Administrative Reviews in the School Nutrition Programs, 26846-26870 [2015-10613]

Agencies

• DEPARTMENT OF AGRICULTURE
• Food and Nutrition Service

[Federal Register Volume 80, Number 90 (Monday, May 11, 2015)]
[Proposed Rules]
[Pages 26846-26870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10613]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Proposed 
Rules

[[Page 26846]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210, 215, 220 and 235

[FNS 2014-0011]
RIN 0584-AE30


Administrative Reviews in the School Nutrition Programs

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: In accordance with provisions of the Healthy, Hunger-Free Kids 
Act of 2010, this proposed rule would revise the State agency's 
administrative review process to establish a unified accountability 
system designed to ensure that participating school food authorities 
comply with the National School Lunch Program and School Breakfast 
Program requirements. The proposed administrative review process would 
include new procedures, retain key existing requirements from the 
Coordinated Review Effort and the School Meals Initiative, provide new 
review flexibilities and efficiencies for State agencies, and simplify 
fiscal action procedures. In addition to the new administrative review 
process, this rule proposes to require State agencies to report and 
publicly post school food authorities' administrative review results. 
These proposed changes are expected to strengthen program integrity 
through a more robust, effective, and transparent process for 
monitoring school nutrition program operations.

DATES: To be assured of consideration, written comments on this 
proposed rule must be received by July 10, 2015.

ADDRESSES: The Food and Nutrition Service (FNS), USDA, invites 
interested persons to submit written comments on this proposed rule. 
Comments must be submitted through one of the following methods:
     Preferred method: Federal eRulemaking Portal at https://www.regulations.gov. Follow the online instructions for submitting 
comments.
     Mail: Mailed comments on this proposed rule must be 
postmarked on or before July 10, 2015 to be assured of consideration. 
Send mailed comments to Julie Brewer, Child Nutrition Policy and 
Program Development Division, Food and Nutrition Service, Department of 
Agriculture, 3101 Park Center Drive, Room 1212, Alexandria, Virginia 
22302-1594.
    Comments received by other methods will not be accepted. All 
comments received by the methods listed above will be included in the 
record and will be made available to the public. Please be advised that 
the substance of the comments and the identity of the individuals or 
entities submitting the comments will be subject to public disclosure. 
FNS will make the comments publicly available on the Internet via 
https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Lynn Rodgers-Kuperman, Child Nutrition 
Monitoring and Operations Support Division, Food and Nutrition Service, 
USDA, 3101 Park Center Drive, Alexandria, Virginia 22302; telephone: 
(703) 605-3223.

SUPPLEMENTARY INFORMATION: 

I. Background

    Federally supported school nutrition programs are operated each 
school day in 54 States, by more than 100,000 schools and Residential 
Child Care Institutions. Ensuring that the programs are being carried 
out in the manner prescribed in statute and regulation is a key 
administrative responsibility at every level. Federal, State and local 
program staff share in the responsibility to ensure that all aspects of 
the programs are conducted with integrity and that taxpayer dollars are 
being used as intended.
    Improving program integrity and reducing improper payments has been 
a long-standing priority for the Department of Agriculture (USDA). 
Periodic evaluations of program errors, including the Access, 
Participation, Eligibility and Certification (APEC) studies, show that 
improper payments result from errors made in the processes used to 
determine eligibility for free or reduced price meals, as well as from 
errors made during daily program operations and meal service. USDA and 
its State agency partners have invested significant effort in system 
improvements and process reforms over the last several years that are 
expected to improve integrity and deliver long-term reductions in error 
rates. These efforts include on-going technical assistance and 
implementation of reforms made by Public Law 111-296, the Healthy, 
Hunger-Free Kids Act of 2010 (HHFKA). Along with provisions aimed at 
improving program access and healthier school nutrition environments, 
HHFKA reforms support program integrity through strengthening the use 
of direct certification, providing for community eligibility, 
establishing professional standards for school nutrition directors and 
staff, targeting a second review of applications in districts with high 
rates of application processing errors, and other provisions. USDA has 
already implemented the majority of these provisions through separate 
rulemaking. USDA has also established a new Office of Program Integrity 
for Child Nutrition Programs within the Food and Nutrition Service.
    State agencies that administer the school meal programs play a 
primary role in ensuring School Food Authorities (SFAs) are properly 
operating the programs. In addition to training and technical 
assistance, State agencies are responsible for regularly monitoring SFA 
operations.
    Nearly 25 years ago, in 1991 and 1992, USDA established regulations 
in 7 CFR 210.18 for an administrative review process to ensure SFAs 
complied with National School Lunch Program (NSLP) requirements. The 
process, the Coordinated Review Effort (CRE), required State agencies 
to conduct on-site administrative reviews of SFAs once every five 
years, and covered critical and general areas of review. The CRE review 
focused primarily on benefit eligibility, meal counting and claiming 
procedures, meal pattern and other general areas of compliance.
    In 1995, State agencies began to evaluate the nutritional quality 
of school meals under USDA's School Meals Initiative (SMI). A key 
component of the SMI review was the State agency's nutrient analysis of 
the weekly school meals to determine compliance with Recommended 
Dietary Allowances for protein, calcium, iron and vitamins A and C; 
recommended minimum calorie levels; and the Dietary Guidelines for 
Americans.

[[Page 26847]]

    More recently, section 207 of the HHFKA amended section 22 of the 
Richard B. Russell National School Lunch Act (NSLA), 42 U.S.C. 1769c, 
to make five changes to the administrative review requirements. The 
first three were implemented through the final rule, Nutrition 
Standards in the National School Lunch and School Breakfast Program (77 
FR 4088), which was issued January 26, 2012. Those changes involved: 
(1) Including both National School Lunch Program (NSLP) and School 
Breakfast Program (SBP) in the administrative review; (2) confirming 
that the weekly meals offered meet meal patterns and dietary 
specifications, which made the SMI obsolete; and (3) implementing a new 
3-year review cycle. This rule does not propose changes to these three 
previously promulgated provisions, but instead updates the 
administrative review procedures to reflect these changes.
    This rule proposes to revise the administrative review requirements 
in 7 CFR 210.18 to implement the remaining two statutory provisions 
from section 207 of HHFKA, requiring that:
    1. The administrative review process be a unified accountability 
system in which schools within an SFA are selected for review based on 
criteria established by the Secretary; and
    2. State agencies report the final results of reviews, and post 
them or otherwise make them available to the public.
    This proposed rule largely reflects the updated administrative 
review process developed by the School Meals Administrative Review 
Reinvention Team (SMARRT), a 26-member team consisting of staff from 
Food and Nutrition Service (FNS) Headquarters and the seven Regional 
Offices, and State Agency staff from Kansas, Michigan, New York, North 
Carolina, Oregon, Pennsylvania and Texas (representing each of the FNS 
Regions). FNS assembled the team to carry out HHFKA's mandate for a 
unified accountability system. The group worked together for one year 
to develop a simplified, unified monitoring process that includes new, 
flexible procedures and combines key aspects of the CRE and SMI 
reviews. The team also sought to create a comprehensive monitoring 
process that includes all the school nutrition programs. Another 
priority was to simplify review procedures in response to State 
agencies' needs.
    The proposed administrative review process would:
     Promote overall integrity in the school nutrition programs 
by incorporating key requirements of the CRE and SMI reviews.
     Enable the State agency to monitor essential requirements 
of the NSLP snack service and seamless summer option, the Special Milk 
Program, and the Fresh Fruit and Vegetable Program while conducting the 
administrative review.
     Include recommended off-site monitoring approaches to 
offer State agencies the ability to conduct reviews more efficiently by 
incorporating off-site State agency staff with the skills needed to 
address specific monitoring areas.
     Include risk-based approaches to enable the State agency 
to target error prone areas and focus its monitoring resources on SFAs 
and schools needing the most compliance assistance.
     Add Resource Management to the general areas of review to 
better assess the financial condition of the nonprofit food service.
     Promote consistency in the review process across all 
States.
     Include updated, user-friendly forms; new risk assessment 
tools; and statistical sampling for increased State agency efficiency. 
The forms and tools associated with the proposed administrative review 
process will be addressed separately in a 60-day notice to be published 
in the Federal Register to align with the implementing administrative 
review rulemaking.
    The main focus of the proposed administrative review under 7 CFR 
210.18 would continue to be the NSLP and SBP, and the State agency 
would continue to perform existing review procedures but in an updated 
and more flexible manner. In an effort to create a unified 
accountability system, the State agency would also be required to 
monitor the NSLP afterschool snack program and seamless summer option, 
the Fresh Fruit and Vegetable Program, and the Special Milk Program in 
a manner that is consistent with the review process established in 7 
CFR 210.18, as applicable. Most of the regulatory changes needed to 
update the administrative review process would be in 7 CFR 210.18. 
However, this rule would make changes throughout 7 CFR parts 210, 215, 
and 220 to achieve a unified accountability system for the school 
nutrition programs. In addition, the rule would remove the definition 
of ``large school food authority'' from 7 CFR 210.18, where it would no 
longer be needed, and add it to 7 CFR 235.2, where it would continue to 
apply. Detailed procedures for the new review process for the NSLP, SBP 
and other school meal programs are provided in the FNS Administrative 
Review Manual, which is a guidance document for the State agencies.
    This proposed rule would also make several changes to the SFA 
regulatory requirements to complement the proposed administrative 
review process. First, the SFA's existing responsibilities in 7 CFR 
210.14 would be clarified with regard to indirect costs as they would 
be specifically monitored by the State agency under the new 
administrative review process. Second, the SFA annual on-site 
monitoring of schools, required in 7 CFR 210.8, would be strengthened 
by incorporating readily observable general areas of review, and by 
extending SFA on-site monitoring to the SBP. These proposed changes are 
addressed in more detail later in the preamble.
    This proposed rule would also make a number of miscellaneous edits 
to remove obsolete provisions in 7 CFR part 210, and to update wording 
to reflect the diversity of certification mechanisms used in school 
meal programs beyond the traditional collection of household 
applications. In addition, this rule would update the designation of a 
form in 7 CFR 210.5(d)(3), 7 CFR 210.20(a)(2), and 7 CFR 220.13(b)(2) 
by changing the references to the SF-269, final Financial Status 
Report, to FNS-777, as approved by the Office of Management and Budget.
    While this rulemaking action is underway, FNS has allowed the 
following temporary review options for State agencies. Prior to the 
finalization of this rulemaking, State agencies may either:
    1. Seek a waiver of the existing regulatory review procedures 
pursuant to section 12(l) of the NSLA, 42 U.S.C. 1760(l), and conduct 
reviews in accordance with the proposed administrative review process 
and the corresponding Administrative Review Manual; or
    2. Continue with existing review procedures under 7 CFR 210.18 and 
the corresponding Coordinated Review Effort Procedures Manual, with the 
understanding that the proposed rule, once finalized, would require 
implementation of a new administrative review process.
    FNS provided this flexibility to State agencies beginning in School 
Year 2013-2014. Almost all State agencies have requested the waiver and 
have adopted the new administrative review process described in this 
proposed rule. The new process, conducted on a shorter, 3-year cycle, 
has begun to generate a large volume of high value information that 
will strengthen FNS and State agency integrity efforts over

[[Page 26848]]

the long term. The data collected through the new review process will 
enhance the Federal and State agencies' ability to monitor program 
performance. Just as importantly, the data will be a resource FNS can 
use in its efforts to develop timely and targeted, evidence-based 
solutions to the recurring problems that give rise to improper 
payments.
    FNS also anticipates that the experience of State agencies using 
the updated review process will contribute to informed public comments 
that guide the development of the implementing rule. When the 
implementing rule establishing the new unified administrative review 
system is promulgated, all State agencies will be required to follow 
the finalized administrative review regulations.
    Note: The words ``school'' and ``site'' are used interchangeably in 
this proposed rule, as applicable to each program, to refer to the 
location where meals are served. This proposed rule also uses the term 
SFA to generally refer to the governing body responsible for school 
food service operations. However, some of those responsibilities are 
fulfilled by the local educational agency (LEA or district), most 
notably the certification and benefit issuance process, indirect costs, 
competitive food sales, and local wellness policies. Use of the term 
SFA in this proposed rule is not intended to imply the responsibilities 
reserved for the LEA have shifted to the SFA.

II. Overview of the Existing CRE Administrative Review

    Currently, State agencies that are not conducting administrative 
reviews under the new process perform the following administrative 
review activities under the existing CRE procedures as required in the 
regulations in 7 CFR 210.18. Under the existing CRE procedures:
     State agencies monitor lunches, and must review breakfasts 
at 50 percent of the schools selected for an NSLP administrative 
review.
     State agencies must review each SFA once during each 3-
year review cycle, with no more than four years lapsing between 
reviews.
     When reviewing an SFA, State agencies conduct on-site 
reviews of about 10% of those schools participating in the NSLP.
     The scope of administrative review covers both critical 
and general areas. The critical areas, termed Performance Standards 1 
and 2, assess whether lunches and breakfasts claimed for reimbursement 
are served to children eligible for free, reduced price, and paid 
meals; are counted, recorded, consolidated, and reported through a 
system that consistently yields correct claims; and meet meal 
requirements. The general areas assess whether the SFA meets other 
program requirements related to eligibility for free and reduced price 
benefits, civil rights, monitoring, reporting and recordkeeping, food 
safety, and resource management.
     State agencies conduct a nutrient analysis of school 
lunches and breakfasts to assess compliance with calorie requirements, 
saturated fat, and sodium.
     If an SFA has critical area violations in excess of 
specified review thresholds, a follow-up review is conducted in all 
large SFAs and in at least 25 percent of small SFAs.
     The follow-up review includes the certification, count and 
service procedures in the Special Milk Program and the afterschool 
snack program operated by the reviewed schools.
     Fiscal action is required for all violations of 
Performance Standard 1 and specific violations of Performance Standard 
2.
    Most of these procedures would continue, in some manner, under the 
proposed rule.

III. Overview of the Key Proposed Changes to the Administrative Review

    The proposed administrative review under 7 CFR 210.18 would 
incorporate new and key existing procedures from the CRE and SMI 
reviews. It streamlines existing review procedures, gives State 
agencies new review flexibilities, simplifies fiscal action, and 
includes updated review forms and new tools. This proposed rule would 
replace the existing CRE and SMI monitoring processes, and is expected 
to improve program integrity by providing a single, comprehensive, 
effective, and efficient State agency monitoring process. Specific 
procedures for conducting the proposed review process are reflected in 
the FNS Administrative Review Manual.
    The key procedures carrying forward from previous CRE and SMI 
reviews include timing of reviews, scheduling of SFAs, number of 
schools to review, exit conference and notification, corrective action, 
withholding payment, SFA appeal of State agency findings, and FNS 
review activity. These provisions are found in the amendatory language 
and may include minor non-substantive technical changes in 7 CFR 
210.18, but are not discussed in this preamble. The preamble focuses on 
new key proposed changes, which are discussed next.

Procedures for Conducting a Review

Off-Site and On-Site Review Activities
    Under existing 7 CFR 210.18, the administrative review process is a 
comprehensive on-site evaluation of SFAs participating in the school 
meal programs. The proposed rule envisions that some administrative 
review activities can be conducted off-site, rather than during the on-
site portion of the review. Adding the off-site approach is expected to 
assist the State agency by reducing the State agency's travel time and 
expense, enabling the State agency to conduct the documentation review 
and other existing review requirements over a longer period of time 
than would be possible while on-site, and allowing the reviewer to seek 
input from specialized State staff for adequate review of complex 
documentation (e.g., financial staff).
    Off-site review activity is especially important for the Resource 
Management area of review which, as proposed at 7 CFR 210.18(h)(1), 
would require an off-site evaluation of information to determine if a 
comprehensive review is necessary. For other areas of review, the off-
site review is strongly recommended but it is not required. Examples of 
possible off-site review activities include:
     Identifying the sites for review using the site selection 
procedures in the proposed 7 CFR 210.18(e).
     Reviewing documentation such as the SFA agreement, policy 
statement, renewal application, prior review findings and corrective 
action plans.
     Obtaining and reviewing the benefit issuance document.
     Selecting student certifications for review.
     Examining the SFA's verification procedures.
     Reviewing the SFA's counting and claiming procedures and 
documentation.
     Reviewing menus, production records, and related 
documents.
     Reviewing the Offer versus Serve policy.
     Identifying the school most at risk for nutrition related 
violations and conducting a targeted menu review in that school.
     Determining the targeted menu review approach.
    In addition to the proposed off-site review activity, the on-site 
review activities will focus on validating the information obtained 
during the SFA off-site review and those aspects of program operations 
that can best be reviewed on-site. These types of on-site review 
activities are discussed in more

[[Page 26849]]

detail under the heading ``Areas of Review.''
    Accordingly, the proposed rule adds off-site activity as a 
component of the administrative review in proposed 7 CFR 210.18(a) and 
7 CFR 210.18(b)(1), and requires an off-site review component for the 
Resource Management area at proposed 7 CFR 210.18(h)(1).
Entrance and Exit Conferences
    While some of the review activities can be conducted off-site, an 
observation of program operations while on-site at the SFA remains a 
critical component of program oversight. Prior to commencing on-site 
review activities, States are encouraged to convene an entrance 
conference with key SFA and, as applicable, LEA staff and 
administrators with responsibility for ensuring program requirements 
are followed. This initial conversation can help clarify expectations 
for the on-site review, raise preliminary issues identified during off-
site review activities, and identify the additional information needed 
to complete the on-site portion of the review. While not required, this 
proposed rule supports, at 7 CFR 210.18(i)(1), the option for State 
agencies to begin the administrative review by conducting an entrance 
conference with the relevant SFA staff. This provision reflects 
existing practice. This rule would also retain the existing requirement 
for the State agency to conduct an exit conference. The proposed rule 
would codify the exit conference requirement at 7 CFR 210.18(i)(2).
Administrative Review Materials
    This rulemaking would require, in proposed 7 CFR 210.18(f)(1), that 
State agencies use updated forms and tools to conduct the 
administrative review process. As stated earlier, FNS will issue the 
updated tools to coincide with the publication of the implementing 
rule. The new tools include: An Off-site Assessment Tool, an On-site 
Assessment Tool, a Meal Compliance Risk Assessment Tool, a Dietary 
Specifications Assessment Tool, and a Resource Management Risk 
Indicator Tool.
    These tools and corresponding instructions are currently available 
to State agencies on the FNS PartnerWeb, which is a restricted access 
online portal for State agencies that administer the school meal 
programs. State agencies can find the tools in the Administrative 
Review Folder located in the Resources and Guidance document library of 
the CND Policy and Memoranda Community. When finalized, these tools 
will also available on the FNS Web site. With the exception of the 
Resource Management Risk Indicator Tool, which must be completed off-
site, the required administrative review tools may be completed on-
site.

