Child and Adult Care Food Program Improving Management and Program Integrity, 34542-34572 [2011-13623]

Agencies

• DEPARTMENT OF AGRICULTURE
• Food and Nutrition Service

[Federal Register Volume 76, Number 113 (Monday, June 13, 2011)]
[Rules and Regulations]
[Pages 34542-34572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13623]



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Vol. 76

Monday,

No. 113

June 13, 2011

Part IV





Department of Agriculture





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Food and Nutrition Service



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7 CFR Parts 210, 215, 220 et al.



Child and Adult Care Food Program Improving Management and Program 
Integrity; Final Rule

Federal Register / Vol. 76 , No. 113 / Monday, June 13, 2011 / Rules 
and Regulations

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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210, 215, 220, 225, and 226

RIN 0584-AC24


Child and Adult Care Food Program Improving Management and 
Program Integrity

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule incorporates into the Child and Adult Care 
Food Program regulations modifications, clarifications, and technical 
changes to the two interim rules published by the Department on June 
27, 2002 and September 1, 2004. These changes result from over 1,000 
public comments received in response to the two interim rules; State 
agencies' and the Department's experience in implementing the changes 
in these two rules over several years; and the Department's conduct of 
an extensive data collection and analysis (the Child Care Assessment 
Project) designed to evaluate implementation of these two interim rules 
by family day care home sponsors and providers. This rule clarifies or 
modifies regulatory provisions relating to: State agency criteria for 
approving new and renewing institutions' applications; sponsoring 
organization requirements pertaining to the ``block claim'' edit check 
and review averaging; and State- and institution-level requirements 
pertaining to the serious deficiency process. The changes in this final 
rule are designed to further improve Program management and integrity 
and, where possible, to streamline and simplify Program requirements.

DATES: Effective date: This final rule is effective July 13, 2011.
    Approval date: The information collection requirements contained in 
this rule is subject to OMB approval. Once they have been approved, FNS 
will publish a separate action in the Federal Register announcing OMB's 
approval.

FOR FURTHER INFORMATION CONTACT: Ms. Julie Brewer or Ms. Tina Namian at 
3101 Park Center Drive, Room 634, Alexandria, VA 22302-1594, or by 
telephone at (703) 305-2590. A regulatory impact analysis was completed 
as part of the development of this final rule. Copies of this analysis 
may be requested from Ms. Brewer or Ms. Namian.

SUPPLEMENTARY INFORMATION:

Background

Evolution of the Two Interim Rules

    As noted in the SUMMARY, USDA has published two interim rules 
intended to improve Program management and integrity in the Child and 
Adult Care Food Program (CACFP), at 67 FR 43447 (June 27, 2002) and at 
69 FR 53501 (September 1, 2004).
    Section 243 of Public Law 106-224, the Agricultural Risk Protection 
Act of 2000 (ARPA), included a number of nondiscretionary provisions 
that amended section 17 of the Richard B. Russell National School Lunch 
Act ([NSLA], 42 U.S.C. 1766). Section 307 of Public Law 106-472, the 
Grain Standards and Warehouse Act of 2000, further amended one 
provision in Sec.  17 of the NSLA. These statutory changes were 
implemented in the CACFP regulations in the first interim rule, 
published on June 27, 2002. Simultaneously, the Department was working 
on a second rule. That rule was issued in proposed form on September 
12, 2000 (65 FR 55101). In response to State and Federal review 
findings of mismanagement and Program abuse and to audit findings and 
recommendations by the Department's Office of Inspector General (OIG), 
the rule proposed a series of changes to the CACFP regulations. After 
analyzing 548 public comments on the proposed rule, the Department 
modified some of its original proposals and published a second interim 
rule on September 1, 2004, that implemented additional discretionary 
changes to the CACFP regulations. Taken together, the changes 
implemented in the two interim rules were designed to improve Program 
management and accountability in the CACFP while also simplifying other 
requirements, where possible, in order to offset some of the 
administrative burden associated with the new requirements in those 
rules.

Why is the Department publishing this final rule? Didn't the two 
interim rules already implement those changes?

    Yes, interim rules have the force and effect of law upon the stated 
effective date. The changes in these two interim rules are fully 
implemented. However, the Department anticipated the need to make 
additional modifications to the provisions of the interim rules, based 
on Federal, State, and institution experience in operating the Program 
under the new rules and comments received on the interim rules. To that 
end, the Department provided an extended comment period for both rules, 
which gave State agencies and institutions adequate time to fully 
implement the provisions. In addition, since the publication of the 
second interim rule, the Department has undertaken an extensive data 
collection and analysis, known as the Child Care Assessment Project 
(CCAP). The CCAP was designed to evaluate implementation of the new 
regulatory requirements by family day care home sponsors and providers.
    During the comment period, the Department provided National 
training on each of the interim rules and issued extensive guidance 
designed to address implementation issues. The Department believes that 
the National training and the guidance it provided have fully addressed 
a number of the commenters' questions and concerns about the two 
interim rules. Many of those comments were submitted prior to the 
provision of the training and the guidance. For that reason, the 
preamble will not address all of the comments received. The regulatory 
language set forth at the end of this rulemaking is limited to the 
changes to the two interim rules being made by this final rule.

Can you provide a list of the previously-published implementation 
guidance?

    Yes. In order to help State agencies implement ARPA's provisions 
and the two interim rules, the Department issued the following 
guidance:
     July 20, 2000--``Implementing Statutory Changes to the 
CACFP Mandated by the Agricultural Risk Protection Act of 2000 (Pub. L. 
106-224)'';
     October 16, 2000--``Monitoring Requirements for Sponsoring 
Organizations in the CACFP'';
     October 17, 2000--Letter to State agency directors on 
termination of institutions and day care homes;
     April 12, 2001--``Effects of the Agricultural Risk 
Protection Act, Public Law 106-224, on termination of the agreements of 
day care home providers in the CACFP'';
     March 1, 2002--``Use of `stop payments' in the CACFP'';
     February 21, 2003--``Implementation of Interim Rule: 
Monitor Staffing Standards in the CACFP'';
     January 27, 2004--``CACFP Memorandum 1-04: 
Sponsor Monitoring Requirements in the CACFP'';
     September 1, 2004--``Implementing Changes to the CACFP in 
Interim Rule entitled, `Child and Adult Care Food Program: Improving 
Management and Program Integrity ''';
     December 23, 2004--``Additional Guidance on the CACFP 
Second Interim Rule'';

