Child Nutrition Program Integrity, 17563-17595 [2016-06801]

Download as PDF Vol. 81 Tuesday, No. 60 March 29, 2016 Part II Department of Agriculture mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Food and Nutrition Service 7 CFR Parts 210, 215, 220, et al. Child Nutrition Program Integrity; Proposed Rule VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\29MRP2.SGM 29MRP2 17564 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules DEPARTMENT OF AGRICULTURE Food and Nutrition Service 7 CFR Parts 210, 215, 220, 225, 226 and 235 RIN 0584–AE08 Child Nutrition Program Integrity Food and Nutrition Service, USDA. ACTION: Proposed rule. AGENCY: This rule proposes to codify several provisions of the Healthy, Hunger-Free Kids Act of 2010 affecting the integrity of the Child Nutrition Programs, including the National School Lunch Program (NSLP), the Special Milk Program for Children, the School Breakfast Program, the Summer Food Service Program (SFSP), the Child and Adult Care Food Program (CACFP) and State Administrative Expense Funds. The Department is proposing to establish criteria for assessments against State agencies and program operators who jeopardize the integrity of any Child Nutrition Program; establish procedures for termination and disqualification of entities in the SFSP; modify State agency site review requirements in the CACFP; establish State liability for reimbursements incurred as a result of a State’s failure to conduct timely hearings in the CACFP; establish criteria for increased State audit funding for CACFP; establish procedures to prohibit the participation of entities or individuals terminated from any of the Child Nutrition Programs; establish serious deficiency and termination procedures for unaffiliated sponsored centers in the CACFP; eliminate cost-reimbursement food service management company contracts in the NSLP; and establish procurement training requirements for State agency and school food authority staff in the NSLP. In addition, this rulemaking would make several operational changes to improve oversight of an institution’s financial management and would also include several technical corrections to the regulations. The proposed rule is intended to improve the integrity of all Child Nutrition Programs. DATES: To be assured of consideration, written comments must be postmarked on or before May 31, 2016. ADDRESSES: The Food and Nutrition Service, USDA, invites interested persons to submit written comments on this proposed rule. In order to ensure proper receipt, written comments must be submitted through one of the following methods only: mstockstill on DSK4VPTVN1PROD with PROPOSALS2 SUMMARY: VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 • Preferred method: Federal eRulemaking Portal at http:// www.regulations.gov. Follow the online instructions for submitting comments. • Mail: Comments should be addressed to Andrea Farmer, Chief, School Meal Programs Branch, Policy and Program Development Division, Child Nutrition Programs, Food and Nutrition Service, Department of Agriculture, 3101 Park Center Drive, Alexandria, Virginia 22302–1594. • Hand Delivery or Courier: Deliver comments to the Food and Nutrition Service, Child Nutrition Programs, 3101 Park Center Drive, Alexandria, Virginia 22302–1594, during normal business hours of 8:30 a.m.–5:00 p.m., Monday through Friday. Comments sent by other methods not listed above will not be able to be accepted and subsequently, not posted. All comments submitted in response to this proposed rule will be included in the record and will be made available to the public. Duplicate comments are not considered. 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. The Department will make the comments publicly available on the Internet via http:// www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Mandana Yousefi, Community Meal Programs Branch, Policy and Program Development Division, Child Nutrition Programs, Food and Nutrition Service at (703) 305–2590. SUPPLEMENTARY INFORMATION: I. Public Comment Procedures II. Executive Summary III. Background and Discussion of the Proposed Rule IV. Procedural Matters I. Public Comment Procedures Your written comments on the proposed rule should be specific, should be confined to issues pertinent to the proposed rule, and should explain the reason(s) for any change you recommend or proposal(s) you oppose. Where possible, you should reference the specific section or paragraph of the proposal you are addressing. We invite specific comments on various aspects of the rule as described later in this preamble. We also invite comments from State agencies, sponsors, and providers on the administrative cost of compliance with any of the provisions in the rule. Additionally, we invite comments on the potential impact of the changes in the proposed rule on Program access, particularly in areas through the country where there are a limited number of providers available to PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 operate the Programs. Comments received after the close of the comment period (refer to DATES) will not be considered or included in the Administrative Record for the final rule. We also invite your comments on how to make these proposed regulations easier to understand, including answers to questions such as the following: (1) Are the requirements in the proposed regulations clearly stated? (2) Does the rule contain technical language or jargon that interferes with its clarity? (3) Does the format of the rule (e.g., grouping and order of sections, use of headings, and paragraphing) make it clearer or less clear? (4) Would the rule be easier to understand if it was divided into more (but shorter) sections? (5) Is the description of the rule in the preamble section entitled ‘‘Background and Discussion of the Proposed Rule’’ helpful in understanding the rule? How could this description be more helpful in making the rule easier to understand? II. Executive Summary Purpose of the Regulatory Action This proposed rule would codify several provisions of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA), Public Law 111–296, that affect the integrity of the Child Nutrition Programs, including the National School Lunch Program (NSLP), the Special Milk Program for Children (SMP), the School Breakfast Program (SBP), the Summer Food Service Program (SFSP), the Child and Adult Care Food Program (CACFP), and State Administrative Expense Funds (SAE). In addition, this rule would incorporate policy changes resulting from several findings from recently conducted targeted management evaluations of the CACFP by the Food and Nutrition Service (FNS), and USDA Office of Inspector General audit findings, as well as other miscellaneous revisions to the regulations. The rule is intended to improve the integrity of all Child Nutrition Programs. USDA anticipates that the provisions under this proposed rule would be implemented 90 days following publication of the final rule, with the exception of those related to CACFP audit funds and those related to assessments against State agencies and program operators. The provision granting eligible State agencies additional CACFP audit funds will be implemented upon publication of the final rule. Because States and school districts have been working diligently to implement the provisions of the E:\FR\FM\29MRP2.SGM 29MRP2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Healthy, Hunger-Free Kids Act, USDA anticipates that the provision establishing criteria for assessments against State agencies and program operators would be implemented one school year following publication of the final rule to provide entities the time they need to complete successful implementation. Summary of the Major Provisions of the Regulatory Action The major provisions addressed in this rule are: Section 303 of the HHFKA: Fines for Violating Program Requirements— Section 303 of the HHFKA requires the Secretary to establish criteria for the imposition of fines in the Child Nutrition Programs, referred to as assessments in this proposed rule. An assessment refers to a required payment of funds from non-Federal sources. Under section 303, the Secretary or a State agency may establish an assessment against any school food authority or school administering the Child Nutrition Programs if the Secretary or the State agency determines that the school or school food authority failed to correct severe mismanagement of any program, failed to correct repeated violations of program requirements, or disregarded a requirement of which they have been informed. Section 303 also provides the Secretary the authority to establish an assessment against any State agency if the Secretary determines the State agency has failed to correct severe mismanagement of any program, failed to correct repeated violations of program requirements, or disregarded a requirement of which they have been informed. Section 322 of the HHFKA: SFSP Disqualification—Section 322 requires the Secretary to establish procedures for the termination and disqualification of entities participating in the SFSP, to maintain a list of entities that have been terminated or disqualified from SFSP, and to make this list available to States for use in approving or renewing service institutions’ applications for SFSP participation. Section 331(b) of the HHFKA: State Agency/Sponsor Review Requirements in the CACFP—Section 331(b) requires the Secretary to develop for State agencies additional criteria or priorities for use in choosing institutions for review, including institutions at risk of having serious management problems and institutions conducting activities other than the CACFP. Section 332 of the HHFKA: State Liability for Payments to Aggrieved Child Care Institutions—Section 332 VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 requires State agencies to pay all valid claims for reimbursement, from nonFederal sources, if the required timeframes for a fair hearing are not met. Section 335 of the HHFKA: CACFP Audit Funding—Section 335 allows the Department to increase the amount of audit funds made available to a CACFP State agency if the State agency demonstrates it can effectively use the funds to improve Program management in accordance with criteria established by the Department. Section 362 of the HHFKA: Disqualified Schools, Institutions, and Individuals—Section 362 makes any school, institution, service institution, facility, or individual that has been terminated from any Child Nutrition Program and who is on the CACFP or SFSP National Disqualified List ineligible for participation in or administration of any Child Nutrition Program. Costs and Benefits While all entities—school food authorities, schools, institutions, sponsors sites, sponsoring organizations, day care centers and State agencies—administering Child Nutrition Programs will be affected by this rulemaking, the economic effect is not expected to be significant as explained below. III. Background and Discussion of the Proposed Rule The Department is proposing to amend the regulations for the NSLP, SMP, SBP, SFSP, CACFP, and SAE found at 7 CFR parts 210, 215, 220, 225, 226 and 235, respectively. These changes are intended to improve the integrity of the affected Child Nutrition Programs. The proposed changes respond to provisions of the HHFKA, findings from management evaluations of the CACFP by the Department and from an audit by the Department’s Office of Inspector General. In addition, the proposal includes technical corrections and other miscellaneous revisions to the regulations. Each of the proposed changes is discussed in detail below. The Department recognizes that the provisions in this proposed rule impact many aspects of State administration of Child Nutrition Programs. As a result, the Department will provide guidance and technical assistance to State agencies to ensure successful implementation of this regulation. USDA anticipates that the provisions under this proposed rule would be implemented 90 days following publication of the final rule, with the PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 17565 exception of those related to assessments against State agencies and program operators and CACFP audit funds. The provision establishing criteria for assessments against State agencies and program operators would be implemented one school year following publication of the final rule. The provision granting eligible State agencies additional CACFP audit funds will be implemented upon publication of the final rule. Proposed Changes in Response to the HHFKA Section 303 of the HHFKA: Fines for Violating Program Requirements Section 303 of the HHFKA amended section 22 of the Richard B. Russell National School Lunch Act (NSLA) (42 U.S.C. 1769c) to require the Secretary to establish criteria by which the Secretary or the State agency may impose a fine, referred to in this proposed rule as an assessment, against any school food authority or school administering a program authorized under the NSLA or the Child Nutrition Act of 1966 (42 U.S.C. 1771 et seq.) (CNA). An assessment refers to a required payment of funds from non-Federal sources. The provision also authorizes the Secretary to establish an assessment against any State agency administering a program under the NSLA or the CNA. Assessments established pursuant to section 303 are limited to those situations where a school, school food authority, or State agency has failed to correct severe mismanagement of any program, disregarded a requirement of which it has been informed, or failed to correct repeated violations of program requirements. The provision implies that an assessment would be established only in situations where the regular monitoring, oversight, corrective action and technical assistance processes used by a State agency or the Department do not result in correction of identified program violations. It is important to note that the statutory scheme only anticipates assessments be established in instances of severe mismanagement of a program, disregard of a program requirement of which the program operator had been informed, or failure to correct repeated violations. These criteria suggest that violations that would result in assessments would be egregious or persistent in nature, remaining unresolved after the normal monitoring and oversight activities have failed to secure corrective action. Current program regulations require rigorous FNS and State agency monitoring and oversight. For example, in accordance with 7 CFR part 210.29, E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17566 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules FNS conducts management evaluations of State agencies administering the NSLP and SBP based on relative-risk for program administration issues, rather than by a calendar cycle. At a minimum, each State agency receives a management evaluation once every five years to assess compliance with all aspects of the State agency’s operation of the NSLP and SBP. Any findings are recorded in the management evaluation report and are either immediately corrected or a corrective action plan is implemented with subsequent followup activity until the violations are corrected. In addition, the monitoring and oversight process for the NSLP and SBP calls for a State agency administrative review of each school food authority once every three years. As part of the 7 CFR 210.18 administrative review requirements, State agencies must assess a school food authority’s compliance with specific performance standards as well as with general areas of review. School food authorities failing to demonstrate compliance must develop a corrective action plan and take corrective actions to ameliorate the problem. The State agency must assess the corrective actions taken, provide any needed technical assistance, recover any improperly paid Federal funds, and if needed, conduct a follow-up review. Generally, State agencies and school food authorities work together to correct Program violations for the betterment of the Program and the children they serve. However, there have been cases, albeit few, where program operators have failed to correct Program violations through the normal administrative review requirements and technical assistance. This proposed rule would provide both the Department and State agencies the authority to establish an assessment after the normal monitoring and oversight activities have been unsuccessful in correcting program violations. The Department anticipates assessments would be established only on rare occasions in securing corrective action. However, it should serve as a useful tool when egregious or persistent disregard of Program requirements occurs. Amendatory language under this proposed rule would affect the NSLP, SMP, SBP, SFSP, CACFP, and USDA Donated Foods in schools and institutions. The Department published proposed regulation ‘‘Fresh Fruit and Vegetable Program’’ in the Federal Register on February 24, 2012 (77 FR 10981), which would establish the basic structure of the Fresh Fruit and Vegetables Program (FFVP), and related requirements, as authorized under VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 section 19 of the NSLA (42 U.S.C. 1769a). While the authority set forth in section 303 also extends to the FFVP, this proposed rule does not include amendatory changes relating to the FFVP, as the FFVP regulations have not yet been codified. It is the intention of the Department to incorporate language identical to that proposed at § 210.26(b) to extend the authority provided under section 303 to the FFVP when that rule is finalized. Any comments related to assessments established in the FFVP under section 303 should be submitted to the Department in response to this proposed rulemaking. Section 303 prescribes upper limits on the amount of the assessments that can be established against any school food authority, school, and State agency. In calculating assessments against school food authorities and schools, the Department is directed to base the amount on the reimbursement earned by the school food authority or school for the program in which the violation occurred. The amount of the assessment may not exceed the equivalent of: • For the first assessment, 1 percent of the amount of meal reimbursements earned for the fiscal year; • For the second assessment, 5 percent of the amount of meal reimbursements earned for the fiscal year; and • For the third or subsequent assessment, 10 percent of the amount of meal reimbursements earned for the fiscal year. In calculating assessments established against State agencies, the Department is directed to base the amount on the SAE funds made available to the State agency for the State agency’s administration of the Child Nutrition Programs. Therefore, the amount of the assessment is based on SAE funds for all Child Nutrition Programs, not only SAE support earned by the program in which the violation occurred. The amount of the assessment may not exceed the equivalent of: • For the first assessment,1 percent of funds made available for SAE during the fiscal year; • For the second assessment, 5 percent of funds made available for SAE during the fiscal year; and • For the third or subsequent assessment, 10 percent of the amount funds made available for SAE during the fiscal year. The proposed regulation bases these limits on the most recent fiscal year for which meal reimbursements or SAE allocations closeout data are available. Finally, section 303 specifies that funds used to pay an assessment must be derived from non-Federal sources. This new authority to establish assessments PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 is expected to serve as a deterrent to those State and local program operators who disregard the program requirements of any Child Nutrition Program. This rule proposes to amend the regulations for the NSLP, SMP, SBP, SFSP, and CACFP at §§ 210.26(b), 215.15(b), 220.18(b), 225.18(k), and 226.25(i) to codify the authority to establish an assessment, identify the violations for which an assessment would be established, and establish the monetary limits to which an assessment may be imposed, as outlined in the NSLA. Section 303 authorizes the Secretary or a State agency to establish assessments against school food authorities and schools administering any Child Nutrition Program. However, in addition to school food authorities and schools, other types of institutions operate the Child Nutrition Programs in accordance with the statutory and regulatory framework. Institutions, sites, sponsors, day care centers, and day care providers also may operate under the SMP, SFSP, or CACFP. Investigations conducted by the USDA OIG and management evaluations of State agencies conducted by the Department identified problems in the Child Nutrition Programs associated with non-school Program operators. In 2006, OIG conducted an audit of the SFSP in California and Nevada which found the majority of private nonprofit sponsors reviewed to be noncompliant in Program requirements related to meal counts, costs and income reporting, as well as State health and safety code requirements. In addition, the Child Care Assessment Project (CCAP) Final Report, published by the Department in July 2009, identified inaccurate meal counts and menu records by providers and private nonprofit sponsoring organizations and a failure to employ the serious deficiency process as intended. These findings indicate patterns of non-compliance in CACFP and SFSP by entities/institutions which are not school food authorities or schools. OIG has several audits currently underway, including a review of management controls in the CACFP, areas of risk assessment in the CACFP and a follow up of the 2006 SFSP audit in California and Nevada. The findings of these audits can be found in the Review of the Management Controls in the CACFP Final Report published by the Department in November 2011. With these findings in mind and consistent with the Department’s authority in Section 10(a) of the CNA, 42 U.S.C. 1779(a), to promulgate regulations necessary to carry out the E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules Child Nutrition Programs, this rule would extend to all entities that have an agreement with the State agency. Thus, this proposed rule would apply to school food authorities, schools, institutions, sites, sponsors, day care centers, and day care providers. The resultant rule would ensure program integrity and equitable treatment of all participating entities and institutions. Given the fiscal consequences of this provision, the Department would provide school food authorities, institutions, and sponsors the opportunity to appeal any assessment established pursuant to this regulatory authority. School food authorities, institutions, and sponsors administering the NSLP, SFSP, and CACFP currently have the ability to appeal fiscal action through the existing administrative review process in the NSLP, SFSP, and CACFP regulations. This proposed rule would expand current regulatory appeal rights to include any assessment established pursuant to this regulatory authority and would extend those appeal rights and procedures to both the SMP and SBP. To ensure the appeal process is completed on a timely basis, this proposed rule would make the determination of the State agency review official final and not subject to further administrative review. The proposed rule also would require the State agency to notify the Department at least 30 days prior to establishing an assessment. Finally, the proposal would provide the Department and the State agency the authority to suspend or terminate the participation of an entity if the established assessment is not paid. This rule also proposes to amend the SAE regulations at § 235.11(c) to incorporate the Department’s authority to establish an assessment against a State agency, the violations for which an assessment would be established, and the monetary limits to which an assessment may be established. The proposed rule would expand the current criteria previously established in regulation for establishing an assessment to include the State’s failure to correct both State and local mismanagement of the program as a violation for which an assessment may be established. This reflects the State agencies’ responsibility for ensuring the proper administration of the programs at both the State and local level. As with program operators, this proposed rule would provide State agencies the ability to appeal any assessment established through the existing administrative review process for State agencies in § 235.11(g), would make the determination of the VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 Department review official in any appeal final and not subject to further administrative or judicial review, and would provide the authority for the Department to suspend or terminate the participation of the State agency if the State agency failed to pay the assessment. Finally, the proposed rule would require that all assessments and any interest charged would be collected and paid to the Department and transmitted to the U.S. Department of the Treasury. Funds received by and from the State agencies as a result of assessments must be paid from non-Federal sources. As such, the funds could not be used by the Department. Accordingly, proposed rule changes are found at §§ 210.18(q), 210.26(b), 215.15(b), 220.18(b), 225.13(a), 225.18(k), 226.6(k)(2)(xii), 226.25(i), and 235.11(c) and (g). Section 322 of the HHFKA: SFSP Disqualification Section 322 of the HHFKA amended section 13 of the NSLA (42 U.S.C. 1761) by adding a new paragraph (q), Termination and Disqualification of Participating Organizations. Under this new authority, State agencies are required to follow the procedures for the termination of participation of institutions in the SFSP established by the Secretary. The procedures for termination must include a provision for a fair hearing and prompt determination for any service institution aggrieved by any action of the State agency that affects the participation of the service institution in the SFSP or the claim of the service institution for reimbursement. The Secretary is required to maintain a list of institutions and individuals that have been terminated or otherwise disqualified from participation in the SFSP and to make the list available to States for use in approving or renewing applications by institutions for participation in the SFSP. Prior to enactment of the HHFKA, the Department and State agencies did not have the authority to disqualify SFSP sponsors. Current regulations at § 225.11(c) only provide authority to terminate sponsor participation. These regulations prohibit State agencies from entering into an agreement with any applicant sponsor, or allowing participation in the Program, of a sponsor that was seriously deficient in its operation of the SFSP, or any other Federal Child Nutrition Program. Additionally, State agencies are required to terminate the Program agreement with any sponsor determined to be seriously deficient and provide a PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 17567 sponsor reasonable opportunity to correct problems before termination. Current regulations indicate the types of serious deficiencies which are grounds for disapproval of an application or termination. Current regulations at § 225.11(f) require State agencies to terminate participation of sites or sponsors for failure to correct Program violations within timeframes specified in a corrective action plan. Additionally, participation of a site must be immediately terminated if there is an imminent threat to the health or safety of the participating children. Once terminated, claims for reimbursement may not be submitted. Under § 225.13, State agencies must afford sponsors the right to appeal termination and denial of an application for participation. This proposed rule would reorganize the current SFSP regulations, amend the current SFSP termination process, and establish a disqualification process similar to the process employed in the CACFP, with modifications reflecting the shorter duration of the SFSP. For example, the proposed maximum timeframe for which the corrective action plan may be implemented in SFSP is 10 days, whereas in the CACFP this maximum timeframe is 90 days. Because SFSP and CACFP are administered by the same State agency in many States, using similar procedures is expected to facilitate and streamline the implementation of the SFSP termination and disqualification process. Thus, the Department will develop a National Disqualified List (NDL) for SFSP that is modeled after the current CACFP NDL. The proposed rule makes a number of changes throughout the SFSP regulations in order to present a holistic approach to the termination and disqualification process. An overview of the proposed changes follows. The proposed rule would add the following definitions to § 225.2, Definitions. These definitions are generally consistent with those set forth in the CACFP regulations at § 226.2: • Administrative review means a fair hearing provided upon request to an entity that has been given notice by the State agency of any action that will affect their participation or reimbursement in the SFSP. • Administrative review official means the independent and impartial official who conducts the administrative review. • National disqualified list mean a list, maintained by the Department, of sponsors, responsible principals, and responsible individuals disqualified from participation in the SFSP. E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17568 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules • Responsible principal or responsible individual means a sponsor principal, any other individual employed by, or under contract with, a sponsor, or an individual not compensated by the sponsor, determined to be responsible for a sponsor’s serious deficiency. • Seriously deficient means the status of a sponsor that has been determined to be non-compliant in one or more aspects of its operation of the Program. • State agency list means a list maintained by the State agency, which includes a synopsis of information concerning seriously deficient sponsors and which must be updated throughout all stages of the termination and disqualification process. Maintaining a State agency list is a new requirement for State agencies under this proposed rule. Under current § 225.6(b), Approval of sponsor applications, paragraph (b)(9) prohibits the State agency from approving the application of any applicant sponsor that has been determined to be seriously deficient. However, the State agency may approve the application of a sponsor that has been disapproved or terminated in prior years if the applicant demonstrates to the satisfaction of the State agency that it has taken appropriate corrective actions to prevent recurrence of the deficiencies. This proposed rule would expand paragraph (b)(9) to require the State agency to develop policies and procedures to confirm that serious deficiencies have been fully and permanently corrected. This confirmation must address the circumstances that led to the serious deficiency, the responsible parties, the timeframe for corrective action, and policies and/or procedures that are in place to avoid recurrence of the serious deficiency within the same Program year or in subsequent Program years. Under current Program regulations at § 225.6(c), Content of sponsor application, paragraph (c)(1) establishes basic application requirements, and paragraph (c)(2)(ii) requires new sponsors and sponsors that have experienced significant operational problems in the prior year to include additional information in their application. This rule proposes to expand paragraph (c)(1) to require the application to include the following information: Full legal name; any previously used names; mailing address; and date of birth of the sponsor’s principals, which includes, but is not limited to, the Executive Director and Chairman of the Board of Directors; and the sponsor’s Federal Employer VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 Identification Numbers (FEIN) and/or the Dun and Bradstreet Data Universal Numbering System (DUNS) numbers. This information would be included in entries submitted by the State agency for placement on the SFSP NDL if the sponsor is terminated for cause. Limited access to the SFSP NDL would be granted to authorized State agency personnel tasked with decisions regarding application approvals or terminations from participation. However, FNS is particularly interested in comments regarding this proposed change and whether sponsors, in addition to State agencies, should also have limited access to the SFSP NDL. In addition the proposed rule would expand paragraph (c)(2)(ii) to require new sponsors and sponsors who have experienced problems in the prior year to submit a certification, similar to that which is required under the CACFP, that: • The information on the application, as required in paragraph (c)(1) is true and correct; • Serious deficiencies identified during the previous year have been fully and permanently corrected; • The sponsor, sites under its jurisdiction, or any responsible principals have not been terminated for cause from any Child Nutrition Program during the past seven years unless reinstated in, or determined eligible for, that program, including by the payment of any debts owed, or are not currently on the CACFP or the SFSP NDL; and • The sponsor, sites under its jurisdiction, or any responsible principals have not been convicted of any activity that occurred during the past seven years and that indicated a lack of business integrity. Current Program regulations at § 225.6(d), Approval of sites, identifies criteria State agencies must consider when approving sites for participation in the SFSP. This proposed rule would expand the criteria in paragraph (d) to specify that State agencies may not approve a site if the site or its responsible individuals are currently on the CACFP or the SFSP NDL or have been terminated for cause from the NSLP, SBP, or SMP. The proposed rule would make a number of revisions to § 225.11, including re-titling the section as Administrative actions for program violations, and reorganizing the provisions. Proposed § 225.11(c), List of serious deficiencies, would revise existing paragraph (c) to expand the list of serious deficiencies to include: • The submission of false information to the State agency, including PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 concealing criminal convictions, that occurred in the past seven years and that indicate a lack of business integrity; • A significant number of Program violations at a site; • Termination or disqualification from another Child Nutrition Program; and • Any action affecting a sponsor’s ability to administer the Program in accordance with Program requirements Additionally, proposed paragraph (c) would allow no more than 10 days for corrective action to be completed, unless otherwise approved by the Department. If the State agency cannot confirm that serious deficiencies have been fully and permanently corrected, in accordance with § 225.6(b)(9), the sponsor would be terminated. Current regulations do not specify a timeframe for corrective action and CACFP regulations allow for a timeframe of 90 days. However, given the short duration of SFSP, the Department determined a 10-day timeframe would best meet the needs of the SFSP in ensuring Program integrity. State agencies, institutions, and sites are encouraged to address the sufficiency of the proposed 10-day corrective action timeframe in their comments on the rule. Proposed § 225.11(d), Serious deficiency procedures, would identify the actions a State agency must take to declare an institution or individual seriously deficient. This proposed paragraph is new to the SFSP and is modeled after the CACFP serious deficiency notification procedures found at § 226.6(c)(1)(i), § 226.6(c)(1)(iii)(A), and § 226.6(c)(2)(iii)(A). Under the proposed rule, if an entity is seriously deficient, the State agency must declare it as such and send a notification of serious deficiency to the applicable parties. At the same time the notice is issued, the State agency would be required to add applicable parties to the State agency list, indicate that the notice of serious deficiency(ies) has(ve) been issued, include the basis for the serious deficiency determination, and provide a copy of the notice to the Department. Proposed § 225.11(d)(4) incorporates the required components of this notice. Proposed § 225.11(d)(5) addresses the proposed requirements for the State agency list. The State agency list, as discussed above, would include a synopsis of information concerning seriously deficient sponsors and would be updated throughout all stages of the termination and disqualification process. The requirement to maintain a State agency list is new to the SFSP and is modeled after the CACFP State agency list. As previously mentioned, E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules the term, State agency list, is defined in proposed § 225.2. Proposed § 225.11(e), Corrective action procedures, restates the provisions of existing § 225.11(f)(1), which require the sponsor to take corrective action for violations identified on a site review. The proposed rule expands the corrective action requirement for serious deficiencies requiring a longer-term revision of management systems, meaning actions that require a significant amount of time to ensure the serious deficiency is properly addressed. In such situations, the proposal would require the corrective action plan to identify serious deficiencies and a date by which corrective action must be completed and would clarify the State agency’s monitoring responsibility. At the same time, the State agency would be required to revise the State agency list to indicate that the corrective action plan has been submitted, and provide a copy of the plan to the Department. Proposed § 225.11(f), Successful corrective action, would identify the procedures a State agency must take if the serious deficiency is fully and permanently corrected. This proposed paragraph is new to SFSP and is modeled after the CACFP successful corrective action process found at § 226.6(c)(1)(iii)(B) and § 226.6(c)(2)(iii)(B). Under the proposed rule, the State agency would notify all affected parties that the State agency has accepted the corrective action. For those sponsors whose applications were denied, the State agency would afford a new or renewing sponsor the opportunity to resubmit its application. Under the proposed rule, if the State agency initially determines that the sponsor’s corrective action is complete, but later determines that the serious deficiency has recurred, the State agency would move immediately to issue a notice of termination and disqualification, which is similar to the process used in CACFP. However, FNS is particularly interested in comments regarding this proposed change and whether it would be more effective to provide the State agency with discretion to restart the serious deficiency process for recurring deficiencies when appropriate, rather than requiring immediate termination and disqualification. Proposed § 225.11(g), Termination procedures, would incorporate the termination procedures a State agency must take if the corrective action plan is not successfully completed. Proposed paragraph (g)(1) would require the State agency to terminate the sponsor’s VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 agreement if timely corrective action is not taken to fully and permanently correct the serious deficiency. This paragraph is new to SFSP and is modeled after the CACFP termination procedures. However, the SFSP process differs in that termination occurs immediately following failed corrective action, but includes an opportunity for administrative review. As noted above in discussing the distinctions between the Programs’ corrective action timeframes, the short duration of the SFSP dictates a more immediate need to protect Program integrity through quick resolution of an institution’s serious deficiencies or removal from SFSP. Proposed paragraphs (g)(2) through (g)(4) would restate existing SFSP provisions requiring the State agency to terminate a sponsor’s site if the sponsor fails to take corrective action noted in the State agency’s review report or if there is an imminent threat to the health and safety of the participating children, and to notify any food service management company providing meals to a site within 48 hours of a site’s termination. Proposed paragraphs (g)(5) and (g)(6) would require the State agency to terminate an institution’s agreement if the Department or another State determines the institution to be seriously deficient and subsequently disqualifies the institution in this Program or any other Child Nutrition Program. Section 362 of the HHFKA amended section 12 of the NSLA (42 U.S.C. 1760) to prohibit any school, institution, service institution, facility, or individual that has been terminated from any Child Nutrition Program from participating in or administering any Child Nutrition Program. This provision requires expanded access to the CACFP or SFSP NDL allowing State agencies to conduct oversight of sections 322 and 362 of the HHFKA. Under proposed paragraph (g)(7), the State agency must notify all affected parties that the State agency has terminated the sponsor’s agreement or participation of the sponsor’s site. The notice would include the procedures for seeking an administrative review of the State agency’s decision. Proposed § 225.11(h), Disqualification procedures, would identify the disqualification procedures a State agency must take in the event that the time to request an administrative review expires or when the administrative review official upholds the State agency’s decision. Under the proposed rule, the State agency must notify all affected parties who have been disqualified. At the same time the notice of disqualification is PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 17569 issued, the State agency must update the State agency list and provide a copy of the notice and related information to FNS. If the State agency does not administer all the Child Nutrition Programs, the State agency must notify the State agency administering the other programs of the disqualification. The proposed rule would also require State agencies to develop a process to notify WIC State agencies of entities or individuals terminated for cause or disqualified. These proposed actions are new to SFSP and are modeled after the CACFP agreement termination and disqualification procedures found at § 226.6(c)(1)(iii)(E) and § 226.6(c)(2)(iii)(E). Proposed § 225.11(i), National disqualified list, would reference the authority of the Department to maintain an NDL and make the list available to all State agencies. This proposed paragraph is new to the SFSP and is modeled after the CACFP NDL requirements found at § 226.6(c)(7). Once placed on the SFSP NDL, an entity or individual may not participate in any of the Child Nutrition Programs in any capacity. The entity or individual must remain on the list until the Department, in consultation with the State agency, determines that the entity or individual is no longer seriously deficient, or until seven years have elapsed since the disqualification, provided all debts owed have been paid. The Department also is proposing to amend § 225.13, Appeal Procedures, to include the opportunity to appeal the termination of a sponsor’s agreement and any other action of the State agency affecting a sponsor’s participation, or its claim for reimbursement. Proposed § 225.13(e) would require State agencies to provide its administrative review procedures to sponsors annually and upon request. Under this proposal, upon termination, sponsors would be provided an opportunity to request an administrative review. However, disqualification from the Program would not be subject to appeal. Although current regulations at § 225.13(b)(1) allow sponsors to continue operation during an appeal of termination, unlike the procedures in CACFP, sponsors are not eligible for continued reimbursement during this period. This modification is necessary due to the short duration of the SFSP. If the termination is ultimately upheld upon review, the sponsor and responsible individuals would be disqualified; if the termination is overturned, the sponsor would be eligible for reimbursement for properly documented meals served during the review period, unless the termination E:\FR\FM\29MRP2.SGM 29MRP2 17570 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 was based on imminent danger to the health or safety of children. Accordingly, the proposed rule changes are found at §§ 225.2, 225.6(b), 225.6(c)(2)(ii)(E), 225.6(c)(2)(ii)(D), 225.6(d), 225.11, 225.13(a), 225.13(e), and 225.18(b). Section 331(a) and 321 of the HHFKA: Termination of Operating Agreements in CACFP and SFSP Section 331(a) of the HHFKA amended section 17(d)(1) of the NSLA (42 U.S.C.1766(d)(1)) to require all institutions that meet the conditions of eligibility for participation in the CACFP to enter into permanent agreements with the respective State agency. Previously this was not a requirement, but only an option for State agencies. Similarly, section 321 of the HHFKA amended section 13(b) of the NSLA (42 U.S.C. 1761(b)) to require institutions that meet the conditions of eligibility for participation in the SFSP to enter into permanent agreements with the applicable State agency. State agencies were advised of the section 331(a) and section 321 requirements for permanent operating agreements in a memorandum issued January 14, 2011, Child Nutrition Reauthorization 2010: Permanent Agreements in the Summer Food Service Program and the Child and Adult Care Food Program (CACFP 07–2011 and SFSP 03–2011). Section 331(a) and section 321 allow State agencies and institutions which enter into permanent agreements in either the CACFP or SFSP to terminate a permanent agreement for convenience. As a result, either party to the permanent agreement may terminate the agreement for considerations unrelated to the institution’s performance of program responsibilities under the agreement. In addition, sections 331(a) and 321 require State agencies to (1) terminate the permanent agreement for cause; or (2) terminate the permanent agreement when an institution’s participation in the program ends. To effect the changes required by section 331(a) in CACFP, the proposed rule would revise § 226.6(b)(4) to require State agencies to: (1) Terminate an institution’s agreement whenever an institution’s participation in the Program ends; and (2) terminate the agreement for cause in accordance with CACFP regulations. In addition, the proposed rule would allow the State agency or institution to terminate the agreement at the convenience of the State agency for considerations unrelated to the institution’s performance of Program responsibilities under the agreement. Examples of termination for convenience include a VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 State agency’s inability to effectively monitor a remote location or an institution’s desire to self-terminate. No change is made to current regulations prohibiting termination for convenience once an entity has been declared seriously deficient and corrective action has not been completed and approved. The proposal also would amend the CACFP definition of Termination for convenience in § 226.2. As currently defined, Termination for convenience means termination of a day care home’s Program agreement by either the sponsoring organization or the day care home, due to considerations unrelated to either party’s performance of Program responsibilities under the agreement. Under the proposed rule, the definition would be expanded to include agreements between the State agency and an institution, and a sponsoring organization and an unaffiliated center. This change is intended to reflect sections 331(a) and (c) of the HHFKA, which require permanent operating agreements between State agencies and institutions and between sponsoring organizations and sponsored centers. The proposed rule also would amend SFSP regulations at § 225.6(e) to incorporate changes related to termination for cause and end of Program activity in the SFSP comparable to those discussed above for the CACFP. Because the SFSP regulations currently do not include a definition of Termination for convenience, no changes are made to the SFSP definitions. Accordingly, the proposed rule changes are found at §§ 225.2, 225.6(b)(4) and 225.6(c). Section 331(b) of the HHFKA: State Agency Sponsor Review Requirements in the CACFP Section 331(b) of the HHFKA amended section 17(d) of the NSLA (42 U.S.C. 1766(d)) to direct the Department to develop a policy for required reviews of institutions in the CACFP. As directed by the statute, each State agency must conduct: (1) At least one scheduled site visit at not less than 3year intervals to each institution to identify and prevent management deficiencies and fraud and abuse under the Program and to improve Program operations; and (2) more frequent reviews of any institution that sponsors a significant share of facilities participating in the Program, conducts activities other than the CACFP, has serious management problems as identified in a prior review, is at risk of having serious management problems, or meets such other criteria as are defined by the Department. PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 Current regulations at § 226.6(m)(6) require State agencies to annually review at least 33.3 percent of all institutions participating in the CACFP in each State. Institutions with 1 to 100 facilities must be reviewed at least once every three years. Institutions with more than 100 facilities must be reviewed at least once every two years. New institutions with five or more facilities must be reviewed within the first 90 days of operation. This proposed rule would amend § 226.6(m)(6) to modify the review requirements for institutions that must be reviewed at least every two years. In addition to reviewing institutions with more than 100 facilities as currently required, the proposal also would require the State agency to review, at least every 2 years, institutions with 1 to 100 facilities that conduct activities other than CACFP, and institutions that have been identified during a previous review as having serious management problems, or that are at risk of having serious management problems. Institutions that conduct activities other than CACFP with more than 100 facilities are currently reviewed at least once every two years; therefore, the proposed rule would not alter the review requirement for these institutions. Examples of criteria to be considered as posing a risk of serious management problems include: Change in ownership or significant staff turnover; change in licensing status; complaints received by facilities, day care providers, or participants; significant change in the number of claims submitted; or significant increase in the number of sponsored facilities or day care homes. The composition of institutions varies throughout each State, therefore, determining the burden placed on State agencies by requiring more frequent reviews of institutions is difficult to predict. The Department asks for comments regarding the effect this proposed rule will have with respect to the frequency and number of reviews the State agency would be required to administer. Accordingly, the proposed rule changes are found at § 226.6(m)(6). Section 332 of the HHFKA: State Liability for Payments to Aggrieved Child Care Institutions Section 17(e) of the NSLA (42 U.S.C. 1766(e)) requires State agencies to provide an opportunity for a fair hearing and a prompt determination to any institution aggrieved by any action by the State agency that affects either the participation of the institution in the CACFP or the claim of the institution for reimbursement in the CACFP. E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules Section 332 of the HHFKA amended section 17(e) of the NSLA (42 U.S.C. 1766(e)) to require State agencies failing to meet required timeframes in providing a fair hearing and a prompt determination to pay all valid claims for reimbursement to the appellant institution and the facilities of the institution, using funds from nonFederal sources. The State’s liability for these claims begins on the day after the end of any regulatory deadline for providing the opportunity for a fair hearing and making the determination, and ending on the date on which a hearing determination is made. Section 332 directs the Department to provide written notice of this liability to a State agency at least 30 days prior to the imposition of any liability for reimbursement. Current regulations at § 226.6(k)(5)(ix) specify the procedures for administrative reviews in CACFP. Under those procedures, State agencies must acknowledge the receipt of the request for an administrative review within 10 days of its receipt of the request. Within 60 days of the State agency’s receipt of the request for an administrative review, the administrative review official must inform the State agency, the institution’s executive director and chairman of the board of directors, and the responsible principals and responsible individuals of the administrative review’s outcome. Current regulations at § 226.6(c)(3)(iii)(E)(5) specify that all valid claims for reimbursement must be paid to the institution and the facilities of the institution while under administrative review unless the State or local health or licensing officials have cited an institution for serious health or safety violations. This proposed rule would make no changes to the existing administrative review procedures or timeframes. However, the proposed rule at § 226.6(k)(5)(ii) would require the State agency to provide a copy of the written request for an administrative review, including the date of receipt of the request, to the Department within 10 days of receipt of the request. This information would allow the Department to track State agency progress and timeliness in meeting the required administrative review timeframe. The proposed rule at § 226.6(k)(5)(ix) would inform State agencies failing to meet the required timeframe for providing a fair hearing and a prompt determination of their liability to pay all valid claims for reimbursement to the institution. Under § 226.6(k)(11) of the proposal, a State agency that fails to VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 meet the 60-day timeframe set forth in paragraph (k)(5)(ix) would pay all valid claims for reimbursement to the institution during the period beginning on the 61st day and ending on the date on which the hearing determination is made. The Department would notify the State agency of its liability for all valid claims for reimbursement to an aggrieved institution(s) at least 30 days prior to imposing any liability. Liability for reimbursement would begin 61 days following the State agency’s receipt of a request for an administrative review and end on the date on which a hearing determination is made. During this period, the State agency would be required to pay from non-Federal sources all valid claims for reimbursement to the aggrieved institution. The Department expects State agencies to assess the validity of such claims using the same standards used to review all claims for reimbursement. The Department would monitor the approval and payment of such claims during management evaluations to ensure State agencies act in good faith when assessing the validity of claims once State liability is imposed. This proposed requirement is expected to improve State compliance with the required timeframes for fair hearings, thus improving the stewardship of Federal funds. During fiscal years 2010 and 2011, the Department conducted CACFP Targeted Management Evaluations (TMEs) of State agencies administering the CACFP to identify patterns of regulatory noncompliance with the serious deficiency process. For the 10 most recent appeals of a Notice of Proposed Termination, State agencies were asked to determine the average number of days elapsed between the State agency’s receipt of an institution’s request and the date of the administrative review official’s decision. Of the 21 State agencies for which TMEs were completed in FY 2010 and for which appeal data was provided, on average, 9 completed the administrative review process within the required 60 days; 13 within 90 days; and 14 within 120 days. In some instances, the date on which a hearing determination was made was hundreds of days after receipt of the State agency’s request for an administrative review, resulting in appellants continuing to earn Federal reimbursement for long after the required 60-day review period had elapsed. Shifting the responsibility to State agencies for payments to aggrieved child care institutions is expected to serve as a deterrent to those State agencies that have habitually failed to meet the required timeframes. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 17571 The Department considered changing the 60-day timeframe currently set forth in § 226.6(k)(5)(ix) to alleviate any burden State agencies may face as a result of financial and/or administrative challenges. However, the 60-day timeframe is intended to provide those seeking administrative review with a prompt determination while protecting the use of Federal funds against noncompliant entities. The TME findings do not provide a clear resolution to meeting these counterbalancing priorities. Thus, the Department is requesting comments on the 60-day timeframe and any modification which would meet State needs without compromising the need for a timely decision for the appellant and maintaining CACFP integrity. Finally, the proposed rule at § 226.6(k)(11)(ii) would afford a State agency the opportunity to seek a reduction or reconsideration of its liability by submitting to the Department information concerning the State’s liability for reimbursement to an aggrieved institution, including information regarding any mitigating circumstances. The Department recognizes the financial implications for State agencies resulting from implementation of this proposed rule and will assist State agencies’ efforts to ensure their administrative review structures meet the required timeframes. The Department also recognizes that many State agencies are experiencing difficult fiscal circumstances. The Department will work with the State agencies to establish milestones to implement this provision and minimize potential financial burdens. The Department encourages State agency commenters to address the financial implications of this proposed rule as related to their State and suggest appropriate milestones the Department could require of State agencies during implementation. Accordingly, the proposed rule changes are found at §§ 226.6(k)(5)(ii), 226.6(k)(5)(ix) and 226.6(k)(11). Section 335 of the HHFKA: CACFP Audit Funding Section 17(i) of the NSLA (42 U.S.C. 1766(i)) authorizes the Secretary to provide funds to each CACFP State agency to conduct audits of participating institutions. Each fiscal year, each State agency receives up to 1.5 percent of the funds used by the State in the Program during the second preceding fiscal year for this purpose. Section 335 of the HHFKA amended section 17(i) of the NSLA, 42 U.S.C. 1766(i), to allow the Department to E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17572 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules make available, for each fiscal year beginning 2016 (i.e., October 1, 2015), and each fiscal year thereafter, additional funding for a total of up to 2 percent of the funds used by each State agency in the Program during the second preceding year, if the State agency can effectively use the funds to improve Program management under criteria established by the Department. This provision is expected to allow for better Program management and improve the integrity of the CACFP. Program integrity audits are an integral component of the CACFP, allowing State agencies to monitor Program funding and operations to ensure that providers and sponsors are operating the Program in accordance with the law. In accordance with the NSLA, current regulations at § 226.4(j) require funds be made available for the expense of conducting audits and reviews to each State agency in an amount equal to 1.5 percent of the Program reimbursement provided to institutions within the State. Additionally, the amount of assistance provided to a State agency for this purpose in any fiscal year may not exceed the State’s expenditures for conducting audits as permitted under § 226.8 during such fiscal year. To effect the changes envisioned by section 335, the Department proposes to amend § 226.4(j), Audit funds, by making minor technical changes to existing language and including the opportunity for State agencies, beginning in fiscal year 2016 and each fiscal year thereafter, to request an increase in the amount of audit funds. The technical changes correct the misuse of the phrase ‘Program reimbursement provided to institutions’ in reference to the Program funds used to conduct audits. This proposed change is consistent with section 17(i) of the NSLA (42 U.S.C. 1766(i)) and does not alter the current formula used to calculate audit funds. The proposed rule would also require approval by the Department for increased funding. Such approval would be based on criteria related to the State agency’s ability to effectively use the funds to improve Program management. Additionally, the proposed rule would limit the total amount of audit funds made available to a State agency to 2 percent of Program funds used by the State during the second fiscal year preceding the fiscal year for which the funds are made available. The proposed rule would allow State agencies to submit a request for an increase in the amount of audit funds. The Department’s approval will be VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 based on criteria related to the effective use of funds to improve program management. The Department expects this criteria to include a description of the additional audit and other allowable activity (e.g., additional review activity) the State agency would conduct. The Department expects this process to be similar to the process currently used for reallocation of State administrative funds. Section 362 of the HHFKA: Disqualified Schools, Institutions, and Individuals Section 362 of the HHFKA amended section 12 of the NSLA (42 U.S.C. 1760) to prohibit any school, institution, service institution, facility, or individual that has been terminated from any Child Nutrition Program (i.e., the NSLP, SMP, SBP, SFSP, and CACFP), and that is on the CACFP and SFSP NDL, from being approved to participate in or administer any Child Nutrition Program. This provision is expected to protect program integrity and federal funds since entities that have been terminated or disqualified from one Child Nutrition Program will be prevented from participating in all of the Department’s Child Nutrition Programs. In assessing implementation of section 362, the Department determined the need to clarify three areas. First, section 362 prohibits approval of schools, institutions, service institutions, facilities, and individuals which have been terminated or disqualified from any Child Nutrition Program. However, additional types of entities participate in the Child Nutrition Programs. The Department concluded, then, that the prohibition in section 362 is not limited to those identified entities, but extends to all entities which participate in the Child Nutrition Programs in similar capacities. This furthers the intended effect of section 362, which is to prevent an entity terminated or disqualified from one Child Nutrition Program from participating in another Child Nutrition Program. Thus, the rule also would apply to school food authorities, child care institutions, sponsoring organizations, sites, day care centers, and day care homes which participate in the Child Nutrition Programs. This provision only applies to the entities authorized to participate in the Child Nutrition Programs. Entities administering the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) (or to the WIC Farmers’ Market Nutrition Program) under section 17 of the Child Nutrition Act of 1966 are referred to as ‘‘local agencies.’’ Because section 362 does not PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 include the term ‘‘local agencies,’’ the Department determined that this provision does not apply to the WIC Program, but State agencies must notify WIC State agencies of entities disqualified from participation in any Child Nutrition Program so WIC State agencies may look into potential threats to WIC Program integrity. Finally, the Department also determined that the term ‘‘individuals’’ refers to responsible principals or responsible individuals, and not individuals receiving nutrition assistance benefits under the Child Nutrition Programs. Second, section 362 identifies ‘‘termination’’ from a Child Nutrition Program as a criterion which results in ineligibility for participation in or administration of any Child Nutrition Program. However, as discussed later in this preamble, two types of termination may be invoked in CACFP. One type is termination for convenience which is not performance based, and can be used by either party. The Department determined that termination for convenience does not warrant disqualification from other Child Nutrition Programs because it is not based on failure to administer the Program. The second type of termination is termination for cause, based on failure to properly administer the program or otherwise perform pursuant to the agreement. Upon review, Department concluded that ‘‘termination’’ in section 362 refers to termination for cause. Third, section 362 prohibits a State agency from approving for participation in or administration of the Child Nutrition Programs, any entity terminated from a Child Nutrition Program and appearing on the CACFP NDL or SFSP NDL. In practice, the NSLP, SMP, and SBP currently do not maintain or refer to an NDL. It is possible that school food authorities which also participate in CACFP would appear on the CACFP NDL. In the future and pursuant to section 322 as discussed earlier, a school food authority terminated from SFSP participation would be added to that Program’s NDL. The Department concluded that in order to fully implement the intent of Congress to protect integrity of all Child Nutrition Programs as expressed in section 362, the implementation of the provision should be read more broadly to prohibit participation in or administration of any Child Nutrition Program. For these reasons, the proposed rule would prohibit an entity’s participation if it meets either criterion. In other words, the State agency may not approve any entity terminated from a E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules Child Nutrition Program or any entity appearing on the CACFP or SFSP NDL for participation in or administration of any Child Nutrition Program. The Department encourages commenters to address this proposed interpretation. Thus, this proposed rule amends the regulations for the NSLP, SMP, SBP, and SFSP to prohibit a State agency from approving any school, school food authority, institution, service institution, facility, individual, sponsoring organization, site, child care institution, day care center, or day care home from participating in or administering the Program if the entity or its officials: (1) Have been terminated for cause from any Child Nutrition Program; or (2) are currently listed on the CACFP NDL or SFSP NDL. Current regulations for CACFP address the duration of ineligibility. Under § 226.6(b)(1)(xiii), an entity remains included on the CACFP NDL and thus ineligible to participate in CACFP, until the State agency, in consultation with the Department, determines that the deficiency(ies) that resulted in the ineligible status has(ve) been corrected, or seven years have passed. In all cases, all debts owed must be repaid prior to removal from the CACFP NDL. State agencies are required to consult the CACFP NDL when reviewing any entity’s new or renewal application, and to deny the entity’s application if either the entity, or any of its principals, is on the CACFP NDL. The proposed rule would adopt the CACFP approach to limiting the duration of ineligibility. Under this proposed rule, the State agency’s decision not to approve an entity to participate in or administer a program based on the entity’s termination for cause from a Child Nutrition Program or placement on the CACFP NDL or SFSP NDL is final and not subject to further administrative or judicial review. This rule also proposes that for entities currently administering a program, the State agency must use procedures currently specified in regulations to suspend or terminate participation if it is discovered that the entity was terminated for cause from another Child Nutrition Program. Finally, the proposed rule would require State agencies to develop a process to share information about entities and individuals no longer eligible to administer or participate in the programs within the State. The process must be approved by the Department and must ensure the State agency works closely with any other State agency administering a Child Nutrition Program to ensure information is shared on a timely basis. The VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 proposed rule would also require State agencies to develop a process to notify WIC State agencies of the entities’ or individuals’ termination for cause, since they might be associated with the WIC Program. The Department has chosen to allow State agencies to develop their own process due to the different organizational structures of each State. CACFP and SFSP State agencies will be required to develop a process to share information on entities and individuals terminated or disqualified with other Child Nutrition Programs if such a process is not presently in place. Under § 226.6(b)(1)(xiii), Program participation is prohibited when the institution or any of its principals have been declared ineligible for any other publically funded program by reason of violation that program’s requirements. Therefore, the Department expects CACFP State agencies to currently have such process in place. To avoid duplicative efforts and streamline efforts, the Department expects to utilize the database currently used to maintain the NDL by the Department for the CACFP for the SFSP NDL. The Department requests comments on this requirement, specifically the process State agencies may propose to share information, and the potential obstacles or burdens a State agency may face. The Department also asks for comments on the extent to which State agency access to the NDLs would have to be expanded under these proposed requirements. Accordingly, the proposed rule changes are found at §§ 210.9(d), 215.7(g), 220.7(h), 225.6(b)(12), 225.6(c)(2)(ii)(E)(3), 225.6(d)(1)(v), 225.6(e), 225.11(c)(5), 225.11(h)(2), 225.14(c)(3), 225.14(c)(4), and 226.6(b)(1)(xiii). Serious Deficiency and Termination Procedures for Sponsored Centers in the CACFP This proposed rule also amends current CACFP regulations, to make a corresponding change as a result of the intended effect of section 362. The provision explicitly prohibits entities terminated or disqualified from one Child Nutrition Program from being approved to participate in or administer any Child Nutrition Program. Approval or participation of seriously deficient sponsored child or adult day care center, then, would be contrary to the intent of that provision. In order to implement section 362, this proposed rule would create serious deficiency, termination, and