Areas of Review

    The proposed administrative review would continue to include 
critical and general areas which mirror the critical and general areas 
specified in existing 7 CFR 210.18(g) and (h), with the modifications 
discussed below.
Critical Areas of Review
    Existing 7 CFR 210.18(b) defines, and existing 7 CFR 210.18(g) 
describes in detail, the critical areas, which are two performance 
standards that help evaluate compliance with program requirements. 
Performance Standard 1 (PS-1) focuses on certification for free and 
reduced price meals, benefit issuance, and meal counting and claiming. 
Performance Standard 2 (PS-2) focuses on meals meeting the meal pattern 
and dietary specification requirements. The proposed rule at 7 CFR 
210.18(g)(1) and (2) would retain both performance standards but modify 
how they are monitored as described in the next two subsections of this 
preamble.
PS-1--Meal Access and Reimbursement
    The proposed rule at 7 CFR 210.18(g) retains the existing PS-1, 
with only minor technical changes. Existing PS-1 refers to ``All, free, 
reduced price and paid lunches . . . served only to children eligible 
for free, reduced price and paid lunches . . .'' The proposed rule 
would replace the term ``lunches'' with the term ``meals'' to include 
an assessment of both the NSLP and the SBP as required by the 
amendments made to the NSLA in 207 of the HHFKA.
    Existing 7 CFR 210.18(g)(1) has a three-pronged scope of review. 
The State agency must:
     Determine the number of children eligible for free, 
reduced price and paid meals, by type, in the reviewed schools 
(hereafter termed ``Certification'').
     Evaluate the system for issuing benefits and updating 
eligible status by validating the mechanisms the reviewed school uses 
to provide benefits to eligible children (hereafter termed ``Benefit 
Issuance'').
     Determine whether the meal counting system yields correct 
claims (hereafter termed ``Meal Counting and Claiming'').
    The proposed rule would retain the above processes, but streamline 
and consolidate the Certification and Benefit Issuance review processes 
to improve program integrity and simplify the review process.
    Under proposed 7 CFR 210.18(g)(1)(i), the State agency would be 
required to:
     Obtain the free and reduced price benefit issuance 
document for each school under the jurisdiction of the SFA for the day 
of review or a day in the review period.
     Review all, or a statistically valid sample of, free and 
reduced price certification documentation (i.e., direct certifications, 
household applications) and other documentation relating to eligibility 
status (e.g., verification, transfers).
     Validate that reviewed students' free and reduced price 
eligibility status was correctly determined and properly transferred to 
the benefit issuance document.
    In addition, the proposed rule expands the scope of Certification 
and Benefit Issuance review from the reviewed sites to the SFA level in 
order to provide the State agency with a more accurate picture of the 
SFA's practices at all schools. The proposed rule requires the State 
agency to review the free and reduced price certification and benefit 
issuance documentation for students across the entire SFA. This 
proposed change reflects that most SFAs have a centralized 
recordkeeping system; generally certifications are made and benefit 
issuance is maintained at the SFA level. The advantage of this approach 
is that it allows certification and benefit issuance errors identified 
during a review to be corrected at the SFA level.
    As permitted under existing 7 CFR 210.18(g)(1)(i)(A)(2), State 
agencies would continue to have the option of reviewing either all 
certifications on the benefit issuance documents or a statistically 
valid sample of certifications. State agencies using a statistically 
valid sample review fewer student documents and the review yields 
results representative of the certification and benefit issuance 
activity in the SFA. The statistically valid sample size may be 
determined manually, or by using the Statistical Sample Generator 
developed by FNS or other statistical sampling software. Both options 
are described in the FNS Administrative Review Manual. The proposed 
rule at 7 CFR 210.18(g)(1)(i) would retain the statistical sampling 
confidence level of 95 percent, set forth in existing 7 CFR 
210.18(g)(1)(i)(A)(2), for electronic certification and benefit 
issuance systems. For manual benefit issuance systems, the proposed 
rule

[[Page 26850]]

would increase the sampling confidence level to 99 percent.
    As under existing 7 CFR 210.18(g)(1)(i)(C), the Meal Counting and 
Claiming portion of the review would continue to ensure that all free, 
reduced price and paid meals are accurately counted, recorded, 
consolidated and reported through a system which consistently yields 
correct claims. Under proposed 7 CFR 210.18(g)(1)(ii), the State agency 
would continue to be required to monitor counting and claiming at both 
the SFA and reviewed school levels. The review strategies would remain 
unchanged. Under the proposed rule, the State agency would continue to 
determine whether:
     Daily lunch counts, by type, for the review period are 
more than the product of the number of children determined to be 
eligible, by type for the review period, adjusted for attendance at the 
reviewed schools;
     Each type of food service line provides accurate point of 
service lunch counts, by type, and those lunch counts are correctly 
counted and recorded at the reviewed schools; and
     All lunches at the reviewed schools are correctly counted, 
recorded, consolidated and reported for the day they are served.
    In addition, State agencies would be required to determine whether 
lunch counts submitted by each school are correctly consolidated, 
recorded, and reported by the SFA on the Claim for Reimbursement.
    Thus, the proposal combines the certification and benefit issuance 
process, and expands the scope of the certification and benefits 
issuance review to the SFA level, and establishes acceptable sample 
sizes and confidence levels for statistical sampling at proposed 7 CFR 
210.18(g)(1)(i). The proposal retains existing meal counting and 
claiming review procedures at proposed 7 CFR 210.18(g)(1)(ii).
PS-2--Meal Pattern and Nutritional Quality
    Under existing PS-2 found at 7 CFR 210.18(g)(2), the State agency 
monitors SFA compliance with the meal patterns and dietary 
specifications for lunches and breakfasts for each age/grade group. 
Currently, State agencies must review menu and production records for a 
minimum of five operating days to determine whether all food components 
and quantities have been offered. For the day of review, the State 
agency must also observe the serving line(s) to determine whether all 
food components and food quantities are offered, and observe a 
significant number of program meals counted at the point of service for 
each type of serving line to determine whether the meals selected by 
the students contain the required food components and quantities. In 
addition, the State agency must conduct a nutrient analysis of a school 
in the SFA to determine whether the meals offered meet the calorie, 
sodium and saturated fat requirements, and review nutrition labeling to 
assess compliance with the trans fat limit. The State agency must also 
assess whether performance-based cash assistance should continue to be 
provided for meals served.
    The proposed rule at 7 CFR 210.18(g)(2) would largely retain the 
existing scope of review for PS-2 with the following modifications:
     Require the State agency to complete a USDA-approved menu 
tool for each school selected for review to establish the SFA's 
compliance with the required food components and quantities for each 
age/grade group being served. The menu tool can be completed off-site 
(preferably) or on-site using production records, menus, recipes, food 
receipts, and any other documentation that shows the meals offered 
during a week from the review period contained the required components/
quantities.
     Require the State agencies to review menu and production 
records for a minimum of three to a maximum of seven operating days to 
determine whether all food components and quantities have been offered 
over the course of a typical school week.
     Require the State agency to confirm, through on-site 
observation of reviewed schools that students select at least three 
food components at lunch and at least three food items at breakfast 
when Offer versus Serve is in place, and that these meals include at 
least \1/2\ cup of fruits or vegetables.
     Require the State agency to assess compliance with the 
dietary specifications (calories, sodium, saturated fat, and trans fat) 
using a risk-based approach and only require a weighted nutrient 
analysis for a school determined to be at high risk for violations (see 
discussion under the heading Dietary Assessment).
    The State agency would continue to observe the meal service lines 
and review menu documentation on the day of review at review schools to 
determine whether all service lines offer all of the required food 
components and quantities. The State agency would also observe a 
significant number of program meals counted at the point of service for 
each type of serving line to determine whether the meals selected by 
the students contain the required food components and quantities.
Dietary Assessment
    Existing 7 CFR 210.18(g)(2)(iv) requires a weighted nutrient 
analysis of the meals for students in age groups K and above to 
determine whether the meals offered meet the calorie, sodium, and 
saturated fat requirements set forth in 7 CFR 210.10 and 7 CFR 220.8. 
Under the proposed rule at 7 CFR 210.18(g)(2)(ii), the State agency 
would continue to assess whether the lunches and breakfasts offered to 
children are consistent with the calories, sodium, saturated fat, and 
trans fat restrictions. However, unlike the existing requirements, the 
proposed rule would require a risk-based approach to identify the 
reviewed school most at risk of nutrition-related violations and 
conduct a targeted menu review of that school.
    Under the proposal, the State agency would complete the Meal 
Compliance Risk Assessment Tool off-site or on-site for each school 
selected for review to identify the school most at risk for nutrition-
related violations. This risk-based approach is intended to lessen the 
review burden on State agencies and allow them to better use their 
resources. For the one school determined to be most at risk, the State 
agency would conduct an in-depth, targeted menu review using one of 
four FNS approved options. For the targeted menu review, the State 
agency would have the following options: conduct a nutrient analysis, 
validate an existing nutrient analysis performed by the SFA or a 
contractor, complete the Dietary Specifications Assessment Tool to 
further examine the food service practices, or follow an alternative 
FNS-approved process utilizing the Menu Planning Tools for 
Certification for Six Cent Reimbursement. This proposed rule revises 
the existing nutrient analysis provisions found in 7 CFR 210.10(h) and 
7 CFR 210.10(i) to reflect this new streamlined and risk-based 
approach.
Performance-Based Cash Assistance
    As required in existing 7 CFR 210.18(g)(2)(v), the proposed rule at 
7 CFR 210.18(g)(2)(iii) continues to require the State agency to assess 
whether performance-based cash assistance should continue to be 
provided for the meals served.
Follow-up Reviews
    Under existing 7 CFR 210.18(i), critical area violations in excess 
of specified thresholds trigger a follow-up review by the State agency. 
This proposed rule lessens the burden

[[Page 26851]]

associated with the administrative review by removing the existing 
requirement for follow-up reviews triggered by a specific threshold. 
The follow-up review requirement was implemented at a time when the 
review cycle was 5-years and there was concern about the long span 
between reviews. Because the 3-year review cycle now allows the State 
agency to have more frequent contact with the SFAs, the follow up 
requirement is unnecessary. Instead, the proposed review process 
emphasizes collaborative compliance. When errors are detected, the 
State agency would require corrective action, provide technical 
assistance to bring the SFA into compliance, and take fiscal action 
when appropriate. The State agency would have discretion to do a 
follow-up review based on criteria established by the State agency.
    Accordingly, this proposed rule removes the definitions of 
``follow-up reviews'' and ``review threshold'' in existing 7 CFR 
210.18(b) and removes the follow-up review procedures in 7 CFR 
210.18(i). Minor references to follow-up review and review threshold 
throughout 7 CFR part 210 are also removed. The definitions of ``large 
school food authority'' and ``small school food authority'' would be 
removed from 7 CFR 210.18(b), as these definitions were used in the 
determination of which SFAs received a follow-up review. The same 
definition of ``large school food authority'' would be added to 7 CFR 
part 235, State Administrative Expense Funds, where it remains relevant 
for the State Administrative Expense allocation process.
General Areas of Review
    Under existing 7 CFR 210.18(h), State agencies are required to 
assess compliance with five general areas during the administrative 
review, i.e., free and reduced price process, civil rights, monitoring 
responsibilities, reporting and recordkeeping and food safety. Under 
the proposal at 7 CFR 210.18(h), the proposed rule expands the general 
areas of review to include existing and new requirements grouped into 
two broad categories: Resource Management and General Program 
Compliance.
    Resource Management, found at proposed 7 CFR 210.18(h)(1), would 
focus on compliance with existing requirements that safeguard the 
overall financial health of the nonprofit school food service:
     Maintenance of the Nonprofit School Food Service Account--
7 CFR 210.14(a), (b) and (c);
     Paid Lunch Equity--7 CFR 210.14(e);
     Revenue from Nonprogram Foods--7 CFR 210.14(f); and
     Indirect Costs--2 CFR part 225, and 7 CFR 210.14(g) (as 
proposed).
    Currently, SFAs are required to comply with these resource 
management requirements specified under existing 7 CFR 210.14; however, 
existing regulations do not require the State agencies to monitor 
compliance as part of the administrative review. Under this proposed 
rule at 7 CFR 210.18(h)(1), the State agency would monitor these five 
requirements using the Resource Management Risk Indicator Tool to 
identify SFAs at high risk for resource management problems, and would 
only conduct a comprehensive resource management review if, according 
to the tool, an SFA meets three or more of the following criteria:
     Size of the SFA (40,000 students or more),
     Financial findings on reviews or audits within the last 
three years,
     Inadequate practices related to maintenance of the 
nonprofit school food service account,
     Inadequate practices related to paid lunch equity,
     Inadequate practices related to revenue from nonprogram 
foods, and/or
     Inadequate practices related to indirect costs.
    Adding Resource Management to the proposed administrative review 
would establish a framework for this review area, promote review 
consistency among all States, and promote proper stewardship of Federal 
funds. The required off-site review of Resource Management allows the 
reviewer to use the expertise of off-site State staff with specialized 
knowledge of resource management that may not typically be present 
during an on-site review. Under the proposal, State agencies continue 
to have flexibility to review Resource Management more frequently or 
more closely, provided the minimum areas of review are covered.
    The Resource Management review area does not include procurement. 
Given the complexity of the procurement process, FNS will develop a 
separate review process for the State agencies to monitor compliance 
with procurement requirements. Excluding procurement from the proposed 
administrative review under 7 CFR 210.18 does not change the SFA's 
current responsibility to meet procurement standards applicable to 
those operating school meals programs. Pursuant to federal law and 
regulations at 2 CFR 200.318 through 2 CFR 200.326, SFAs continue to be 
required to fully comply with all attendant procurement standards and 
will be held accountable to those standards through regular State 
agency oversight.
    It is also important to note that this proposed rule adds a new 
paragraph (g) to the Resource Management requirements in 7 CFR 210.14 
to clarify the SFA's existing responsibilities with regard to indirect 
costs. This is discussed later in the preamble under the heading, ``IV. 
Proposed Changes to SFA Requirements.''
    Proposed 7 CFR 210.18(h)(2), General Program Compliance would focus 
on the SFA compliance with the existing general areas found at 7 CFR 
210.18(h)(1) through (h)(5): Free and reduced price process, civil 
rights, SFA on-site monitoring, reporting and recordkeeping, and food 
safety. In addition, the proposal expands the scope of review to 
include the requirements established by HHFKA for competitive food 
standards, water, and outreach for the SBP and Summer Food Service 
Program (SFSP). The proposed rule moves the existing oversight of 
outreach for SBP and SFSP from 7 CFR 210.19(g) to the new 
210.18(h)(2)(viii) to reflect that this oversight activity is part of 
the general areas of review.
    In total, the proposed general areas of review include, but are not 
limited to, the following areas:
     Free and Reduced Price Process--including verification, 
notification, and other procedures--7 CFR part 245.
     Civil Rights--7 CFR 210.23(b).
     SFA On-site Monitoring--7 CFR 210.8(a)(1) and proposed 
220.11(d).
     Reporting and Recordkeeping--7 CFR parts 210, 220 and 245.
     Food Safety--7 CFR 210.13.
     Competitive Food Services--7 CFR 210.11 and 7 CFR 220.12.
     Water--7 CFR 210.10(a)(1)(i) and 7 CFR 220.8(a)(1).
     Professional Standards--7 CFR 210.30.
     SBP and SFSP Outreach--7 CFR 210.12(d).
     Local School Wellness Policies.
    LEAs have been required to have local school wellness policies in 
place since 2006. Assessing compliance with this requirement has been a 
general area of review under the CRE, and is included in the 
Administrative Review Manual. The Department has issued a separate 
rulemaking to solicit public comment on the proposed implementation of 
HHFKA section 204, Local School Wellness Policy Implementation Under 
the Healthy, Hunger-Free Kids Act of 2010, 79 FR 10693 (2/26/14). A 
final rule is under development. Once a final rule is published, the 
administrative