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     March 11, 2005--``CACFP Policy 02-05: Collection 
of Required Enrollment Information by Child Care Centers and Day Care 
Homes'';
     March 29, 2005--``Transfer of Data Related to the CACFP 
and the Food Stamp Program'';
     July 1, 2005--``CACFP Policy 03-05: Documenting 
Reasons for Block Claims by Child Care Centers and Day Care Homes'';
     September 23, 2005--``CACFP Policy 06-2005: 
Questions and Answers Regarding Institution Applications from Training 
on the Second Interim Rule'';
     September 23, 2005--``CACFP Policy 07-2005: 
Conducting a Five-Day Reconciliation in Centers Participating in the 
CACFP'';
     November 7, 2005--``CACFP Policy 03-2006: 
Questions and Answers on the Serious Deficiency Process in the CACFP'';
     February 23, 2006--``CACFP Policy 07-2006: 
Questions and Answers on State Agency Oversight Tools, Sponsor 
Oversight Tools, and Training and Other Operational Issues in the 
CACFP'';
     May 23, 2006--``CACFP 12-2006: Issues Relating to 
Block Claims Submitted by Sponsored Child Care Centers and Family Day 
Care Homes'';
     January 26, 2007--``CACFP 01-2007: Retention of 
records relating to institutions, responsible principals or responsible 
individuals, and family day care homes on the National Disqualified 
List; retention of records relating to serious deficiencies''; and
     August 27, 2007--``CACFP 15-2007: Documentation 
of Block Claims Submitted by Sponsored child Care Centers and Family 
Day Care Homes''.
    All of these guidance memorandums are available on the FNS Web site 
at https://www.fns.usda.gov/cnd/Care/Regs-Policy/Policy/Memoranda.htm.

Can you describe in more detail the CACFP management improvement 
training provided by the department before and after publication of the 
two interim rules?

    In the fall and winter of 1999-2000, the Department trained State 
agencies on management improvement techniques that had been presented 
in comprehensive management improvement guidance (MIG). In 2001, the 
Department provided training on FNS Instruction 796-2,\1\ revision 3, 
to State agencies. Training on the MIG and FNS Instruction 796-2 was 
crucial to addressing the CACFP financial and administrative management 
problems that had been uncovered by State and Federal reviewers and 
auditors.
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    \1\ FNS Instruction 796-2 may be found at https://www.fns.usda.gov/cnd/care/Management/79-2.pdf.
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    Finally, after publishing each of the interim rules, the Department 
developed extensive training related to each specific component of the 
two interim rules. These training sessions were conducted in 2002-2003 
and 2004-2005 at workshops around the country. Staff from each State 
agency attended the trainings. The curricula and materials for each 
training session on the interim rules were then re-formatted and 
distributed to State agencies, so that State agencies could use them to 
train participating institutions.

How, if at all, does this final rule differ from the two interim rules?

    This final rule refines the wording of some provisions previously 
implemented in the two interim rules and the implementation guidance, 
mostly to clarify regulatory intent, but in several places, to make 
changes to previous requirements. The preamble discussion will make 
clear which provisions from the two interim rules have had wording 
changed for clarification, and which have been changed in a substantive 
manner.

In total, how many comments did the department receive on the two 
interim rules?

    We received a total of 1,009 comment letters or electronic 
submissions on the two rules--747 on the first interim rule and 262 on 
the second interim rule.

Who commented on the rules?

    Of the 1,009 comments received on the two rules: 40 were from State 
agencies; 448 were from individuals associated with institutions 
participating in CACFP (either independent centers or sponsoring 
organizations of homes or centers); 455 were from family day care home 
providers participating in the Program; 39 were from State or National 
CACFP or children's advocacy organizations; and 27 were from parents, 
students, nutritionists, or other interested individuals whose 
institutional affiliation could not be determined. In addition, in 
writing this final rule, the Department also took into account the many 
comments and suggestions made by participants in the training sessions 
held in 2002-2003 and 2004-2005.

What issues raised by commenters will not be addressed in this 
preamble?

    Because of the extended comment period and the timing of the two 
interim rules' publication, some public comments were submitted before 
the provisions were fully implemented, or before training on the two 
interim rules was provided. Therefore, as previously stated, a number 
of the issues raised by commenters have already been addressed and 
resolved in guidance or training, and do not require discussion in this 
preamble.
    In addition, the Department received a number of suggestions from 
commenters concerning the terminology and definitions used in the two 
interim rules. Although the Department believes that some of these 
suggestions have merit, we have decided that, in order to avoid 
confusion, we will not make any changes to terminology in this final 
rulemaking, unless absolutely necessary to clarify the meaning of 
specific regulatory terms. The Department may consider making changes 
to regulatory terminology and format in the future. Readers should 
assume that provisions from the two interim rules that are not 
specifically discussed in this rulemaking preamble have not been 
modified in this final rule. This rulemaking will specifically identify 
those provisions being clarified or modified in the final rule in order 
to improve the efficiency or effectiveness of the Program.

How is the remainder of this preamble organized?

    The preamble is divided into four parts, and is organized in a 
manner similar to the interim rules published in 2002 and 2004. The 
four parts of this final rule are as follows:

    I. Institution Eligibility Criteria and State Agency Review and 
Approval of Institutions' Applications; the Serious Deficiency 
Process for Institutions
    II. State Agency and Institution Review and Oversight 
Requirements;
    III. Training and Other Operational Requirements; and
    IV. Non-Discretionary Changes Required by the Personal 
Responsibility and Work Opportunities Reconciliation Act, the 
Healthy Meals Act, and the Goodling Act

Part I. Institution Eligibility Criteria and State Agency Review and 
Approval of Institutions' Applications; the Serious Deficiency Process 
for Institutions

A. Institution Eligibility Criteria and State Agency Review and 
Approval of Institutions' Program Applications

    Sections 243(a) and (b) of ARPA added a number of statutory 
requirements that affected institution eligibility and the institution 
application process. These changes were designed to improve Program 
management and integrity by ensuring that the information in an 
application being submitted by a new or renewing