disqualification procedures which are essential to meeting the intent of statute. PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 17573 Current CACFP regulations at § 226.6 include serious deficiency, termination, and disqualification procedures for sponsored day care homes, but not sponsored centers. There are two types of sponsored centers, affiliated and unaffiliated. Unlike affiliated centers, unaffiliated centers are not part of the same legal entity as the sponsoring organization responsible for administration of the CACFP. Currently, if an unaffiliated center is seriously deficient in the operation of the Program, it is the sponsor which a State agency would declare seriously deficient. In practice, it is the responsibility of the sponsor to complete the corrective action plan, and it is the sponsor that will ultimately be terminated and disqualified from the Program if the serious deficiency is not corrected. Additionally, current regulations permit the sponsor to simply end its association with a seriously deficient unaffiliated center, rather than implementing corrective action to eliminate the serious deficiency and come into compliance with Program regulations. Therefore, under current regulations, it is possible for a problematic unaffiliated center that has been removed from the CACFP to participate in the Program under another sponsor, or in another Child Nutrition Program, without the knowledge of the State agency that a serious management deficiency exists in that facility. The Department has identified CACFP integrity issues arising from the inability to declare unaffiliated centers as seriously deficient and to terminate and disqualify the centers from CACFP participation. Currently, problematic unaffiliated centers and operators of those centers are not disqualified from participation if they are found to be in violation of Program requirements. Rather they may terminate their participation voluntarily and seek to participate in the Program under another sponsoring organization, putting Program integrity at risk. This proposed rule would establish serious deficiency, termination, and disqualification procedures for unaffiliated sponsored centers consistent with the procedures established for day care homes in current regulations. Specifically, the Department proposes to amend § 226.2, Definitions, to require inclusion of unaffiliated centers and the full legal name and any other names previously used of entities on the State agency list. The Department proposed to add the definition of Sponsored Center in a separate proposed rule published April 9, 2012, in the Federal Register (77 FR E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17574 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules 21018), Child and Adult Care Food Program: Amendments Related to the Healthy, Hunger-Free Kids Act of 2010. Under that proposal, Sponsored Center is defined to mean a center that operates the Program under the auspices of a sponsoring organization and is categorized as either an affiliated or unaffiliated center. Unaffiliated centers would be entities required to have permanent agreements with their sponsoring organization, as they are legally distinct from the sponsoring organizations, unlike affiliated centers that are part of the same legal entity. Under § 226.6(c)(3)(ii)(R), State agencies would be required to declare sponsoring organizations seriously deficient if they fail to properly implement the termination and administrative procedures required in the Program. If an institution does not properly oversee the participation of their unaffiliated centers, they could be declared seriously deficient by the State agency or the Department. Under this proposed rule, throughout the disqualification process as specified in § 226.6(c)(7) and § 226.6(c)(8), where day care homes are referenced, unaffiliated centers are also included in the requirement. The request for removal of a day care home, unaffiliated center, or responsible principal and responsible individual from the CACFP NDL must be made by the State agency, with concurrence by the Department. The Department’s concurrence is necessary to ensure the serious deficiencies no longer exist prior to removal. Under this rule, the administrative review process would be amended at § 226.6(l) and § 226.6(m) to include unaffiliated centers. The Department proposes to allow State agencies to make different elections with regard to who offers the administrative review, either the State agency or the sponsoring organization, to day care homes and unaffiliated centers. The Department anticipates that while a State agency may prefer the sponsoring organization offer administrative reviews to day care homes, the State agency may choose to offer administrative reviews to unaffiliated centers. Under this proposed rule, § 226.16, Sponsoring organization provisions, would be amended to include unaffiliated centers wherever day care homes are referenced, as applicable. Additionally, § 226.16(l)(2) would be amended by adding specific serious deficiencies applicable for unaffiliated centers only. Serious deficiency procedures for sponsoring organizations are also amended under this proposed rule to include unaffiliated centers, VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 applying the same requirements to day care homes and unaffiliated centers, where applicable. A technical change was made under the proposed rule in § 226.2 to the definition of ‘Facility’ by removing the word ‘family’ to correct the meaning of facility as sponsored center or day care home. Accordingly, the proposed rule changes are found at §§ 226.2, 226.6(c)(2)(ii)(H), 226.6(c)(3)(ii)(R), 226.6(c)(7), 226.6(c)(8), 226.6(l), 226.6(m)(3)(ix), 226.16(b), 226.16(c), 226.16(d), and 226.16(l). Miscellaneous Provisions Elimination of Cost-Reimbursement Contracts Current Program regulations at 7 CFR 210.16(c) prohibit contracts which permit all income and expenses to accrue to the food service management company, ‘‘cost-plus-a-percentage-ofcost’’ contracts, and ‘‘cost-plus-apercentage-of-income’’ contracts. School food authorities are currently permitted to use two types of contracts when procuring Program goods and services. Contracts that provide for fixed fees, commonly referred to as ‘fixed price contracts,’ are those that provide for management fees established on a per meal basis. Cost-reimbursable contracts, an alternative to fixed price contracts, are those that provide for payment of allowable incurred costs. Unlike fixed price contracts, cost-reimbursable contracts require the return of rebates, discounts and credits on all costs from the food service management company to the school food authority. During management evaluations, FNS has observed that non-compliant costreimbursable contracts are becoming more common. Since 2002, the Department’s OIG has conducted various reviews of the effectiveness of Federal and State oversight and monitoring of school food authority contracts with food service management companies (FSMCs). These OIG reports, entitled ‘‘National School Lunch Program—Food Service Management Company Contracts’’ published January 2013, ‘‘National School Lunch Program CostReimbursable Contracts with a Food Service Management Company’’ published December 2005, and ‘‘National School Lunch Program Food Service Management Companies’’ published April 2002, identified compliance problems associated with procurements at the local level. OIG identified some instances where school food authorities were not receiving (1) purchase discounts and rebates in full PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 and/or (2) the proper value of USDA foods returned to their nonprofit food service account. For the most part, OIG concluded that the instances arose from problematic language in costreimbursement contracts between FSMCs and local school food authorities. FNS has attempted to resolve such issues by requiring State agencies to review contracts prior to execution by school food authorities per Program regulations at 7 CFR 210.19(a)(5). Further efforts have been made by FNS to educate State agencies and school food authorities through trainings on procurement standards using national conferences, and stakeholder meetings. Likewise, Regional offices have offered additional trainings to State agency staff. FNS has also provided technical assistance during management evaluations, reviewed State agency prototype solicitations and contracts, if available; assisted on administrative reviews to assess school food authority contracts and monitoring of contractor performance; and developed tools to assist State agencies when reviewing and approving school food authority contracts with FSMCs. This proposal is the next step in ensuring the oversight and monitoring of school food authority contracts with FSMCs. All school food authorities, including sub grantees, must follow applicable Federal procurement regulations when entering into agreements to purchase products and services under the NSLP. However, in evaluating State agency oversight of FSMC contracts, during agency compliance reviews and with information provided by OIG audits and investigations, FNS determined that many school food authorities with FSMC cost-reimbursable contracts are engaged in practices that weaken the competitive procurement process. The most prevalent area of non-compliance found in FSMC cost-reimbursable contracts is the failure to return the value of discounts, rebates, and credits to the nonprofit food service account. This loss represents millions of dollars for school food authority nonprofit food service accounts annually. FNS has determined that it is too complex and burdensome for school food authority staff to consistently and effectively ensure compliance with program requirements across all costreimbursable contracts. State agencies have expressed a lack of expertise and the magnitude of monitoring transactions at this level is unduly burdensome and growing. Increasingly, school food authorities are moving from self-operated programs to contracting E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules operations with a FSMC. As a result of State agency challenges, FNS has published guidance for school food authorities on considerations before contracting the operation with a FSMC and on the benefits and burdens of fixed-price contracts and costreimbursable contracts. FNS has conducted trainings on this guidance for State agencies and made presentations at stakeholder national conferences, provided technical assistance during management evaluations, assisted State agencies on administrative reviews of school food authorities and developed review tools to assist State agencies with oversight. Additionally, FNS has engaged many stakeholders (industry, State Agencies, school food authorities, GAO, and OIG) in discussion on how to best address these concerns. Despite FNS’s technical assistance, training, and guidance, State agencies continue to report challenges, which are costly to school food authority nonprofit food service accounts. Based on FNS’ engagements, requiring fixed price contracts is the next logical step in protecting and strengthening Program integrity. This rule proposes to amend § 210.16(c) to eliminate costreimbursable contracts as a type of food service management company contract school food authorities may use in the NSLP. This rule proposes to require the use of only fixed-price contracts, such as contracts that provide per meal and/ or management fees established on a per meal basis, either with or without economic price adjustments tied to a standard index. In solicitations seeking and resulting in a fixed-price contract, contractors respond with bids/proposals that have already taken discounts, rebates and other credits into consideration when formulating their final bid prices; this holds true for any fixed-fee component of a costreimbursable contract. Current Program regulations at 7 CFR 210.16(a)(10) require school food authorities who employ a FSMC in the operation of its nonprofit school food service to ensure that the State agency has reviewed and approved the contract terms. However, current Program regulations at 7 CFR 210.19(a)(5) require each State agency to annually review, not approve, each contract and contract amendment between any school food authority and FSMC to ensure compliance with all the provisions and standards before the execution of the contract by either party. This rule also proposes to amend and align 7 CFR 210.19(a)(5) with the requirements in 7 CFR 210.16(a)(10) to require each State agency to annually review, and now VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 also approve, each contract and contract amendment between any school food authority and food service management company. Requiring approval will serve to strengthen oversight of compliance with all the provisions and standards before the execution of the contract by either party. State agencies, institutions, and FSMCs are encouraged to address the elimination of cost-reimbursable contracts as a type of food service management company contract school food authorities may use in the NSLP in their comments on the rule. Accordingly, the proposed rule changes are found at § 210.16 and § 210.19(a)(5). Annual Procurement Training in NSLP This rule also proposes to incorporate recommendations made by the Department of Agriculture’s Office of Inspector General (OIG) audit report entitled ‘‘National School Lunch Program-Food Service Management Company Contracts’’ (Audit). Specifically, the audit found risk of misuse of Federal funds due to difficulties experienced by State agencies and school food authorities enforcing contractual terms and regulatory procurement requirements. Therefore, this rule proposes that a portion of the professional standards required for school nutrition programs include procurement training specifically for personnel tasked with this key area. Further, such training must be documented. Currently, regulatory requirements related to program operations training are found in the professional standards requirements for the NSLP. The Department issued a memorandum on February 12, 2013, strongly encouraging periodic training for State agency and school food authority staff tasked with procurement responsibilities. See Guidance Reaffirming the Requirement that State agencies and School Food Authorities Periodically Review Food Service Management Company Cost Reimbursable Contracts and Contracts Associated with USDA Foods (SP 23– 2013), http://www.fns.usda.gov/ guidance-reaffirming-requirement-stateagencies-and-school-food-authoritiesperiodically-review-food. Given that the Audit, as well as the Department’s own monitoring activities, determined that program integrity may be at risk, it is necessary to specifically require training to ensure that all relevant staff are aware of procurement requirements. Under such a requirement, State agency and school food authority staff annually would gain knowledge of procurement requirements for implementation at the State and local level. PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 17575 This proposed rule would require State agency and school food authority staff tasked with procurement responsibilities to successfully complete procurement training annually. The Department expects State agencies to ensure required training includes applicable State and Federal procurement requirements as found in existing statutes and regulations. This requirement may be met at the discretion of the State agency through a variety of methods, including using State developed procurement training or trainings on the aforementioned procurement areas developed by other expert organizations such as the USDA web-based procurement training offered by the National Food Service Management Institute, available at no cost (http://www.nfsmi.org/Templates/ TemplateDefault.aspx?qs= cElEPTEzNQ). State agencies and school food authorities would be required to maintain documentation of compliance with this provision. Accordingly, the proposed rule changes are found at § 210.15(b)(8), § 210.20(b)(16), and § 210.21(h). Financial Reviews of Sponsors in the CACFP Through TMEs of State agencies conducted by the Department in fiscal years 2010 and 2011 and previous management evaluations, it was determined that misuse of funds was often an indicator of a sponsoring organization’s systemic Program abuse. It was also determined that financial reviews of sponsors conducted by State agencies could be improved to better detect and prevent the misuse of funds. Current regulations at § 226.7(g) require State agencies to approve sponsors’ budgets and assess sponsors’ compliance with Program requirements, including ensuring that Program funds are used only for allowable expenses. Currently, the process by which sponsor compliance with CACFP financial rules is assessed is left to the discretion of the State agency, consistent with Program regulations. Thorough reviews of sponsor financial records are vital in ensuring Program integrity. The Department found that the financial reviews conducted by State agencies were inconsistent with federal regulations and often lacked focus on a sponsor’s CACFP bank account activity, but rather focused on matching the sponsors’ representation of their expenses to supporting documents. This often resulted in other suspicious transactions on a sponsor’s CACFP bank account to be left unnoticed if supporting documents presented were valid. E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17576 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules Currently federal regulations do not require sponsors to fully account for their expenditure of CACFP funds. A sponsor may use funds for both allowable and unallowable expenditures, but provide a State agency reviewer with receipts for only the allowable costs to support Program administration. It is possible for the amount of the allowable expenditures to appear reasonable to a State reviewer if the expenditures match the approximations made in the sponsor’s approved budget for that fiscal year. However, a reviewer is only required to confirm support for the receipts provided by the sponsor and thus may never be provided with or become aware of the sponsor’s unallowable expenditures. Also, the State agency’s current ability to monitor sponsors’ use of CACFP funds is limited. While sponsors must submit annual budgets for State agency approval, which must detail the project expenditures by cost category, sponsors are not required to report actual expenditures. Requiring annual reporting of actual expenditures would improve sponsor accountability, and provide State agencies a means by which to identify misuse of CACFP funds. State agencies could then reconcile reported expenditures to Program payments to ensure funds are spent on allowable costs, and use the reported actual expenditures as the basis for selecting a sample of expenditures for validation against the sponsor’s CACFP bank account activity. To facilitate reconciliation, the report should use the same cost categories as are used on the sponsor’s approved annual budget. The Department proposes to require State agencies to have a system in place to annually review at least one month’s bank account activity of all sponsoring organizations compared to documents adequate to demonstrate that the transactions meet Program requirements. Under this rule, if the State agency identifies any expenditures that have the appearance of violating Program requirements, the State agency reviewer could continue to investigate the account activity further or refer the matter to someone else within the State agency, such as an auditor. This proposed rule also would require State agencies to have a system in place to annually review a report of actual expenditures of Program funds and the amount of meal reimbursement funds retained from centers (if any) for administrative costs for all sponsoring organizations of unaffiliated centers. Under this rule, State agencies would be required to reconcile reported VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 expenditures with Program payments to ensure funds are fully accounted for, and use the reported actual expenditures as the basis for selecting a sample of expenditures for validation. If the State agency identifies any expenditures that have the appearance of violating Program requirements, the State agency would be required to refer the sponsoring organization’s account activity to the appropriate State authorities for verification as discussed above. Accordingly, the proposed rule changes are found at §§ 226.7(b), 226.7(m) and 226.10(c). Informal Purchase Methods Informal purchase methods are used in conducting the procurement of services, supplies, and other property whose cost falls below the threshold established for requiring a procuring entity to formally solicit bids or proposals from suppliers. The availability of informal purchase methods for procurements under Federal awards is covered in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the ‘‘Uniform Guidance’’) published by the OMB at 2 CFR part 200 and adopted by USDA at 2 CFR part 400. The Department is proposing to update applicable program regulations at 7 CFR 226.21 and 226.22 in order to bring their procurement provisions into conformity with the government-wide and departmental pronouncements referenced above. There are two types of informal purchase methods: small purchases and micro-purchases. These methods differ in terms of dollar thresholds below which their use is permitted, and the degree of informality that characterizes each of them. The Uniform Guidance sets the applicable dollar thresholds, which are periodically adjusted for inflation. 2 CFR 200.67 of the Uniform Guidance authorizes a program operator to use the micro-purchase method for a transaction in which the aggregate cost of the items purchased does not exceed the prescribed threshold. 2 CFR 200.67 currently sets the micro-purchase threshold at $3,500. Under section 200.88, a program operator can use the small purchase method for purchases ranging in cost from $3,501 to the simplified acquisition threshold of $150,000. As noted above, formal advertising is required for procurements above that threshold. 7 CFR 226.21 (Food service management companies) and 226.22 (Procurement standards) of the CACFP regulations currently contain PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 procurement provisions that are inconsistent with the foregoing requirements. Specifically, they do not mention the micro-purchase threshold and set the threshold for small purchases at $10,000. The $10,000 threshold does not align with current practices and is thus obsolete. Given the foregoing, the Department is proposing to remove the $10,000 figure and substitute language referencing the applicable passages in the Uniform Guidance. This will benefit the CACFP by expanding the availability of the informal purchase methods. It will also resolve all questions about which threshold applies, the one set by program regulations or the one(s) given in the Uniform Guidance. The Department will no longer need to update the Program regulations each time the thresholds are adjusted for inflation. Accordingly, the proposed rule changes are found at §§ 226.21(a), 226.22(i)(1), 226.22(l)(2), and 226.22(l)(3). The Department recognizes that the provisions in this proposed rule impact many aspects of State administration of Child Nutrition Programs. As a result, the Department will provide guidance and technical assistance to State agencies to ensure successful implementation of this regulation. USDA anticipates that the provisions under this proposed rule would be implemented 90 days following publication of the final rule, with the exception of those related to assessments against State agencies and program operators and CACFP audit funds. The provision establishing criteria for assessments against State agencies and program operators would be implemented one school year following publication of the final rule. The provision granting eligible State agencies additional CACFP audit funds will be implemented upon publication of the final rule. IV. 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 E:\FR\FM\29MRP2.SGM 29MRP2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules reducing costs, of harmonizing rules, and of promoting flexibility. This proposed rule has been determined to be significant and was reviewed by the Office of Management and Budget (OMB) in conformance with Executive Order 12866. B. Regulatory Impact Analysis Summary As required for all rules that have been designated significant by the Office of Management and Budget, a Regulatory Impact Analysis (RIA) was developed for this proposal. A summary is presented below. Need for Action The proposed rule updates the regulations governing the administration of USDA’s child nutrition programs in response to statutory changes made by The Healthy, Hunger-Free Kids Act of 2010.1 These changes, as well as other discretionary changes, will help ensure proper and efficient administration of the programs, reduce misuse of program funds, improve compliance with meal patterns and nutrition standards, reduce participant certification error, improve the integrity of the procurement process, and reduce meal counting and claiming error through increased administrative review and penalties for noncompliance. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Benefits Each of the proposed rule’s provisions is intended to remedy deficiencies in the administration of USDA’s child nutrition programs at the sponsor, provider, SFA, and State agency levels. The rule addresses the types of problems commonly encountered in CACFP sponsor reviews, in USDA’s Targeted Management Evaluations of the CACFP, and in Coordinated Review Effort (CRE) and in School Meals Initiative (SMI) reviews of schools and school food authorities. Through the reforms outlined in the preceding sections, the rule is expected to increase the quality of program meals served to participants, as inefficiently managed funds and improper payments subvert the nutritional intent of program meals. This rule generates these benefits through the following specific actions: • A reduction in the incidence of existing meal pattern violations, 1 Public Law 111–296. payments due to certification error include both overpayments and underpayments. Overpayments occur when children are certified for free or reduced-price meals when their household incomes exceed the thresholds for those benefits. Federal reimbursements for meals served to those children are too high. Underpayments occur when children are denied free or reduced-price benefits, 2 Improper VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 17577 resulting in improved nutrition for program participants; and • prompt compliance with new Federal regulations on school meal nutrition standards and nutrition standards for competitive school foods that will further improve the school nutrition environment; and through the following specific transfers: • An increase in Federal audit funding available to State agencies; • a reduction in financial mismanagement that diverts Federal funds from their intended purpose of providing nutritious meals to children; • a reduction in certification errors that will better target Federal benefits to eligible children; and • full compliance with Sections 205 and 206 of HHFKA that prevent Federal meal reimbursements, intended primarily to provide meals to low income students, from subsidizing meals for more affluent students, and from subsidizing non-program foods. These are the expected results of the rule’s provisions, which add new requirements to existing reviews of child nutrition program sponsors, subject additional sponsors to periodic review, increase USDA and State agency authority to penalize seriously deficient sponsors and providers, and standardize the processes of termination and disqualification from program participation, all of which will contribute to an increase in the quality of program meals served to program participants. We cannot quantify these nutritional benefits, nor can we quantify the dollar effects of the actions and transfers listed above, as we do not know the rates or magnitudes of error in the population, nor do we know the percentage of errors that will be avoided or rectified because of the implementation of these provisions. However, the size of the problem addressed by the proposed rule has been partly quantified: • The 2014 USDA Agency Financial Report (http://www.ocfo.usda.gov/docs/ USDA%20AFR%20201412.30.2014.pdf) estimates that improper payments in the NSLP and the SBP due to certification error 2 and meal counting and claiming errors 3 totaled $2.67 billion ($1.75 billion in the NSLP and $923 million in the SBP) in FY 2014. Even small percentage point reductions in these improper payment amounts, which the rule’s provisions can help to promote, would quickly exceed the cost of its implementation. • The 2014 USDA Agency Financial Report estimates that improper payments in the CACFP due to mistakes by program sponsors in determining the reimbursement eligibility of family day care home providers (‘‘tiering’’ errors) totaled $10 million in FY 2014. In addition, data gathered by USDA during its 2004–2007 Child Care Assessment Project (CCAP) are suggestive of possible over-reporting of Federally reimbursable meals served by family day care home providers.4 Estimates of the value of improper claims by CACFP centers, or by sponsors and service providers in the remaining USDA child nutrition programs, are not available. Though the data available is limited, the estimates of improper payments in the NSLP and SBP alone indicate that the potential impact of the proposed rule is substantial. and Federal reimbursements for meals served to those children are too low. 3 These include cashier errors, when meals are identified as reimbursable when they are missing a required meal component, or when the cashier makes a mistake in identifying the child receiving the meal as free, reduced-price, or paid eligible. Counting and claiming errors also include mistakes made in totaling the number of free, reduced-price, or paid meals served when submitting claims for reimbursement. 4 ‘‘Child Care Assessment Project Final Report’’, USDA Food and Nutrition Service, Child Nutrition Division, July 2009, pp. 34–36 (http:// www.fns.usda.gov/cnd/Care/Management/pdf/ CCAP_Report.pdf). PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 Costs/Administrative Impact Most of the cost of complying with the rule is associated with the additional review responsibilities placed on State administering agencies. Other State agency costs are tied to documentation, and establishing and carrying out new procedures for termination and disqualification of program sponsors, providers, and responsible individuals. Program sponsors will incur minimal additional cost to provide their State agencies with additional financial data. The primary Federal government cost, an increase in funds made available for CACFP audits, is expected to offset the additional administrative costs incurred by State agencies. The regulatory impact analysis quantifies the impact of the three provisions in the rule that we estimate have non-negligible cost implications for the Federal government, State agencies, and/or SFAs, as well as the new reporting and recordkeeping requirements of the rule. The following table summarizes these effects. E:\FR\FM\29MRP2.SGM 29MRP2 17578 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules TABLE 1—SUMMARY OF ESTIMABLE ADMINISTRATIVE COSTS AND RESOURCES 5 Fiscal year (millions) 2017 2018 2019 2020 2021 Total State agency administrative costs State agency sponsor reviews (CACFP) State agency bank statement reviews (CACFP) ............................................... Information collection burden (reporting and recordkeeping) .............................. $2.7 $2.8 $2.8 $2.9 $3.0 $14.2 1.3 1.3 1.3 1.4 1.4 6.7 0.3 0.3 0.4 0.4 0.4 1.8 Total State agency administrative costs .............................................. 4.3 4.4 4.5 4.7 4.8 22.7 School Food Authority administrative costs SFA Information collection burden (reporting and recordkeeping) .................. $0.1 $0.1 $0.1 $0.1 $0.1 $0.6 18.5 19.2 $11.6 89.1 Increase in Federal audit funding for State agencies (CACFP) Low estimate ............................................ Upper bound estimate ............................. $2.1 $2.2 $2.3 $2.4 $2.5 16.3 17.3 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 We note that the maximum available amount of additional federal audit funding for State agencies (presented as the projected upper bound estimate in Table 1) exceeds the combined estimated costs of the rule’s State agency sponsor review, sponsor bank statement review, and information collection requirements. C. Regulatory Flexibility Act This proposed rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act of 1980 (5 U.S.C. 601–612). Pursuant to that review, it has been determined that this rule will not have a significant impact on a substantial number of small entities. This rule sets forth proposed provisions to implement sections 303, 322, 331(b), 332, 335, 362, of Public Law 111–296, the HHFKA that affects the management of USDA’s Child Nutrition programs. Most of the provisions included in the proposed rule increase the authority of USDA and State agencies to enforce existing program rules, and do not impose additional burden on small entities. The rule does impose some additional reporting and documentation requirements on program sponsors and providers, but we expect these costs to be very small relative to existing program requirements. D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104–4, establishes requirements for 5 Numbers shown in Table 1 may not add due to rounding. VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 17.8 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 Secretary 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. administered at the State level. The Department headquarters and regional office staff engage in ongoing formal and informal discussions with State and local officials regarding program operational issues. This structure of the Child Nutrition Programs allows State and local agencies to provide feedback that forms the basis for any discretionary decisions made in this and other rules. E. Executive Order 12372 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. Prior to drafting this proposed rule, FNS held several conference calls and meetings with the State agencies and organizations representing local program operators, advocacy groups and State government to discuss the statutory requirements addressed in this proposed rule. The NSLP, SBP, SAE, SMP, CACFP and SFSP are listed in the Catalog of Federal Domestic Assistance Programs under NSLP No. 10.555, SBP No. 10.553, SAE No. 10.560, SMP No. 10.556, CACFP No. 10.558, and SFSP No. 10.559, respectively and are subject to Executive Order 12372 which requires intergovernmental consultation with State and local officials (See 2 CFR chapter IV). The Child Nutrition Programs are federally funded programs PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 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 E:\FR\FM\29MRP2.SGM 29MRP2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules 2. Nature of Concerns and the Need To Issue This Rule State agencies expressed concern regarding the implementation of the provisions, specifically the administrative burden that may be placed on the State agencies. State agencies also expressed concerns relating to the fiscal consequences of the state liability provision. 