[[Page 26852]]

review guidance will be updated to reflect the finalized requirements.
    Finally, as noted later in the preamble, this proposed rule expands 
the existing requirement for SFAs to conduct on-site monitoring. This 
proposed change to 7 CFR 210.8 is discussed in more detail later under 
the heading ``IV. Proposed Changes to SFA Requirements.''
Other Federal Program Reviews
    The review of other Federal programs is a new aspect of the 
proposed unified accountability system. It would ensure that State 
agencies monitor the NSLP's afterschool snack program and seamless 
summer option, the Special Milk Program, and the Fresh Fruit and 
Vegetable Program when these programs are administered by the SFA under 
review. Under the proposed rule at 7 CFR 210.18(g) and (h), the State 
agency would monitor the critical and/or general areas of review in the 
cited programs, as applicable.
    In contrast, under existing 7 CFR 210.18(i)(4)(iv), a State agency 
is only required to monitor the certification, count and milk/meal 
service procedures for the Special Milk Program (7 CFR part 215) or the 
NSLP afterschool snack program (7 CFR part 210) during a follow-up 
review if the State agency has not evaluated these previously in the 
schools selected for an administrative review. However, including these 
programs in the regular, periodic review of SFA operations is critical 
to ensuring they are properly administered and is expected to improve 
program integrity overall.
    Other Federal Program Reviews would help ensure that the SFA 
operates the other school meal programs in accordance with key 
regulatory requirements. The State agencies would be required to follow 
the proposed review approach (7 CFR 210.18), as applicable, to monitor 
the other school meal programs as prescribed in the FNS Administrative 
Review Manual. In most cases, under the proposed rule the review of 
other school meal programs would include the following:
    NSLP afterschool snack program--The State agency would:
     Use the Supplemental Afterschool Snack Program 
Administrative Review Form.
     Review the school's eligibility for the afterschool snack 
program.
     Ensure the school complies with counting and claiming 
procedures.
     Confirm the school food authority conducts self-monitoring 
activities twice per year as required in 210.9(c)(7).
     Assess compliance with the snack meal pattern in 7 CFR 
210.10(o).
     Monitor compliance with the reporting and recordkeeping, 
food safety and civil rights requirements in 7 CFR part 210.
    NSLP seamless summer option--As proposed, the rule requires that 
the State agency, at a minimum:
     Use the Supplemental Seamless Summer Option Administrative 
Review Form.
     Verify the site eligibility for the seamless summer 
option.
     Ensure the school food authority monitors the site(s) at 
least once per year.
     Review meal counting and claiming procedures.
     Monitor compliance with the meal patterns for lunches and 
breakfasts in 7 CFR 210.10 and 7 CFR 220.8, respectively.
     Confirm the school food authority informs families of the 
availability of free meals.
     Monitor compliance with the reporting and recordkeeping, 
food safety and civil rights requirements in 7 CFR part 210.
    Special Milk Program (in NSLP schools)--As proposed, the rule 
requires that the State agency, at a minimum:
     Use the Supplemental Special Milk Program Administrative 
Review Form.
     Review the milk pricing policy, counting and claiming, and 
milk service procedures.
     Observe the milk service at the reviewed site if there are 
issues with the meal counting and claiming procedures in the NSLP or 
SBP.
     Ensure accuracy in certification and benefit issuance, 
when observing milk service.
     Monitor compliance reporting and recordkeeping, food 
safety and civil rights requirements in 7 CFR part 215.
    Fresh Fruit and Vegetable Program--As proposed, the rule requires 
that the State agency, at a minimum:
     Confirm availability of benefits to all enrolled children 
free of charge.
     Monitor allowable program costs, service time, outreach 
efforts, and types of fruits and vegetables offered.
     Monitor compliance with the reporting and recordkeeping, 
food safety and civil rights requirements in 7 CFR part 210.
    The Department has issued separate rulemaking, Fresh Fruit and 
Vegetable Program, 77 FR 10981 (February 24, 2012) to solicit public 
comment on the proposed Fresh Fruit and Vegetable Program. Currently, 
the program is operated under guidance that follows general 
requirements for program operations under 7 CFR part 210. The 
implementing administrative review rule will incorporate any citation 
changes that may be necessary if the Fresh Fruit and Vegetable Program 
rule is finalized in the location proposed at 7 CFR part 211.

Fiscal Action

    Existing regulations at 7 CFR 210.19(c) require the State agency to 
identify the SFA's correct entitlement and take fiscal action when any 
SFA claims or receives more Federal funds than earned. Under this 
proposed rule at 7 CFR 210.18(l), State agencies would continue to be 
required to take fiscal action for all PS-1 violations and for specific 
PS-2 violations, as discussed next. This proposed rule expands the 
scope of fiscal action for certification/benefit issuance PS-1 
violations, revises the method to calculate fiscal action for 
applicable violations, and modifies the State agency's authority to 
limit fiscal action for specific critical area violations when 
corrective action is completed.
    Details about the proposed revisions to fiscal action follow.
PS-1 Violations
    Under existing 7 CFR 210.18(m)(1), State agencies are required to 
take fiscal action for all certification, benefit issuance, meal 
counting, and claiming violations of PS-1 and fiscal action is 
generally limited to the reviewed schools. If corrective action occurs, 
the State agency may limit fiscal action from the point corrective 
action occurs back through the beginning of the review period.
    For the Certification and Benefit Issuance portion of the new 
administrative review, 7 CFR 210.18(g) of this proposed rule would 
require State agencies to review certifications/benefit issuance for 
all the schools under its jurisdiction, not just reviewed schools. This 
broader scope of review is expected to provide the State agency with a 
more accurate picture of the SFA's practices at all participating 
schools under the jurisdiction of the SFA and lead to improved program 
integrity.
    Given the broader scope of review at the SFA level, rather than the 
reviewed school level, this rule proposes several changes to the fiscal 
action procedures. The proposed rule at 7 CFR 210.18(l)(l) would apply 
fiscal action for certification and benefit issuance errors to the 
entire SFA, including non-reviewed schools. Expanding fiscal action 
across the entire SFA differs from the existing CRE review, and from 
the interim administrative review approach used by a number of State 
agencies operating under a waiver from CRE beginning and using the 
updated

[[Page 26853]]

Administrative Review Guidance. Under CRE, fiscal action is generally 
limited to the reviewed schools because certification and benefit 
issuance monitoring is limited to the reviewed schools. Under the 
interim administrative review approach, State agencies monitor 
certification and benefit issuance for the entire SFA, but fiscal 
action is generally limited to the reviewed schools, consistent with 
the CRE regulatory requirements.
    The proposed rule would revise fiscal action in the new 
administrative review process by basing fiscal action on a State-
calculated certification and benefit issuance adjustment factor for 
free and for reduced price meals, respectively. The adjustment factor 
for free meals is the ratio of the State agency count of students 
certified as eligible for free meals divided by the SFA count of 
students certified as eligible for free meals. The resulting percentage 
represents the benefit issuance accuracy rate for free meals. A similar 
calculation is made to obtain the reduced price adjustment factor. 
Under the proposed rule, the total number of free and reduced price 
meals claimed is adjusted to reflect the State-calculated certification 
and benefit issuance adjustment factors. This proposed approach differs 
from the CRE approach, which based fiscal action on the number of 
incorrect certifications in reviewed schools and the corresponding 
number of serving days. The proposed approach streamlines the 
determination of fiscal action and ensures program integrity SFA-wide.
    The proposed rule amends 7 CFR 210.19(c) to indicate fiscal action 
applies to ``meals'', (rather than just lunches) and the Special Milk 
Program at 7 CFR part 215.
PS-2 Violations--Missing Food Component and Production Records
    Under existing 7 CFR 210.18(m)(2)(i), State agencies are required 
to take fiscal action for food component violations of PS-2. However, 
if corrective action occurs, the State agency may limit fiscal action 
from the point corrective action occurs back through the beginning of 
the review period. Given the existing scope of review for PS-2, fiscal 
action is generally limited to the reviewed schools.
    Under the proposed rule at 7 CFR 210.18(l)(2)(i), State agencies 
continue to be required to take fiscal action for PS-2 missing food 
component violations. Although fiscal action would generally be applied 
to the reviewed school, if a centralized menu is in place, the State 
agency should evaluate the cause(s) of the violation to determine if it 
is appropriate to apply fiscal action SFA wide.
    In addition, the proposed rule requires the State agency to assess 
fiscal action on meals claimed for reimbursement that are not supported 
by appropriate documentation. An SFA is required to document that it 
offers reimbursable meals and maintain documentation that demonstrates 
how meals offered to students meet meal pattern requirements. If 
production records are missing, or missing for a certain time period, 
the proposed rule would require the State agency to take fiscal action 
unless the SFA is able to demonstrate to the satisfaction of the State 
agency, that reimbursable meals were offered and served.
Duration of Fiscal Action for PS-1 Violations and PS-2 Violations 
Related to Missing Food Component and Production Records
    Under existing 7 CFR 210.19(c)(ii), fiscal action must be extended 
to the beginning of the school year or to that point during the current 
school year when the infraction first occurred, except as specified 
under existing 7 CFR 210.18(m). Based on the severity and longevity of 
the problem, the State agency may extend fiscal action back to previous 
school years, as applicable. The proposed rule retains the general 
duration, but in 7 CFR 210.18(l)(3), provides some flexibility for 
State agencies to limit the duration of fiscal action when corrective 
action takes place for PS-1 and PS-2 violations related to food 
components/missing production records. The proposal is as follows:
    As proposed in 7 CFR 210.18(l)(3)(i), for PS-1 certification and 
benefit issuance errors, fiscal action would be required for the review 
period and the month of the on-site review, at a minimum. For example, 
if the review period is January and the month of the on-site review is 
February, then at a minimum fiscal action would be applied to the 
months of January and February. In scenarios where a month falls in 
between, i.e., January is the review period and March is when the on-
site review occurs, then fiscal action is applied to all three months.
    For all other PS-1 violations and PS-2 violations relating to 
missing food components and missing production record:
     If corrective action occurs during the on-site review 
month, the State agency must apply fiscal action from the point 
corrective action occurs back through the beginning of the on-site 
review month and for the review period. For example, if the review 
period is in January and the on-site review occurs in March and during 
the course of the review errors are identified and corrected on March 
15th, then fiscal action would be applied from March 1st through March 
14th and for the entire review period, i.e., January. If corrective 
action occurs during the review period, the State agency applies fiscal 
action from the point corrective action occurs back through the 
beginning of the review period. For example, if the review period is 
January and the on-site review occurs in March and it is determined 
that the problem was corrected on January15th, then fiscal action would 
be applied from January 1st through January 14th.
     If corrective action occurs prior to the review period, no 
fiscal action is required under the proposal. In this scenario, any 
error identified and corrected prior to the review period, i.e., before 
January, it is not subject to fiscal action.
     If corrective action occurs in a claim month(s) between 
the review period and the on-site review month, the State agency would 
apply fiscal action only to the review period. For example, if the 
review period is January and the on-site review occurs in March and the 
corrective action takes place in February, the state agency would be 
required to apply fiscal action only to the review period, i.e., 
January.
    Based on the severity and longevity of the problem, the State 
agency would be able to extend fiscal action back to the beginning of 
the year or back to previous school years.
For PS-2 Violations Related to Vegetable Subgroups. Milk Type, Food 
Quantities, Whole Grain-Rich Foods, and Dietary Specifications
    Existing 7 CFR 210.18(m)(2)(ii) requires fiscal action for repeated 
PS-2 violations related to vegetable subgroups and milk type. For 
repeated PS-2 violations related to food quantities, whole grain-rich 
foods and the dietary specifications, existing 7 CFR 210.18(m)(2)(iii) 
states that fiscal action is discretionary. The proposed rule would 
clarify the scope and duration of fiscal action for these repeated PS-2 
violations. These changes are found at 7 CFR 210.18(l)(2)(ii) through 
(v) of the proposed rule.
    For purposes of administrative reviews, repeated violations are 
generally those identified during the administrative review of an SFA 
in one cycle and identified again in the administrative review of the 
same SFA in the next review cycle. For example, if the State agency 
finds a PS-2 violation (e.g., unallowable milk type)

[[Page 26854]]

in an SFA in the first review cycle (SY 2013-2016), and finds the same 
problem during the second review cycle (SY 2016-2019), fiscal action 
would be required during the second review cycle.
    It is important to note that while fiscal action is generally 
limited to the repeated violation found in a subsequent administrative 
review cycle, State agencies are required by existing 7 CFR 210.19(c) 
to take fiscal action for recurrent violations found in later visits to 
the SFA during the initial cycle (e.g., technical assistance visits, 
follow-up reviews) if these violations reflect willful and/or egregious 
disregard of program requirements. This would not occur during SY 2013-
2014 through SY 2015-2016, as FNS has indicated in guidance, including 
the memorandum, Administrative Reviews and Certification for 
Performance-Based Reimbursement in School Year (SY) 2014-2015 (SP-54 
2014), and subsequent Question and Answer documents, that repeat 
findings will not result in fiscal action if they are repeated in the 
first 3-year review cycle. Beginning in SY 2016-2017, State agencies 
would be directed to contact FNS for guidance in these situations.
    For repeated violations involving vegetable subgroups and/or milk 
requirements, existing regulations require the State agency to take 
fiscal action provided that technical assistance has been provided by 
the State agency, corrective action has been previously required and 
monitored by the State agency, and the SFA remains in non-compliance 
with PS-2. The proposed rule at 7 CFR 210.18(l)(2)(ii) would clarify 
the existing regulatory requirement to specify how a State must apply 
fiscal action. Under the proposal, any meals with an unallowable milk 
type or when there is no milk variety, would be required to be 
disallowed/reclaimed. If one vegetable subgroup is not offered over the 
course of the week reviewed, the State agency should evaluate the 
cause(s) of the error to determine the appropriate fiscal action 
required. When calculating the required fiscal action, the State agency 
would have discretion, as appropriate based on the cause and extent of 
the error, to disallow/reclaim all meals served in the deficient week.
    For repeated violations of quantities and/or the whole grain-rich 
foods and dietary specifications, existing regulations allow State 
agency the discretion to apply fiscal action provided that technical 
assistance has been given by the State agency, corrective action has 
been previously required and monitored by the State agency, and the SFA 
remains in noncompliance with quantity, whole grain rich and dietary 
specifications. The proposal rule at 7 CFR 210.18(l)(2)(iii) clarifies 
the existing regulatory requirement and specifies how fiscal action 
must be applied.
    For repeated violations involving food quantities and/or the whole 
grain-rich foods requirement, the State agency would continue to have 
discretion to apply fiscal action. When evaluating the cause(s) of the 
error to determine the extent of the discretionary fiscal action, the 
reviewer would consider the following:
     If meals contain insufficient quantities of required food 
components, the affected meals may be disallowed/reclaimed.
     If whole grain-rich foods are not offered over the course 
of the week reviewed, all meals served in the deficient week may be 
disallowed/reclaimed.
     If insufficient whole grain-rich foods are offered, meals 
for one day during the week under review may be disallowed/reclaimed. 
The State agency has discretion to select which day's meals may be 
disallowed/reclaimed. Additional meals may be disallowed/reclaimed at 
State agency's discretion.
     If a vegetable subgroup is offered in insufficient 
quantity to meet the minimum weekly requirement, meals may be 
disallowed/reclaimed for one day that week. The State agency has 
discretion to select which day's meals are disallowed/reclaimed. 
Additional meals may be disallowed/reclaimed at the State agency's 
discretion.
     If the amount of fruit juice offered exceeds 50 percent of 
the total amount of fruits offered, or the amount of vegetable juice 
exceeds 50 percent of the total amount of vegetables offered, meals for 
the entire week may be disallowed/reclaimed.
    For repeated violations of dietary specifications, the proposed 
rule in 7 CFR 210.18(l)(2)(iv) specifies that the State agency has 
discretion to take fiscal action and disallow/reclaim all meals for the 
entire week, if applicable, provided that technical assistance has been 
given by the State agency, corrective action has been previously 
required and monitored by the State agency, and the SFA remains 
noncompliant with the dietary specifications. If fiscal action is 
applied, it would be limited to the school selected for the targeted 
menu review. A nutrient analysis using USDA-approved software would be 
required to justify any fiscal action for noncompliance with the 
dietary specifications requirements.
    The intent of these proposed fiscal action modifications and 
clarifications is to promote program integrity. Clearly identifying the 
critical area violations that may result in fiscal action and the scope 
and duration of any fiscal action, will promote consistency in fiscal 
action procedures among State agencies.
    The administrative review manual also includes automated forms and 
tools designed to simplify the fiscal action process for State 
agencies. Fiscal action, whether required or at the States discretion, 
would be applied in a consistent manner and would take significantly 
less time to complete.
    FNS is especially interested in soliciting feedback from early 
adopters of the new administrative review process on the impact of the 
proposed fiscal action method. We acknowledge that expanding the scope 
of review to include the SBP and strengthening fiscal action for PS-1 
and PS-2 violations may result in increased fiscal action against 
certain SFAs.