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institution (i.e., by an independent center or a sponsoring 
organization of day care homes and/or centers) demonstrates that it is 
fully capable of administering the Program in accordance with the 
regulations. These changes not only required institutions to 
demonstrate their ability to administer the Program, both before they 
begin operations (in their initial applications) and at certain 
intervals thereafter (in their renewal applications); they were also 
intended to ensure that State agencies periodically assess and re-
assess each institution's potential ability to perform, based on a 
thorough review of the institution's Program application.
    The Department received public comments on five aspects of the two 
interim rules relating to basic institution eligibility criteria and 
the State agency's review of an institution's application to 
participate in CACFP, as follows:
     The reorganization of the institution application 
requirements at Sec. Sec.  226.6(b) and 226.6(f);
     The requirements relating to an institution's 
documentation of its past performance in the Program application;
     The requirement for all new and renewing institutions to 
demonstrate ``VCA'' (financial viability, administrative capability, 
and accountability) in their Program applications;
     The procedures State agencies must follow when they deny 
an application submitted by a new or renewing institution; and
     The requirement that several institution principals must 
submit their dates of birth as part of the institution's Program 
application.
    Comments relating to the last issue--the submission of dates of 
birth--are addressed in Part III(C) of this preamble. The four 
remaining issues listed above are addressed in the preamble discussion 
that follows.
(1) Reorganization of the Institution Application Requirements at 
Sec. Sec.  226.6(b) and 226.6(f)
    The second interim rule reorganized Sec. Sec.  226.6(b) and 
226.6(f), so that Sec.  226.6(b) includes the broad requirements for 
institution applications and Sec.  226.6(f) specifies the frequency at 
which an institution is required to update the information contained in 
its original application. The second interim rule also consolidated or 
cross-referenced application requirements previously found at 
Sec. Sec.  226.6(b), 226.6(f), 226.7(g), 226.15(b), 226.16(b) and 
226.23(a) into Sec.  226.6(b), so that State agencies and institutions 
could more easily refer to them during the application process.
    Two commenters stated that the rule was well written, clearly 
presented and easy to read; seven other commenters felt that Sec.  
226.6 was too complex and should be rewritten in a briefer and simpler 
format. Other commenters made specific suggestions for changes in the 
terminology used in, or the structure of, Sec.  226.6(b). In addition, 
forty commenters expressed their concern that the new application 
criteria were potentially too complex, and might prove to be a barrier 
to applicants. These commenters recommended that, in order to minimize 
the potential barrier, State agencies increase their outreach and 
training efforts and streamline their application processes in the ways 
permitted by the interim rules.
    The Department acknowledges that the structural and other changes 
made to Sec.  226.6 have added complexity and length to the rule. When 
adding those new application requirements--many of which were mandated 
by ARPA--the Department also attempted to find ways to reduce other 
administrative burdens. For example, the option for State agencies to 
take renewal applications on a three-year cycle, and to enter into 
permanent agreements with all types of institutions, will offset some 
of the administrative burden resulting from the new requirements added 
in the two interim rules. Furthermore, the current length and structure 
of this portion of the rules is the result of our more specific 
delineation of application requirements for new and renewing 
institutions. If State agencies fully implement these optional 
provisions, administrative time and effort will be lessened, for them 
and for institutions. Any further changes to the rule's organization 
will be considered in the future, and the organization of this section 
will remain as set forth in the second interim rule.
(2) Application Requirements Relating to an Institution's Past 
Performance
    The first interim rule implemented a series of ARPA provisions 
designed to prohibit institutions and their principals from 
participating in CACFP if they had been:
     Determined ineligible to participate in any publicly 
funded program due to violating these programs' requirements;
     Disqualified from CACFP; or
     Convicted of any activity that indicated a lack of 
business integrity.
    In order to fully implement these statutory requirements, the first 
interim rule required that an institution's application list all 
publicly funded programs in which the institution and its principals 
had participated in the past seven years. The rule also required an 
institution to certify in its application that neither the institution, 
nor any of its principals, is ineligible to participate in such 
programs due to violating those programs' requirements during the 
seven-year period. In lieu of submitting this certification, the 
interim rule permitted an institution to submit documentation that the 
institution or principal previously determined ineligible was later 
reinstated, or was again eligible to participate in, the publicly 
funded program, and had paid all debts owed to that program. The rule 
also required institution applications to include a certification 
concerning the criminal backgrounds of the institution and its 
principals.
    As part of these certification requirements, the first interim rule 
included language stating that institutions and principals providing 
false certifications would be placed on the National Disqualified List 
(NDL). This language was intended to deter the submission of 
applications by ineligible institutions and principals, and to provide 
them with notice regarding the consequences of submitting false 
certifications. The rule also required that, when reviewing an 
institution's application, the State agency check the NDL to ensure 
that the institution is not on the NDL and is, therefore, eligible to 
participate. Finally, the rule prohibited State agencies from approving 
an institution's application if the institution or any of its 
principals had been convicted of any activity indicating a lack of 
business integrity during the past seven years.
    Thirteen comments were received from eleven State agencies and two 
advocates regarding several aspects of these ``past performance'' 
requirements. Two State agency commenters suggested that past 
performance requirements be eliminated. This cannot be done, since 
these are statutory requirements. The Department believes that 
capturing this information on an institution's application is an 
effective and efficient means of complying with this requirement.
    In addition, five State agency commenters made suggestions which 
they felt would reduce the administrative burden associated with 
meeting the past performance requirements. One State agency commented 
that requiring a new institution to list all publicly funded programs 
in which it participated for the last seven years is burdensome, and 
that an institution's submission of a ``certification of non-
disqualification'' should suffice. However, the Department believes it 
is important to require the new institution to submit