3. Extent to Which the Department Meets Those Concerns FNS has considered the impact of this proposed rule on State and local operators. We have attempted to balance the goal of strengthening the integrity of the Child Nutrition Programs against the need to minimize the administrative burden placed on program operators. FNS will provide guidance and technical assistance to program operators once the final rule is published, and expects to provide ongoing assistance to State and local program operators to ensure the provisions of this rulemaking are implemented efficiently and in a manner that is least burdensome. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 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 § 210.18(q), § 225.13, § 226.6(k) and § 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 the spring of 2011, FNS offered opportunities for consultation with Tribal officials or their designees to discuss the impact of the HHFKA on tribes or Indian Tribal governments. The VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 consultation sessions were coordinated by FNS and held on the following dates and locations: 1. HHFKA Consultation Webinar & Conference Call—April 12, 2011 2. HHFKA Consultation In-Person— Rapid City, SD—March 23, 2011 3. HHFKA Consultation Webinar & Conference Call—June 22, 2011 4. Tribal Self-Governance Annual Conference In-Person Consultation in Palm Springs, CA—May 2, 2011 5. National Congress of American Indians Mid-Year Conference InPerson Consultation, Milwaukee, WI—June 14, 2011 6. FNS Quarterly Consultation Conference Call, May 2, 2012 The six consultation sessions in total provided the opportunity to address Tribal concerns related to school meals. There was only one question asked about this regulation, regarding how the NDL functions, which was explained by FNS staff during an aforementioned Tribal Consultation session. Additional comments were not received. Reports from these consultations are part of the USDA annual reporting on Tribal consultation and collaboration. FNS will respond in a timely and meaningful manner to Tribal government requests for consultation concerning this rule. Currently, FNS provides regularly scheduled quarterly consultation sessions as a venue for collaborative conversations with Tribal officials or their designees. I. Civil Rights Impact Analysis FNS and the Department has reviewed this proposed rule in accordance with the Departmental Regulation 4300–4, ‘‘Civil Rights Impact Analysis,’’ to identify any major civil rights impacts the rule may have on program participants on the basis of age, race, color, national origin, sex, or disability. After a careful review of the rule’s intent and provisions, FNS has determined that this rule is no intended impact in any of the protected classes and is not intended to reduce a child or eligible adult’s ability to participate in the National School Lunch Program, School Breakfast Program, Special Milk Program, Child and Adult Care Food Program or Summer Food Service Program. J. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35; see 5 CFR part 1320) requires that 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 PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 17579 information unless it displays a current valid OMB control number. This proposed rule contains information collections that are subject to review and approval by OMB; therefore, FNS has submitted an information collection under 0584–NEW, which contains the burden information in the proposed rule for OMB’s review and approval. 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. Comments on the information collection in this proposed rule must be received by May 31, 2016. 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, Andrea Farmer, Child Nutrition Programs, Food and Nutrition Service, U.S. Department of Agriculture, 3101 Park Center Drive, Alexandria, Virginia 22302. For further information, or for copies of the information collection requirements, please contact Andrea Farmer 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. Once OMB approval is obtained, FNS will merge burden hours into the currently approved National School Lunch Program, OMB Control Number 0584– 0006, expiration date 2/29/2016; Child and Adult Care Food Program, OMB Control Number 0584–0055, expiration date 9/30/2016; and Summer Food Service Program for Children, OMB Control Number 0584–0280, expiration date 3/31/2016, respectfully. E:\FR\FM\29MRP2.SGM 29MRP2 17580 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules Title: 7 CFR parts 210, 215, 220, 225, 226 and 235, Child Nutrition Programs Integrity Proposed Rule. OMB Number: Not Yet Assigned. Expiration Date: Not Yet Determined. Type of Request: New Collection. Abstract: This rule proposes to codify several provisions of the Healthy, Hunger-Free Kids Act of 2010 affecting the management of the Child Nutrition Programs, including the National School Lunch Program (NSLP), the Special Milk Program for Children, the School Breakfast Program, the Summer Food Service Program (SFSP), the Child and Adult Care Food Program (CACFP) and State Administrative Expense Funds. The Department is proposing to establish criteria for establishing assessments against State agencies and program operators who jeopardize the integrity of any Child Nutrition Program; eliminate cost-reimbursement food service management company contracts in the NSLP; establish procurement training requirements for State agency and school food authority staff in the NSLP, establish procedures for termination and disqualification in the SFSP; modify State agency site review requirements in the CACFP; establish State liability for reimbursements incurred as a result of a State’s failure to conduct a timely hearing in the CACFP; establish criteria for an increase in State audit funding; establish procedures to prohibit the participation of entities or individuals terminated from any of the Child Nutrition Programs; and establish serious deficiency and termination procedures for sponsored centers in the CACFP. In addition, this rule would make several operational changes to improve oversight of an institution’s financial management and would also Estimated number of respondents Affected public Number of responses per respondent include several technical corrections. The proposed rule is intended to improve the integrity of all Child Nutrition Programs. The average burden per response and the annual burden hours for reporting and recordkeeping are explained below and summarized in the charts which follow. CACFP—7 CFR Part 226 Affected Public: State Agencies. Estimated Number of Respondents: 54. Estimated Number of Responses per Respondent: 39.29. Estimated Total Annual Responses: 2,122. Estimated Time per Response: 2.4345. Estimated Total Annual Burden: 5,166. Refer to the table below for estimated total annual burden. Total annual responses Estimated total hours per response Estimated total burden Reporting State Agencies ..................................................................... 54 13.15 710 4.095 2,907.5 26.15 1,412 1.5995 2,258.5 1.5995 2,907.5 2,258.5 Recordkeeping State Agencies ..................................................................... 54 Total of Reporting and Recordkeeping CACFP Reporting .............................................................................. Recordkeeping ..................................................................... 54 13.15 54 26.15 1,412 Total .............................................................................. 710 4.095 54 39.29 2,122 2.435 5,166 With OMB Approval, 0584–NEW CACFP burden will be merged to OMB Control Number 0584–0055. SFSP—7 CFR Part 225 Affected Public: State Agencies. Estimated Number of Respondents: 53. Estimated Number of Responses per Respondent: 21. Estimated Total Annual Responses: 1,113. Estimate Time per Response: 6.214. Estimated number of respondents Affected public Number of responses per respondent Estimated Total Annual Burden: 6,916.5. Refer to the table below for estimated total annual burden. Total annual responses Estimated total hours per response Estimated total burden Reporting State Agencies ..................................................................... 53 20 1,060 6.5 6,890 1 53 .5 26.5 Recordkeeping mstockstill on DSK4VPTVN1PROD with PROPOSALS2 State Agencies ..................................................................... 53 Total of Reporting and Recordkeeping SFSP Reporting .............................................................................. Recordkeeping ..................................................................... 53 20 53 1 1,060 53 6.5 .5 6,890 26.5 Total .............................................................................. 53 21 1,113 6.214 6,916.5 With OMB Approval, 0584–NEW SFSP burden will be merged to OMB Control Number 0584–0280. VerDate Sep<11>2014 21:05 Mar 28, 2016 Jkt 238001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 E:\FR\FM\29MRP2.SGM 29MRP2 17581 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules Estimated Number of Responses per Respondent: 2.0054. Estimated Total Annual Responses: 41,940. Estimate Time per Response: .25. NSLP—7 CFR Part 21 Affected Public: State Agencies and School Food Authorities. Estimated Number of Respondents: 20,914. Estimated number of respondents Affected public Number of responses per respondent Estimated Total Annual Burden: 10,485. Refer to the table below for estimated total annual burden. Total annual responses Estimated total hours per response Estimated total burden Reporting State Agencies ................................................................... 000 00 Recordkeeping State Agencies ................................................................... School Food Authorities ..................................................... 56 19,822 1 1 56 19,878 .25 .20 14 3,964.4 000 19,878 1 19,878 00 .20 3,978.4 19,878 1 19,878 .2 Total of Reporting and Recordkeeping NSLP Reporting * .......................................................................... Recordkeeping ................................................................... Total ............................................................................ 3,978 * There is no reporting burden associated with procurement training requirements for State agency and SFA staff in the NSLP. With OMB Approval, 0584–NEW NSLP burden will be merged to OMB Control Number 0584–0006. K. E-Government Act Compliance 7 CFR Part 226 The Food and Nutrition Service is committed to complying with the EGovernment 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. Accounting, Aged, Day care, Food assistance programs, Grant programs, Grant programs—health, American Indians, Individuals with disabilities, Infants and children, Intergovernmental relations, Loan programs, Reporting and recordkeeping requirements, Surplus agricultural commodities. 7 CFR Part 235 List of Subjects 7 CFR Part 210 Grant programs—education, Grant programs—health, Infants and children, Nutrition, Penalties, 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. 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, 225, 226, and 235 are proposed to be amended as follows: PART 210—NATIONAL SCHOOL LUNCH PROGRAM 1. The authority citation for part 210 continues to read as follows: ■ Authority: 42 U.S.C. 1751–1760, 1779. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 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 225 Food assistance programs, Grant programs—health, Infants and children, Labeling, Reporting. VerDate Sep<11>2014 21:05 Mar 28, 2016 Jkt 238001 2. In § 210.9, add paragraph (d) to read as follows: ■ § 210.9 Agreement with State agency. * * * * * (d) Terminations or disqualifications. (1) General. The State agency may not approve any school food authority or school to participate in or administer the Program if the school food authority, school, or its officials: PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 (i) Have been terminated for cause from any program authorized under this part or parts 215, 220, 225 and 226 of this chapter; or (ii) Are currently included on the National disqualified lists under §§ 225.11 or 226.6 of this chapter. (2) Duration. State agencies must ensure that school food authorities or schools described in paragraph (d)(1) of this section do not participate in or administer the Program until the State agency, in consultation with FNS, determines that the deficiency(ies) has(ve) been corrected, or until seven years have elapsed since they were terminated or disqualified. However, if a school food authority, school or official has failed to repay debts owed under the Program, they will remain ineligible until the debt has been repaid. (3) State actions. The State agency’s decision not to approve a school food authority or school to participate in or administer the Program as required by paragraph (d)(1) of this section is final and not subject to further administrative or judicial review. For school food authorities and schools currently administering the Program, the State agency must suspend or terminate the Program in accordance with the procedures set forth in § 210.25. (4) Process for identifying terminations and disqualifications. State agencies must develop a process to E:\FR\FM\29MRP2.SGM 29MRP2 17582 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules share information on school food authorities, schools and individuals not approved to administer or participate in the programs as described under paragraph (d)(1) of this section. The process must be approved by the Food and Nutrition Service Regional Office (FNSRO) and must ensure the State agency works closely with any other State agency within the State administering the programs under parts 215, 220, 225 226, 246 and 248 of this chapter to ensure information is shared for program purposes and on a timely basis. ■ 3. In § 210.15, add paragraph (b)(8) to read as follows: § 210.15 Reporting and recordkeeping. * * * * * (b) * * * (8) Records to document compliance with the procurement training requirements under § 210.21(h). ■ 4. In § 210.16, revise paragraph (c) introductory text and add paragraph (c)(4) to read as follows: § 210.16 Food service management companies. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 * * * * * (c) Contracts. Contracts that permit all income and expenses to accrue to the food service management company, ‘‘cost-plus-a-percentage-of-cost,’’ ‘‘costplus-a-percentage-of-income,’’ and ‘‘cost-reimbursable’’ contracts are prohibited. Contracts that provide for fixed-fees such as those that provide for management fees established on a per meal basis are allowed. Only fixed-price contracts, such as contracts that provide a per meal and/or management fees established on a per meal basis, either with or without economic price adjustments tied to a standard index, are allowed. Contractual agreements with food service management companies shall include provisions which ensure that the requirements of this section are met. Such agreements must also include the following: * * * * * (4) Provisions in 7 CFR part 250, subpart D must be included to ensure the value of donated foods, i.e., USDA Foods are credited to the nonprofit school food service account. ■ 5. In § 210.18, revise paragraph (q) introductory text and paragraph (q)(1) introductory text to read as follows: § 210.18 Administrative reviews. * * * * * (q) School food authority appeal of State agency findings. Except for FNSconducted reviews authorized under § 210.29(d)(2), each State agency shall establish an appeal procedure to be VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 followed by a school food authority requesting a review of a denial of all or a part of the Claim for Reimbursement, withholding payment arising from administrative or follow-up review activity conducted by the State agency under § 210.18, or assessments established under § 210.26. 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, withholding of payment, or assessments established under § 210.26, and the State agency shall acknowledge the receipt of the request for appeal within 10 calendar days; * * * * * § 210.19 [Amended] 6. In § 210.19: Amend paragraph (a)(5) by adding the phrase ‘‘and approve’’ after the words ‘‘annually review’’ in the first sentence. ■ 7. In § 210.20, add paragraph (b)(16) to read as follows: ■ § 210.20 Reporting and recordkeeping. * * * * * (b) * * * (16) Records to document compliance with the procurement training requirements under § 210.21(h). ■ 8. In § 210.21, add paragraph (h) to read as follows: § 210.21 Procurement. * * * * * (h) Procurement training. State agency and school food authority staff tasked with procurement responsibilities shall successfully complete annual training in procurement standards including but not limited to the procurement process generally, government-wide Federal PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 procurement requirements, competitive procurements, the Buy American provision, State agency and school food authority responsibilities in regard to food service management company contracts and all contract changes, USDA Foods, intergovernmental cooperation, geographic preference, protests, and ethics in accordance with § 210.21(a). State agencies and school food authorities must retain records to document compliance with the procurement training requirements in this paragraph. ■ 9. Revise § 210.26 to read as follows: § 210.26 Penalties and assessments. (a) Penalties. Whoever embezzles, willfully misapplies, steals, or obtains by fraud any funds, assets, or property provided under this part whether received directly or indirectly from the Department shall, if such funds, assets, or property are of a value of $100 or more, be fined no more than $25,000 or imprisoned not more than 5 years or both; or if such funds, assets, or property are of a value of less than $100, be fined not more than $1,000 or imprisoned not more than 1 year or both. Whoever receives, conceals, or retains for personal use or gain, funds, assets, or property provided under this part, whether received directly or indirectly from the Department, knowing such funds, assets, or property have been embezzled, willfully misapplied, stolen, or obtained by fraud, shall be subject to the same penalties. (b) Assessments. (1) The State agency may establish an assessment against any school food authority when it has determined that the school food authority or school under its agreement has: (i) Failed to correct severe mismanagement of the Program; (ii) Disregarded a Program requirement of which the school food authority or school had been informed; or (iii) Failed to correct repeated violations of Program requirements. (2) FNS may direct the State agency to establish an assessment against any school food authority when it has determined that the school food authority or school meets the criteria set forth under paragraph (b)(1) of this section. (3) Funds used to pay assessments established under this paragraph must be derived from non-federal sources. In calculating an assessment, the State agency must base the amount of the assessment on the reimbursement earned by the school food authority or school for this Program for the most recent fiscal year for which closeout E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules data are available, provided that the assessment does not exceed the equivalent of: (i) For the first assessment, 1 percent of the amount of meal reimbursement earned for the fiscal year; (ii) For the second assessment, 5 percent of the amount of meal reimbursement earned for the fiscal year; and (iii) For the third or subsequent assessment, 10 percent of the amount of meal reimbursement earned for the fiscal year. (4) The State agency must inform the FNSRO at least 30 days prior to establishing the assessment under this paragraph. The State agency must send the school food authority written notification of the assessment established under this paragraph and provide a copy of the notification to the FNSRO. The notification must: (i) Specify the violations or actions which constitute the basis for the assessment and indicate the amount of the assessment; (ii) Inform the school food authority that it may appeal the assessment and advise the school food authority of the appeal procedures established under § 210.18(q); (iii) Indicate the effective date and payment procedures should the school food authority not exercise its right to appeal within the specified timeframe. (5) Any school food authority subject to an assessment under paragraph (b)(1) of this section may appeal the State agency’s determination. In appealing an assessment, the school food authority must submit to the State agency any pertinent information, explanation, or evidence addressing the Program violations identified by the State agency. Any school food authority seeking to appeal the State agency determination must follow State agency appeal procedures. (6) The decision of the State agency review official is final and not subject to further administrative or judicial review. Failure to pay an assessment established under this paragraph may be grounds for suspension or termination. (7) Money received by the State agency as a result of an assessment established under this paragraph against a school food authority and any interest charged in the collection of these assessments must be remitted to FNS. PART 215—SPECIAL MILK PROGRAM FOR CHILDREN 10. The authority citation for part 215 continues to read as follows: ■ Authority: 42 U.S.C. 1772 and 1779. VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 11. In § 215.7, add paragraph (g) to read as follows: ■ § 215.7 Requirements for participation. * * * * * (g) Terminations or disqualifications. (1) General. The State agency may not approve any school food authority, school or child care institution to participate in or administer the Program if the school food authority, school, child care institution or its officials: (i) Have been terminated for cause from any program authorized under this part or parts 210, 220, 225 and 226 of this chapter; or (ii) Are currently included on the National disqualified lists under §§ 225.11 or 226.6 of this chapter. (2) Duration. State agencies must ensure that school food authorities, schools or child care institutions described in paragraph (g)(1) of this section do not participate in or administer the Program until the State agency, in consultation with FNS, determines that the deficiency(ies) has(ve) been corrected, or until seven years have elapsed since they were terminated or disqualified. However, if a school food authority, school, child care institution or official has failed to repay debts owed under the Program, they will remain ineligible until the debt has been repaid. (3) State actions. The State agency’s decision not to approve a school food authority, school or child care institution to participate in or administer the Program as required by paragraph (g)(1) of this section is final and not subject to further administrative or judicial review. For school food authorities, schools and child care institutions currently administering the Program, the State agency must suspend or terminate the Program in accordance with the procedures set forth in § 215.16. (4) Process for identifying terminations and disqualifications. State agencies must develop a process to share information on school food authorities, schools, child care institutions and individuals not approved to administer or participate in the programs as described under paragraph (g)(1) of this section. The process must be approved by the FNSRO and must ensure the State agency works closely with any other State agency within the State administering the programs under parts 210, 220, 225, 226, 246 and 248 of this chapter to ensure information is shared for program purposes and on a timely basis. ■ 12. Revise § 215.15 to read as follows: PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 17583 § 215.15 Withholding payments and establishing assessments. (a) Withholding payments. In accordance with OMB regulations at 2 CFR part 200.338 (Remedies for noncompliance), implemented by Departmental regulations at 2 CFR part 400, the State agency may withhold Program payments in whole or in part, to any school food authority which has failed to comply with the provisions of this part. Program payments shall be withheld until the school food authority takes corrective action satisfactory to the State agency, or gives evidence that such corrective actions will be taken, or until the State agency terminates the grant in accordance with § 215.16. Subsequent to the State agency’s acceptance of the corrective actions, payments will be released for any milk served in accordance with the provisions of this part during the period the payments were withheld. (b) Assessments. (1) The State agency may establish an assessment against any school food authority, school under its agreement, or child care institution when it has determined that the school food authority or child care institution has: (i) Failed to correct severe mismanagement of the Program; (ii) Disregarded a Program requirement of which the school food authority, school, or child care institution had been informed; or (iii) Failed to correct repeated violations of Program requirements. (2) FNS may direct the State agency to establish an assessment against any school food authority or child care institution when it has determined that the school food authority, school, or child care institution has committed one or more acts the under paragraph (b)(1) of this section. (3) Funds used to pay an assessment established under this paragraph must be derived from non-federal sources. In calculating an assessment, the State agency must base the amount of the assessment on the reimbursement earned by the school food authority, school, or child care institution for this Program for the most recent fiscal year for which closeout data are available, provided that the assessment does not exceed the equivalent of: (i) For the first assessment, 1 percent of the amount of reimbursement earned for the fiscal year; (ii) For the second assessment, 5 percent of the amount of reimbursement earned for the fiscal year; and (iii) For the third or subsequent assessment, 10 percent of the amount of reimbursement earned for the fiscal year. E:\FR\FM\29MRP2.SGM 29MRP2 17584 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules (4) The State agency must inform the FNSRO at least 30 days prior to establishing an assessment under this paragraph. The State agency must send the school food authority or child care institution written notification of the assessment established under this paragraph and provide a copy of the notification to the FNSRO. The notification must: (i) Specify the violations or actions which constitute the basis for the assessment and indicate the amount of the assessment; (ii) Inform the school food authority or child care institution that it may appeal the assessment and advise the school food authority or child care institution of the appeal procedures established under § 210.18(q) of this chapter; (iii) Indicate the effective date and payment procedures should the school food authority or child care institution not exercise its right to appeal within the specified timeframe. (5) Any school food authority or child care institution subject to an assessment under paragraph (b)(1) of this section may appeal the State agency’s determination. In appealing an assessment, the school food authority or child care institution must submit to the State agency any pertinent information, explanation, or evidence addressing the Program violations identified by the State agency. Any school food authority or child care institution seeking to appeal the State agency determination must follow State agency appeal procedures. (6) The decision of the State agency review official is final and not subject to further administrative or judicial review. Failure to pay an assessment established under this paragraph may be grounds for suspension or termination. (7) Money received by the State agency as a result of an assessment established under this paragraph against a school food authority and any interest charged in the collection of these assessments must be remitted to FNS. PART 220—SCHOOL BREAKFAST PROGRAM § 220.18 Withholding payments and assessments. 13. The authority citation for part 220 continues to read as follows: mstockstill on DSK4VPTVN1PROD with PROPOSALS2 ■ Authority: 42 U.S.C. 1773, 1779, unless otherwise noted. 14. In § 220.7, add paragraph (h) to read as follows: ■ § 220.7 Requirements for participation. * * * * * (h) Terminations or disqualifications. (1) General. The State agency may not approve any school food authority or VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 school to participate in or administer the Program if the school food authority, school or its officials: (i) Have been terminated for cause from any program authorized under this part or parts 210, 215, 225 and 226 of this chapter; or (ii) Are currently included on the National disqualified lists under §§ 225.11 or 226.6 of this chapter. (2) Duration. State agencies must ensure that school food authorities or schools described in paragraph (h)(1) of this section do not participate in or administer the Program until the State agency, in consultation with FNS, determines that the deficiency(ies) has(ve) been corrected, or until seven years have elapsed since they were terminated or disqualified. However, if a school food authority, school or official has failed to repay debts owed under the Program, they will remain ineligible until the debt has been repaid. (3) State actions. The State agency’s decision not to approve a school food authority or school to participate in or administer the Program as required by paragraph (h)(1) of this section is final and not subject to further administrative or judicial review. For school food authorities and schools administering the Program, the State agency must suspend or terminate the Program in accordance with the procedures set forth in § 220.19. (4) Process for identifying terminations and disqualifications. State agencies must develop a process to share information on school food authorities, schools and individuals not approved to administer or participate in the programs as described under paragraph (h)(1) of this section. The process must be approved by the FNSRO and must ensure the State agency works closely with any other State agency within the State administering the programs under parts 210, 215, 225, 226, 246 and 248 of this chapter to ensure information is shared for program purposes and on a timely basis. ■ 15. Revise § 220.18 to read as follows: (a) Withholding payments. In accordance with Departmental regulations 2 CFR part 400, the State agency may withhold Program payments, in whole or in part, to any school food authority which has failed to comply with the provisions of this part. Program payments shall be withheld until the school food authority takes corrective action satisfactory to the State agency, or gives evidence that such corrective actions will be taken, or PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 until the State agency terminates the grant in accordance with § 220.19. Subsequent to the State agency’s acceptance of the corrective actions, payments will be released for any breakfasts served in accordance with the provisions of this part during the period the payments were withheld. (b) Assessments. (1) The State agency may establish an assessment against any school food authority or school under its agreement when it has determined that the school food authority has: (i) Failed to correct severe mismanagement of the Program; (ii) Disregarded a Program requirement of which the school food authority or school had been informed; or (iii) Failed to correct repeated violations of Program requirements. (2) FNS may direct the State agency to establish an assessment against any school food authority when it has determined that the school food authority or school has committed one or more acts the under paragraph (b)(1) of this section. (3) Funds used to pay an assessment established under this paragraph must be derived from non-federal sources. In calculating an assessment, the State agency must base the amount of the assessment on the reimbursement earned by the school food authority or school for this Program for the most recent fiscal year for which closeout data are available, provided that the assessment does not exceed the equivalent of: (i) For the first assessment, 1 percent of the amount of meal reimbursement earned for the fiscal year; (ii) For the second assessment, 5 percent of the amount of meal reimbursement earned for the fiscal year; and (iii) For the third or subsequent assessment, 10 percent of the amount of meal reimbursement earned for the fiscal year. (4) The State agency must inform the FNSRO at least 30 days prior to establishing an assessment under this paragraph. The State agency must send the school food authority written notification of the assessment established under this paragraph and provide a copy of the notification to the FNSRO. The notification must: (i) Specify the violations or actions which constitute the basis for the assessment and indicate the amount of the assessment; (ii) Inform the school food authority that it may appeal the assessment and advise the school food authority of the appeal procedures established under § 210.18(q) of this chapter; E:\FR\FM\29MRP2.SGM 29MRP2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules (iii) Indicate the effective date and payment procedures should the school food authority not exercise its right to appeal within the specified timeframe. (5) Any school food authority subject to an assessment under paragraph (b)(1) of this section may appeal the State agency’s determination. In appealing an assessment, the school food authority must submit to the State agency any pertinent information, explanation, or evidence addressing the Program violations identified by the State agency. Any school food authority seeking to appeal the State agency determination must follow State agency appeal procedures. (6) The decision of the State agency review official is final and not subject to further administrative or judicial review. Failure to pay an assessment established under this paragraph may be grounds for suspension or termination. (7) Money received by the State agency as a result of an assessment established under this paragraph against a school food authority and any interest charged in the collection of these assessments must be remitted to FNS. PART 225—SUMMER FOOD SERVICE PROGRAM 16. The authority citation for part 225 continues to read as follows: ■ Authority: Secs. 9, 13, and 14, Richard B. Russell National School Lunch Act, as amended (42 U.S.C. 1758, 1761 and 1762a). 17. In § 225.2, add new definitions ‘‘Administrative review’’, ‘‘Administrative review official’’, ‘‘National disqualified list’’, ‘‘Responsible principal or responsible individual’’, ‘‘Seriously deficient’’ and ‘‘State agency list’’ in alphabetical order to read as follows: ■ § 225.2 Definitions. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 * * * * * Administrative review means the fair hearing provided upon request to: (a) A sponsor that has been given notice by the State agency of any action that will affect their participation or reimbursement under the Program, in accordance with § 225.13; and (b) A principal or individual responsible for a sponsor’s serious deficiency after the responsible principal or responsible individual has been given a notice of intent to disqualify them from the Program. Administrative review official means the independent and impartial official who conducts the administrative review held in accordance with § 225.13. * * * * * National disqualified list means the list, maintained by the Department, of VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 sponsors, responsible principals, and responsible individuals disqualified from participation in the Program. * * * * * Responsible principal or responsible individual means: (a) A principal, whether compensated or uncompensated, who the State agency or FNS determines to be responsible for a sponsor’s serious deficiency; (b) Any other individual employed by, or under contract with, a sponsor who the State agency or FNS determines to be responsible for the sponsor’s serious deficiency; or (c) An individual not compensated by the sponsor who the State agency or FNS determines to be responsible for a sponsor’s serious deficiency. * * * * * Seriously deficient means the status of a sponsor that has been determined to be non-compliant in one or more aspects of its operation of the Program; such noncompliance is also referred to as a serious deficiency. * * * * * State agency list means an actual paper or electronic list, or the retrievable paper records, maintained by the State agency, which includes a synopsis of information concerning seriously deficient sponsors in that State. The list must be made available to FNS upon request, and must include the following information: (a) Sponsors determined to be seriously deficient by the State agency, including the names and mailing addresses of the sponsors, the basis for each serious deficiency determination, and the status of the sponsors as they move through the possible subsequent stages of corrective action, agreement termination, and/or disqualification, as applicable; (b) Responsible principals and responsible individuals determined by the State agency to be associated with the serious deficiency, including their full legal names, and any other names previously used, mailing addresses, and dates of birth. * * * * * ■ 18. In § 225.5, add paragraph (g) to read as follows: § 225.5 Payments to State agencies and use of Program funds. * * * * * (g) FNS may establish an assessment against any State agency administering the Program, consistent with the provisions set forth in § 235.11(c) of this chapter. ■ 19. In § 225.6, ■ a. Revise paragraph (b)(9); PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 17585 b. Add paragraph (b)(12); c. Amend paragraph (c)(1) by revising the third sentence; ■ d. Add paragraph (c)(2)(ii)(E); ■ e. Add paragraph (c)(3)(ii)(D); ■ f. Add paragraph (d)(1)(v); ■ g. Revise paragraph (e) introductory text; The revisions and additions read as follows: ■ ■ § 225.6 State agency responsibilities. * * * * * (b) * * * (9) The State agency shall not approve the application of any applicant sponsor identifiable through its organization or principals as a sponsor which has been determined to be seriously deficient as described in § 225.11(c). However, the State agency may approve the application of a sponsor which has been determined to be seriously deficient in prior years in accordance with this paragraph if the applicant demonstrates to the satisfaction of the State agency that it has taken appropriate corrective actions to prevent recurrence of the deficiencies. The State agency must develop policies and procedures to confirm that serious deficiencies have been fully and permanently corrected. This confirmation must address the circumstances that led to the serious deficiency, the responsible parties, the timeframe for corrective action and policies and/or procedures that are in place to avoid recurrence of the serious deficiency within the same Program year or in subsequent Program years. * * * * * (12) Terminations or disqualifications. (i) General. The State agency may not approve any sponsor or site to participate in or administer the Program if the sponsor, site or its responsible principals or individuals: (A) Have been terminated for cause from any program authorized under this part, parts 210, 215, 220, or 226 of this chapter; or (B) Are currently included on the National disqualified lists under this part or § 226.6 of this chapter. (ii) Duration. State agencies must ensure that sponsor or sites described in paragraph (b)(12)(i) of this section do not participate in or administer the Program until the State agency, in consultation with FNS, determines that the deficiency(ies) has(ve) been corrected, or until seven years have elapsed since they were terminated or disqualified. However, if a sponsor, site or its responsible principals or individuals has failed to repay debts owed under the Program, they will E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17586 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules remain ineligible until the debt has been repaid. (iii) State actions. The State agency’s decision not to approve a sponsor or site to participate in or administer the Program as required by paragraph (b)(12)(i) of this section is final and not subject to further administrative or judicial review. (c) * * * (1) * * * The State agency may use the application form developed by FNS, or it may develop an application form, for use in the Program; provided that such form requests the full legal name, any previously used names; mailing address; date of birth of the sponsor’s principals which includes the Executive Director and Chairman of the Board; and the sponsor’s Federal Employer Identification Number (FEIN) and/or Dun and Bradstreet Data Universal Numbering System (DUNS) number. * * * (2) * * * (ii) * * * (E) Sponsors must submit a certification of the following information: (1) That all information on the application is true and correct; (2) That serious deficiencies identified during the previous year have been fully and permanently corrected; (3) That the sponsor, sites under its jurisdiction or any responsible principals have not been terminated for cause from any program authorized under this part, parts 210, 215 220, and 226 of this chapter during the past seven years or are not currently included on the National disqualified lists under this part or § 226.6 of this chapter. Or, if the sponsor has been terminated for cause from any program authorized under this part, parts 210, 215 220, and 226 of this chapter during the past seven years, the sponsor has been reinstated in, or determined eligible for, that program, including the payment of any debts owed; and (4) That the sponsor, sites under its jurisdiction or any responsible principals have not been convicted of any activity that occurred during the past seven years and that indicated a lack of business integrity. A lack of business integrity includes fraud, antitrust violations, embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, receiving stolen property, making false claims, obstruction of justice, or any other activity indicating a lack of business integrity as defined by the State agency. (3) * * * (ii) * * * VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 (D) Certification that all information on the application is true and correct. * * * * * (d) * * * (1) * * * (v) The site and its responsible individuals are not currently on the National disqualified lists under this part or 226.6 of this chapter and have not been terminated for cause from any program authorized under this part, parts 210, 215, and 220 of this chapter as specified in § 225.6(b)(12). * * * * * (e) State-Sponsor Agreement. A sponsor approved for participation in the Program must enter into a permanent written agreement with the State agency. The existence of a valid permanent agreement does not limit the State agency’s ability to terminate the agreement, as provided under § 225.11(g). The State agency must terminate the sponsor’s agreement whenever a sponsor’s participation in the Program ends. The State agency must terminate the agreement for cause under § 225.6(b)(12)(i), or if the sponsor or its responsible principal or responsible individual are on the National disqualified lists under this part or § 226.6 of this chapter, as required under § 225.11(i). The State agency or sponsor may terminate the agreement at its convenience for considerations unrelated to the institution’s performance of Program responsibilities under the agreement. All sponsors must agree in writing to: * * * * * * * * ■ 20. Revise § 225.11 to read as follows: § 225.11 Administrative actions for program violations. (a) Investigations. Each State agency shall promptly investigate complaints received or irregularities noted in connection with the operation of the Program, and shall take appropriate action to correct any irregularities. The State agency shall maintain on file all evidence relating to such investigations and actions. The State agency shall inform the appropriate FNSRO of any suspected fraud or criminal abuse in the Program which would result in a loss or misuse of Federal funds. The Department may make investigations at the request of the State agency, or where the Department determines investigations are appropriate. (b) Meal disallowances. (1) If the State agency determines that a sponsor has failed to plan, prepare, or order meals with the objective of providing only one meal per child at each meal service at a site, the State agency shall disallow PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 the number of children’s meals prepared or ordered in excess of the number of children served. (2) If the State agency observes meal service violations during the conduct of a site review, the State agency shall disallow all of the meals observed to be in violation. (3) The State agency shall also disallow children’s meals which are in excess of a site’s approved level established under § 225.6(d)(2). (c) List of serious deficiencies. The list of serious deficiencies is not identical for each category of sponsor (new, renewing, participating) because the type of information likely to be available to the State agency is different, depending on whether the State agency is reviewing a new or renewing sponsor’s application or is conducting a review of a participating sponsor. The State agency shall afford a sponsor an opportunity not greater than 10 days, unless approved by the FNSRO, to correct problems before terminating the sponsor for being seriously deficient. Serious deficiencies which are not fully and permanently corrected will result in the sponsor’s termination from the program. Serious deficiencies which are grounds for termination or disapproval of application include, but are not limited to, any of the following: (1) Noncompliance with the applicable bid procedures and contract requirements of Federal child nutrition program regulations; (2) The submission of false information to the State agency, including but not limited to a determination that the sponsor has concealed a conviction for any activity that occurred during the past seven years and that indicates a lack of business integrity. A lack of business integrity includes fraud, antitrust violations, embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, receiving stolen property, making false claims, obstruction of justice, or any other activity indicating a lack of business integrity as defined by the State agency; (3) Failure to return to the State agency any start-up or advance payments which exceeded the amount earned for serving meals in accordance with this part, or failure to submit all claims for reimbursement in any prior year, provided that failure to return any advance payments for months for which claims for reimbursement are under dispute from any prior year shall not be grounds for disapproval in accordance with this paragraph; (4) Significant number of Program violations at a site, or Program E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules violations at a significant proportion of the sponsor’s sites. Such violations include, but are not limited to, the following: (i) Noncompliance with the meal service requirements; (ii) Failure to maintain adequate records; (iii) Failure to adjust meal orders to conform to variations in the number of participating children; (iv) The simultaneous service of more than one meal to any child; (v) The claiming of Program payments for meals not served to participating children; (vi) Service of a significant number of meals which did not include required quantities of all meal components; (vii) Excessive instances of off-site meal consumption; and (viii) Continued use of food service management companies that are in violation of health codes. (5) Termination or disqualification from another Child Nutrition Program, in accordance with § 225.6(b)(12)(i); and (6) Any action affecting the sponsor’s ability to administer the Program in accordance with Program requirements. (d) Serious deficiency procedures. (1) If the State agency determines that a sponsor has committed one or more serious deficiencies listed in paragraph (c) of this section, the State agency must declare the sponsor to be seriously deficient. (2) If the State agency determines that a responsible principal or individual has committed one or more serious deficiencies listed in paragraph (c) of this section, the State agency must declare the responsible principal or individual to be seriously deficient. (3) If the State agency holds an agreement with a sponsor whose principal FNS determines to be seriously deficient and subsequently disqualified, the State agency must determine the sponsor to be seriously deficient and initiate action to terminate and disqualify the sponsor. The State agency must initiate these actions no later than 10 days after the date of the principal’s disqualification by FNS. (4) If the State agency determines a sponsor, responsible principal or individual to be seriously deficient, the State agency must notify the sponsor’s Executive Director and Chairman of the Board of Directors. The notice must identify the responsible principals and responsible individuals (e.g., for new sponsor, the person who signed the application) and must be sent to those persons as well. The State agency may specify in the notice different corrective action, and time periods for completing the corrective action for the sponsor, the VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 responsible principals and responsible individuals. The notice must also specify: (i) The serious deficiency(ies); (ii) The actions to be taken to correct the serious deficiency(ies); (iii) The time allotted to correct the serious deficiency(ies); (iv) That the serious deficiency determination is not subject to administrative review; (v) For new sponsors, that failure to fully and permanently correct the serious deficiency(ies) within the allotted time will result in either the denial of a new sponsor’s application and the disqualification of the sponsor and the responsible principals and responsible individuals; (vi) For renewing and participating sponsors, that failure to fully and permanently correct the serious deficiency(ies) within the allotted time will result in the State agency’s denial of the renewing sponsor’s application, the termination of the sponsor’s agreement, and the disqualification of the sponsor and the responsible principals and responsible individuals; (vii) That the State agency will not pay any claims for reimbursement or allowable administrative expenses incurred until the State agency has approved any sponsor’s application and the sponsor has signed a Program agreement; (viii) For renewing and participating sponsors, that the sponsor’s withdrawal of its application, after having been notified that it is seriously deficient, will still result in the sponsor’s formal termination by the State agency and placement of the sponsor and its responsible principals and individuals on the National disqualified list; (ix) That, if the sponsor voluntarily terminates its agreement after receiving the notice of serious deficiency, the sponsor and the responsible principals and responsible individuals will be disqualified; and (x) That, if the State agency does not possess the date of birth for any individual named as a ‘‘responsible principal or individual’’ in the serious deficiency notice, the submission of that person’s date of birth is a condition of corrective action for the sponsor and/or individual. (5) State agency list. At the same time the notice is issued, the State agency must add the sponsor, responsible principals and/or individuals to the State agency list, indicate that the notice of serious deficiency(ies) has(ve) been issued, include the basis for the serious deficiency determination, and provide a copy of the notice to the appropriate FNSRO. PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 17587 (e) Corrective action procedures. (1) Whenever the State agency observes violations during the course of a site review, it shall require the sponsor to take corrective action within 10 days, unless approved by the FNSRO. If the State agency finds a high level of meal service violations, the State agency shall require a specific immediate corrective action plan to be followed by the sponsor and shall either conduct a follow-up visit or in some other manner verify that the specified corrective action has been taken. (2) For serious deficiencies requiring the long-term revision of management systems or processes, the corrective action must be approved by the FNSRO and must include milestones and a definite completion date that the State agency will monitor. The determination of serious deficiency will remain in effect until the State agency determines that the serious deficiency(ies) has(ve) been fully and permanently corrected within the allotted time. (3) At the same time the notice of serious deficiency is issued, the State agency must also update the State agency list to indicate that the corrective action plan has been issued and provide a copy of the corrective action plan to the appropriate FNSRO. (f) Successful corrective action. If corrective action has been taken to fully and permanently correct the serious deficiency(ies) within the allotted time and to the State agency’s satisfaction, the State agency must: (1) Notify the sponsor’s Executive Director and Chairman of the Board of Directors, and the responsible principals and responsible individuals, that the State agency has temporarily deferred its serious deficiency determination; and (2) Offer the new or renewing sponsor the opportunity to resubmit its application. If the new or renewing sponsor resubmits its application, the State agency must complete its review of the application within 30 days after receiving a complete and correct application. (3) If corrective action is complete for the sponsor but not for all of the responsible principals and responsible individuals (or vice versa), the State agency must continue with the actions against the remaining parties; (4) At the same time the notice is issued as required under paragraph (f)(1), the State agency must also update the State agency list to indicate that the serious deficiency(ies) has(ve) been corrected and provide a copy of the notice to the appropriate FNSRO; and (5) If the State agency initially determines that the sponsor’s corrective E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17588 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules action is complete, but later determines that the serious deficiency(ies) has recurred, the State agency must move immediately to issue a notice of termination and proposed disqualification, in accordance with paragraph (g) of this section. (g) Termination procedures. (1) If corrective action is not taken to fully and permanently correct the serious deficiency(ies) within the timeframe established in paragraph (e)(1) of this section, the State agency must immediately terminate the sponsor’s agreement. (2) The State agency shall terminate the participation of a sponsor’s site if the site or sponsor fails to take action to correct the Program violations noted in a State agency review report within the timeframes established by the corrective action plan. (3) The State agency shall immediately terminate the participation of a sponsor’s site if during a review it determines that the health or safety of the participating children is imminently threatened. (4) If the site is vended, the State agency shall within 48 hours notify the food service management company providing meals to the site of the site’s termination. (5) If the State agency holds an agreement with a sponsor that FNS determines to be seriously deficient and subsequently disqualifies, the State agency must terminate the institution’s agreement effective no later than 10 days after the date of the sponsor’s disqualification by FNS. As noted in § 225.13(f)(4), the disqualification is not subject to administrative review. At the same time the notice of disqualification is issued, the State agency must add the sponsor to the State agency list and provide a copy of the notice to the appropriate FNSRO. (6) If the State agency holds an agreement with a sponsor operating in more than one State that another State determines to be seriously deficient and subsequently disqualifies, the State agency must terminate the institution’s agreement effective no later than 10 days after the date of the sponsor’s disqualification by FNS. As noted in § 225.13(f)(4), the disqualification is not subject to administrative review. At the same time the notice of disqualification is issued, the State agency must add the sponsor to the State agency list and provide a copy of the notice to the appropriate FNSRO. (7) If the State agency terminates the sponsor’s agreement for cause, the State agency must notify the sponsor’s Executive Director and Chairman of the Board of Directors, and the responsible VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 principals and responsible individuals, of the termination and disqualification. At the same time the notice is issued, the State agency also must update the State agency list and provide a copy of the notice to the appropriate FNSRO. The notice also must specify: (i) That the State agency is terminating the sponsor’s agreement and will disqualify the sponsor and the responsible principals and responsible individuals; (ii) The basis for the actions; and (iii) The procedures for seeking an administrative review of the application denial and/or termination as provided in § 225.13. (8) If this action results in children not receiving meals under the Program, the State agency shall make reasonable effort to locate another source of meal service for these children. (h) Disqualification procedures. (1) When the time for requesting an administrative review expires or when the administrative review official upholds the State agency’s denial of the sponsor’s application or termination, the State agency must notify the sponsor’s Executive Director and Chairman of the Board of Directors, and the responsible principals and responsible individuals that the sponsor and the responsible principal and responsible individuals have been disqualified. (2) At the same time the notice of disqualification is issued, the State agency must update the State agency list. The State agency must provide a copy of the notice and the mailing address and date of birth for each responsible principal and responsible individual to the appropriate FNSRO to place the sponsor, responsible principal and/or responsible individuals on the National disqualified list. If the State agency does not administer all programs authorized under this part or parts 210, 215, 220 and 226 of this chapter, the State agency must develop a process to share information on sponsors, responsible principals and responsible individuals that were terminated and disqualified, with any other State agency in its State, administering a Child Nutrition Program. The State agency also must notify any State agency in its State, administering a program under parts 246 and 248 of this chapter, of the termination and disqualification of any sponsor, responsible principal, or responsible individual. The process must be approved by the FNSRO and must ensure the State agency works closely with any other State agency within the State administering the programs under parts 210, 215, 220, 226, 246, and 248 PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 of this chapter to ensure information is shared for Program purposes and on a timely basis. (i) National disqualified list. (1) FNS will maintain the National disqualified list and make it available to all State agencies. In addition: (i) No sponsor, responsible principals or responsible individuals on the National disqualified lists under this part or § 226.6 of this chapter may participate in the Program as a sponsor or site. The State agency must not approve the application of a new or renewing sponsor if the sponsor, responsible principals or responsible individuals are on the National disqualified lists under this part or § 226.6 of this chapter. If the State agency holds an agreement with a sponsor that has been placed on the National disqualified lists under this part or § 226.6 of this chapter, the State agency must terminate the agreement. (ii) No individual on the National disqualified lists under this part or § 226.6 of this chapter, may serve as a principal for any sponsor or as a site operator. (2) Once included on the National disqualified list, a sponsor and responsible principals and responsible individuals remain on the National disqualified list until such time as FNS, in consultation with the appropriate State agency, determines that the serious deficiency(ies) that led to their placement on the list has(ve) been corrected, or until seven years have elapsed since they were disqualified from participation. However, if the sponsor, principal or individual has failed to repay debts owed under the Program, they will remain on the list until the debt has been repaid; and (3) Within 10 days of disqualifying a sponsor, the State agency must provide the appropriate FNSRO the full legal name, previously used names, mailing address, and date of birth of each responsible party, which includes, but is not limited to, the Executive Director and Chairman of the Board of Directors. In addition, the sponsor’s Federal Employer Identification Numbers (FEIN) and/or the Dun and Bradstreet Data Universal Numbering System (DUNS) numbers must be provided. (4) A sponsor or a responsible principal or individual may only be removed from the National disqualified list based on the determination of the State agency with concurrence from FNS. ■ 21. In § 225.13, ■ a. Revise paragraph (a); and ■ b. Add paragraphs (e) and (f). The revision and additions read as follows: E:\FR\FM\29MRP2.SGM 29MRP2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 § 225.13 Appeal procedures. The additions read as follows: (a) Each State agency shall establish a procedure to be followed by an applicant appealing: A denial of an application for participation (except if the applicant has failed to complete a corrective action plan from the previous year); a denial of a sponsor’s request for an advance payment; a denial of a sponsor’s claim for reimbursement (except for late submission under § 225.9(d)(6)); a State agency’s refusal to forward to FNS an exception request by the sponsor for payment of a late claim or a request for an upward adjustment to a claim; a claim against a sponsor for remittance of a payment; an assessment established under § 225.18(k); the termination of the sponsor or a site; termination of a sponsor’s agreement; a denial of a sponsor’s application for a site; a denial of a food service management company’s application for registration, if applicable; the revocation of a food service management company’s registration, if applicable; or any other action of the State agency affecting a sponsor’s participation, or its claim for reimbursement. Appeals shall not be allowed on decisions made by FNS with respect to late claims or upward adjustments under § 225.9(d)(6). * * * * * (e) The State agency’s administrative review procedures must be provided: (1) Annually to all sponsors; (2) To a sponsor and to each responsible principal and responsible individual when the State agency takes any action subject to an administrative review; and (3) Any other time upon request. (f) The State agency is prohibited from offering administrative reviews of the following actions: (1) A decision by FNS to deny an exception request by a sponsor for payment of a late claim, or for an upward adjustment to a claim; (2) A determination that a sponsor is seriously deficient; (3) A determination by the State agency that the corrective action taken by a sponsor does not completely and permanently correct a serious deficiency; (4) Disqualification of a sponsor or a responsible principal or responsible individual, and the subsequent placement on the State agency list and the National disqualified list; or (5) Termination of a sponsor or responsible principal or responsible individual under § 225.6(b)(12(i). ■ 22. In § 225.14, redesignate paragraphs (c)(3) through (c)(7) as paragraphs (c)(5), through (c)(9); and add new paragraphs (c)(3) and (c)(4). VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 § 225.14 Requirements for sponsor participation. * * * * * (c) * * * (3) Has not been terminated from any program authorized under this part or parts 210, 215, 220 and 226 of this chapter during the past seven years unless reinstated in, or determined eligible for, that program, as specified in § 225.6(b)(12); (4) Is not currently listed on the National disqualified lists under this part or § 226.6 of this chapter; * * * * * ■ 23. In § 225.18, ■ a. Remove paragraph (b)(2) and redesignate paragraph (b)(3) as paragraph (b)(2); ■ b. Amend newly redesignated paragraph (b)(2) by removing the words ’’any funds paid to the State agency or a sponsor or’’ and ’’or by the State agency from a sponsor’’; ■ c. Add paragraph (k). The addition reads as follows: § 225.18 Miscellaneous administrative provisions. * * * * * (k) Assessments. (1) The State agency may establish an assessment against any sponsor when it has determined that the sponsor or site has: (i) Failed to correct severe mismanagement of the Program; (ii) Disregarded a Program requirement of which the sponsor or site had been informed; or (iii) Failed to correct repeated violations of Program requirements. (2) FNS may direct the State agency to establish an assessment against any sponsor when it has determined that the sponsor or site meets the criteria set forth under paragraph (k)(1) of this section. (3) Funds used to pay an assessment established under this paragraph must be derived from non-federal sources. In calculating an assessment, the State agency must base the amount of the assessment on the reimbursement earned by the sponsor or site for this Program for the most recent fiscal year for which closeout data are available, provided that the assessment does not exceed the equivalent of: (i) For the first assessment, 1 percent of the amount of meal reimbursement earned for the fiscal year; (ii) For the second assessment, 5 percent of the amount of meal reimbursement earned for the fiscal year; and (iii) For the third or subsequent assessment, 10 percent of the amount of PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 17589 meal reimbursement earned for the fiscal year. (4) The State agency must inform the FNSRO at least 30 days prior to establishing an assessment under this paragraph. The State agency must send the sponsor written notification of the assessment established under this paragraph and provide a copy of the notification to the FNSRO. The notification must: (i) Specify the violations or actions which constitute the basis for the assessment and indicate the amount of the assessment; (ii) Inform the sponsor that it may appeal the assessment and advise the sponsor of the appeal procedures established under § 225.13; and (iii) Indicate the effective date and payment procedures should the sponsor not exercise its right to appeal within the specified timeframe. (5) Any sponsor subject to an assessment under paragraph (k)(1) of this section may appeal the State agency’s determination. In appealing an assessment, the sponsor must submit to the State agency any pertinent information, explanation, or evidence addressing the Program violations identified by the State agency. Any sponsor seeking to appeal the State agency determination must follow State agency appeal procedures. (6) The decision of the State agency review official is final and not subject to further administrative or judicial review. Failure to pay an assessment established under this paragraph may be grounds for suspension or termination. (7) Money received by the State agency as a result of an assessment established under this paragraph against a sponsor and any interest charged in the collection of these assessments must be remitted to FNS. PART 226—THE CHILD AND ADULT CARE FOOD PROGRAM 24. The authority citation for part 226 continues to read as follows: ■ Authority: Secs. 9, 11, 14, 16, and 17, Richard B. Russell National School Lunch Act, as amended (42 U.S.C. 1758, 1759a, 1762a, 1765 and 1766). 