Transparency Requirement

    Section 207 of the HHFKA amended section 22 of the NSLA (42 U.S.C. 
1769c) to require State agencies to report the final results of the 
administrative review to the public in the State in an accessible, 
easily understood manner in accordance with guidelines promulgated by 
the Secretary.
    This proposed rule at 7 CFR 210.18(m) requires the State agency to 
post a summary of the most recent final administrative review results 
for each SFA on the State agency's publicly available Web site. The 
review summary must cover eligibility and certification review results, 
an SFA's compliance with the meal patterns and the nutritional quality 
of school meals, the results of the review of the school nutrition 
environment (including food safety, local school wellness policy, and 
competitive foods), and compliance related to civil rights, and general 
program participation, in a format prescribed by FNS. At a minimum, 
this would include the written notification of review findings provided 
to the SFAs Superintendent as required at 7 CFR 210.18.(i)(3). FNS will 
provide additional guidance on the appropriate format, including 
templates and model summaries, after the implementing rule is 
published.
    State agencies would be required to post this review summary no 
later than 30 days after the State agency provides the final results of 
the administrative review to the SFA. The State agency would also be 
required to make a copy of the final administrative review report

[[Page 26855]]

available to the public upon request. This requirement seeks to promote 
transparency and accountability in program operations as parents and 
stakeholders are increasingly aware of the potential benefits of the 
programs and seek more information about them.

Reporting and Recordkeeping

    Current regulations in 7 CFR 210.18(n) and (o) address the State 
agency reporting requirements associated with the administrative review 
process. This proposed rule would retain the requirement to file the 
form FNS-640 at proposed 7 CFR 210.18(n), but would remove reference to 
follow-up reviews. The proposal retains the basic record keeping 
requirement at 210.18(o), but removes the reporting requirement 
associated with follow-up reviews found in existing 7 CFR 210.18(o) and 
7 CFR 210.20(a)(5) due to the proposed elimination of the follow-up 
reviews. The recordkeeping associated with follow-up reviews in 7 CFR 
210.18(p) and 7 CFR 210.20(b)(7) would also be eliminated.
    The proposed removal of the follow-up review is expected to reduce 
the reporting and recordkeeping burden on State agencies. As discussed 
earlier, the information collection associated with the updated forms 
and new tools required for the administrative review process will be 
addressed separately in a 60-day notice, when the implementing rule is 
published.

IV. Proposed Changes to SFA Requirements

    As stated earlier, this proposed rule would add a new paragraph (g) 
in 7 CFR 210.14, Resource Management, to clarify SFA responsibilities 
regarding indirect costs that will be monitored by the State agency 
during the administrative review. The additional regulatory language 
would not represent a new requirement for SFAs. The proposed paragraph 
(g) would reflect existing requirements in 2 CFR part 225 that are 
applicable to the operators of the school meal programs. The intent of 
the proposed paragraph (g) is to highlight an SFA responsibility that 
often goes unnoticed because it is not clearly stated in 7 CFR 210.14.
    To improve overall monitoring of the school meal programs, this 
proposed rule would also expand the SFA on-site monitoring process. 
Under existing 7 CFR 210.8(a)(1), SFAs with more than one school are 
required to perform no less than one on-site review of the lunch 
counting and claiming system employed by each school under its 
jurisdiction. The SFA must conduct the required on-site review prior to 
February 1 of each school year. The proposed rule at 7 CFR 210.8(a)(1) 
would expand the scope of on-site monitoring to include the readily 
observable general areas of review cited under 7 CFR 210.18(h), as 
identified by FNS. Readily observable areas of review could include, 
but are not limited to, the availability of free potable water, proper 
food safety practices, and compliance with Civil Rights requirements.
    In addition, the SFA monitoring activities would extend to the SBP. 
The SFA would be required to annually monitor the operation of the NSLP 
and SBP at each school under its jurisdiction. As is currently done 
with the NSLP, this monitoring of the SBP would include the counting 
and claiming system used by a school and the general areas of review 
that are readily observable. This expansion of the SFA monitoring 
activities is intended to ensure that SFAs self-monitor and are aware 
of operational issues, and that schools receive ongoing guidance and 
technical assistance to facilitate compliance with program 
requirements.

V. Comparison of Existing and Proposed Administrative Review 
Requirements

    The following chart summarizes the key existing and proposed 
administrative review requirements and states the anticipated outcomes.

------------------------------------------------------------------------
    Existing requirement          Proposed rule      Effect of proposal
------------------------------------------------------------------------
Review location--State        Review location--The  The proposal is
 agencies are required to      proposal would        expected to provide
 conduct an on-site review     allow portions of     State agencies with
 of each SFA once every 3-     the review to be      review flexibility,
 years.                        conducted off-site    lower travel costs,
                               and on-site. No       and increase their
                               change to the 3-      ability to use in-
                               year cycle.           house/off-site
                                                     staff expertise to
                                                     review complex
                                                     documentation.
Scope of review--The scope    Scope of review--The  The proposal would
 of review covers both         proposal retains      establish the
 critical and general areas    the focus on          unified review
 for the NSLP and SBP. The     critical and          system envisioned
 critical areas, PS-1 and PS-  general areas of      by the HHFKA. While
 2, assess whether meals       review, but would     the proposal would
 claimed for reimbursement     expand the general    expand the scope of
 are served to children        areas of review for   review by adding
 eligible for free, reduced    a more robust         new general areas
 price, and paid meals; are    monitoring process.   and Other Federal
 counted, recorded and         New general areas     Program reviews, it
 consolidated, and reported    would include:        would also provide
 through a system that         Resource              efficiencies
 consistently yields correct   Management,           resulting from off-
 claims; and meet meal         Competitive Food      site monitoring,
 pattern requirements.         Services, Water and   risk assessment
The general areas assess       SBP and SFSP          protocols, and
 whether the SFA met other     Outreach. In          automated forms.
 program requirements          addition, the         Overall, the
 related to free and reduced   proposal would add    proposal is
 price process, civil          Other Federal         expected to reduce
 rights, SFA monitoring,       Program reviews and   the review burden
 food safety, and reporting    would introduce       on State agencies
 and recordkeeping.            risk assessment       and increase
                               protocols to target   program integrity.
                               at risk schools/
                               districts.
Eligibility certification--   Eligibility           The proposal is
 State agencies review the     certification--The    expected to improve
 free and reduced price        proposal would        program integrity
 certifications for children   require State         across the SFA. No
 in schools selected for       agencies to review    change in burden is
 review.                       the free and          expected since the
                               reduced price         State agency has
                               certifications made   the option to
                               by the local          review a
                               educational agency    statistically valid
                               in all schools in     sample of
                               the district or a     applications.
                               statistically valid
                               sample of those
                               certifications.

[[Page 26856]]

 
Fiscal action--Fiscal action  Fiscal action--       The proposal is
 for certification and         Fiscal action for     expected to promote
 benefit issuance violations   certification and     consistency and
 is calculated based on        benefit issuance      accuracy in fiscal
 errors in the reviewed        violations would      action procedures
 schools.                      apply to the entire   used by State
                               SFA, including non-   agencies
                               reviewed schools      nationwide.
                               and would be
                               determined in a
                               manner prescribed
                               by FNS. The
                               proposal would also
                               prescribe the
                               extent of fiscal
                               action for repeated
                               PS-2 violations. If
                               corrective action
                               takes place, the
                               duration of fiscal
                               action for PS-1 and
                               specific PS-2
                               violations could
                               also be revised.
Meal pattern and dietary      Meal pattern and      Requiring a weighted
 specifications--State         dietary               nutrient analysis
 agencies must review the      specifications--The   only for a school
 meal service for the day of   State agencies        determined to be at
 review and menu and           would continue to     highest risk for
 production records for a      review the meal       dietary
 minimum period of 5 days.     service for the day   specification
 State agencies must conduct   of review, and        violations makes
 a weighted nutrient           menus and             the best use of
 analysis for each reviewed    production records    limited State
 school.                       for 3-7 days. If      agency resources.
                               the review reveals    This change is
                               problems with         expected to improve
                               components or         program integrity
                               quantities, the       by focusing time
                               State agency would    and effort on at
                               expand the review     risk schools.
                               to, at a minimum,
                               the entire review
                               period.
                              This proposed rule
                               would require the
                               State agencies to
                               conduct a meal
                               compliance risk
                               assessment for all
                               schools under
                               review to identify
                               the school at
                               highest risk for
                               nutrition-related
                               violations, and to
                               conduct a targeted
                               menu review for
                               that single school.
                               If the targeted
                               menu review
                               confirms the school
                               is at high risk for
                               dietary
                               specification
                               violations, a
                               weighted nutrient
                               analysis for that
                               school would be
                               required.
Follow-up reviews--State      Follow-up reviews--   The proposed rule
 agencies are required to      The proposal would    recognizes that
 determine whether an SFA      eliminate the         State agencies will
 has violations in excess of   required follow-up    be conducting
 specified thresholds and,     reviews and           reviews on a more
 if so, conduct follow-up      corresponding         frequent basis. It
 reviews within specified      review thresholds.    provides States
 timeframes.                   Follow-up reviews     with the
                               would be at the       flexibility to
                               State agency's        conduct follow-up
                               discretion.           review activity at
                                                     their discretion.
Reporting and recordkeeping-- Reporting and         The proposal would
 State agencies are required   recordkeeping--The    reduce reporting
 to notify FNS of the names    proposal would        burden for State
 of large SFAs in need of a    eliminate the         agencies.
 follow-up review. State       follow-up review
 agencies are required to      reporting and
 maintain records regarding    recordkeeping
 its criteria for selecting    requirements.
 schools for follow-up
 reviews.
Posting of final review       Posting of final      Posting this
 results--No existing          review results--The   information online
 requirements.                 proposal would        is expected to
                               require State         enhance awareness
                               agencies to make      of school and SFA
                               the final results     performance at
                               of each SFA           meeting the
                               administrative        requirements of the
                               review available to   school meal
                               the public in an      programs and
                               accessible, easily    increase informed
                               understood manner     involvement of
                               in accordance with    parents in the
                               guidelines            program. The
                               established by the    increased reporting
                               Secretary; such       burden associated
                               results must also     with the posting is
                               be posted and         expected to be
                               otherwise made        minor.
                               available to the
                               public on request.
Include other Federal school  Include other         The proposal would
 nutrition programs in a       Federal school        foster integrity of
 follow up review--If the      nutrition programs    all school meal
 State agency did not          in the                programs, and
 evaluate the certification,   administrative        promote efficiency.
 count and milk/meal service   review--The
 procedures for the SMP or     proposal would
 afterschool care programs     require State
 in the schools selected for   agencies to review
 an administrative review,     the NSLP
 it must do so during the      afterschool snacks,
 follow-up review.             the NSLP seamless
                               summer option, the
                               SMP, and the FFVP
                               as part of the
                               administrative
                               review under 7 CFR
                               210.18.
------------------------------------------------------------------------

Comparison of Existing and Proposed SFA Requirements

    The following chart summarizes SFA requirements associated with the 
administrative review process.

------------------------------------------------------------------------
    Existing requirement          Proposed rule      Effect of proposal
------------------------------------------------------------------------
Resource Management--7 CFR    Resource Management-- The proposal would
 210.8 does not address        This proposal would   increase
 indirect costs explicitly.    add text in 7 CFR     understanding of
                               210.14 to clarify     indirect cost
                               the SFA's existing    responsibilities
                               responsibilities      that are monitored
                               with regard to        by the State agency
                               indirect costs.       under the proposed
                                                     administrative
                                                     review.

[[Page 26857]]

 
SFA monitoring--SFAs are      SFA monitoring--The   The proposal would
 required to monitor the       proposal would        result in a more
 lunch counting and claiming   require the SFA to    robust and
 processes schools annually.   also monitor the      effective SFA
                               SBP and to expand     monitoring process,
                               the annual school     which would
                               review by including   contribute to the
                               selected general      integrity of the
                               areas of review       school meal
                               that are readily      programs.
                               observable.
------------------------------------------------------------------------

VI. Miscellaneous Changes

    As previously mentioned, this rule proposes a number of 
miscellaneous changes to conform with other changes in the programs. 
Accordingly, the proposal would:
     Delete obsolete provision at 7 CFR 210.7(d)(1)(vi) related 
to validation reviews of performance-based reimbursement;
     Revise 7 CFR 210.9(b)(18) through 210.9(b)(20) and 
210.15(b)(4) to reflect the diversity of certification mechanisms 
beyond household applications;
     Revise 7 CFR 210.19(a)(1) to reflect the Paid Lunch Equity 
requirements;
     Revise 7 CFR 210.19(a)(5) to update the review frequency 
to 3 years conforming with the requirement at 210.18(c); and
     Delete obsolete provisions at 7 CFR 210.20(b)(7) and 
210.23(d).

VII. Procedural Matters

A. Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility.
    This proposed rule has been reviewed by the Office of Management 
and Budget (OMB) in conformance with Executive Order 12866 and has been 
determined to be Not Significant.

B. Regulatory Impact Analysis

    This proposed rule has been designated by the Office of Management 
and Budget (OMB) to be Not Significant; therefore a Regulatory Impact 
Analysis is not required.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires Agencies 
to analyze the impact of rulemaking on small entities and consider 
alternatives that would minimize any significant impacts on a 
substantial number of small entities. Pursuant to that review it has 
been certified that this proposed rule would not have a significant 
impact on a substantial number of small entities. This proposed rule 
would update the administrative review process that State agencies must 
follow to monitor compliance with school meal programs' requirements. 
The proposed administrative review process provides State agencies more 
flexibility, tools and streamlined procedures. FNS does not expect that 
the proposed rule will have a significant economic impact on small 
entities.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Department generally must prepare a written statement, including a cost 
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures by State, local or tribal 
governments, in the aggregate, or the private sector, of $100 million 
or more in any one year. When such a statement is needed for a rule, 
Section 205 of the UMRA generally requires the Department to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the most cost effective or least burdensome alternative that achieves 
the objectives of the rule.
    This proposed rule does not contain Federal mandates (under the 
regulatory provisions of Title II of the UMRA) that would result in 
expenditures for State, local and tribal governments or the private 
sector of $100 million or more in any one year. Thus, the rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

E. Executive Order 12372

    The nutrition assistance programs and areas affected by this 
proposed rule are listed in the Catalog of Federal Domestic Assistance 
as follows:
     National School Lunch Program, No. 10.555
     School Breakfast Program, No. 10.553
     Special Milk Program, No. 10.556
     State Administrative Expenses for Child Nutrition, No. 
10.560
     Fresh Fruit and Vegetable Program, No. 10.582
    For the reasons set forth in the final rule in 7 CFR part 3015, 
subpart V, and related notice (48 FR 29115, June 24, 1983), the 
nutrition assistance programs are included in the scope of Executive 
Order 12372, which requires intergovernmental consultation with State 
and local officials. The Child Nutrition Programs are federally funded 
programs administered at the State level. FNS headquarters and regional 
office staff engage in ongoing formal and informal discussions with 
State and local officials regarding program operational issues. The 
structure of the Child Nutrition Programs allows State and local 
agencies to provide feedback that contributes to the development of 
meaningful and feasible program requirements. This proposed rule has 
taken into account the extensive experience of State agencies 
conducting the administrative reviews which would be updated by this 
rule.

F. Executive Order 13132

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under Section (6)(b)(2)(B) of Executive Order 13121.
1. Prior Consultation With State Officials
    FNS headquarters and regional offices have formal and informal 
discussions with State agency officials on an ongoing basis regarding 
the Child Nutrition Programs and policy issues. In addition, prior to 
drafting this proposed rule, FNS assembled a 26-member team consisting 
of staff from FNS Headquarters and the seven Regional Offices, and 
State Agency staff from Kansas, Michigan, New York, North Carolina, 
Oregon, Pennsylvania and Texas. The School Meal Administrative Review 
Reinvention Team (SMARRT) worked together for a year to address

[[Page 26858]]

issues and develop an updated review process that is responsive to the 
needs, wants, and challenges of the State agencies.
2. Nature of Concerns and the Need To Issue This Rule.
    The Healthy, Hunger-Free Kids Act of 2010 (HHFKA) amended section 
22 of the Richard B. Russell National School Lunch Act (NSLA), 42 
U.S.C. 1769c, to require that:
    a. The administrative review process be a unified accountability 
system; and
    b. State agencies report the final results of reviews, and post 
them or otherwise make them available to the public.
    This proposed rule would update the administrative review process 
established in 7 CFR 210.18 to carry out these two statutory 
requirements. In addition, the proposed rule would also make a number 
of changes to address issues and concerns raised by State agencies. 
Issues identified by State agencies include simplifying the 
administrative review and fiscal action. State agencies also want the 
administrative reviews to be meaningful and contribute to better meal 
service. They also want a review process that would allow them to 
better utilize the limited resources they have.
3. Extent to Which the Department Meets Those Concerns
    FNS has considered the concerns identified by SMARRT. The 
administrative review process proposed in this rule would streamline 
review procedures to allow more time for technical assistance, 
emphasize risk-assessment to enable the State agency to focus the 
administrative review on school food authorities at high risk for 
noncompliance, and provide State agencies flexibility to conduct 
portions of the review off-site to make better use of limited 
resources.

G. Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This proposed 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 and timely implementation. This rule is not intended to have 
retroactive effect unless so specified in the Effective Dates section 
of the final rule. Prior to any judicial challenge to the provisions of 
the final rule, appeal procedures in 7 CFR 210.18(q) and 7 CFR 
235.11(f) of this chapter must be exhausted.

H. Executive Order 13175

    Executive Order 13175 requires Federal agencies to consult and 
coordinate with Tribes on a government-to-government basis on policies 
that have Tribal implications, including regulations, legislative 
comments or proposed legislation, and other policy statements or 
actions that have substantial direct effects on one or more Indian 
Tribes, on the relationship between the Federal Government and Indian 
Tribes, or on the distribution of power and responsibilities between 
the federal government and Indian Tribes. In spring 2011, FNS offered 
five opportunities for consultation with Tribal officials or their 
designees to discuss the impact of the Healthy, Hunger-Free Kids Act of 
2010 on tribes or Indian Tribal governments. FNS followed up with 
conference calls on February 13, 2013; May 22, 2013; August 21, 2013 
and November 6, 2013. These consultation sessions provide the 
opportunity to address Tribal concerns related to the School Meals 
Programs. To date, Indian Tribal governments have not expressed 
concerns about the required unified accountability system during these 
consultations.
    USDA is unaware of any current Tribal laws that could be in 
conflict with the proposed rule. The Department will respond in a 
timely and meaningful manner to all Tribal government requests for 
consultation concerning this rule.

I. Civil Rights Impact Analysis

    FNS has reviewed this proposed rule in accordance with Department 
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify any 
major civil rights impacts the rule might have on children on the basis 
of age, race, color, national origin, sex, or disability. A careful 
review of the rule's intent and provisions revealed that this proposed 
rule is not intended to reduce a child's ability to participate in the 
National School Lunch Program, School Breakfast Program, Fresh Fruit 
and Vegetable Program, or Special Milk Program.

J. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
part 1320) requires that the Office of Management and Budget (OMB) 
approve all collections of information by a Federal agency from the 
public before they can be implemented. Respondents are not required to 
respond to any collection of information unless it displays a current, 
valid OMB control number. This is a revision of currently approved 
collection. The administrative reviews in School Nutrition Program 
provisions in this rule minimally increase burden hours for the 
National School Lunch Program (NSLP) information collection, OMB 
Control Number #0584-0006, expiration date 2/29/2016. These changes are 
contingent upon OMB approval under the Paperwork Reduction Act of 1995. 
When the information collection requirements have been approved, FNS 
will publish a separate action in the Federal Register announcing OMB's 
approval. Additionally, the forms and tools associated with the 
proposed administrative review process will be addressed separately in 
a 60-day notice.
    Written comments on the information collection in this proposed 
rule must be received by July 10, 2015.
    Send comments to the Office of Information and Regulatory Affairs, 
OMB, Attention: Desk Officer for FNS, Washington, DC 20503. Please also 
send a copy of your comments to Lynn Rodgers-Kuperman, Child Nutrition 
Monitoring and Operations Support Division, 3101 Park Center Drive, 
Alexandria, VA 22302. For further information, or for copies of the 
information collection requirements, please contact Lynn Rodgers-
Kuperman at the address indicated above. Comments are invited on: (1) 
Whether the proposed collection of information is necessary for the 
proper performance of the Agency's functions, including whether the 
information will have practical utility; (2) the accuracy of the 
Agency's estimate of the proposed information collection burden, 
including the validity of the methodology and assumptions used; (3) 
ways to enhance the quality, utility and clarity of the information to 
be collected; and (4) ways to minimize the burden of the collection of 
information on those who are to respond, including use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology.
    All responses to this request for comments will be summarized and 
included in the request for OMB approval. All comments will also become 
a matter of public record.
    Title: 7 CFR part 210, National School Lunch Program: Proposed Rule 
for Administrative Reviews in the School Nutrition Programs.
    OMB Number: 0584-0006.
    Expiration Date: 02/29/2016.
    Type of Request: Revision of currently approved collection.
    Abstract: This proposed rule would revise the NSLP administrative 
review requirements to establish a unified

[[Page 26859]]

accountability system designed to ensure that participating school food 
authorities (SFA) comply with the NSLP and School Breakfast Program 
requirements, as required by the Healthy, Hunger-Free Kids Act of 2010. 
In addition to the new administrative review process, this rule 
proposes to require State agencies to report and publicly post SFAs 
administrative review results. The proposed rule would eliminate the 
existing requirement for State agencies to report the names of those 
large SFAs subject to a follow-up reviews and hence reduces associated 
reporting burden. These proposed changes are expected to give State 
agencies more flexibility to conduct reviews, allow for the efficient 
use of limited time and staff, and result in a more robust and 
effective monitoring of the School Nutrition Programs.
    This proposed rule slightly increased the number of burden hours 
for 0584-0006 collection. The current collection burden inventory for 
the NSLP is 10,223,035. This proposed rule will decrease reporting 
burden by 11.2 hours, increase public disclosure burden by 1,736 hours 
and increase recordkeeping burden by 14 hours for an overall increase 
of 1,739 hours as a result of program changes. The revised total burden 
inventory for the NSLP with this proposed rule is 10,224,774 hours. The 
average burden per response and the annual burden hours are explained 
below and summarized in the charts which follow.
    Respondents for this Proposed Rule: State Education Agencies: 56.
    Estimated Number of Responses per Respondent for this Proposed 
Rule: 124.
    Estimated Total Annual Responses: 6944.
    Average hours per Response: 0.25.
    Estimated Total Annual Burden on Respondents for this Proposed 
Rule: 1739.

                      Estimated Annual Burden for (0584-0006) Administrative Reviews in the School Nutrition Programs Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Estimated                                        Average
                                                       Section               number of     Frequency of    Total annual     burden per     Annual burden
                                                                            respondents      response        responses       response          hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
* SAs will report to FNS about names of         210.18(i), 210.18(d)(2),              56               1              56            0.20         (11.20)
 large SFAs exceeding any one of the CRE                    210.18(o)(1)
 critical area review thresholds..........
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Public Disclosure
--------------------------------------------------------------------------------------------------------------------------------------------------------
Establish a state agency requirement to                     210.18(m)(1)              56             124            6944            0.25            1736
 post a summary of the most recent
 administrative review results of each SFA
                                           -------------------------------------------------------------------------------------------------------------
    Total Reporting for Proposed rule.....  ............................              56             125            7000          0.2464            1725
                                           -------------------------------------------------------------------------------------------------------------
    Total Existing Reporting Burden for     ............................  ..............  ..............  ..............  ..............       1,003,770
     0584-0006, Part 210..................
                                           -------------------------------------------------------------------------------------------------------------
    Total Revised Reporting Burden for      ............................  ..............  ..............  ..............  ..............       1,005,495
     Part 210 with Administrative review
     proposed rule........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
        Total Number Respondents..........  ............................              56  ..............  ..............  ..............  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Recordkeeping
--------------------------------------------------------------------------------------------------------------------------------------------------------
SAs must maintain a copy of the summary of                     210.18(o)              56               1              56            0.25              14
 the most recent administrative review
 results of each SFA......................
                                           -------------------------------------------------------------------------------------------------------------
    Total Recordkeeping for Proposed rule.  ............................              56               1              56            0.25              14
                                           -------------------------------------------------------------------------------------------------------------

[[Page 26860]]

 
    Total Existing Recordkeeping Burden     ............................  ..............  ..............  ..............  ..............       9,219,264
     for 0584-0006, Part 210..............
                                           -------------------------------------------------------------------------------------------------------------
    Total Revised Recordkeeping Burden for  ............................  ..............  ..............  ..............  ..............       9,219,278
     Part 210 with Administrative review
     proposed rule........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Average Number Responses per            ............................  ..............  ..............  ..............  ..............             124
     Respondent...........................
    Total Annual Responses................  ............................  ..............  ..............  ..............  ..............           6,944
    Average Hours per response............  ............................  ..............  ..............  ..............  ..............            0.25
    Total Burden Hours for Part 210 with    ............................  ..............  ..............  ..............  ..............      10,224,774
     Proposed Rule........................
    Current OMB Inventory for Part 210....  ............................  ..............  ..............  ..............  ..............      10,223,035
    Difference (New Burden Requested With   ............................  ..............  ..............  ..............  ..............           1,739
     Proposed Rule).......................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This proposed rule would eliminate the required follow-up reviews and corresponding review thresholds. Therefore, the burden assessment (11.20 hours)
  associated with 7 CFR 210.18(i) will be removed from the NSLP, OMB Control Number #0584-0006, expiration date 2/29/2016.

K. E-Government Act Compliance

    FNS is committed to complying with the E-Government Act to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services and for other purposes.

List of Subjects

7 CFR Part 210

    Grant programs--education; Grant programs--health; Infants and 
children; Nutrition; Reporting and recordkeeping requirements; School 
breakfast and lunch programs; Surplus agricultural commodities.

7 CFR Part 215

    Food assistance programs, Grant programs--education, Grant 
programs--health, Infants and children, Milk, Reporting and 
recordkeeping requirements.

7 CFR Part 220

    Grant programs--education; Grant programs--health; Infants and 
children; Nutrition; Reporting and recordkeeping requirements; School 
breakfast and lunch programs.

7 CFR Part 235

    Administrative practice and procedure; Food assistance programs; 
Grant programs--education; Grant programs--health; Infants and 
children; Reporting and recordkeeping requirements; School breakfast 
and lunch programs.

    Accordingly, 7 CFR parts 210, 215, 220 and 235 are proposed to be 
amended as follows:

PART 210--NATIONAL SCHOOL LUNCH PROGRAM

0
1. The authority citation for 7 CFR part 210 continues to read as 
follows:

    Authority: 42 U.S.C. 1751-1760, 1779.

0
2. In part 210, remove the word ``SF-269'' wherever it appears and add, 
in its place, the word ``FNS-777''.


Sec.  210.7  [Amended]

0
3. In Sec.  210.7, remove paragraph (d)(1)(vii) and redesignate 
paragraph (d)(1)(viii) as paragraph (d)(1)(vii).


Sec.  210.8  [Amended]

0
4. In Sec.  210.8:
0
a. In the first sentence of paragraph (a)(1), remove the word 
``lunch''.
0
b. In the first sentence of paragraph (a)(1), remove the words 
``employed by'' and add in their place the words ``and the readily 
observable general areas of review cited under Sec.  210.18(h), as 
prescribed by FNS for''.
0
c. In the third sentence of paragraph (a)(1), add the words ``or 
general review areas'' after the word ``procedures''.
0
d. In the fourth sentence, remove the word ``lunches'' and add in its 
place the word ``meals''; and
0
e. In paragraph (a)(3)(ii), remove the word ``subsequent''.
0
5. In Sec.  210.9:
0
a. In paragraph (b)(18), remove the words ``applications which must be 
readily retrievable by school'' and add in their place the words 
``certification documentation'';
0
b. Revise the introductory text of paragraph (b)(19); and
0
c. Revise paragraph (b)(20).
    The revisions read as follows:


Sec.  210.9  Agreement with State agency.

* * * * *
    (b) * * *
    (19) Maintain direct certification documentation obtained directly 
from the appropriate State or local agency, or

[[Page 26861]]

other appropriate individual, as specified by FNS, indicating that:
* * * * *
    (20) Retain eligibility documentation submitted by families for a 
period of 3 years after the end of the fiscal year to which they 
pertain or as otherwise specified under paragraph (b)(17) of this 
section.
* * * * *
0
6. In Sec.  210.10:
0
a. In paragraph (h), revise the heading;
0
b. In paragraph (h)(1), revise the first sentence;
0
c. In paragraph (i), revise the heading and revise paragraph (i)(1);
0
d. Revise paragraph (i)(3)(i);
0
e. In paragraph (j), revise the paragraph heading; and
0
f. In paragraph (o), add paragraph (o)(5).
    The revisions and additions read as follows:


Sec.  210.10  Meal requirements for lunches and requirements for 
afterschool snacks.

* * * * *
    (h) Monitoring dietary specifications.
    (1) * * * When required by the administrative review process set 
forth in Sec.  210.18, the State agency must conduct a weighted 
nutrient analysis to evaluate the average levels of calories, saturated 
fat, and sodium of the lunches offered to students in grades K and 
above during one week of the review period. * * *
* * * * *
    (i) Nutrient analyses of school meals--(1) Conducting the nutrient 
analysis. Any nutrient analysis, whether conducted by the State agency 
under Sec.  210.18 or by the school food authority, must be performed 
in accordance with the procedures established in paragraph (i)(3) of 
this section. The purpose of the nutrient analysis is to determine the 
average levels of calories, saturated fat, and sodium in the meals 
offered to each age grade group over a school week. The weighted 
nutrient analysis must be performed as required by FNS guidance.
* * * * *
    (3) * * *
    (i) Weighted averages. The nutrient analysis must include all foods 
offered as part of the reimbursable meals during one week within the 
review period. Foods items are included based on the portion sizes and 
serving amounts. They are also weighted based on their proportionate 
contribution to the meals offered. This means that food items offered 
more frequently are weighted more heavily than those not offered as 
frequently. The weighted nutrient analysis must be performed as 
required by FNS guidance.
* * * * *
    (j) Responsibility for monitoring meal requirements. * * *
* * * * *
    (o) * * *
    (5) Monitoring afterschool snacks. Compliance with the requirements 
of this paragraph is monitored by the State agency as part of the 
administrative review conducted under Sec.  210.18. If the snacks 
offered do not meet the requirements of this paragraph, the State 
agency or school food authority must provide technical assistance and 
require corrective action. In addition, the State agency must take 
fiscal action, as authorized in Sec. Sec.  210.18(l) and 210.19(c).
* * * * *
0
7. In Sec.  210.14:
0
a. Add a sentence at the end at the paragraph (d); and
0
b. Add paragraph (g).
    The additions read as follows:


Sec.  210.14  Resource management.

* * * * *
    (d) * * * The school food authority's policies, procedures, and 
records must account for the receipt, full value, proper storage and 
use of donated foods.
* * * * *
    (g) Indirect costs. School food authorities must follow fair and 
consistent methodologies to identify and allocate allowable indirect 
costs to the school food service account, as required in 2 CFR part 
225.


Sec.  210.15  [Amended]

0
8. In Sec.  210.15(b)(4), remove the words ``applications for'' and add 
in their place the words ``certification documentation for''.
0
9. Revise Sec.  210.18 to read as follows:


Sec.  210.18  Administrative reviews.

    (a) Programs covered and methodology. Each State agency must follow 
the requirements of this section to conduct administrative reviews of 
school food authorities participating in the National School Lunch 
Program and the School Breakfast Program (part 220 of this chapter). 
These procedures must also be followed, as applicable, to conduct 
administrative reviews of the National School Lunch Program, 
afterschool snack program and seamless summer option, the Special Milk 
Program (part 215 of this chapter), and the Fresh Fruit and Vegetable 
Program. To conduct a program review, the State agency must gather and 
assess information off-site and/or on-site, observe the school food 
service operation, and use a risk-based approach to evaluate compliance 
with specific program requirements.
    (b) Definitions. The following definitions are provided in 
alphabetical order in order to clarify State agency administrative 
review requirements:
    Administrative reviews means the comprehensive off-site and/or on-
site evaluation of all school food authorities participating in the 
programs specified in paragraph (a) of this section. The term 
``administrative review'' is used to reflect a review of both critical 
and general areas in accordance with paragraphs (g) and (h) of this 
section, as applicable for each reviewed program, and includes other 
areas of program operations determined by the State agency to be 
important to program performance.
    Critical areas means the following two performance standards 
described in detail in paragraph (g) of this section:
    (1) Performance Standard 1--All free, reduced price and paid school 
meals claimed for reimbursement are served only to children eligible 
for free, reduced price and paid school meals, respectively; and are 
counted, recorded, consolidated and reported through a system which 
consistently yields correct claims.
    (2) Performance Standard 2--Reimbursable lunches meet the meal 
requirements in Sec.  210.10, as applicable to the age/grade group 
reviewed. Reimbursable breakfasts meet the meal requirements in Sec.  
220.8 of this chapter, as applicable to the age/grade group reviewed.
    Day of review means the day(s) on which the on-site review of the 
individual sites selected for review occurs.
    Documented corrective action means written notification required of 
the school food authority to certify that the corrective action 
required for each violation has been completed and to notify the State 
agency of the dates of completion. Documented corrective action may be 
provided at the time of the review or may be submitted to the State 
agency within specified timeframes.
    General areas means the areas of review specified in paragraph (h) 
of this section. These areas include free and reduced price process, 
civil rights, school food authority on-site monitoring, reporting and 
recordkeeping, food safety, competitive food services, water, program 
outreach, resource management, and other areas identified by FNS.
    Participation factor means the percentages of children approved by 
the school for free lunches, reduced price lunches, and paid lunches, 
respectively, who are participating in the Program. The free 
participation factor is derived by dividing the number of free lunches 
claimed for any given period by the