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both the certification of non-disqualification and the list of publicly 
funded programs. The certificate of non-disqualification establishes a 
clear basis for removal from the CACFP (submission of false 
information) if the institution conceals a prior termination from a 
publicly funded program. The Department also believes that it is 
important for the State agency to have a list of publicly funded 
programs in which the institution previously participated, because it 
allows the State agency to verify the accuracy of the non-
disqualification certification if it chooses.
    However, the Department agrees with, and will make, the change 
suggested by another State agency. The comment suggested that the 
burden associated with reporting on past performance could be minimized 
by allowing a renewing institution to include on its application only 
those new publicly funded programs in which it had begun to participate 
since its last application was submitted. The Department believes that 
this suggestion will lower administrative burden while still meeting 
the intent of the law. Therefore, this regulation will allow a renewing 
institution to update the list of programs that it submitted in its 
last application, rather than provide the full list of programs in 
which it participated for the past seven years. This will minimize 
unnecessary ``re-reporting'' of information, which could be especially 
burdensome for institutions that regularly receive grants or have many 
other sources of public funding.
    Two State agencies commented that an institution should only be 
required to submit information about programs in which it participated 
during the past three years, since a three-year record retention 
requirement is standard in most publicly funded programs. Although the 
Department agrees that most publicly funded programs require an 
institution to retain records for a period of three years (or longer if 
there are outstanding review or audit findings), we do not believe that 
requiring the principals of an institution to know and document their 
performance, and the institution's performance, for a seven-year period 
will pose any special hardship. The principals charged with managing 
the institution should know the institutions' and all of the 
principals' record of performance over the past seven years.
    One State agency suggested that, if an institution's participation 
in a publicly funded program has been terminated, and the institution 
has taken action to correct the deficiency that caused the termination, 
the State agency should be able to approve the institution's 
participation in the CACFP, even if the institution had not been 
formally ``reinstated'' to eligibility in the other program. This 
statutory change ensures that only institutions with records of sound 
performance in other publicly funded programs be permitted to 
participate in CACFP. Having the CACFP State agency assess an 
institution's performance in another publicly funded program does not 
meet that intent. Only if the institution has been reinstated to 
participation by the other publicly funded program can the State agency 
be assured that all corrective actions have been fully implemented, and 
all debts fully repaid.
    Finally, four State agencies and two advocacy groups commented 
that, if the State agency was required to consult the NDL when 
reviewing an institution's application, the NDL must be web-based and 
searchable, and must include all the necessary information concerning 
institutions, principals, and family day care home providers on the 
list. The Department agrees that the NDL must be accessible and 
complete if State agencies are to effectively comply with the 
regulatory requirement to exclude institutions and individuals who are 
on the List. To that end, the Department has made the NDL available to 
State agencies. Although privacy issues initially made it impossible 
for the Department to provide access to the NDL to institutions, they 
have been able to obtain the information they need about providers and 
principals from their State agency, and we anticipate being able to 
make the NDL directly accessible to institutions in the near future.
    Accordingly, the only change made to past performance requirements 
in this final rule is the modification of Sec.  226.6(b)(2)(iii) to 
permit renewing institutions to list in their applications only those 
publicly funded programs in which they have begun to participate since 
the submission of their last application.
(3) Application Requirements Relating to an Institution's ``VCA'' 
(Financial Viability, Administrative Capability, and Internal Controls 
To Ensure Accountability)
    The first interim rule implemented the requirement set forth in 
section 243(b) of ARPA that, in order to participate, an institution 
must demonstrate in its Program application that it meets three 
performance standards now included in section 17(d)(1) of the Richard 
B. Russell National School Lunch Act (NSLA). These standards require 
the institution to be financially viable; to be administratively 
capable; and to have in place internal controls to ensure the 
accountability of Program funds and compliance with Program 
requirements. Sections 226.6(b)(1)(xviii) and 226.6(b)(2)(vii), which 
were added to the regulations by the first interim rule, require State 
agencies to evaluate all applicant institutions against these three 
performance standards, in order to assess their ability to properly 
administer the Program, and to deny the application of any institution 
which does not demonstrate conformance with these performance standards 
or any other requirements set forth in Sec.  226.6(b). In addition, the 
rule required ongoing compliance with the VCA standards by defining as 
a serious deficiency a participating institution's ``[f]ailure to 
operate the Program in conformance with the performance standards * * 
*'' (Sec.  226.6(c)(3)(ii)(C))
    A total of 325 comments were received concerning the VCA 
performance standards. Of these comments, 263 dealt with the 
requirement at Sec. Sec.  226.6(b)(1)(xviii)(A)(2) and 
226.6(b)(2)(vii)(A)(2) that an institution demonstrate in its 
application that it has adequate financial resources to operate the 
CACFP and ``adequate sources of funds to withstand temporary 
interruptions in Program payments and/or fiscal claims against the 
institution.'' Many commenters suggested eliminating this language, 
because they thought that it required family day care home sponsors to 
pay claims to providers during periods when, for reasons beyond their 
control, CACFP funding was delayed or unavailable.
    The Department understands that, if CACFP reimbursements were 
temporarily unavailable, few if any sponsors would have the resources 
to pay provider claims. The regulatory wording was intended to address 
a different situation, involving the State agency's establishment of an 
overclaim against an institution, or its denial of a portion of the 
institution's claim for administrative reimbursement.
    Many commenters stated their belief that CACFP is intended to be 
``self-sufficient''; in other words, they believe that all the 
resources needed to operate CACFP should come from Program 
reimbursements. While this belief is largely accurate, there are a 
number of one-time and recurring expenses for which Program funds may 
not be used, including the costs of incorporation, the preparation of 
annual IRS-990 reports, fines and penalties, and some other general 
business costs. Furthermore, once an institution incurs any

