)(4) require that claims
submitted under FTROP must be claims for which the date of the initial
demand letter is within 10 years of January 31 of the offset year,
except that claims reduced to final court judgments ordering
individuals to pay the debt are not subject to this 10-year limitation.
This rule proposes no changes in this requirement, which is stated at
Sec. 273.18(p)(2)(i)(B).

Voluntary Payments

As discussed above, this rule proposes to state at 7 CFR
273.18(i)(1)(i) that individuals in households subject to allotment
reduction are not subj

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A98-13848. Public record. Not legal advice.