[[Page 26862]]

product of the number of children approved for free lunches for the 
same period times the operating days in that period. A similar 
computation is used to determine the reduced price and paid 
participation factors. The number of children approved for paid lunches 
is derived by subtracting the number of children approved for free and 
reduced price lunches for any given period from the total number of 
children enrolled in the reviewed school for the same period of time, 
if available. If such enrollment figures are not available, the most 
recent total number of children enrolled must be used. If school food 
authority participation factors are unavailable or unreliable, State-
wide data must be employed.
    Review period means the most recent month for which a Claim for 
Reimbursement was submitted, provided that it covers at least ten (10) 
operating days.
    (c) Timing of reviews. State agencies must conduct administrative 
reviews of all school food authorities participating in the National 
School Lunch Program (including the afterschool snack program and the 
seamless summer option) and School Breakfast Program at least once 
during a 3-year review cycle, provided that each school food authority 
is reviewed at least once every 4 years. For each State agency, the 
first 3-year review cycle started the school year that began on July 1, 
2013, and ended on June 30, 2014. The administrative review must be 
completed during the school year in which the review was begun.
    (1) Review cycle exceptions. FNS may, on an individual school food 
authority basis, approve written requests for 1-year extensions to the 
3-year review cycle specified in paragraph (c) of this section if FNS 
determines this 3-year cycle requirement conflicts with efficient State 
agency management of the programs.
    (2) Follow-up reviews. The State agency may conduct follow-up 
reviews in school food authorities where significant and/or repeated 
critical or general violations exist. The State agency may conduct 
follow-up reviews in the same school year as the administrative review.
    (d) Scheduling school food authorities. The State agency must use 
its own criteria to schedule school food authorities for administrative 
reviews; provided that the requirements of paragraph (c) of this 
section are met. State agencies may take into consideration the 
findings of the claims review process required under Sec.  210.8(b)(2) 
in the selection of school food authorities.
    (1) Schedule of reviews. To ensure no unintended overlap occurs, 
the State agency must inform FNS of the anticipated schedule of school 
food authority reviews upon request.
    (2) Exceptions. In any school year in which FNS or the Office of 
the Inspector General (OIG) conducts a review or investigation of a 
school food authority in accordance with Sec.  210.19(a)(5), the State 
agency must, unless otherwise authorized by FNS, delay conduct of a 
scheduled administrative review until the following school year. The 
State agency must document any exception authorized under this 
paragraph.
    (e) Number of schools to review. At a minimum, the State agency 
must review the number of schools specified in paragraph (e)(1) of this 
section and must select the schools to be reviewed on the basis of the 
school selection criteria specified in paragraph (e)(2) of this 
section. The State agency may review all schools meeting the school 
selection criteria specified in paragraph (e)(2) of this section.
    (1) Minimum number of schools. Except for residential child care 
institutions, the State agency must review all schools with a free 
average daily participation of 100 or more and a free participation 
factor of 100 percent or more. In no event must the State agency review 
less than the minimum number of schools illustrated in Table A for the 
National School Lunch Program.

                                 Table A
------------------------------------------------------------------------
                                                              Minimum
                                                             number of
     Number of schools in the school food authority         schools to
                                                              review
------------------------------------------------------------------------
1 to 5..................................................               1
6 to 10.................................................               2
11 to 20................................................               3
21 to 40................................................               4
41 to 60................................................               6
61 to 80................................................               8
81 to 100...............................................              10
101 or more.............................................            * 12
------------------------------------------------------------------------
* Twelve plus 5 percent of the number of schools over 100. Fractions
  must be rounded up (>=0.5) or down (<0.5) to the nearest whole number.

    (2) School selection criteria.
    (i) Selection of additional schools to meet the minimum number of 
schools required under paragraph (e)(1) of this section, must be based 
on the following criteria:
    (A) Elementary schools with a free average daily participation of 
100 or more and a free participation factor of 97 percent or more;
    (B) Secondary schools with a free average daily participation of 
100 or more and a free participation factor of 77 percent or more; and
    (C) Combination schools with a free average daily participation of 
100 or more and a free participation factor of 87 percent or more. A 
combination school means a school with a mixture of elementary and 
secondary grades.
    (ii) When the number of schools selected on the basis of the 
criteria established in paragraph (e)(2)(i) of this section is not 
sufficient to meet the minimum number of schools required under 
paragraph (e)(1) of this section, the additional schools selected for 
review must be identified using State agency criteria which may include 
low participation schools; recommendations from a food service director 
based on findings from the on-site visits or the claims review process 
required under Sec.  210.8(a); or any school in which the daily lunch 
counts appear questionable (e.g., identical or very similar claiming 
patterns, and/or large changes in free lunch counts).
    (iii) In selecting schools for an administrative review of the 
School Breakfast Program, State agencies must follow the selection 
criteria set forth in this paragraph and FNS' Administrative Review 
Manual. At a minimum,:
    (A) In school food authorities operating only the breakfast 
program, State agencies must review the number of schools set forth in 
Table A in paragraph (e)(1) of this section.
    (B) In school food authorities operating both the lunch and 
breakfast programs, State agencies must review the breakfast program in 
50 percent of the schools selected for an administrative review under 
paragraph (e)(1) of this section that operate the breakfast program.
    (C) If none of the schools selected for an administrative review 
under paragraph (e)(1) of this section operates the breakfast program, 
but the school food authority operates the program elsewhere, the State 
agency must follow procedures in the FNS Administrative Review Manual 
to select at least one other site for a school breakfast review.
    (3) Site selection for other federal program reviews.
    (i) National School Lunch Program's afterschool snack program. If a 
school selected for an administrative review under this section 
operates the afterschool snack program, the State agency must review 
snack documentation for compliance with program requirements, according 
to the FNS Administrative Review Manual. Otherwise, the State agency is 
not required to review the afterschool snack program.

[[Page 26863]]

    (ii) National School Lunch Program's seamless summer option. The 
State agency must review seamless summer option at a minimum of one 
site if the school food authority selected for review under this 
section operates the seamless summer option. This review can take place 
at any site within the reviewed school food authority the summer before 
or after the school year in which the administrative review is 
scheduled. The State agency must review the seamless summer option for 
compliance with program requirements, according to the FNS 
Administrative Review Manual.
    (iii) Fresh Fruit and Vegetable Program. The State agency must 
review the Fresh Fruit and Vegetable Program at one or more of the 
schools selected for an administrative review, as specified in Table B. 
If none of the schools selected for the administrative review operates 
the Fresh Fruit and Vegetable Program but the school food authority 
operates the Program elsewhere, the State agency must follow procedures 
in the FNS Administrative Review Manual to select one or more sites for 
the program review.

                                 Table B
------------------------------------------------------------------------
                                                              Minimum
                                                             number of
  Number of schools selected for an NSLP administrative    FFVP schools
              review that operate the FFVP                     to be
                                                             reviewed
------------------------------------------------------------------------
0 to 5..................................................               1
6 to 10.................................................               2
11 to 20................................................               3
21 to 40................................................               4
41 to 60................................................               6
61 to 80................................................               8
81 to 100...............................................              10
101 or more.............................................            * 12
------------------------------------------------------------------------
* Twelve plus 5 percent of the number of schools over 100. Fractions
  must be rounded up (>=0.5) or down (<0.5) to the nearest whole number.

    (iv) Special Milk Program. If a school selected for review under 
this section operates the Special Milk Program, the State agency must 
review the school's program documentation off-site or on-site, as 
prescribed in the FNS Administrative Review Manual. On-site review is 
only required if the State agency has identified documentation problems 
or if the State agency has identified meal counting and/or claiming 
errors in the reviews conducted under the National School Lunch Program 
or School Breakfast Program.
    (4) Pervasive problems. If the State agency review finds pervasive 
problems in a school food authority, FNS may authorize the State agency 
to cease review activities prior to reviewing the required number of 
schools under paragraphs (e)(1) and (3) of this section. Where FNS 
authorizes the State agency to cease review activity, FNS may either 
conduct the review activity itself or refer the school food authority 
to OIG.
    (5) Noncompliance with meal pattern requirements. If the State 
agency determines there is significant noncompliance with the meal 
pattern and nutrition requirements set forth in Sec. Sec.  210.10 and 
220.8 of this chapter, as applicable, the State agency must select the 
school food authority for administrative review earlier in the review 
cycle.
    (f) Scope of review. During the course of an administrative review 
for the National School Lunch Program and the School Breakfast Program, 
the State agency must monitor compliance with the critical and general 
areas in paragraphs (g) and (h) of this section, respectively. State 
agencies may add additional review areas with FNS approval. Selected 
critical and/or general areas must be monitored when reviewing the 
National School Lunch Program's afterschool snack program and the 
seamless summer option, the Special Milk Program, and the Fresh Fruit 
and Vegetable Program, as applicable and as specified in the FNS 
Administrative Review Manual.
    (1) Review forms. State agencies must use the administrative review 
forms, tools and workbooks prescribed by FNS.
    (2) Timeframes covered by the review.
    (i) The timeframes covered by the administrative review includes 
the review period and the day of review, as defined in paragraph (b) of 
this section.
    (ii) Subject to FNS approval, the State agency may conduct a review 
early in the school year, prior to the submission of a Claim for 
Reimbursement. In such cases, the review period must be the prior month 
of operation in the current school year, provided that such month 
includes at least 10 operating days.
    (3) Audit findings. To prevent duplication of effort, the State 
agency may use any recent and currently applicable findings from 
Federally-required audit activity or from any State-imposed audit 
requirements. Such findings may be used only insofar as they pertain to 
the reviewed school(s) or the overall operation of the school food 
authority and they are relevant to the review period. The State agency 
must document the source and the date of the audit.
    (g) Critical areas of review. The performance standards listed in 
this paragraph are directly linked to meal access and reimbursement, 
and to the meal pattern and nutritional quality of the reimbursable 
meals offered. These critical areas must be monitored by the State 
agency when conducting administrative reviews of the National School 
Lunch Program and the School Breakfast Program. Selected aspects of 
these critical areas must also be monitored, as applicable, when 
conducting administrative reviews of the National School Lunch 
Program's afterschool snack program and the seamless summer option, and 
of the Special Milk Program.
    (1) Performance Standard 1 (All free, reduced price and paid school 
meals claimed for reimbursement are served only to children eligible 
for free, reduced price and paid school meals, respectively; and are 
counted, recorded, consolidated and reported through a system which 
consistently yields correct claims.) The State agency must follow 
review procedures stated in this section and as specified in the FNS 
Administrative Review Manual to ensure that the school food authority's 
certification and benefit issuance processes for school meals offered 
under the National School Lunch Program, and School Breakfast Program 
are conducted as required in part 245 of this chapter, as applicable. 
In addition, the State agency must ensure that benefit counting, 
consolidation, recording and claiming are conducted as required in this 
part and part 220 of this chapter for the National School Lunch Program 
and the School Breakfast Program, respectively. The State agency must 
also follow procedures consistent with this section, and as specified 
in the FNS Administrative Review Manual, to review applicable areas of 
Performance Standard 1 in the National School Lunch Program's 
afterschool snack program and seamless summer option, and in the 
Special Milk Program.
    (i) Certification and benefit issuance. The State agency must 
gather information and monitor the school food authority's compliance 
with program requirements regarding benefit application, direct 
certification, and categorical eligibility, as well as the transfer of 
benefits to the point-of-service benefit issuance document. To review 
this area, the State agency must obtain the benefit issuance document 
for each participating school under the jurisdiction of the school food 
authority for the day of review or a day in the review period, review 
all or a statistically valid sample of student certifications, and 
validate that the eligibility certification for free and reduced price 
meals was properly transferred to the benefit issuance document and 
reflects changes due to verification findings, transfers, or a

[[Page 26864]]

household's decision to decline benefits. If the State agency chooses 
to review a statistically valid sample of student certifications, the 
State agency must use a sample size with a 99 percent confidence level 
of accuracy. However, a sample size with a 95 percent confidence level 
of accuracy may be used if a school food authority uses an electronic 
benefit issuance and certification system with no manual data entry and 
the State agency has not identified any potential systemic 
noncompliance. Any sample size must be large enough so that there is a 
99 or 95 percent, as applicable, chance that the actual accuracy rate 
for all certifications is not less than 2 percentage points less than 
the accuracy rate found in the sample (i.e., the lower bound of the 
one-sided 99/95 percent confidence interval is no more than 2 
percentage points less than the point estimate).
    (ii) Meal counting and claiming. The State agency must gather 
information and conduct an on-site visit to ensure that the processes 
used by the school food authority and reviewed school(s) to count, 
record, consolidate, and report the number of reimbursable meals/snacks 
served to eligible students by category (i.e., free, reduced price or 
paid meal) are in compliance with program requirements and yield 
correct claims. The State agency must determine whether:
    (A) The daily lunch counts, by type, for the review period are more 
than the product of the number of children determined by the school/
school food authority to be eligible for free, reduced price, and paid 
lunches for the review period times an attendance factor. If the lunch 
count, for any type, appears questionable or significantly exceeds the 
product of the number of eligibles, for that type, times an attendance 
factor, documentation showing good cause must be available for review 
by the State agency.
    (B) For each school selected for review, each type of food service 
line provides accurate point of service lunch counts, by type, and 
those lunch counts are correctly counted and recorded. If an 
alternative counting system is employed (in accordance with Sec.  
210.7(c)(2)), the State agency shall ensure that it provides accurate 
counts of reimbursable lunches, by type, and is correctly implemented 
as approved by the State agency.
    (C) For each school selected for review, all lunches are correctly 
counted, recorded, consolidated and reported for the day they are 
served.
    (2) Performance Standard 2 (Lunches claimed for reimbursement by 
the school food authority meet the meal requirements in Sec.  210.10, 
as applicable to the age/grade group reviewed. Breakfasts claimed for 
reimbursement by the school food authority meet the meal requirements 
in Sec.  220.8 of this chapter, as applicable to the age/grade group 
reviewed.) The State agency must follow review procedures, as stated in 
this section and detailed in the FNS Administrative Review Manual, to 
ensure that lunches and breakfasts offered by the school food authority 
meet the food component and quantity requirements and the dietary 
specifications for each program, as applicable. Review of these 
critical areas may occur off-site and/or on-site. The State agency must 
also follow procedures consistent with this section, as specified in 
the FNS Administrative Review Manual, to review applicable areas of 
Performance Standard 2 in the National School Lunch Program's 
afterschool snack program and seamless summer option, and in the 
Special Milk Program.
    (i) Food components and quantities. For each school selected for 
review, the State agency must complete a USDA-approved menu tool, 
review documentation, and observe the meal service to ensure that meals 
offered by the reviewed schools meet the meal patterns for each 
program. To review this area, the State agency must:
    (A) Review menu and production records for the reviewed schools for 
a minimum of one school week (i.e., a minimum number of three 
consecutive school days and a maximum of seven consecutive school days) 
from the review period. Documentation, including food crediting 
documentation, such as food labels, product formulation statements, CN 
labels and bid documentation, must be reviewed to ensure compliance 
with the lunch and breakfast meal patterns. If the documentation review 
reveals problems with food components or quantities, the State agency 
must expand the review to, at a minimum, the entire review period. The 
State agency should consider a school food authority compliant with the 
school meal pattern if:
    (1) When evaluating the daily and weekly range requirements for 
grains and meat/meat alternates, the documentation shows compliance 
with the daily and weekly minimums for these components, regardless of 
whether the school food authority has exceeded the recommended weekly 
maximums for the same components.
    (2) When evaluating the service of frozen fruit, the State agency 
determines that the school food authority serves frozen fruit with or 
without added sugar.
    (B) On the day of review, the State agency must:
    (1) Observe a significant number of program meals at each serving 
line and review the corresponding documentation to determine whether 
all reimbursable meal service lines offer all of the required food 
components and quantities for the age/grade groups being served, as 
required under Sec.  210.10, as applicable, and Sec.  220.8 of this 
chapter, as applicable. Observe meals at the beginning, middle and end 
of the meal service line, and confirm that signage or other methods are 
used to assist students in identifying the reimbursable meal. If the 
State agency identifies missing components or inadequate quantities 
prior to the beginning of the meal service, it must inform the school 
food authority and provide an opportunity to make corrections. 
Additionally, if visual observation suggests that quantities offered 
are insufficient or excessive, the State agency must require the 
reviewed schools to provide documentation demonstrating that the 
required amounts of each component were available for service for each 
day of the review period.
    (2) Observe a significant number of the program meals counted at 
the point of service for each type of serving line to determine whether 
the meals selected by the students contain the food components and food 
quantities required for a reimbursable meal under Sec.  210.10, as 
applicable, and Sec.  220.8 of this chapter, as applicable.
    (3) If Offer versus Serve is in place, observe whether students 
select at least three food components at lunch and at least three food 
items at breakfasts, and that the lunches and breakfasts include at 
least \1/2\ cup of fruits or vegetables.
    (ii) Dietary specifications. The State agency must conduct a meal 
compliance risk assessment for each school selected for review to 
determine which school is at highest risk for nutrition-related 
violations. The State agency must conduct a targeted menu review for 
the school at highest risk for noncompliance using one of the options 
specified in the FNS Administrative Review Manual. Under the targeted 
menu review options, the State agency may conduct or validate an SFA-
conducted nutrient analysis for both breakfast and lunch, or further 
evaluate risk for noncompliance and, at a minimum, conduct a nutrient 
analysis if further examination shows the school is at high risk for 
noncompliance with the dietary specifications. The State agency is not 
required to assess compliance with the