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administrative cost, there is always the possibility that the State 
agency may later determine that the institution's use of Federal funds 
for that expense is unallowable.
    If Program reimbursements have already been used to pay a 
contractor or supplier for an expense later deemed unallowable by the 
State agency, the sponsor's repayment cannot come from Program funds, 
because it is impermissible to use Program funds to repay debts to the 
government. Therefore, every sponsor must have a source of ``non-
Program'' funds out of which such a claim can be paid. The Department 
does not expect sponsors to reimburse providers if Federal 
reimbursement is unavailable. However, a sponsor must still have a 
source of non-Program funds with which to compensate its employees and 
pay its suppliers.
    In short, if the sponsor does not have a source of non-Program 
funds in these instances, it runs the risk of going out of business, 
due to its inability to repay the State agency, or to pay its employees 
or suppliers. The Department would not advise a State agency to deny an 
institution's application solely because it lacked a source of non-
Program revenue. However, the institution itself should be eager to 
have such funds on hand, since its existence as a viable entity, and 
its continued ability to provide Program benefits to children, may 
depend on it.
    To further clarify this regulatory language's intent, the 
Department has made some minor modifications to the wording of 
Sec. Sec.  226.6(b)(1)(xviii)(A)(2) and 226.6(b)(2)(vii)(A)(2). The 
phrase, ``has adequate sources of funds to withstand temporary 
interruptions in Program payments and/or fiscal claims against the 
institution'' has been changed to read, ``has adequate sources of funds 
to continue to pay employees and suppliers during periods of temporary 
interruptions in Program payments and/or to pay debts when fiscal 
claims have been assessed against the institution.'' This language more 
clearly delineates the situations in which the institution would need 
to have non-Program funding. In addition, the Department has added to 
the introductory language at Sec. Sec.  226.6(b)(1)(xvii) and 
226.6(b)(2)(vii) a sentence that reads, ``In ensuring compliance with 
these performance standards, the State agency should use its discretion 
in determining whether the institution's application, in conjunction 
with its past performance in CACFP, establishes to the State agency's 
satisfaction that the institution meets the performance standards.''
    A related question was submitted by another State agency, which 
suggested that an institution's budget should only be required to 
address its planned expenditure of Program reimbursements, not its 
planned use of non-Program funds. In fact, if the institution does not 
plan to use non-CACFP funds to support some required CACFP functions, 
there is no requirement that non-Program funds be addressed in the 
budget. In that case, the only information needed in the budget or 
management plan is the institution's source of non-Program funds that 
could be used to pay overclaims or other costs identified in the 
preceding paragraph.
    However, if the institution plans to use any non-Program resources 
to meet CACFP requirements, then these funds should be accounted for in 
the institution's budget. For example, many multi-purpose sponsoring 
organizations that operate the CACFP devote some non-Program resources 
to the performance of critical CACFP functions like training or 
monitoring. Similarly, an independent center may plan to rely on a 
portion of the parent fees it collects to perform a required CACFP 
function. In these cases, the institution's budget must account for 
those non-Program funds that will be devoted to Program administration, 
so that the State agency has a full understanding of how the 
institution will fund its performance of all required Program 
functions.
    Accordingly, Sec.  226.7(g) is amended to specify the ways in which 
``non-program funds'' must be addressed in the institution's budget.
    In addition, commenters made a number of other suggestions for 
changing or clarifying various aspects of the performance standards. 
Forty-seven (47) commenters expressed concern that at-risk afterschool 
care centers would have great difficulty meeting the performance 
standards, and should not be held to the same standards as larger 
Program operators like sponsoring organizations of centers or family 
day care homes. During our training on the interim rules, we urged 
State agencies to take into account an institution's size and 
sophistication when examining different types of organizations' 
applications. In fact, an entire session of our training on the second 
interim rule was devoted to a discussion of how State agencies should 
apply the regulatory language when examining applications submitted by 
independent child care centers, as opposed to sponsoring organizations 
of hundreds (or in some cases, thousands) of facilities. We recommend 
that State agencies apply a ``rule of reason'' when reviewing materials 
submitted by different types of institutions, with different levels of 
Program reimbursement and, in many cases, different levels of 
managerial sophistication.
    One State agency suggested that sponsored centers, as well as 
institutions, should be required to demonstrate compliance with the VCA 
standards. We carefully considered the possibility of requiring 
sponsored centers to comply with the VCA standards, but ultimately 
rejected it. Even if a sponsored center has, in the past, operated as 
an independent center in the CACFP, once a sponsoring organization 
enters into an agreement with that center, the center becomes a 
sponsored facility, and assumes a different Program relationship with 
the State agency. As a result of the rule, a sponsoring organization 
(not each sponsored center) now has primary responsibility for ensuring 
that the CACFP is operated in accordance with the performance standards 
in all of its sponsored facilities. That is why we so strongly 
recommended in training that State agencies take extra care in 
evaluating a sponsoring organization's compliance with the performance 
standards, since the sponsor must be able to demonstrate that it can 
adequately monitor, train, and provide technical assistance to all of 
the facilities that it sponsors.
    Finally, one other State agency requested that the final rule add a 
definition of ``board of directors'' or ``governing board of 
directors.'' Based on questions we have received since the publication 
of the first interim rule, and based on the data collected in CCAP, we 
agree that there is a need for further clarification of the regulatory 
requirements pertaining to institution boards of directors.
    When the first interim rule incorporated performance standards in 
the CACFP regulations, Sec. Sec.  226.6(b)(1)(xviii)(C)(1) and 
226.6(b)(2)(vii)(C)(1) specified that an institution must demonstrate 
``adequate oversight of the Program by its governing board of 
directors.'' At the time, the Department was reluctant to specify what 
constitutes ``adequate oversight,'' since many States have their own 
laws concerning the qualifications, structure, and responsibilities of 
boards of directors. However, in the years since the first interim rule 
took effect, the questions submitted to the Department by State 
agencies and others have convinced us of the need to specifically 
address two recurring issues concerning boards of directors in this 
final rule.

[[Page 34547]]