25. In § 226.2, a. Amend the definition of ‘‘Facility’’ by removing the word ‘‘family’’; and ■ b. Revise the definitions of ‘‘State agency list’’ and ‘‘Termination for convenience’’. The revisions read as follows: ■ ■ § 226.2 Definitions. * * * * * State agency list means an actual paper or electronic list, or the E:\FR\FM\29MRP2.SGM 29MRP2 17590 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules retrievable paper records, maintained by the State agency, that includes a synopsis of information concerning seriously deficient institutions and providers or unaffiliated centers terminated for cause in that State. The list must be made available to FNS upon request, and must include the following information: (a) Institutions determined to be seriously deficient by the State agency, including the full legal names, and any other names previously used, and mailing addresses of the institutions, the basis for each serious deficiency determination, and the status of the institutions as they move through the possible subsequent stages of corrective action, proposed termination, suspension, agreement termination, and/or disqualification, as applicable; (b) Responsible principals and responsible individuals who have been disqualified from participation by the State agency, including their full legal names, and any other names previously used, mailing addresses, and dates of birth; and (c) Day care home providers or unaffiliated centers whose agreements have been terminated for cause by a sponsoring organization in the State, including their full legal names, and any other names previously used, mailing addresses, and dates of birth. * * * * * Termination for convenience means termination of a Program agreement due to considerations unrelated to either party’s performance of Program responsibilities under the agreement between; (a) A State agency and the sponsoring organization; (b) A sponsoring organization and the unaffiliated center; or (c) A sponsoring organization and the day care home. * * * * * ■ 26. In § 226.4, revise paragraph (j) to read as follows: § 226.4 funds. Payments to States and use of mstockstill on DSK4VPTVN1PROD with PROPOSALS2 * * * * * (j) Audit funds. For the expense of conducting audits and reviews under § 226.8, funds shall be made available to each State agency in an amount equal to one and one-half percent of the Program funds used by the State during the second fiscal year preceding the fiscal year for which these funds are to be made available. Beginning in fiscal year 2016 and each fiscal year thereafter, State agencies may request an increase in the amount of funds made available under this paragraph. FNS approval for increased funding will be based on VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 criteria related to the effective use of funds to improve program management. The total amount of audit funds made available to any State agency under this paragraph may not exceed two percent of Program funds used by the State during the second fiscal year preceding the fiscal year for which the funds are made available. The amount of assistance provided to a State under this paragraph in any fiscal year may not exceed the State’s expenditures under § 226.8 during the fiscal year in which funds are made available. * * * * * ■ 27. In § 226.6, ■ a. Revise paragraph (b)(1)(xiii)(A); ■ b. Revise paragraph (b)(1)(xv); ■ c. Revise paragraph (b)(4) ■ d. Amend paragraph (c)(2)(ii)(H) by removing the words ‘‘day care home’’ and adding the phrase ‘‘relating to day care homes and unaffiliated centers as’’ after the word ‘‘provisions’’; ■ e. Amend paragraph (c)(3)(ii)(R) by removing the words ‘‘day care home’’ and adding the phrase ‘‘relating to day care homes and unaffiliated centers as’’ after the word ‘‘provisions’’; ■ f. Revise paragraphs (c)(7)(vi) and (c)(8); ■ g. Amend paragraph (k)(2)(xi) by removing ‘and’ ■ h. Redesignate paragraph (k)(2)(xii) as paragraph (k)(2)(xiii) and add new paragraph (k)(2)(xii); ■ i. Amend paragraph (k)(5)(ii) by adding a second sentence at the end of the paragraph; ■ j. Amend paragraph (k)(5)(ix) by adding the third sentence at the end of the paragraph; ■ k. Add paragraph (k)(11); ■ l. Amend paragraph (l) by revising the paragraph heading and by revising paragraph (l)(1); ■ m. Amend paragraph (l)(2) by adding the words ‘‘and/or unaffiliated center’’ after the word ‘‘home’’; ■ n. Amend paragraph (l)(4) by adding the words ‘‘and unaffiliated centers’’ after the word ‘‘homes’’ in the paragraph heading; ■ o. Amend paragraph (l)(4)(i) by adding the words ‘‘and unaffiliated centers’’ after the word ‘‘homes’’; ■ p. Amend paragraph (l)(4)(ii) by adding the words ‘‘or an unaffiliated center’’ after the word ‘‘home’’; ■ q. Amend paragraph (l)(5) by removing the words ‘‘election pursuant’’ and adding the words ‘‘election(s) according’’ in their place; by adding the words ‘‘or unaffiliated centers’’ after the word ‘‘home’’ in all instances it appears; and by adding the words ‘‘or unaffiliated centers’’ after the word ‘‘homes’’; PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 r. Revise paragraph (m)(3)(ix); and s. Revise paragraphs (m)(6)(i) and (m)(6)(ii). The additions and revisions read as follows: ■ ■ § 226.6 State agency administrative responsibilities. * * * * * (b) * * * (1) * * * (xiii) Ineligibility for other publicly funded programs. (A) General. A State agency is prohibited from approving an institution’s application if, during the past seven years, the institution or any of its principals have been declared ineligible for any other publicly funded program by reason of violating that program’s requirements. This prohibition does not apply if the institution or the principal has been fully reinstated in, or determined eligible for, that program, including the payment of any debts owed. (1) A State agency is prohibited from approving an institution’s application if, during the past seven years, the institution, unaffiliated center, day care home provider, or any principals were terminated for cause from any program authorized under parts 210, 215, 220, 225 of this chapter; or any institution, unaffiliated center, day care home provider, or any principals are currently listed on the National disqualified lists under this part or § 225.11 of this chapter. (2) State agencies must develop a process to share information on any institution, unaffiliated center, day care home provider, or principal terminated or disqualified under this part with any agency within the State administering a Child Nutrition Program under parts 210, 215, 220, and 225 of this chapter. State agencies also must notify any agency within the State administering a program under parts 246 and 248 of this chapter, of the termination and disqualification of any institution, unaffiliated center, day care home provider, or principal. The process must be approved by the FNSRO and must ensure the State agency works closely with any other State agency within the State administering the programs under parts 210, 215, 220, 225, 246 and 248 of this chapter to ensure information is shared for program purposes and on a timely basis. * * * * * (xv) Certification of truth of applications and submission of names and addresses. Institutions must submit a certification that all information on the application is true and correct, along with the name, mailing address, and E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules date of birth of the institution’s executive director and chairman of the board of directors or, in the case of a forprofit center that does not have an executive director or is not required to have a board of directors, the owner of the for-profit center. In addition, the institution’s Federal Employer Identification Numbers (FEIN) and/or the Dun and Bradstreet Data Universal Numbering System (DUNS) numbers must be provided; * * * * * (4) Program agreements. (i) The State agency must require each institution that has been approved for participation in the Program to enter into a permanent agreement governing the rights and responsibilities of each party. The existence of a valid permanent agreement, however, does not eliminate the need for an institution to comply with the reapplication and related provisions at paragraphs (b) and (f) of this section. (ii) The existence of a valid permanent agreement does not limit the State agency’s ability to terminate the agreement, as provided under paragraph (c)(3) of this section. The State agency must terminate the institution’s agreement whenever an institution’s participation in the Program ends. The State agency must terminate the agreement for cause based on violations by the institution or its responsible principals in accordance with paragraph (c) of this section. The State agency or institution may terminate the agreement at its convenience for considerations unrelated to the institution’s performance of Program responsibilities under the agreement. * * * * * (c) * * * (7) * * * (vi) Removal of day care homes and unaffiliated centers or responsible principals and responsible individuals from the list. Once included on the National disqualified list, a day care home, unaffiliated center, or responsible principals and responsible individuals will remain on the list until such time as the State agency, in concurrence with the appropriate FNSRO, determines that the serious deficiency(ies) that led to its placement on the list has(ve) been corrected, or until seven years have elapsed since its agreement was terminated for cause. However, if the day care home, unaffiliated center, or responsible principals and responsible individuals remain as failed to repay debts owed under the Program, it will remain on the list until the debt has been repaid. (8) State agency list. VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 (i) Maintenance of the State agency list. The State agency must maintain a State agency list (in the form of an actual paper or electronic list or retrievable paper records). The list must be made available to FNS upon request, and must include the following information: (A) Institutions determined to be seriously deficient by the State agency, including the full legal names, and any other names previously used, and mailing addresses of the institutions, the basis for each serious deficiency determination, and the status of the institutions as they move through the possible subsequent stages of corrective action, proposed termination, suspension, agreement termination, and/or disqualification, as applicable; (B) Responsible principals and individuals who have been disqualified from participation by the State agency, including their full legal names, and any other names previously used, mailing addresses, and dates of birth; and (C) Day care home providers and unaffiliated centers whose agreements have been terminated for cause by a sponsoring organization in the State, including their full legal names, and any other names previously used, mailing addresses, and dates of birth. (ii) Referral of disqualified day care homes and unaffiliated centers to FNS. Within 10 days of receiving a notice of termination and disqualification from a sponsoring organization, the State agency must provide the appropriate FNSRO the name, mailing address, and date of birth of each day care home provider, unaffiliated centers, or responsible principals and responsible individuals whose agreement is terminated for cause. * * * * * (k) * * * (2) * * * (xi) Overpayment demand. Demand for the remittance of an overpayment (see § 226.14(a)); (xii) Assessment. An assessment established by FNS or the State agency under § 226.25(i); and * * * * * (5) * * * (ii) * * * The State agency must provide a copy of the written request for an administrative review, including the date of receipt of the request to the appropriate FNSRO within 10 days of its receipt of the request. * * * * * (ix) * * * State agencies failing to meet the timeframe set forth in this paragraph are liable for all valid claims for reimbursement to aggrieved PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 17591 institutions, as specified in paragraph (k)(11)(i) of this section. * * * * * (11) State liability for payments. (i) A State agency that fails to meet the 60-day timeframe set forth in paragraph (k)(5)(ix) of this section must pay from non-Federal sources all valid claims for reimbursement to the institution during the period beginning on the 61st day and ending on the date on which the hearing determination is made. (ii) FNS will notify the State agency of its liability for reimbursement at least 30 days before liability is imposed. The timeframe for written notice from FNS is an administrative requirement and may not be used to dispute the State’s liability for reimbursement. The State agency may submit for FNS review information supporting a request for a reduction or reconsideration of the State’s liability for reimbursement. After review, FNS will recover any improperly paid Federal funds. (l) Administrative reviews for day care homes and unaffiliated centers. (1) General. The State agency must ensure that, when a sponsoring organization proposes to terminate its Program agreement with a day care home or unaffiliated center for cause, the day care home or unaffiliated center and any responsible principals are provided an opportunity for an administrative review of the proposed termination. The State agency may do this either by electing to offer a Statelevel administrative review, or by electing to require the sponsoring organization to offer an administrative review. State agencies may make different elections with regard to who offers the administrative review for day care homes and for unaffiliated centers; however, the same election must apply to all day care homes and the same election must apply to all unaffiliated centers. The State agency must notify the appropriate FNSRO of its election under this option, or any change it later makes under this option within 30 days of any subsequent change under this option. The State agency or the sponsoring organization must develop procedures for offering and providing these administrative reviews, and these procedures must be consistent with this paragraph (l). * * * * * (m) * * * (3) * * * (ix) If a sponsoring organization of day care homes or unaffiliated centers, implementation of the serious deficiency and termination procedures for day care homes or unaffiliated E:\FR\FM\29MRP2.SGM 29MRP2 17592 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules centers and, if such procedures have been delegated to sponsoring organizations in accordance with paragraph (l)(1) of this section, the administrative review procedures for day care homes and unaffiliated centers; * * * * * (6) * * * (i) At least once every three years, independent centers and sponsoring organizations of 1 to 100 facilities must be reviewed. A review of such a sponsoring organization must include reviews of 10 percent of the sponsoring organization’s facilities; (ii) At least once every two years, sponsoring organizations with more than 100 facilities, sponsoring organizations that conduct activities other than CACFP with 1 to 100 facilities and independent centers and sponsoring organizations that have been identified during a previous review as having serious management problems or that are at risk of having serious management problems must be reviewed. These reviews must include reviews of 5 percent of the first 1,000 facilities and 2.5 percent of the facilities in excess of 1,000; and * * * * * ■ 28. In § 226.7, ■ a. Revise paragraph (b); and ■ b. Remove paragraph (m). The revision reads as follows: § 226.7 State agency responsibilities for financial management. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 * * * * * (b) Financial management system. Each State agency shall establish and maintain an acceptable financial management system, adhere to financial management standards and otherwise carry out financial management policies in accordance with 2 CFR parts 200, 400, 415, 416, 417, 418, 421, and FNS Instruction 796–2, as applicable, and related FNS guidance to identify allowable Program costs and establish standards for institutional recordkeeping and report. The State agency shall provide guidance on financial management requirements to each institution. (1) State agencies shall also have a system in place for: (i) Annually reviewing at least one month’s bank account activity of all sponsoring organizations against documents adequate to support that the transactions meet program requirements. If the State agency identifies any expenditures that have the appearance of violating Program requirements, the State agency must refer the sponsoring organization’s account activity to the appropriate State authorities for verification; VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 (ii) Annually reviewing actual expenditures reported of Program funds and the amount of meal reimbursement funds retained from centers (if any) for administrative costs for all sponsoring organizations of unaffiliated centers. State agencies shall reconcile reported expenditures with Program payments to ensure funds are fully accounted for, and use the reported actual expenditures as the basis for selecting a sample of expenditures for validation. If the State agency identifies any expenditures that have the appearance of violating Program requirements, the State agency must refer the sponsoring organization’s account activity to the appropriate State authorities for verification: And (iii) Monitoring and reviewing the institutions’ documentation of their nonprofit status to ensure that all Program reimbursement funds are used: (A) Solely for the conduct of the food service operation; or (B) To improve such food service operations, principally for the benefit of the participants. (2) The financial management system standards for institutional recordkeeping and reporting shall: (i) Prohibit claiming reimbursement for meals provided by participant’s family, except as authorized § 226.18(e); and (ii) Allow the cost of meals served to adults who perform necessary food service labor under the Program, except in day care homes. * * * * * ■ 29. In § 226.10, revise paragraph (c) to read as follows: § 226.10 Program payment procedures. * * * * * (c) Claims for Reimbursement shall report information in accordance with the financial management system established by the State agency, and in sufficient detail to justify the reimbursement claimed and to enable the State agency to provide the final Report of the Child and Adult Care Food Program (FNS 44) required under § 226.7(d). In submitting a Claim for Reimbursement, each institution shall certify that the claim is correct and that records are available to support that claim. (1) Prior to submitting its consolidated monthly claim to the State agency, each sponsoring organization must perform edit checks on each facility’s meal claim. At a minimum, the sponsoring organization’s edit checks must: (i) Verify that each facility has been approved to serve the types of meals claimed; and PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 (ii) Compare the number of children or eligible adults enrolled for care at each facility, multiplied by the number of days on which the facility is approved to serve meals, to the total number of meals claimed by the facility for that month. Discrepancies between the facility’s meal claim and its enrollment must be subjected to more thorough review to determine if the claim is accurate. (2) Sponsoring organizations of unaffiliated centers must submit an annual report detailing actual expenditures of Program funds and the amount of meal reimbursement funds retained from centers (if any) for administrative costs for the year to which the claims apply. The report shall use the same cost categories as the approved annual budget submitted by the sponsoring organization. (3) Sponsoring organizations of forprofit child care centers or for-profit outside-school-hours care centers must submit the number and percentage of children in care (enrolled or licensed capacity, whichever is less) that documents that at least 25 percent are eligible for free or reduced-price meals or are title XX beneficiaries. Sponsoring organizations of such centers must not submit a claim for any for-profit center in which less than 25 percent of the children in care (enrolled or licensed capacity, whichever is less) during the claim month were eligible for free or reduced-price meals or were title XX beneficiaries. (4) For each month in which independent for-profit child care centers and independent for-profit outsideschool-hours care centers claim reimbursement, they must submit the number and percentage of children in care (enrolled or licensed capacity, whichever is less) that documents at least 25 percent are eligible for free or reduced-price meals or are title XX beneficiaries. However, children who only receive at-risk afterschool snacks and/or at-risk afterschool meals must not be considered in determining this eligibility. (5) Independent for-profit adult day care centers shall submit the percentages of enrolled adult participants receiving title XIX or title XX benefits for the month claimed for months in which not less than 25 percent of enrolled adult participants were title XIX or title XX beneficiaries. Sponsoring organizations of such adult day care centers shall submit the percentage of enrolled adult participants receiving title XIX or title XX benefits for each center for the claim. Sponsoring organizations of such centers shall not submit claims for adult day care centers E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules in which less than 25 percent of enrolled adult participants were title XIX or title XX beneficiaries for the month claimed. * * * * * ■ 30. In § 226.16, ■ a. Amend paragraph (b)(2) and (b)(3) by removing the phrase ‘‘child care and adult day care’’; ■ b. Amend paragraph (b)(4) by removing the phrase ‘‘on or after June 20, 2000’’; ■ c. Amend paragraph (b)(6), by adding the phrase ‘‘or unaffiliated center’’ after the word ‘‘home’’ in the first sentence; and by adding the phrase ‘‘or an unaffiliated center’s’’ after the word ‘‘home’s’’ in the second sentence; ■ d. Amend paragraph (b)(8) by adding the phrase ‘‘or unaffiliated centers’’ after the word ‘‘homes’’; ■ e. Amend paragraph (c) by removing the phrase ‘‘child care and adult day care’’; ■ f. Amend paragraph (d)(1) by removing the phrase ‘‘child care and adult day care’’ after the word ‘‘each’’ and the phrase ‘‘child care’’ after the phrase ‘‘capability of the’’; ■ g. Revise paragraph (d)(3); ■ h. Amend paragraph (i) by removing the phrase ‘‘child care and adult day care’’; ■ i. Amend paragraph (l)(1) by adding the phrase ‘‘or an unaffiliated center’’ after the word ‘‘home’’ both times it appears in the text; ■ j. Amend paragraph (l)(2) by adding the phrase ‘‘or unaffiliated centers’’ after the word ‘‘homes’’ in the paragraph heading and in the introductory text; ■ k. Amend paragraph (1)(2)(vii) by adding the phrase ‘‘, unaffiliated center or responsible principle’’ after the word ‘‘home’’; ■ l. Add paragraph (l)(2)(x); ■ m. Amend paragraph (l)(3) by adding the phrase ‘‘or unaffiliated center’’ after the word ‘‘home’’ each time it appears in the text; ■ n. Amend paragraph (l)(3)(i) by adding the phrase ‘‘or unaffiliated center’’ after the word ‘‘home’’; ■ o. Amend paragraph (l)(3)(i)(B) by adding the phrase ‘‘or unaffiliated center’’ after the word ‘‘home’’; ■ p. Amend paragraph (l)(3)(i)(E) by adding the phrase ‘‘or unaffiliated center’s’’ after the word ‘‘home’s’’; and removing the words ‘‘and its’’ and adding the words ‘‘, unaffiliated center or any responsible’’ in their place; ■ q. Amend paragraph (l)(3)(i)(F) by adding the phrase ‘‘or unaffiliated center’s’’ after the word ‘‘home’s’’ both times it appears in the text; and removing the words ‘‘and its’’ and adding the words ‘‘, unaffiliated center, or any responsible’’ in their place; VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 r. Revise paragraphs (l)(3)(ii) and (l)(3)(iii); ■ s. Amend paragraph (l)(3)(iv) by adding the phrase ‘‘or unaffiliated center’s’’ after the word ‘‘home’s’’; ■ t. Amend paragraph (l)(3)(v) by adding the phrase ‘‘or unaffiliated center’s’’ after the word ‘‘home’s’’ both times it appears and adding the phrase ‘‘or unaffiliated center’’ after the word ‘‘home’’; ■ u. Revise paragraph (l)(4); and ■ v. Revise paragraph (m). The addition and revisions read as follows: ■ § 226.16 Sponsoring organization provisions. * * * * * (d) * * * (3) Additional mandatory training sessions, as defined by the State agency, for key staff from all sponsored facilities not less frequently than annually. At a minimum, such training must include instruction, appropriate to the level of staff experience and duties, on the Program’s meal patterns, meal counts, claims submission and review procedures, recordkeeping requirements, and reimbursement system. * * * * * (l) * * * (2) * * * (x) For unaffiliated centers only: (A) Use of a food service management company that is in violation of health codes; (B) Failure to adjust meal orders to conform to variations in the number of participants; (C) Claiming reimbursement for meals served by a for-profit child care center or a for-profit outside-school-hours case center during a calendar month in which less than 25 percent of the children in care (enrolled or licensed capacity, whichever is less) were eligible for free or reduced-price meals or were title XX beneficiaries; (D) Claiming reimbursement for meals served by a for-profit adult day care center during a calendar month in which less than 25 percent of its enrolled adult participants were title XIX or title XX beneficiaries; (E) Failure to perform any of the other financial and administrative responsibilities required by this part; (F) The fact that the unaffiliated sponsored center or any of its responsible principals have been declared ineligible for any other publicly funded program by reason of violating that program’s requirements during the past seven years unless reinstated in, or determined eligible for, that program, including the payment of PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 17593 any debts owed. However this prohibition does not apply if the unaffiliated center or any of its responsible principals have been fully reinstated in, or are now eligible to participate in, that program. (3) * * * (ii) Successful corrective action. If the day care home or unaffiliated center corrects the serious deficiency(ies) within the allotted time and to the sponsoring organization’s satisfaction, the sponsoring organization must notify the day care home or unaffiliated center that it has temporarily deferred its determination of serious deficiency. The sponsoring organization must also provide a copy of the notice to the State agency. However, if the sponsoring organization accepts the day care home’s or unaffiliated center’s corrective action, but later determines that the corrective action was not permanent or complete, the sponsoring organization must then propose to terminate the day care home’s or unaffiliated center’s Program agreement and disqualify any responsible principals, as set forth in paragraph (l)(3)(iii) of this section. (iii) Proposed termination of agreement and proposed disqualification. If timely corrective action is not taken to fully and permanently correct the serious deficiency(ies) cited, the sponsoring organization must issue a notice proposing to terminate the day care home’s or unaffiliated center’s agreement for cause. The notice must explain the day care home’s or unaffiliated center’s opportunity for an administrative review of the proposed termination in accordance with § 226.6(l). The sponsoring organization must provide a copy of the notice to the State agency. The notice must specify that: (A) It may continue to participate and receive Program reimbursement for eligible meals served until its administrative review is concluded; (B) Termination of the day care home’s or unaffiliated center’s agreement will result in termination for cause and disqualification; and (C) If the day care home seeks to voluntarily terminate its agreement after receiving the notice of intent to terminate, the day care home or unaffiliated center or any responsible principals will still be placed on the National disqualified list. * * * * * (4) Suspension of participation for day care homes or unaffiliated centers. (i) General. If State or local health or licensing officials have cited a day care E:\FR\FM\29MRP2.SGM 29MRP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 17594 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules home or an unaffiliated center for serious health or safety violations, the sponsoring organization must immediately suspend the day care home’s or unaffiliated center’s CACFP participation prior to any formal action to revoke the day care home’s or unaffiliated center’s licensure or approval. If the sponsoring organization determines that there is an imminent threat to the health or safety of participants at a day care home or an unaffiliated center, or that the day care home or an unaffiliated center has engaged in activities that threaten the public health or safety, and the licensing agency cannot make an immediate onsite visit, the sponsoring organization must immediately notify the appropriate State or local licensing and health authorities and take action that is consistent with the recommendations and requirements of those authorities. An imminent threat to the health or safety of participants and engaging in activities that threaten the public health or safety constitute serious deficiencies; however, the sponsoring organization must use the procedures in this paragraph (l)(4) of this section (and not the procedures in paragraph (l)(3) of this section) to provide the day care home or an unaffiliated center notice of the suspension of participation, serious deficiency, and proposed termination of the day care home’s or an unaffiliated center’s agreement. (ii) Notice of suspension, serious deficiency, and proposed termination. The sponsoring organization must notify the day care home or unaffiliated center that its participation has been suspended, that the day care home or unaffiliated center has been determined seriously deficient, and that the sponsoring organization proposes to terminate the agreement for cause, and must provide a copy of the notice to the State agency. The notice must specify that: (A) The serious deficiency(ies) found and the day care home or unaffiliated center’s opportunity for an administrative review of the proposed termination in accordance with § 226.6(l); (B) Participation (including all Program payments) will remain suspended until the administrative review is concluded; (C) If the administrative review official overturns the suspension, the day care home or unaffiliated center may claim reimbursement for eligible meals served during the suspension; (D) Termination of the day care home’s or unaffiliated center’s agreement will result in the placement of the day care home or unaffiliated VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 center on the National disqualified list; and (E) If the day care home or unaffiliated center seeks to voluntarily terminate its agreement after receiving the notice of proposed termination, the day care home or unaffiliated center will still be terminated for cause and disqualified. (iii) Agreement termination and disqualification. The sponsoring organization must immediately terminate the day care home’s or unaffiliated center’s agreement and disqualify the day care home or unaffiliated center when the administrative review official upholds the sponsoring organization’s proposed termination, or when the day care home’s or unaffiliated center’s opportunity to request an administrative review expires. (iv) Program payments. A sponsoring organization is prohibited from making any Program payments to a day care home or unaffiliated center that has been suspended until any administrative review of the proposed termination is completed. If the suspended day care home or unaffiliated center prevails in the administrative review of the proposed termination, the sponsoring organization must reimburse the day care home or unaffiliated center for eligible meals served during the suspension period. (m) Sponsoring organizations of day care homes or unaffiliated centers must not make payments to employees or contractors solely on the basis of the number of homes or centers recruited. However, such employees or contractors may be paid or evaluated on the basis of recruitment activities accomplished. § 226.21 [Amended] 31. In § 226.21, amend paragraph (a) by removing the text ‘‘$10,000’’ and adding in its place the words ‘‘the small purchase threshold as defined by 2 CFR 200.88 and established by 41 U.S.C. 134, as applicable,’’. ■ 32. In § 226.22, ■ a. Amend paragraph (i)(1) by removing the text ‘‘$10,000’’ and adding in its place the words ‘‘the small purchase threshold as defined by 2 CFR 200.88 and established by 41 U.S.C. 134 as applicable’’ both times it appears; and ■ b. Amend paragraph (l)(2) and (l)(3) by removing the text ‘‘$10,000’’ and adding in its place the words ‘‘the small purchase threshold as defined by 2 CFR 200.88 and established by 41 U.S.C. 134, as applicable,’’ both times it appears: ■ 33. In 226.25, add paragraph (i) to read as follows: ■ PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 § 226.25 Other provisions. * * * * * (i) Assessments. (1) The State agency may establish an assessment against any institution when it has determined that the institution, unaffiliated center, or day care provider has: (i) Failed to correct severe mismanagement of the Program; (ii) Disregarded a Program requirement of which the institution, unaffiliated center, or day care provider had been informed; or (iii) Failed to correct repeated violations of Program requirements. (2) FNS may direct the State agency to establish an assessment against any institution when it has determined that the institution, unaffiliated center, or day care provider has committed one or more acts under paragraph (i)(1) of this section. (3) Funds used to pay an assessment established under this paragraph must be derived from non-federal sources. In calculating an assessment, the State agency must base the amount of the assessment on the reimbursement earned by the institution, unaffiliated center, or day care provider for this Program for the most recent fiscal year for which closeout data are available, provided that the assessment does not exceed the equivalent of: (i) For the first assessment, 1 percent of the amount of meal reimbursement earned for the fiscal year; (ii) For the second assessment, 5 percent of the amount of meal reimbursement earned for the fiscal year; and (iii) For the third or subsequent assessment, 10 percent of the amount of meal reimbursement earned for the fiscal year. (4) The State agency must inform the FNSRO at least 30 days prior to establishing an assessment under this paragraph. The State agency must send the institution written notification of an assessment established under this paragraph and provide a copy of the notification to the FNSRO. The notification must: (i) Specify the violations or actions which constitute the basis for the assessment and indicate the amount of the assessment; (ii) Inform the institution that it may appeal the assessment and advise the institution of the appeal procedures established under § 226.6(k); (iii) Indicate the effective date and payment procedures should the institution not exercise its right to appeal within the specified timeframe. (5) Any institution subject to an assessment under paragraph (i)(1) of this E:\FR\FM\29MRP2.SGM 29MRP2 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules section may appeal the State agency’s determination. In appealing an assessment, the institution must submit to the State agency any pertinent information, explanation, or evidence addressing the Program violations identified by the State agency. Any institution seeking to appeal the State agency determination must follow State agency appeal procedures. (6) The decision of the State agency review official is final and not subject to further administrative or judicial review. Failure to pay an assessment established under this paragraph may be grounds for suspension or termination. (7) Money received by the State agency as a result of an assessment established under this paragraph against an institution and any interest charged in the collection of these assessments must be remitted to FNS. PART 235—STATE ADMINISTRATIVE EXPENSE FUNDS 34. The authority citation for 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). 35. In § 235.11, a. Redesignate paragraphs (c), (d), (e) and (f) as paragraphs (d), (e), (f) and (g); and add new paragraph (c); mstockstill on DSK4VPTVN1PROD with PROPOSALS2 ■ ■ VerDate Sep<11>2014 19:57 Mar 28, 2016 Jkt 238001 b. Amend newly redesignated paragraph (e) by removing the phrase ‘‘or (c)’’ after the phrase ‘‘paragraphs (b)’’ and adding in its place the phrase ‘‘, (c) or (d)’’; and ■ c. Amend newly redesignated paragraph (g) by adding in the first sentence ‘‘and (c)’’ after the words ‘‘provisions of paragraph (b)’’; and adding the words ‘‘or assessment’’ after the word ‘‘sanction’’ each time it appears. The addition reads as follows: ■ § 235.11 Other provisions. * * * * * (c) Assessments. (1) FNS may establish an assessment against any State agency administering the programs under parts 210, 215, 220, 225 and 226 of this chapter and in part 250 of this chapter as it applies to the operation of the Food Distribution Program in schools and child and adult care institutions when it has determined that the State agency has: (i) Failed to correct a State or local mismanagement of the programs; (ii) Disregarded a program requirement of which the State has been informed; or (iii) Failed to correct repeated violations of the program requirements. (2) Funds used to pay an assessment established under paragraph (c)(1) must PO 00000 Frm 00033 Fmt 4701 Sfmt 9990 17595 be derived from non-federal sources. The amount of the assessment will not exceed the equivalent of: (i) For the first assessment, 1 percent of the funds made available under § 235.4 during the most recent fiscal year for which closeout data are available; (ii) For the second assessment, 5 percent of the funds made available under § 235.4 during the most recent fiscal year for which closeout data are available; and (iii) For the third or subsequent assessment, 10 percent of the funds made available under § 235.4 during the most recent fiscal year for which closeout data are available. (3) State agencies seeking to appeal an assessment established under this paragraph must follow the procedures set forth in § 235.11(g). Failure to pay an assessment established under this paragraph may be grounds for suspension or termination. * * * * * Dated: March 22, 2016. Kevin Concannon, Under Secretary, Food, Nutrition and Consumer Services. [FR Doc. 2016–06801 Filed 3–28–16; 8:45 am] BILLING CODE 3410–30–P E:\FR\FM\29MRP2.SGM 29MRP2