[[Page 26865]]

dietary specifications when reviewing meals for preschoolers, and the 
National School Lunch Program's afterschool snack program and the 
seamless summer option.
    (iii) Performance-based cash assistance. If the school food 
authority is receiving performance-based cash assistance under Sec.  
210.7(d), the State agency must assess the school food authority's meal 
service and documentation of lunches served and determine its continued 
eligibility for the performance-based cash assistance.
    (h) General areas of review. The general areas listed in this 
paragraph reflect requirements that must be monitored by the State 
agency when conducting administrative reviews of the National School 
Lunch Program and the School Breakfast Program. Selected aspects of 
these general areas must also be monitored, as applicable and as 
specified in the FNS Administrative Review Manual, when conducting 
administrative reviews of the National School Lunch Program's 
afterschool snack program and seamless summer option, the Fresh Fruit 
and Vegetable Program, and the Special Milk Program. The general areas 
of review must include, but are not limited to, the following:
    (1) Resource management. The State agency must conduct an off-site 
assessment of the school food authority's nonprofit school food service 
to evaluate the risk of noncompliance with resource management 
requirements. If risk indicators show that the school food authority is 
at high risk for noncompliance with resource management requirements, 
the State agency must conduct a comprehensive review of the following 
areas using procedures specified in the FNS Administrative Review 
Manual.
    (i) Maintenance of the nonprofit school food service account. The 
State agency must confirm the school food authority's resource 
management is consistent with the maintenance of the nonprofit school 
food service account requirements in Sec. Sec.  210.2, 210.14, and 
210.19(a).
    (ii) Paid lunch equity. The State agency must review compliance 
with the requirements for pricing paid lunches in Sec.  210.14(e).
    (iii) Revenue from nonprogram foods. The State agency must ensure 
that all non-reimbursable foods sold by the school food service, 
including, but not limited to, a la carte food items, adult meals, and 
vended meals, generate at least the same proportion of school food 
authority revenues as they contribute to school food authority food 
costs, as required in Sec.  210.14(f).
    (iv) Indirect costs. The State agency must ensure that the school 
food authority follows fair and consistent methodologies to identify 
and allocate allowable indirect costs to school food service accounts, 
as required in 2 CFR part 225 and Sec.  210.14(g).
    (2) General Program Compliance.
    (i) Free and reduced price process. In the course of the review of 
each school food authority, the State agency must:
    (A) Confirm the free and reduced price policy statement, as 
required in Sec.  245.10 of this chapter, is implemented as approved.
    (B) Ensure that the process used to verify children's eligibility 
for free and reduced price meals in a sample of household applications 
is consistent with the verification requirements, procedures, and 
deadlines established in Sec.  245.6a of this chapter.
    (C) Determine that, for each reviewed school, the lunch count 
system does not overtly identify children eligible for free and reduced 
price lunches, as required under Sec.  245.8 of this chapter.
    (D) Review at least 10 denied applications to evaluate whether the 
determining official correctly denied applicants for free and reduced 
price lunches, and whether denied households were provided notification 
in accordance with Sec.  245.6(c)(7)of this chapter.
    (E) Confirm that a second review of applications has been conducted 
and that information has been correctly reported to the State agency as 
required in Sec.  245.11, if applicable.
    (ii) Civil rights. The State agency must examine the school food 
authority's compliance with the civil rights provisions specified in 
Sec.  210.23(b) to ensure that no child is denied benefits or otherwise 
discriminated against in any of the programs reviewed under this 
section because of race, color, national origin, age, sex, or 
disability.
    (iii) School food authority on-site monitoring. The State agency 
must ensure that the school food authority conducts on-site reviews of 
each school under its jurisdiction, as required by Sec. Sec.  
210.8(a)(1) and 220.11(d) of this chapter, and monitors claims and 
readily observable general areas of review in accordance with 
Sec. Sec.  210.8(a)(2) and (3), and 220.11(d) of this chapter.
    (iv) Competitive food standards. The State agency must ensure that 
the local educational agency and school food authority comply with the 
nutrition standards for competitive foods in Sec.  210.11 and Sec.  
220.12 of this chapter, and retain documentation demonstrating 
compliance with the competitive food service and standards.
    (v) Water. The State agency must ensure that water is available and 
accessible to children at no charge as specified in Sec.  
210.10(a)(1)(i) and Sec.  220.8(a)(1) of this chapter.
    (vi) Food safety. The State agency must examine records to confirm 
that each school food authority under its jurisdiction meets the food 
safety requirements of Sec.  210.13.
    (vii) Reporting and recordkeeping. The State agency must determine 
that the school food authority submits reports and maintains records in 
accordance with program requirements in this part, and parts 220 and 
245 of this chapter, and as specified in the FNS Administrative Review 
Manual.
    (viii) Program outreach. The State agency must ensure the school 
food authority is conducting outreach activities to increase 
participation in the School Breakfast Program and the Summer Food 
Service Program, as required in Sec.  210.12(d). If the State agency 
administering the Summer Food Service Program is not the same State 
agency that administers the National School Lunch Program, then the two 
State agencies must work together to implement outreach measures.
    (ix) Professional standards. The State agency shall ensure the 
local educational agency and school food authority complies with the 
professional standards for school nutrition program directors, 
managers, and personnel established in Sec.  210.30.
    (x) Local school wellness. The State agency shall ensure the local 
educational agency complies with the local school wellness 
requirements.
    (i) Entrance and exit conferences and notification--(1) Entrance 
conference. The State agency may hold an entrance conference with the 
appropriate school food authority staff at the beginning of the on-site 
administrative review to discuss the results of any off-site 
assessments, the scope of the on-site review, and the number of schools 
to be reviewed.
    (2) Exit conference. The State agency must hold an exit conference 
at the close of the administrative review and of any subsequent follow-
up review to discuss the violations observed, the extent of the 
violations and a preliminary assessment of the actions needed to 
correct the violations. The State agency must discuss an appropriate 
deadline(s) for completion of corrective action, provided that the 
deadline(s) results in the completion of corrective action on a timely 
basis.
    (3) Notification. The State agency must provide written 
notification of the review findings to the school food authority's 
Superintendent (or

[[Page 26866]]

equivalent in a non-public school food authority) or authorized 
representative, preferably no later than 30 days after the exit 
conference for each review. The written notification must include the 
date(s) of review, date of the exit conference, review findings, the 
needed corrective actions, the deadlines for completion of the 
corrective action, and the potential fiscal action. As a part of the 
denial of all or a part of a Claim for Reimbursement or withholding 
payment in accordance with the provisions of this section, the State 
agency must provide the school food authority a written notice which 
details the grounds on which the denial of all or a part of the Claim 
for Reimbursement or withholding payment is based. This notice, must be 
provided by certified mail, or its equivalent, or sent electronically 
by email or facsimile. The notice must also include a statement 
indicating that the school food authority may appeal the denial of all 
or a part of a Claim for Reimbursement or withholding payment and the 
entity (i.e., FNS or State agency) to which the appeal should be 
directed. The State agency must notify the school food authority, in 
writing, of the appeal procedures as specified in Sec.  210.18(q) for 
appeals of State agency findings, and for appeals of FNS findings, 
provide a copy of Sec.  210.29(d)(3) of the regulations.
    (j) Corrective action. Corrective action is required for any 
violation under either the critical or general areas of the review. 
Corrective action must be applied to all schools in the school food 
authority, as appropriate, to ensure that deficient practices and 
procedures are revised system-wide. Corrective actions may include 
training, technical assistance, recalculation of data to ensure the 
accuracy of any claim that the school food authority is preparing at 
the time of the review, or other actions. Fiscal action must be taken 
in accordance with paragraph (l) of this section.
    (1) Extensions of the timeframes. If the State agency determines 
that extraordinary circumstances make a school food authority unable to 
complete the required corrective action within the timeframes specified 
by the State agency, the State agency may extend the timeframes upon 
written request of the school food authority.
    (2) Documented corrective action. Documented corrective action is 
required for any degree of violation of general or critical areas 
identified in an administrative review. Documented corrective action 
may be provided at the time of the review; however, it must be 
postmarked or submitted to the State agency electronically by email or 
facsimile, no later than 30 days from the deadline for completion of 
each required corrective action, as specified under paragraph (i)(2) of 
this section or as otherwise extended by the State agency under 
paragraph (j)(1) of this section. The State agency must maintain any 
documented corrective action on file for review by FNS.
    (k) Withholding payment. At a minimum, the State agency must 
withhold all program payments to a school food authority as follows:
    (1) Cause for withholding.
    (i) The State agency must withhold all Program payments to a school 
food authority if documented corrective action for critical area 
violations is not provided with the deadlines specified in paragraph 
(j)(2) of this section; and/or
    (ii) The State agency must withhold all Program payments to a 
school food authority if the State agency finds that corrective action 
for critical area violation was not completed; and/or
    (iii) The State agency may withhold Program payments to a school 
food authority at its discretion, if the State agency found a critical 
area violation on a previous review and the school food authority 
continues to have the same error for the same cause; and/or
    (iv) For general area violations, the State agency may withhold 
Program payments to a school food authority at its discretion, if the 
State agency finds that documented corrective action is not provided 
within the deadlines specified in paragraph (j)(2) of this section, 
corrective action is not complete, or corrective action was not taken 
as specified in the documented corrective action.
    (2) Duration of withholding. In all cases, Program payments must be 
withheld until such time as corrective action is completed, documented 
corrective action is received and deemed acceptable by the State 
agency, or the State agency completes a follow-up review and confirms 
that the problem has been corrected. Subsequent to the State agency's 
acceptance of the corrective actions, payments will be released for all 
lunches served in accordance with the provisions of this part during 
the period the payments were withheld. In very serious cases, the State 
agency will evaluate whether the degree of non-compliance warrants 
termination in accordance with Sec.  210.25.
    (3) Exceptions. The State agency may, at its discretion, reduce the 
amount required to be withheld from a school food authority pursuant to 
paragraph (k)(1)(i) through (iii) of this section by as much as 60 
percent of the total Program payments when it is determined to be in 
the best interest of the Program. FNS may authorize a State agency to 
limit withholding of funds to an amount less than 40 percent of the 
total Program payments, if FNS determines such action to be in the best 
interest of the Program.
    (4) Failure to withhold payments. FNS may suspend or withhold 
Program payments, in whole or in part, to those State agencies failing 
to withhold Program payments in accordance with paragraph (k)(1) of 
this section and may withhold administrative funds in accordance with 
Sec.  235.11(b) of this chapter. The withholding of Program payments 
will remain in effect until such time as the State agency documents 
compliance with paragraph (k)(1) of this section to FNS. Subsequent to 
the documentation of compliance, any withheld administrative funds will 
be released and payment will be released for any meals served in 
accordance with the provisions of this part during the period the 
payments were withheld.
    (l) Fiscal action. The State agency must take fiscal action for all 
Performance Standard 1 violations and specific Performance Standard 2 
violations identified during an administrative review as specified in 
this section. Fiscal action must be taken in accordance with the 
principles in Sec.  210.19(c) and the procedures established in the FNS 
Administrative Review Manual. The State agency must follow the fiscal 
action formula prescribed by FNS to calculate the correct entitlement 
for a school food authority or a school.
    (1) Performance Standard 1 violations. A State agency is required 
to take fiscal action for Performance Standard 1 violations, in 
accordance with this paragraph and paragraph (l)(3).
    (i) For certification and benefit issuance errors cited under 
paragraph (g)(1)(i) of this section, the total number of free and 
reduced price meals claimed must be adjusted to reflect the State 
calculated free and reduced price certification and benefit issuance 
adjustment factors, respectively. The free adjustment factor is the 
ratio of the State agency count of students certified as eligible for 
free meals divided by the SFA count of students certified as eligible 
for free meals. The reduced price adjustment factor is the ratio of the 
State agency count of students certified as eligible for reduced price 
meals divided by the SFA count of students certified as eligible for 
reduced price meals.
    (ii) For meal counting and claiming errors cited under paragraph 
(g)(1)(ii) of this section, the State agency must

[[Page 26867]]

apply fiscal action to the incorrect meal counts at the school food 
authority level, or only to the reviewed schools where violations were 
identified, as applicable.
    (2) Performance Standard 2 violations. Except as noted in 
paragraphs (l)(2)(iii) and (iv) of this section, a State agency is 
required to apply fiscal action for Performance Standard 2 violations 
as follows:
    (i) For missing food components and/or missing production records 
cited under paragraph (g)(2) of this section, the State agency must 
apply fiscal action.
    (ii) For repeated violations involving milk type and vegetable 
subgroups cited under paragraph (g)(2) of this section, the State 
agency must apply fiscal action as follows:
    (A) If an unallowable milk type is offered or there is no milk 
variety, any meals selected with the unallowable milk type or when 
there is no milk variety must also be disallowed/reclaimed; and
    (B) If one vegetable subgroup is not offered over the course of the 
week reviewed, the reviewer should evaluate the cause(s) of the error 
to determine the appropriate fiscal action. All meals served in the 
deficient week may be disallowed/reclaimed.
    (iii) For repeated violations involving food quantities and whole 
grain-rich foods cited under paragraph (g)(2) of this section, the 
State agency has discretion to apply fiscal action as follows:
    (A) If the meals contain insufficient quantities of the required 
food components, the affected meals may be disallowed/reclaimed;
    (B) If no whole grain-rich foods are offered during the week of 
review, meals for the entire week of review may be disallowed and/or 
reclaimed;
    (C) If insufficient whole grain-rich foods are offered during the 
week of review, meals for one or more days during the week of review 
may be disallowed/reclaimed.
    (D) If a weekly vegetable subgroup is offered in insufficient 
quantity to meet the weekly vegetable subgroup requirement, meals for 
one day of the week of review may be disallowed/reclaimed; and
    (E) If the amount of juice offered exceeds the weekly limitation, 
meals for the entire week of review may be disallowed/reclaimed.
    (iv) For repeated violations of calorie, saturated fat, sodium, and 
trans fat dietary specifications cited under paragraph (g)(2)(ii) of 
this section, the State agency has discretion to apply fiscal action to 
the reviewed school as follows:
    (A) If the average meal offered over the course of the week of 
review does not meet one of the dietary specifications, meals for the 
entire week of review may be disallowed/reclaimed; and
    (B) Fiscal action is limited to the school selected for the 
targeted menu review and must be supported by a nutrient analysis of 
the meals at issue using USDA-approved software.
    (v) The following conditions must be met prior to applying fiscal 
action as described in paragraphs (l)(2)(ii) through (iv) of this 
section:
    (A) Technical assistance has been given by the State agency;
    (B) Corrective action has been previously required and monitored by 
the State agency; and
    (C) The school food authority remains noncompliant with the meal 
requirements established in part 210 and part 220 of this chapter.
    (3) Duration of fiscal action. Fiscal action must be extended back 
to the beginning of the school year or that point in time during the 
current school year when the infraction first occurred for all 
violations of Performance Standard 1 and Performance Standard 2. Based 
on the severity and longevity of the problem, the State agency may 
extend fiscal action back to previous school years. If corrective 
action occurs, the State agency may limit the duration of fiscal action 
for Performance Standard 1 and Performance Standard 2 violations as 
follows:
    (i) Performance Standard 1 certification and benefit issuance 
violations. The total number of free and reduced price meals claimed 
for the review period and the month of the on-site review must be 
adjusted to reflect the State calculated certification and benefit 
issuance adjustment factors.
    (ii) Other Performance Standard 1 and Performance Standard 2 
violations. With the exception of violations described in paragraph 
(l)(3)(i) of this section, a State agency may limit fiscal action from 
the point corrective action occurs back through the beginning of the 
review period for errors.
    (A) If corrective action occurs during the on-site review month or 
after, the State agency would be required to apply fiscal action from 
the point corrective action occurs back through the beginning of the 
on-site review month, and for the review period;
    (B) If corrective action occurs during the review period, the State 
agency would be required to apply fiscal action from the point 
corrective action occurs back through the beginning of the review 
period;
    (C) If corrective action occurs prior to the review period, no 
fiscal action would be required; and
    (D) If corrective action occurs in a claim month between the review 
period and the on-site review month, the State agency would apply 
fiscal action only to the review period.
    (4) Performance-based cash assistance. In addition to fiscal action 
described in paragraphs (l)(2)(i) through (v) of this section, school 
food authorities found to be out of compliance with the meal patterns 
or nutrition standards set forth in Sec.  210.10 may not earn 
performance-based cash assistance authorized under Sec.  210.4(b)(1) 
unless immediate corrective action occurs. School food authorities will 
not be eligible for the performance-based reimbursement beginning the 
month immediately following the administrative review and, at State 
discretion, for the month of review. Performance-based cash assistance 
may resume beginning in the first full month the school food authority 
demonstrates to the satisfaction of the State agency that corrective 
action has taken place.
    (m) Transparency requirement. The State agency must make the most 
recent final administrative review results available to the public in 
an easily accessible manner, as follows:
    (1) Post a summary of the most recent final administrative review 
results for each school food authority on the State agency's publicly 
available Web site. The summary must cover meal access and 
reimbursement, meal patterns and nutritional quality of school meals, 
school nutrition environment (including food safety, local school 
wellness policy, and competitive foods), civil rights, and program 
participation, in a format prescribed by FNS. It must be posted no 
later than 30 days after the State agency provides the results of 
administrative review to the school food authority; and
    (2) Make a copy of the final administrative review report upon 
request.
    (n) Reporting requirement. Each State agency must report to FNS the 
results of reviews by March 1 of each school year, on a form designated 
by FNS. In such annual reports, the State agency must include the 
results of all administrative reviews conducted in the preceding school 
year.
    (o) Recordkeeping. Each State agency must keep records which 
document the details of all reviews and demonstrate the degree of 
compliance with the critical and general areas of review.