    First, we have been asked repeatedly how this requirement applies 
to for-profit centers participating in the CACFP. Although large, 
publicly-held for-profit corporations have boards of directors, there 
may be some smaller for-profit entities that do not. In a small, for-
profit center, it is quite possible that there will be an owner, but no 
formally-designated governing board. This rule clarifies this point in 
a new definition of an ``independent governing board of directors'', 
which will apply to any non-profit or for-profit organization that is 
required by law to have a board of directors.
    Second, we have received numerous questions concerning what 
constitutes an ``independent'' governing board of directors. Although 
some States' laws define the characteristics of board independence, 
others do not. Therefore, this rule will delineate the characteristics 
of ``independent governing boards of directors'' that are necessary to 
assure the adequate oversight of CACFP operations. This final rule 
requires--in a new definition at Sec.  226.2-- that an ``institution's 
governing board of directors'' must: (1) Meet on a regular basis; and 
(2) have the authority to hire and fire the institution's executive 
director (i.e., the board must be independent of the executive 
director's control).
    Based on State agencies' input and on the information gathered by 
the CCAP data collection, it appears that some private nonprofit 
organizations currently participating in CACFP do not have a governing 
board of directors that fully meets this definition because of lack of 
independence,'' The CCAP assessment determined that 36 percent (18 of 
50) of the sponsors assessed included sponsor officials or family 
members serving on their governing boards of directors. In fact, in 
almost 20 percent of the sponsors assessed (9 of 46), the board of 
director's chairperson was a sponsor official or family member. 
Although the current regulations do not directly address this aspect of 
board independence, it is a critical aspect of a board's ability to 
provide ``adequate oversight of the Program'', as described in the 
Management Improvement Guidance (MIG). The MIG guidance and training 
emphasized that governing boards of directors which include the CACFP 
director, other sponsor officials, and/or members of their families 
cannot perform the type of independent oversight required for the 
sponsor's successful operation of the CACFP. One of the critical 
hallmarks of a governing board of directors' independence--the board's 
ability to hire and fire the organization's executive director--is 
limited when sponsor officials or their families serve on the board. We 
encourage State agencies to work closely with institutions 
participating in CACFP to ensure that such boards are in place, and 
that this requirement is fully met, as quickly as possible.
    Accordingly, this final rule modifies the introductory language to 
Sec. Sec.  226.6(b)(1)(xviii) and 226.6(b)(2)(vii), and has made some 
minor modifications to Sec. Sec.  226.6(b)(1)(xviii)(A)(2) and 
226.6(b)(2)(vii)(A)(2), to clarify the requirement that institutions 
have ``adequate sources of funds'' in order to be determined 
financially viable, as discussed above. In addition, this final rule 
includes in Sec. Sec.  226.6(b)(1)(xviii)(C)(1) and 
226.6(b)(2)(vii)(C)(1) new language concerning the minimum Program 
requirements for an ``independent board of directors'', and adds to 
Sec.  226.2 a new definition of ``independent board of directors.''
(4) State Agencies' Denial of Institution Applications
    The Department received three public comments concerning State 
agencies' denial of applications submitted by new or renewing 
institutions. In addition, we received numerous, detailed questions 
concerning this subject when we conducted training on the two interim 
rules.
    Two State agency commenters requested a change to the language 
governing State agencies' denial of applications. Sections 
226.6(c)(1)(i) and 226.6(c)(2)(i) require the State agency to deny an 
application if it does not meet all of the requirements set forth at 
Sec. Sec.  226.6(b), 226.15(b) and 226.16(b). These commenters 
suggested that this portion of the regulations should instead state 
that an application is considered incomplete, and that the State agency 
does not have to formally deny the application, if it does not contain 
all of the information required by Sec. Sec.  226.6(b), 226.15(b) and 
226.16(b).
    The Department cannot agree with this suggested change, because it 
would prevent some institutions from ever having the opportunity to 
appeal the State agency's denial of their applications. If a State 
agency does not have to deny an ``incomplete application'', and no 
application is considered to be ``complete'' unless it is approvable, 
then the State agency will never have to formally deny any 
institution's application. While we recognize that it is often 
necessary for a State agency to request more information from an 
institution before it can determine whether the institution's 
application is approvable, the process of requesting this information 
must have an end date, or the institution will, de facto, lose its 
opportunity to appeal the State agency's action. Likewise, if there is 
no end to the process of collecting additional information, a renewing 
institution could continue participating indefinitely while it submits 
additional information to the State agency.
    For these reasons, the Department strongly recommends that State 
agencies develop written policy governing the maximum amount of time it 
will take to review an institution's new or renewal application, 
including any time for the State agency to request additional 
information from the institution. If, however, a State agency returns 
an application to an institution because it was incomplete, and the 
institution fails to submit more information, the State agency is under 
no obligation to deny the application. In this instance, by not 
submitting timely the additional required information, the institution 
has effectively withdrawn its application from consideration. The only 
time that the Department would require the State agency to take formal 
action on an ``incomplete application'' before the State-established 
deadline for submitting information is in the rare case where the State 
agency discovers a serious deficiency when reviewing the institution's 
application. In those instances, in accordance with Sec. Sec.  
226.6(c)(1)(i) and 226.6(c)(1)(ii), the State agency would be required 
to deny the institution's application and to declare the institution 
seriously deficient.
    Readers of this preamble should note that, although this final rule 
continues to refer to ``renewal applications'' at Sec.  226.6(b)(2), 
enactment of Public Law 111-296, the Healthy, Hunger-Free Kids Act of 
2010, made substantial changes to the process by which participating 
institutions verify their continuing compliance with Program 
requirements. These changes were addressed in implementing guidance 
issued on April 8, 2011 (``CACFP 19-2011, ``Child Nutrition 
Reauthorization 2010: CACFP Applications''), as well as in in 
forthcoming proposed and final rulemaking actions.

B. The Serious Deficiency Process for Institutions

    Section 243(c) of ARPA added a number of provisions to section 
17(d)(5) of the NSLA which modified the serious deficiency process for 
institutions. As a result, several important aspects of the serious 
deficiency process were changed in the first interim rule, including: 
the content of the notice received by an

[[Page 34548]]