Agencies

[Federal Register Volume 81, Number 60 (Tuesday, March 29, 2016)]
[Proposed Rules]
[Pages 17563-17595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06801]



[[Page 17563]]

Vol. 81

Tuesday,

No. 60

March 29, 2016

Part II





Department of Agriculture





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Food and Nutrition Service





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7 CFR Parts 210, 215, 220, et al.





Child Nutrition Program Integrity; Proposed Rule

Federal Register / Vol. 81 , No. 60 / Tuesday, March 29, 2016 / 
Proposed Rules

[[Page 17564]]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210, 215, 220, 225, 226 and 235

RIN 0584-AE08


Child Nutrition Program Integrity

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to codify several provisions of the 
Healthy, Hunger-Free Kids Act of 2010 affecting the integrity of the 
Child Nutrition Programs, including the National School Lunch Program 
(NSLP), the Special Milk Program for Children, the School Breakfast 
Program, the Summer Food Service Program (SFSP), the Child and Adult 
Care Food Program (CACFP) and State Administrative Expense Funds. The 
Department is proposing to establish criteria for assessments against 
State agencies and program operators who jeopardize the integrity of 
any Child Nutrition Program; establish procedures for termination and 
disqualification of entities in the SFSP; modify State agency site 
review requirements in the CACFP; establish State liability for 
reimbursements incurred as a result of a State's failure to conduct 
timely hearings in the CACFP; establish criteria for increased State 
audit funding for CACFP; establish procedures to prohibit the 
participation of entities or individuals terminated from any of the 
Child Nutrition Programs; establish serious deficiency and termination 
procedures for unaffiliated sponsored centers in the CACFP; eliminate 
cost-reimbursement food service management company contracts in the 
NSLP; and establish procurement training requirements for State agency 
and school food authority staff in the NSLP. In addition, this 
rulemaking would make several operational changes to improve oversight 
of an institution's financial management and would also include several 
technical corrections to the regulations. The proposed rule is intended 
to improve the integrity of all Child Nutrition Programs.

DATES: To be assured of consideration, written comments must be 
postmarked on or before May 31, 2016.

ADDRESSES: The Food and Nutrition Service, USDA, invites interested 
persons to submit written comments on this proposed rule. In order to 
ensure proper receipt, written comments must be submitted through one 
of the following methods only:
     Preferred method: Federal eRulemaking Portal at http://www.regulations.gov. Follow the online instructions for submitting 
comments.
     Mail: Comments should be addressed to Andrea Farmer, 
Chief, School Meal Programs Branch, Policy and Program Development 
Division, Child Nutrition Programs, Food and Nutrition Service, 
Department of Agriculture, 3101 Park Center Drive, Alexandria, Virginia 
22302-1594.
     Hand Delivery or Courier: Deliver comments to the Food and 
Nutrition Service, Child Nutrition Programs, 3101 Park Center Drive, 
Alexandria, Virginia 22302-1594, during normal business hours of 8:30 
a.m.-5:00 p.m., Monday through Friday.
    Comments sent by other methods not listed above will not be able to 
be accepted and subsequently, not posted. All comments submitted in 
response to this proposed rule will be included in the record and will 
be made available to the public. Duplicate comments are not considered. 
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. The Department will make the comments publicly 
available on the Internet via http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Mandana Yousefi, Community Meal 
Programs Branch, Policy and Program Development Division, Child 
Nutrition Programs, Food and Nutrition Service at (703) 305-2590.

SUPPLEMENTARY INFORMATION: 
I. Public Comment Procedures
II. Executive Summary
III. Background and Discussion of the Proposed Rule
IV. Procedural Matters

I. Public Comment Procedures

    Your written comments on the proposed rule should be specific, 
should be confined to issues pertinent to the proposed rule, and should 
explain the reason(s) for any change you recommend or proposal(s) you 
oppose. Where possible, you should reference the specific section or 
paragraph of the proposal you are addressing. We invite specific 
comments on various aspects of the rule as described later in this 
preamble. We also invite comments from State agencies, sponsors, and 
providers on the administrative cost of compliance with any of the 
provisions in the rule. Additionally, we invite comments on the 
potential impact of the changes in the proposed rule on Program access, 
particularly in areas through the country where there are a limited 
number of providers available to operate the Programs. Comments 
received after the close of the comment period (refer to DATES) will 
not be considered or included in the Administrative Record for the 
final rule.
    We also invite your comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
    (1) Are the requirements in the proposed regulations clearly 
stated?
    (2) Does the rule contain technical language or jargon that 
interferes with its clarity?
    (3) Does the format of the rule (e.g., grouping and order of 
sections, use of headings, and paragraphing) make it clearer or less 
clear?
    (4) Would the rule be easier to understand if it was divided into 
more (but shorter) sections?
    (5) Is the description of the rule in the preamble section entitled 
``Background and Discussion of the Proposed Rule'' helpful in 
understanding the rule? How could this description be more helpful in 
making the rule easier to understand?

II. Executive Summary

Purpose of the Regulatory Action

    This proposed rule would codify several provisions of the Healthy, 
Hunger-Free Kids Act of 2010 (HHFKA), Public Law 111-296, that affect 
the integrity of the Child Nutrition Programs, including the National 
School Lunch Program (NSLP), the Special Milk Program for Children 
(SMP), the School Breakfast Program (SBP), the Summer Food Service 
Program (SFSP), the Child and Adult Care Food Program (CACFP), and 
State Administrative Expense Funds (SAE). In addition, this rule would 
incorporate policy changes resulting from several findings from 
recently conducted targeted management evaluations of the CACFP by the 
Food and Nutrition Service (FNS), and USDA Office of Inspector General 
audit findings, as well as other miscellaneous revisions to the 
regulations. The rule is intended to improve the integrity of all Child 
Nutrition Programs.
    USDA anticipates that the provisions under this proposed rule would 
be implemented 90 days following publication of the final rule, with 
the exception of those related to CACFP audit funds and those related 
to assessments against State agencies and program operators. The 
provision granting eligible State agencies additional CACFP audit funds 
will be implemented upon publication of the final rule. Because States 
and school districts have been working diligently to implement the 
provisions of the

[[Page 17565]]

Healthy, Hunger-Free Kids Act, USDA anticipates that the provision 
establishing criteria for assessments against State agencies and 
program operators would be implemented one school year following 
publication of the final rule to provide entities the time they need to 
complete successful implementation.