[[Page 26868]]

Records must be retained as specified in Sec.  210.23(c) and include 
documented corrective action, and documentation of withholding of 
payments and fiscal action, including recoveries made. Additionally, 
the State agency must have on file:
    (1) Criteria for selecting schools for administrative reviews in 
accordance with paragraphs (e)(2)(ii) and (i)(2)(ii) of this section.
    (2) Documentation demonstrating compliance with the statistical 
sampling requirements in accordance with paragraph (g)(1)(i)(A)(1) of 
this section, if applicable.
    (p) School food authority appeal of State agency findings. Except 
for FNS-conducted reviews authorized under Sec.  210.29(d)(2), each 
State agency shall establish an appeal procedure to be followed by a 
school food authority requesting a review of a denial of all or a part 
of the Claim for Reimbursement or withholding payment arising from 
administrative review activity conducted by the State agency under 
Sec.  210.18. State agencies may use their own appeal procedures 
provided the same procedures are applied to all appellants in the State 
and the procedures meet the following requirements: Appellants are 
assured of a fair and impartial hearing before an independent official 
at which they may be represented by legal counsel; decisions are 
rendered in a timely manner not to exceed 120 days from the date of the 
receipt of the request for review; appellants are afforded the right to 
either a review of the record with the right to file written 
information, or a hearing which they may attend in person; and adequate 
notice is given of the time, date, place and procedures of the hearing. 
If the State agency has not established its own appeal procedures or 
the procedures do not meet the above listed criteria, the State agency 
shall observe the following procedures at a minimum:
    (1) The written request for a review shall be postmarked within 15 
calendar days of the date the appellant received the notice of the 
denial of all or a part of the Claim for Reimbursement or withholding 
of payment, and the State agency shall acknowledge the receipt of the 
request for appeal within 10 calendar days;
    (2) The appellant may refute the action specified in the notice in 
person and by written documentation to the review official. In order to 
be considered, written documentation must be filed with the review 
official not later than 30 calendar days after the appellant received 
the notice. The appellant may retain legal counsel, or may be 
represented by another person. A hearing shall be held by the review 
official in addition to, or in lieu of, a review of written information 
submitted by the appellant only if the appellant so specifies in the 
letter of request for review. Failure of the appellant school food 
authority's representative to appear at a scheduled hearing shall 
constitute the appellant school food authority's waiver of the right to 
a personal appearance before the review official, unless the review 
official agrees to reschedule the hearing. A representative of the 
State agency shall be allowed to attend the hearing to respond to the 
appellant's testimony and to answer questions posed by the review 
official;
    (3) If the appellant has requested a hearing, the appellant and the 
State agency shall be provided with at least 10 calendar days advance 
written notice, sent by certified mail, or its equivalent, or sent 
electronically by email or facsimile, of the time, date and place of 
the hearing;
    (4) Any information on which the State agency's action was based 
shall be available to the appellant for inspection from the date of 
receipt of the request for review;
    (5) The review official shall be an independent and impartial 
official other than, and not accountable to, any person authorized to 
make decisions that are subject to appeal under the provisions of this 
section;
    (6) The review official shall make a determination based on 
information provided by the State agency and the appellant, and on 
program regulations;
    (7) Within 60 calendar days of the State agency's receipt of the 
request for review, by written notice, sent by certified mail, or its 
equivalent, or electronically by email or facsimile, the review 
official shall inform the State agency and the appellant of the 
determination of the review official. The final determination shall 
take effect upon receipt of the written notice of the final decision by 
the school food authority;
    (8) The State agency's action shall remain in effect during the 
appeal process; and
    (9) The determination by the State review official is the final 
administrative determination to be afforded to the appellant.
    (q) FNS review activity. The term ``State agency'' and all the 
provisions specified in paragraphs (a) through (h) of this section 
refer to FNS when FNS conducts administrative reviews in accordance 
with Sec.  210.29(d)(2). FNS will notify the State agency of the review 
findings and the need for corrective action and fiscal action. The 
State agency shall pursue any needed follow-up activity.
0
10. In Sec.  210.19:
0
a. In the seventh sentence in paragraph (a)(1), add the words ``in a 
manner that is consistent with the paid lunch equity provision in Sec.  
210.14(e) and corresponding FNS guidance,'' after the word 
``lunches,'';
0
b. Revise paragraph (a)(2);
0
c. In the fifth sentence of paragraph (a)(5), remove the words ``an on-
site'' and the number ``5'' and add in their place the word ``a'' and 
the number ``3'', respectively.
0
d. Remove the sixth sentence of paragraph (a)(5);
0
e. In the second sentence of paragraph (c), remove the words ``the 
meal'' and add the number ``, 215'' after the number ``210'';
0
f. In the second sentence of paragraph (c)(1), add the number ``, 215'' 
after the number ``210'';
0
g. In the second sentence of paragraph (c)(2)(i), remove the word 
``lunches'' and add in its place the word ``meals'';
0
h. In the third sentence of paragraph (c)(2)(i), remove the word 
``lunch'' and add in its place the word ``meal'';
0
i. Remove the fourth sentence of (c)(2)(i);
0
j. In the first sentence of paragraph (c)(2)(ii), remove the reference 
``Sec.  210.18(m)'' and add in its place the reference ``Sec.  
210.18(l)''.
0
k. In the last sentence of paragraph (c)(2)(ii), remove the word 
``lunches'' and add in its place the word ``meals'';
0
l. In paragraph (c)(2)(iii), remove the words ``lunches'' and ``lunch'' 
and add in their place the words ``meals'' and ``meal'', respectively; 
and
0
m. Remove paragraph (g).
    The revision reads as follows:


Sec.  210.19  Additional responsibilities.

    (a) * * *
    (2) Improved management practices. The State agency must work with 
the school food authority toward improving the school food authority's 
management practices where the State agency has found poor food service 
management practices leading to decreasing or low child participation, 
menu acceptance, or program efficiency. The State agency should provide 
training and technical assistance to the school food authority or 
direct the school food authority to the National Food Service 
Management Institute to obtain such resources.
* * * * *


Sec.  210.20  [Amended]

0
11. In Sec.  210.20:
0
a. Remove paragraph (a)(5) and redesignate paragraphs (a)(6) through 
(a)(10) as paragraphs (a)(5) through (a)(9); and

[[Page 26869]]

0
b. Remove paragraph (b)(7) and redesignate paragraphs (b)(8) through 
(b)(15), as added on March 2, 2015 (80 FR 11092, effective July 1, 
2015, as paragraphs (b)(7) through (b)(14).


Sec.  210.23  [Amended]

0
12. In Sec.  210.23, remove paragraph (d), and redesignate paragraph 
(e) as paragraph (d).


Sec.  210.29  [Amended]

0
13. In Sec.  210.29:
0
a. In paragraph (b), remove the words ``or Sec.  210.18a'' and 
``reviews and'';
0
b. In paragraph (d)(1), remove the words ``and/or any follow up 
review'' from the first sentence; and
0
c. In paragraph (d)(2), remove the words ``or any follow up reviews'' 
from the first sentence.

PART 215--SPECIAL MILK PROGRAM FOR CHILDREN

0
14. The authority citation for 7 CFR part 215 continues to read as 
follows:

    Authority: 42 U.S.C. 1772 and 1779.

0
15. In Sec.  215.11:
0
a. In the second sentence of paragraph (b)(2), remove the letter 
``(i)'' from the reference ``Sec.  210.18(i)''; and
0
b. Revise the third sentence of paragraph (b)(2) to read as follows:


Sec.  215.11  Special responsibilities of State agencies.

* * * * *
    (b) * * *
    (2) * * * Compliance reviews of participating schools shall focus 
on the reviewed school's compliance with the required certification, 
counting, claiming, and milk service procedures.* * *
* * * * *
0
16. Revise Sec.  215.18 to read as follows:


Sec.  215.18  Information collection/recordkeeping--OMB assigned 
control numbers.

------------------------------------------------------------------------
                                                            Current OMB
     7 CFR section where  requirements are described      control number
------------------------------------------------------------------------
215.3(d) Agreement......................................       0584-0067
215.5(a)................................................       0584-0005
                                                               0584-0002
215.5(c) FNS-777........................................       0584-0067
215.7 (a), (c)..........................................       0584-0005
215.7 (b)(2)............................................       0584-0026
215.7(d) FNS-66.........................................       0584-0006
                                                               0584-0005
215.10 (a), (b), (d)....................................       0584-0005
                                                               0584-0284
215.11 (b), (c)(1), (e).................................       0584-0005
215.11(c)(2) FNS-10.....................................       0584-0002
215.12 (a), (d), (e), (g)...............................       0584-0005
215.13(a)...............................................       0584-0005
215.13a(a)-(e)..........................................       0584-0026
215.14..................................................       0584-0005
215.14a(a)-(c)..........................................       0584-0005
215.15..................................................       0584-0005
------------------------------------------------------------------------

PART 220--SCHOOL BREAKFAST PROGRAM

0
17. The authority citation for 7 CFR part 220 continues to read as 
follows:

    Authority: 42 U.S.C. 1773, 1779, unless otherwise noted.

0
18. In Sec.  220.8:
0
a. In paragraph (h), remove the phrase ``Effective July 1, 2013 (SY 
2013-2014), as part of the administrative review authorized under Sec.  
210.18 of this chapter, State agencies must conduct a weighted nutrient 
analysis for the school(s) selected for review'' from the first 
sentence, and add in its place the phrase ``When required by the 
administrative review process set forth in Sec.  210.18, the State 
agency must conduct a weighted nutrient analysis''; and
0
b. Revise paragraphs (i) and (j) to read as follows:


Sec.  220.8  Meal requirements for breakfasts.

* * * * *
    (i) Nutrient analyses of school meals. Any nutrient analysis of 
school breakfasts conducted under the administrative review process set 
forth in Sec.  210.18 of this chapter must be performed in accordance 
with the procedures established in Sec.  210.10(i) of this chapter. The 
purpose of the nutrient analysis is to determine the average levels of 
calories, saturated fat, and sodium in the breakfasts offered to each 
age grade group over a school week.
    (j) Responsibility for monitoring meal requirements. Compliance 
with the applicable breakfast requirements in paragraph (b) of this 
section, including the dietary specifications for calories, saturated 
fat, sodium and trans fat will be monitored by the State agency through 
administrative reviews authorized in Sec.  210.18 of this chapter.
* * * * *
0
19. In Sec.  220.11, add paragraph (d) to read as follows:


Sec.  220.11  Reimbursement procedures.

* * * * *
    (d) The school food authority shall establish internal controls 
which ensure the accuracy of breakfast counts prior to the submission 
of the monthly Claim for Reimbursement. At a minimum, these internal 
controls shall include: An on-site review of the breakfast counting and 
claiming system employed by each school within the jurisdiction of the 
school food authority; comparisons of daily free, reduced price and 
paid breakfast counts against data which will assist in the 
identification of breakfast counts in excess of the number of free, 
reduced price and paid breakfasts served each day to children eligible 
for such breakfasts; and a system for following up on those breakfast 
counts which suggest the likelihood of breakfast counting problems.
    (1) On-site reviews. Every school year, each school food authority 
with more than one school shall perform no less than one on-site review 
of the breakfast counting and claiming system and the readily 
observable general areas of review identified under Sec.  210.18(h) of 
this chapter, as specified by FNS, for each school under its 
jurisdiction. The on-site review shall take place prior to February 1 
of each school year. Further, if the review discloses problems with a 
school's meal counting or claiming procedures or general review areas, 
the school food authority shall ensure that the school implements 
corrective action, and within 45 days of the review, conduct a follow-
up on-site review to determine that the corrective action resolved the 
problems. Each on-site review shall ensure that the school's claim is 
based on the counting system and that the counting system, as 
implemented, yields the actual number of reimbursable free, reduced 
price and paid breakfasts, respectively, served for each day of 
operation.
    (2) School food authority claims review process. Prior to the 
submission of a monthly Claim for Reimbursement, each school food 
authority shall review the breakfast count data for each school under 
its jurisdiction to ensure the accuracy of the monthly Claim for 
Reimbursement. The objective of this review is to ensure that monthly 
claims include only the number of free, reduced price and paid 
breakfasts served on any day of operation to children currently 
eligible for such breakfasts.
* * * * *
0
20. In Sec.  220.13:
0
a. In the sixth sentence of paragraph (b)(2), remove the word ``SF-
269'' and add in its place the word ``FNS-777'';
0
b. Revise paragraphs (f)(2), (f)(3) and (f)(4);
0
c. Revise paragraph (g); and
0
d. Amend paragraph (j) by removing the words ``supervisory assistance'' 
and adding in their place the word ``administrative''.
    The revisions read as follows:


Sec.  220.13  Special responsibilities of State agencies.

* * * * *
    (f) * * *

[[Page 26870]]

    (2) State agencies must conduct administrative reviews of the 
school meal programs specified in Sec.  210.18 of this chapter to 
ensure that schools participating in the designated programs comply 
with the provisions of this title. The reviews of selected schools must 
focus on compliance with the critical and/or general areas of review 
identified in Sec.  210.18 of this chapter for each program, as 
applicable, and must be conducted as specified in the FNS 
Administrative Review Manual for each program. School food authorities 
may appeal a denial of all or a part of the Claim for Reimbursement or 
withholding of payment arising from review activity conducted by the 
State agency under Sec.  210.18 of this chapter or by FNS under Sec.  
210.29(d)(2) of this chapter. Any such appeal shall be subject to the 
procedures set forth under Sec.  210.18(p) of this chapter or Sec.  
210.29(d)(3) of this chapter, as appropriate.
    (3) For the purposes of compliance with the meal requirements in 
Sec. Sec.  220.8 and 220.23, the State agency must follow the 
provisions specified in Sec.  210.18(g) of this chapter, as applicable.
    (4) State agency assistance must include visits to participating 
schools selected for administrative reviews under Sec.  210.18 of this 
chapter to ensure compliance with program regulations and with the 
Department's nondiscrimination regulations (part 15 of this title), 
issued under title VI, of the Civil Rights Act of 1964.
* * * * *
    (g) State agencies shall adequately safeguard all assets and 
monitor resource management as required under Sec.  210.18 of this 
chapter, and in conformance with the procedures specified in the FNS 
Administrative Review Manual, to assure that assets are used solely for 
authorized purposes.
* * * * *


Sec.  220.14  [Amended]

0
21. In paragraph (h), add the words ``food authority'' after the word 
``school'', and remove the words ``Sec.  220.8(g), Sec.  220.8(i)(2) 
and (i)(3), whichever is applicable'' and add in their place the word 
``Sec.  220.8''.
0
22. Revise Sec.  220.22 to read as follows:


Sec.  220.22  Information collection/recordkeeping--OMB assigned 
control numbers.

------------------------------------------------------------------------
                                                            Current OMB
     7 CFR section where  requirements are described      control number
------------------------------------------------------------------------
220.3(e)................................................       0584-0067
220.5...................................................       0584-0012
220.7(a)-(e)............................................       0584-0006
                                                               0584-0012
                                                               0584-0067
220.8(f)................................................       0584-0012
220.9(a)................................................       0584-0012
220.11 (a), (b), (e)....................................       0584-0012
                                                               0584-0002
                                                               0584-0067
220.12(b)...............................................       0584-0012
220.13 (a-1)-(c), (f)...................................       0584-0026
                                                               0584-0002
                                                               0584-0067
                                                               0584-0012
220.14(d)...............................................       0584-0012
220.15..................................................       0584-0012
------------------------------------------------------------------------

PART 235--STATE ADMINISTRATIVE EXPENSE FUNDS

0
23. The authority citation for 7 CFR part 235 continues to read as 
follows:


    Authority: Secs. 7 and 10 of the Child Nutrition Act of 1966, 80 
Stat. 888, 889, as amended (42 U.S.C. 1776, 1779).

0
24. In Sec.  235.2, add a definition of ``Large school food authority'' 
in alphabetical order to read as follows:


Sec.  235.2  Definitions.

* * * * *
    Large school food authority means, in any State:
    (1) All school food authorities that participate in the National 
School Lunch Program (7 CFR part 210) and have enrollments of 40,000 
children or more each; or
    (2) If there are less than two school food authorities with 
enrollments of 40,000 or more, the two largest school food authorities 
that participate in the National School Lunch Program (7 CFR part 210) 
and have enrollments of 2,000 children or more each.
* * * * *

    Date: May 1, 2015.
Yvette S. Jackson,
Acting Administrator, Food and Nutrition Service.
[FR Doc. 2015-10613 Filed 5-8-15; 8:45 am]
BILLING CODE 3410-30-P