institution when it is notified that its performance is ``seriously 
deficient;'' the time given the institution to correct its serious 
deficiency and, if the serious deficiency is not corrected, the content 
of the notice issued by the State agency informing the institution of 
its intent to terminate and disqualify the institution and those 
principals and/or individuals responsible for the serious deficiency; 
and the process for suspending an institution's Program payments when 
it has engaged in conduct that poses an imminent threat to children's, 
or the public's, health or safety. In addition, Section 307(c) of the 
Grain Standards and Warehouse Improvement Act of 2000 (Pub. L. 106-472, 
November 9, 2000) further amended section 17(d)(5) of the NSLA by 
prescribing a specific process for suspending an institution's CACFP 
participation due to the submission of a false or fraudulent claim. 
[Note: as used in this preamble, the phrase ``serious deficiency 
process'' refers to all actions taken by a State agency after it 
declares an institution seriously deficient, including the 
institution's appeal and its placement on the National Disqualified 
List (NDL).]
    The most significant change to the serious deficiency process made 
by ARPA was the requirement that, until the conclusion of the appeal 
process and the termination of its agreement, an institution will 
continue to receive Program payments for valid claims submitted. Prior 
to this, a State agency terminated an institution's agreement and 
discontinued Program payments at the same time that it declared the 
institution seriously deficient. Only then did the institution have an 
opportunity to appeal the State agency's adverse action. Thus, prior to 
ARPA, the institution received no Program payments (even if it incurred 
valid Program costs) until its appeal was resolved, and would then 
receive payments only if it prevailed on appeal. This approach resulted 
in two undesirable outcomes: (1) An institution could go out of 
business while its appeal was pending (due to its inability to pay 
legitimately-incurred costs), even if it later prevailed on appeal; and 
(2) many State agencies were reluctant to require an institution to 
improve program management, since the initiation of the serious 
deficiency process carried with it the simultaneous termination of the 
institution's agreement and the discontinuation of its Program 
payments.
    Part I (B) of this preamble discusses questions about the serious 
deficiency process for institutions which were raised by commenters and 
by those who attended the Department's training on the two interim 
rules. As in Part I (A) of this preamble, the training and written 
guidance provided by the Department have already addressed many of the 
questions raised. Therefore, this portion of the preamble will discuss 
only those aspects of the serious deficiency process that require 
additional clarification, as well as any changes being made in this 
final rule.
(1) General Questions About the Serious Deficiency Process for 
Institutions
    As a result of the statutory changes enacted in ARPA, the first 
interim rule established more specific requirements governing each 
stage of the serious deficiency process for institutions, including: 
the State agency's issuance of a serious deficiency notice; the amount 
of time given to an institution for corrective action; the appeal 
process; the termination of the institution's agreement; and the 
placement of the institution and its ``responsible principals and 
individuals'' on the NDL. The Department received numerous written 
comments, as well as questions during its training sessions, regarding 
these changes to the serious deficiency process for institutions.
    Several training attendees raised questions about the maximum 
amount of time that may elapse between the State agency's discovery of 
an institution's serious deficiency and its issuance of a serious 
deficiency notice. Attendees also raised a related question: whether an 
institution can terminate its agreement for convenience after the State 
agency has discovered a serious deficiency, but prior to the time that 
the serious deficiency notice is issued.
    Once a State agency has discovered a serious deficiency, the first 
interim rule's intent was that the serious deficiency process would be 
completed (i.e., either corrective action would be taken or the 
institution's agreement would be terminated), even if the institution 
terminated its agreement ``for convenience'' before a formal notice of 
serious deficiency was issued. The Department anticipated that, once a 
serious deficiency had been discovered, a State agency would move 
quickly to issue a serious deficiency notice. Therefore, the first 
interim rule stated at Sec. Sec.  226.6(c)(2)(iii)(A)(6) and 
226.6(c)(3)(iii)(A)(6) that, after a State agency has issued a notice 
of serious deficiency, the institution could not voluntarily terminate 
its agreement as a means of avoiding formal termination ``for cause'' 
and placement on the NDL; the serious deficiency process would still 
proceed. However, during our training on the interim rules, it became 
apparent that these questions arose because some State agencies do not, 
in fact, issue a formal notice for months after discovering the serious 
deficiency.
    In some of these cases, the institution has been told at a review's 
``exit conference'' that it is seriously deficient. However, if the 
institution does not promptly receive a formal notice of serious 
deficiency, the institution may decide that it is preferable to 
terminate its agreement and withdraw from the Program, rather than go 
through the serious deficiency process, and possibly be placed on the 
NDL. Allowing institutions to leave CACFP before correcting their 
serious deficiencies is very detrimental to the Program, because the 
institution has neither corrected the serious deficiency nor been 
placed on the NDL, thus making it more possible for the institution and 
its responsible principals to re-enter the program later. Without 
having issued a formal serious deficiency notice which defines the 
institution's required corrective action, any State agency's ability to 
deny the institution's future re-application is diminished. In 
addition, if the issuance of a serious deficiency notice is delayed, 
the institution may assume that there was, in fact, no real serious 
deficiency, and no need for the institution to correct its management 
practices.
    For these reasons, it is critical that, once a State agency 
discovers a serious deficiency, the institution promptly receive formal 
notice of that finding. By definition, a serious deficiency involves 
very serious Program management issues. The State agency must take 
prompt action, including issuing the formal notice of serious 
deficiency, to ensure that the institution corrects the serious 
deficiency, or has its agreement terminated for cause, as expeditiously 
as possible. Furthermore, if prompt action does not occur and the 
institution subsequently appeals a proposed notice of intent to 
terminate and disqualify, a hearing official may question the 
``seriousness'' of the deficiency if the State agency took months to 
issue a written notice.
    The Department will not establish in this rule a maximum amount of 
time for the State agency to issue a serious deficiency. We understand 
that State agencies have different procedures for handling serious 
deficiencies. There may be a need for supervisory clearance of a 
reviewer's findings and conclusions, and there may be multiple internal 
clearances of the written serious deficiency notice before it is 
issued.
    However, we strongly encourage State agencies to take steps to 
minimize the amount of time that elapses between a

[[Page 34549]]

review and the issuance of a serious deficiency notice. Such steps 
might include: Training State reviewers to ensure that they do not 
exceed their authority in describing findings to an institution during 
an exit conference; whenever possible, including on a review team a 
person capable of speaking on behalf of the State agency concerning 
serious deficiency determinations; and/or establishing internal 
policies and procedures which ensure that an institution receives 
timely notice of its serious deficiency. Once these steps are taken, 
there should be no reason for a State agency to take more than two to 
six weeks to issue the notice, after the discovery of the serious 
deficiency.
    A second general question raised in training sessions concerned a 
State agency's determination of which institution employee(s) should be 
named in a serious deficiency notice (i.e., which persons should be 
named as ``responsible principals and individuals''). Since then, we 
have observed instances in which either too many or too few principals 
and individuals were named as responsible. The former approach will 
slow the appeal process considerably, as hearing officials attempt to 
discern whether every person named in the notice is truly responsible 
for the serious deficiency and, therefore, should be disqualified from 
Program participation. On the other hand, if the State agency fails to 
name all of the responsible persons in the notice, it increases the 
risk that these persons (who will not be placed on the NDL) will 
continue to participate in CACFP as principals in other institutions.
    There is, of course, no ``magic number'' of responsible principals 
or individuals that should be named in every serious deficiency. The 
regulations require that, in every instance, both the chairperson of 
the institution's board of directors, as well as the executive director 
or other person responsible for CACFP, receive the notice of serious 
deficiency, as well as any other principals or individuals named as 
``responsible'' for the institution's serious deficienc(ies). Although 
it is not specifically stated in the regulations, typically the 
executive director, owner, or other person with overall responsibility 
for the CACFP within the institution would be named as ``responsible'' 
for the institution's serious deficiency. In general, the State agency 
should name as ``responsible principals'' those organization officials 
who, by virtue of their management position, bear responsibility for 
the institution's serious deficiency. These management officials also 
bear responsibility for the poor performance of non-supervisory 
employees which may have caused the serious deficiency. Non-supervisory 
employees, including contractors and unpaid staff, should be named 
``responsible individuals'' only when they have been directly involved 
in egregious acts, such as filing false reports or actively 
participating with institution principals in a scheme to defraud the 
Program.
    A third general comment made by five State agency commenters was 
that the first interim rule was burdensome in requiring State agencies 
to provide FNSROs with a copy of each notice they issued relating to an 
institution's serious deficiency. The Department included this language 
in the first interim rule as a means of ensuring that FNSROs would be 
able to provide State agencies with immediate feedback and technical 
assistance on the State agency's implementation of the serious 
deficiency process, and that FNSROs could detect trends across States 
in the types of regulatory non-compliance leading to determinations of 
serious deficiency.
    Initially, the Department was favorably disposed to reducing this 
paperwork and requiring only one or two submissions from the State 
agency to the FNSRO during the course of the serious deficiency 
process. However, after analyzing the data collected in the CCAP, and 
after finding a number of flawed State agencies' serious deficiency 
processes during our conduct of management evaluations, we will not 
make any change to this aspect of the serious deficiency process. We 
believe that the most important benefit of maintaining these 
requirements will be to enable FNSROs to carefully review each document 
for regulatory compliance as soon as it is issued. If errors are 
discovered, the FNSRO can then advise the State agency to issue a 
revised notice to the institution, before the defects of the original 
notice undermine the State agency's ability to prevail in a later 
administrative review hearing. Thus, the final rule will make no change 
to the requirement that the State agency notify its FNSRO at each stage 
of the serious deficiency process.
    Finally, one State agency commenter noted technical errors at 
226.6(c)(3)(iii)(B)(1)(ii) and 226.6(c)(3)(iii)(B)(2)(iii), where 
references to a ``renewing'' institution should instead read, 
``participating'' institution. Accordingly, this final rule makes the 
corrections.
(2) The Serious Deficiency Process as it Relates to Applications 
Submitted by New or Renewing Institutions
    The first interim rule added definitions of ``new institution'' and 
``renewing institution'' to the CACFP regulations, and established new 
requirements for State agencies' handling of Program applications, as 
described in Part I(A) of this preamble. A number of attendees at 
training raised three different questions concerning the interaction of 
the serious deficiency process and the revised application process. All 
three of the questions relate to changes made by ARPA to the serious 
deficiency process. Each statutory change was structured to ensure that 
an institution be provided with the opportunity for an administrative 
review (``appeal'') before its agreement is terminated and the 
institution and its responsible principals and individuals are 
disqualified.
    The first question asked whether a new institution could appeal a 
State agency's denial of its application, if the denial was based on 
the State agency's determination that either the institution and/or one 
of its principals is on the NDL. The regulations at Sec. Sec.  
226.6(c)(7)(ii) and 226.6(c)(7)(iv) make clear that no institution 
which is on the NDL, and no institution having one or more of its 
principals on the NDL, is eligible to participate in CACFP. Given this 
requirement, the commenter saw no reason to offer the institution an 
appeal, since the regulations clearly forbid the institution's 
participation.
    However, the regulations at Sec.  226.6(k)(2)(i) also state that, 
whenever a new or renewing institution's application is denied, the 
institution must be given the opportunity to appeal the denial. This is 
true regardless of whether the new or renewing institution has 
submitted false information on its application (e.g., a false 
certification concerning the institution's or principals' eligibility 
to participate in a publicly funded program), or whether the 
application included the information that demonstrated the 
institution's ineligibility (e.g., the applicant stated on the 
application that the institution or one of its principals was 
ineligible to participate by virtue of its past performance).
    To handle situations like this, the first interim rule established 
new procedures for an ``abbreviated'' appeal, as described in Sec.  
226.6(k)(9). The abbreviated appeal must be used when the institution 
appears to be ineligible by virtue of submitting false information on 
its application or due to any of three types of past performance issues 
(presence on

[[Page 34550]]

the NDL, termination from another publicly-funded program, or 
conviction for an offense related to business integrity). Consistent 
with ARPA, the abbreviated appeal ensures that the institution has an 
opportunity to contest the State agency's adverse action before it 
occurs, but shortens the appeal process by not permitting oral 
presentations before a hearing official. The abbreviated appeal gives 
the institution an opportunity to claim that the State agency had made 
an error, perhaps by confusing the names of the applicant institution 
or a principal with another, similarly-named, institution or person. 
Therefore, any applicant institution--whether new or renewing--must be 
given the opportunity for a regular or an abbreviated appeal, 
regardless of the circumstances.
    The second question was whether a new institution could evade the 
potential consequences of a serious deficiency by withdrawing its 
application for Program participation. Although the regulations at 
Sec. Sec.  226.6(c)(2)(iii)(A)(6) and (c)(3)(iii)(A)(6) clearly state 
that a renewing or participating institution's voluntary termination of 
its Program agreement does not put an end to the serious deficiency/
disqualification process, similar language is lacking with regard to 
new institutions at Sec.  226.6(c)(1)(iii)(A). The omission of similar 
language in the first interim rule was an oversight. That oversight is 
corrected by the addition of a new paragraph in this final rule, at 
Sec.  226.6(c)(1)(iii)(A)(7), which clarifies that, after receiving a 
notice of serious deficiency, a new institution may not evade the 
potential consequences of its serious deficiency by withdrawing its 
application to participate.
    Finally, the third question involves the State agency's conduct of 
the application or agreement renewal process when either occurs after 
an institution has been declared seriously deficient. Because all State 
agencies must require institutions to submit renewal applications no 
less frequently than every three years, an institution's application 
must sometimes be renewed while it is in the midst of the serious 
deficiency process. Similarly, depending on the State agency's policy 
regarding the duration of a Program agreement, the institution's 
Program agreement may also expire while it is in the midst of the 
serious deficiency process. When situations like these have arisen in 
the past, some State agencies have mistakenly believed that they were 
required to take no action on a renewal application, or that they were 
required to deny the institution's renewal application, because the 
institution has already been declared seriously deficient. Although 
these issues have been partially addressed in training and in guidance 
issued on November 7, 2005 (``CACFP Policy 03-2006: Questions 
and Answers on the Serious Deficiency Process in the Child and Adult 
Care Food Program''), they occur often enough to merit further 
discussion in this preamble, and further clarification in this final 
rule.
    When a renewing institution's agreement expires during the serious 
deficiency process, the first interim rule at Sec.  
226.6(c)(2)(iii)(D)(1) made clear that the State agency must 
temporarily extend the institution's agreement until the conclusion of 
the serious deficiency process (whether the ``conclusion'' of the 
process comes as a result of successful corrective action, the 
institution's failure to appeal, or the end of the administrative 
appeal process). Extending the agreement facilitates continued payment 
of the valid claims submitted by the renewing institution during the 
resolution of it