Summary of the Major Provisions of the Regulatory Action

    The major provisions addressed in this rule are:
    Section 303 of the HHFKA: Fines for Violating Program 
Requirements--Section 303 of the HHFKA requires the Secretary to 
establish criteria for the imposition of fines in the Child Nutrition 
Programs, referred to as assessments in this proposed rule. An 
assessment refers to a required payment of funds from non-Federal 
sources. Under section 303, the Secretary or a State agency may 
establish an assessment against any school food authority or school 
administering the Child Nutrition Programs if the Secretary or the 
State agency determines that the school or school food authority failed 
to correct severe mismanagement of any program, failed to correct 
repeated violations of program requirements, or disregarded a 
requirement of which they have been informed. Section 303 also provides 
the Secretary the authority to establish an assessment against any 
State agency if the Secretary determines the State agency has failed to 
correct severe mismanagement of any program, failed to correct repeated 
violations of program requirements, or disregarded a requirement of 
which they have been informed.
    Section 322 of the HHFKA: SFSP Disqualification--Section 322 
requires the Secretary to establish procedures for the termination and 
disqualification of entities participating in the SFSP, to maintain a 
list of entities that have been terminated or disqualified from SFSP, 
and to make this list available to States for use in approving or 
renewing service institutions' applications for SFSP participation.
    Section 331(b) of the HHFKA: State Agency/Sponsor Review 
Requirements in the CACFP--Section 331(b) requires the Secretary to 
develop for State agencies additional criteria or priorities for use in 
choosing institutions for review, including institutions at risk of 
having serious management problems and institutions conducting 
activities other than the CACFP.
    Section 332 of the HHFKA: State Liability for Payments to Aggrieved 
Child Care Institutions--Section 332 requires State agencies to pay all 
valid claims for reimbursement, from non-Federal sources, if the 
required timeframes for a fair hearing are not met.
    Section 335 of the HHFKA: CACFP Audit Funding--Section 335 allows 
the Department to increase the amount of audit funds made available to 
a CACFP State agency if the State agency demonstrates it can 
effectively use the funds to improve Program management in accordance 
with criteria established by the Department.
    Section 362 of the HHFKA: Disqualified Schools, Institutions, and 
Individuals--Section 362 makes any school, institution, service 
institution, facility, or individual that has been terminated from any 
Child Nutrition Program and who is on the CACFP or SFSP National 
Disqualified List ineligible for participation in or administration of 
any Child Nutrition Program.

Costs and Benefits

    While all entities--school food authorities, schools, institutions, 
sponsors sites, sponsoring organizations, day care centers and State 
agencies--administering Child Nutrition Programs will be affected by 
this rulemaking, the economic effect is not expected to be significant 
as explained below.

III. Background and Discussion of the Proposed Rule

    The Department is proposing to amend the regulations for the NSLP, 
SMP, SBP, SFSP, CACFP, and SAE found at 7 CFR parts 210, 215, 220, 225, 
226 and 235, respectively. These changes are intended to improve the 
integrity of the affected Child Nutrition Programs.
    The proposed changes respond to provisions of the HHFKA, findings 
from management evaluations of the CACFP by the Department and from an 
audit by the Department's Office of Inspector General. In addition, the 
proposal includes technical corrections and other miscellaneous 
revisions to the regulations. Each of the proposed changes is discussed 
in detail below.
    The Department recognizes that the provisions in this proposed rule 
impact many aspects of State administration of Child Nutrition 
Programs. As a result, the Department will provide guidance and 
technical assistance to State agencies to ensure successful 
implementation of this regulation. USDA anticipates that the provisions 
under this proposed rule would be implemented 90 days following 
publication of the final rule, with the exception of those related to 
assessments against State agencies and program operators and CACFP 
audit funds. The provision establishing criteria for assessments 
against State agencies and program operators would be implemented one 
school year following publication of the final rule. The provision 
granting eligible State agencies additional CACFP audit funds will be 
implemented upon publication of the final rule.
Proposed Changes in Response to the HHFKA
    Section 303 of the HHFKA: Fines for Violating Program Requirements
    Section 303 of the HHFKA amended section 22 of the Richard B. 
Russell National School Lunch Act (NSLA) (42 U.S.C. 1769c) to require 
the Secretary to establish criteria by which the Secretary or the State 
agency may impose a fine, referred to in this proposed rule as an 
assessment, against any school food authority or school administering a 
program authorized under the NSLA or the Child Nutrition Act of 1966 
(42 U.S.C. 1771 et seq.) (CNA). An assessment refers to a required 
payment of funds from non-Federal sources. The provision also 
authorizes the Secretary to establish an assessment against any State 
agency administering a program under the NSLA or the CNA. Assessments 
established pursuant to section 303 are limited to those situations 
where a school, school food authority, or State agency has failed to 
correct severe mismanagement of any program, disregarded a requirement 
of which it has been informed, or failed to correct repeated violations 
of program requirements.
    The provision implies that an assessment would be established only 
in situations where the regular monitoring, oversight, corrective 
action and technical assistance processes used by a State agency or the 
Department do not result in correction of identified program 
violations. It is important to note that the statutory scheme only 
anticipates assessments be established in instances of severe 
mismanagement of a program, disregard of a program requirement of which 
the program operator had been informed, or failure to correct repeated 
violations. These criteria suggest that violations that would result in 
assessments would be egregious or persistent in nature, remaining 
unresolved after the normal monitoring and oversight activities have 
failed to secure corrective action.
    Current program regulations require rigorous FNS and State agency 
monitoring and oversight. For example, in accordance with 7 CFR part 
210.29,

[[Page 17566]]

FNS conducts management evaluations of State agencies administering the 
NSLP and SBP based on relative-risk for program administration issues, 
rather than by a calendar cycle. At a minimum, each State agency 
receives a management evaluation once every five years to assess 
compliance with all aspects of the State agency's operation of the NSLP 
and SBP. Any findings are recorded in the management evaluation report 
and are either immediately corrected or a corrective action plan is 
implemented with subsequent follow-up activity until the violations are 
corrected. In addition, the monitoring and oversight process for the 
NSLP and SBP calls for a State agency administrative review of each 
school food authority once every three years. As part of the 7 CFR 
210.18 administrative review requirements, State agencies must assess a 
school food authority's compliance with specific performance standards 
as well as with general areas of review. School food authorities 
failing to demonstrate compliance must develop a corrective action plan 
and take corrective actions to ameliorate the problem. The State agency 
must assess the corrective actions taken, provide any needed technical 
assistance, recover any improperly paid Federal funds, and if needed, 
conduct a follow-up review. Generally, State agencies and school food 
authorities work together to correct Program violations for the 
betterment of the Program and the children they serve.
    However, there have been cases, albeit few, where program operators 
have failed to correct Program violations through the normal 
administrative review requirements and technical assistance. This 
proposed rule would provide both the Department and State agencies the 
authority to establish an assessment after the normal monitoring and 
oversight activities have been unsuccessful in correcting program 
violations. The Department anticipates assessments would be established 
only on rare occasions in securing corrective action. However, it 
should serve as a useful tool when egregious or persistent disregard of 
Program requirements occurs.
    Amendatory language under this proposed rule would affect the NSLP, 
SMP, SBP, SFSP, CACFP, and USDA Donated Foods in schools and 
institutions. The Department published proposed regulation ``Fresh 
Fruit and Vegetable Program'' in the Federal Register on February 24, 
2012 (77 FR 10981), which would establish the basic structure of the 
Fresh Fruit and Vegetables Program (FFVP), and related requirements, as 
authorized under section 19 of the NSLA (42 U.S.C. 1769a). While the 
authority set forth in section 303 also extends to the FFVP, this 
proposed rule does not include amendatory changes relating to the FFVP, 
as the FFVP regulations have not yet been codified. It is the intention 
of the Department to incorporate language identical to that proposed at 
Sec.  210.26(b) to extend the authority provided under section 303 to 
the FFVP when that rule is finalized. Any comments related to 
assessments established in the FFVP under section 303 should be 
submitted to the Department in response to this proposed rulemaking.
    Section 303 prescribes upper limits on the amount of the 
assessments that can be established against any school food authority, 
school, and State agency. In calculating assessments against school 
food authorities and schools, the Department is directed to base the 
amount on the reimbursement earned by the school food authority or 
school for the program in which the violation occurred. The amount of 
the assessment may not exceed the equivalent of:
     For the first assessment, 1 percent of the amount of meal 
reimbursements earned for the fiscal year;
     For the second assessment, 5 percent of the amount of meal 
reimbursements earned for the fiscal year; and
     For the third or subsequent assessment, 10 percent of the 
amount of meal reimbursements earned for the fiscal year.
    In calculating assessments established against State agencies, the 
Department is directed to base the amount on the SAE funds made 
available to the State agency for the State agency's administration of 
the Child Nutrition Programs. Therefore, the amount of the assessment 
is based on SAE funds for all Child Nutrition Programs, not only SAE 
support earned by the program in which the violation occurred. The 
amount of the assessment may not exceed the equivalent of:
     For the first assessment,1 percent of funds made available 
for SAE during the fiscal year;
     For the second assessment, 5 percent of funds made 
available for SAE during the fiscal year; and
     For the third or subsequent assessment, 10 percent of the 
amount funds made available for SAE during the fiscal year.
    The proposed regulation bases these limits on the most recent 
fiscal year for which meal reimbursements or SAE allocations closeout 
data are available. Finally, section 303 specifies that funds used to 
pay an assessment must be derived from non-Federal sources. This new 
authority to establish assessments is expected to serve as a deterrent 
to those State and local program operators who disregard the program 
requirements of any Child Nutrition Program.
    This rule proposes to amend the regulations for the NSLP, SMP, SBP, 
SFSP, and CACFP at Sec. Sec.  210.26(b), 215.15(b), 220.18(b), 
225.18(k), and 226.25(i) to codify the authority to establish an 
assessment, identify the violations for which an assessment would be 
established, and establish the monetary limits to which an assessment 
may be imposed, as outlined in the NSLA.
    Section 303 authorizes the Secretary or a State agency to establish 
assessments against school food authorities and schools administering 
any Child Nutrition Program. However, in addition to school food 
authorities and schools, other types of institutions operate the Child 
Nutrition Programs in accordance with the statutory and regulatory 
framework. Institutions, sites, sponsors, day care centers, and day 
care providers also may operate under the SMP, SFSP, or CACFP.
    Investigations conducted by the USDA OIG and management evaluations 
of State agencies conducted by the Department identified problems in 
the Child Nutrition Programs associated with non-school Program 
operators. In 2006, OIG conducted an audit of the SFSP in California 
and Nevada which found the majority of private nonprofit sponsors 
reviewed to be noncompliant in Program requirements related to meal 
counts, costs and income reporting, as well as State health and safety 
code requirements. In addition, the Child Care Assessment Project 
(CCAP) Final Report, published by the Department in July 2009, 
identified inaccurate meal counts and menu records by providers and 
private nonprofit sponsoring organizations and a failure to employ the 
serious deficiency process as intended. These findings indicate 
patterns of non-compliance in CACFP and SFSP by entities/institutions 
which are not school food authorities or schools. OIG has several 
audits currently underway, including a review of management controls in 
the CACFP, areas of risk assessment in the CACFP and a follow up of the 
2006 SFSP audit in California and Nevada. The findings of these audits 
can be found in the Review of the Management Controls in the CACFP 
Final Report published by the Department in November 2011.
    With these findings in mind and consistent with the Department's 
authority in Section 10(a) of the CNA, 42 U.S.C. 1779(a), to promulgate 
regulations necessary to carry out the

[[Page 17567]]

Child Nutrition Programs, this rule would extend to all entities that 
have an agreement with the State agency. Thus, this proposed rule would 
apply to school food authorities, schools, institutions, sites, 
sponsors, day care centers, and day care providers. The resultant rule 
would ensure program integrity and equitable treatment of all 
participating entities and institutions.
    Given the fiscal consequences of this provision, the Department 
would provide school food authorities, institutions, and sponsors the 
opportunity to appeal any assessment established pursuant to this 
regulatory authority. School food authorities, institutions, and 
sponsors administering the NSLP, SFSP, and CACFP currently have the 
ability to appeal fiscal action through the existing administrative 
review process in the NSLP, SFSP, and CACFP regulations. This proposed 
rule would expand current regulatory appeal rights to include any 
assessment established pursuant to this regulatory authority and would 
extend those appeal rights and procedures to both the SMP and SBP. To 
ensure the appeal process is completed on a timely basis, this proposed 
rule would make the determination of the State agency review official 
final and not subject to further administrative review. The proposed 
rule also would require the State agency to notify the Department at 
least 30 days prior to establishing an assessment.
    Finally, the proposal would provide the Department and the State 
agency the authority to suspend or terminate the participation of an 
entity if the established assessment is not paid.
    This rule also proposes to amend the SAE regulations at Sec.  
235.11(c) to incorporate the Department's authority to establish an 
assessment against a State agency, the violations for which an 
assessment would be established, and the monetary limits to which an 
assessment may be established.
    The proposed rule would expand the current criteria previously 
established in regulation for establishing an assessment to include the 
State's failure to correct both State and local mismanagement of the 
program as a violation for which an assessment may be established. This 
reflects the State agencies' responsibility for ensuring the proper 
administration of the programs at both the State and local level.
    As with program operators, this proposed rule would provide State 
agencies the ability to appeal any assessment established through the 
existing administrative review process for State agencies in Sec.  
235.11(g), would make the determination of the Department review 
official in any appeal final and not subject to further administrative 
or judicial review, and would provide the authority for the Department 
to suspend or terminate the participation of the State agency if the 
State agency failed to pay the assessment.
    Finally, the proposed rule would require that all assessments and 
any interest charged would be collected and paid to the Department and 
transmitted to the U.S. Department of the Treasury. Funds received by 
and from the State agencies as a result of assessments must be paid 
from non-Federal sources. As such, the funds could not be used by the 
Department.
    Accordingly, proposed rule changes are found at Sec. Sec.  
210.18(q), 210.26(b), 215.15(b), 220.18(b), 225.13(a), 225.18(k), 
226.6(k)(2)(xii), 226.25(i), and 235.11(c) and (g).
Section 322 of the HHFKA: SFSP Disqualification
    Section 322 of the HHFKA amended section 13 of the NSLA (42 U.S.C. 
1761) by adding a new paragraph (q), Termination and Disqualification 
of Participating Organizations. Under this new authority, State 
agencies are required to follow the procedures for the termination of 
participation of institutions in the SFSP established by the Secretary. 
The procedures for termination must include a provision for a fair 
hearing and prompt determination for any service institution aggrieved 
by any action of the State agency that affects the participation of the 
service institution in the SFSP or the claim of the service institution 
for reimbursement. The Secretary is required to maintain a list of 
institutions and individuals that have been terminated or otherwise 
disqualified from participation in the SFSP and to make the list 
available to States for use in approving or renewing applications by 
institutions for participation in the SFSP.
    Prior to enactment of the HHFKA, the Department and State agencies 
did not have the authority to disqualify SFSP sponsors. Current 
regulations at Sec.  225.11(c) only provide authority to terminate 
sponsor participation. These regulations prohibit State agencies from 
entering into an agreement with any applicant sponsor, or allowing 
participation in the Program, of a sponsor that was seriously deficient 
in its operation of the SFSP, or any other Federal Child Nutrition 
Program. Additionally, State agencies are required to terminate the 
Program agreement with any sponsor determined to be seriously deficient 
and provide a sponsor reasonable opportunity to correct problems before 
termination. Current regulations indicate the types of serious 
deficiencies which are grounds for disapproval of an application or 
termination.
    Current regulations at Sec.  225.11(f) require State agencies to 
terminate participation of sites or sponsors for failure to correct 
Program violations within timeframes specified in a corrective action 
plan. Additionally, participation of a site must be immediately 
terminated if there is an imminent threat to the health or safety of 
the participating children. Once terminated, claims for reimbursement 
may not be submitted. Under Sec.  225.13, State agencies must afford 
sponsors the right to appeal termination and denial of an application 
for participation.
    This proposed rule would reorganize the current SFSP regulations, 
amend the current SFSP termination process, and establish a 
disqualification process similar to the process employed in the CACFP, 
with modifications reflecting the shorter duration of the SFSP. For 
example, the proposed maximum timeframe for which the corrective action 
plan may be implemented in SFSP is 10 days, whereas in the CACFP this 
maximum timeframe is 90 days.
    Because SFSP and CACFP are administered by the same State agency in 
many States, using similar procedures is expected to facilitate and 
streamline the implementation of the SFSP termination and 
disqualification process. Thus, the Department will develop a National 
Disqualified List (NDL) for SFSP that is modeled after the current 
CACFP NDL.
    The proposed rule makes a number of changes throughout the SFSP 
regulations in order to present a holistic approach to the termination 
and disqualification process. An overview of the proposed changes 
follows.
    The proposed rule would add the following definitions to Sec.  
225.2, Definitions. These definitions are generally consistent with 
those set forth in the CACFP regulations at Sec.  226.2:
     Administrative review means a fair hearing provided upon 
request to an entity that has been given notice by the State agency of 
any action that will affect their participation or reimbursement in the 
SFSP.
     Administrative review official means the independent and 
impartial official who conducts the administrative review.
     National disqualified list mean a list, maintained by the 
Department, of sponsors, responsible principals, and responsible 
individuals disqualified from participation in the SFSP.

[[Page 17568]]

     Responsible principal or responsible individual means a 
sponsor principal, any other individual employed by, or under contract 
with, a sponsor, or an individual not compensated by the sponsor, 
determined to be responsible for a sponsor's serious deficiency.
     Seriously deficient means the status of a sponsor that has 
been determined to be non-compliant in one or more aspects of its 
operation of the Program.
     State agency list means a list maintained by the State 
agency, which includes a synopsis of information concerning seriously 
deficient sponsors and which must be updated throughout all stages of 
the termination and disqualification process.
    Maintaining a State agency list is a new requirement for State 
agencies under this proposed rule.
    Under current Sec.  225.6(b), Approval of sponsor applications, 
paragraph (b)(9) prohibits the State agency from approving the 
application of any applicant sponsor that has been determined to be 
seriously deficient. However, the State agency may approve the 
application of a sponsor that has been disapproved or terminated in 
prior years if the applicant demonstrates to the satisfaction of the 
State agency that it has taken appropriate corrective actions to 
prevent recurrence of the deficiencies. This proposed rule would expand 
paragraph (b)(9) to require the State agency to develop policies and 
procedures to confirm that serious deficiencies have been fully and 
permanently corrected. This confirmation must address the circumstances 
that led to the serious deficiency, the responsible parties, the 
timeframe for corrective action, and policies and/or procedures that 
are in place to avoid recurrence of the serious deficiency within the 
same Program year or in subsequent Program years.
    Under current Program regulations at Sec.  225.6(c), Content of 
sponsor application, paragraph (c)(1) establishes basic application 
requirements, and paragraph (c)(2)(ii) requires new sponsors and 
sponsors that have experienced significant operational problems in the 
prior year to include additional information in their application.
    This rule proposes to expand paragraph (c)(1) to require the 
application to include the following information: Full legal name; any 
previously used names; mailing address; and date of birth of the 
sponsor's principals, which includes, but is not limited to, the 
Executive Director and Chairman of the Board of Directors; and the 
sponsor's Federal Employer Identification Numbers (FEIN) and/or the Dun 
and Bradstreet Data Universal Numbering System (DUNS) numbers. This 
information would be included in entries submitted by the State agency 
for placement on the SFSP NDL if the sponsor is terminated for cause. 
Limited access to the SFSP NDL would be granted to authorized State 
agency personnel tasked with decisions regarding application approvals 
or terminations from participation. However, FNS is particularly 
interested in comments regarding this proposed change and whether 
sponsors, in addition to State agencies, should also have limited 
access to the SFSP NDL.
    In addition the proposed rule would expand paragraph (c)(2)(ii) to 
require new sponsors and sponsors who have experienced problems in the 
prior year to submit a certification, similar to that which is required 
under the CACFP, that:
     The information on the application, as required in 
paragraph (c)(1) is true and correct;
     Serious deficiencies identified during the previous year 
have been fully and permanently corrected;
     The sponsor, sites under its jurisdiction, or any 
responsible principals have not been terminated for cause from any 
Child Nutrition Program during the past seven years unless reinstated 
in, or determined eligible for, that program, including by the payment 
of any debts owed, or are not currently on the CACFP or the SFSP NDL; 
and
     The sponsor, sites under its jurisdiction, or any 
responsible principals have not been convicted of any activity that 
occurred during the past seven years and that indicated a lack of 
business integrity.
    Current Program regulations at Sec.  225.6(d), Approval of sites, 
identifies criteria State agencies must consider when approving sites 
for participation in the SFSP. This proposed rule would expand the 
criteria in paragraph (d) to specify that State agencies may not 
approve a site if the site or its responsible individuals are currently 
on the CACFP or the SFSP NDL or have been terminated for cause from the 
NSLP, SBP, or SMP.
    The proposed rule would make a number of revisions to Sec.  225.11, 
including re-titling the section as Administrative actions for program 
violations, and reorganizing the provisions.
    Proposed Sec.  225.11(c), List of serious deficiencies, would 
revise existing paragraph (c) to expand the list of serious 
deficiencies to include:
     The submission of false information to the State agency, 
including concealing criminal convictions, that occurred in the past 
seven years and that indicate a lack of business integrity;
     A significant number of Program violations at a site;
     Termination or disqualification from another Child 
Nutrition Program; and
     Any action affecting a sponsor's ability to administer the 
Program in accordance with Program requirements
    Additionally, proposed paragraph (c) would allow no more than 10 
days for corrective action to be completed, unless otherwise approved 
by the Department. If the State agency cannot confirm that serious 
deficiencies have been fully and permanently corrected, in accordance 
with Sec.  225.6(b)(9), the sponsor would be terminated. Current 
regulations do not specify a timeframe for corrective action and CACFP 
regulations allow for a timeframe of 90 days. However, given the short 
duration of SFSP, the Department determined a 10-day timeframe would 
best meet the needs of the SFSP in ensuring Program integrity. State 
agencies, institutions, and sites are encouraged to address the 
sufficiency of the proposed 10-day corrective action timeframe in their 
comments on the rule.
    Proposed Sec.  225.11(d), Serious deficiency procedures, would 
identify the actions a State agency must take to declare an institution 
or individual seriously deficient. This proposed paragraph is new to 
the SFSP and is modeled after the CACFP serious deficiency notification 
procedures found at Sec.  226.6(c)(1)(i), Sec.  226.6(c)(1)(iii)(A), 
and Sec.  226.6(c)(2)(iii)(A). Under the proposed rule, if an entity is 
seriously deficient, the State agency must declare it as such and send 
a notification of serious deficiency to the applicable parties. At the 
same time the notice is issued, the State agency would be required to 
add applicable parties to the State agency list, indicate that the 
notice of serious deficiency(ies) has(ve) been issued, include the 
basis for the serious deficiency determination, and provide a copy of 
the notice to the Department. Proposed Sec.  225.11(d)(4) incorporates 
the required components of this notice.
    Proposed Sec.  225.11(d)(5) addresses the proposed requirements for 
the State agency list. The State agency list, as discussed above, would 
include a synopsis of information concerning seriously deficient 
sponsors and would be updated throughout all stages of the termination 
and disqualification process. The requirement to maintain a State 
agency list is new to the SFSP and is modeled after the CACFP State 
agency list. As previously mentioned,

[[Page 17569]]

the term, State agency list, is defined in proposed Sec.  225.2.
    Proposed Sec.  225.11(e), Corrective action procedures, restates 
the provisions of existing Sec.  225.11(f)(1), which require the 
sponsor to take corrective action for violations identified on a site 
review. The proposed rule expands the corrective action requirement for 
serious deficiencies requiring a longer-term revision of management 
systems, meaning actions that require a significant amount of time to 
ensure the serious deficiency is properly addressed. In such 
situations, the proposal would require the corrective action plan to 
identify serious deficiencies and a date by which corrective action 
must be completed and would clarify the State agency's monitoring 
responsibility. At the same time, the State agency would be required to 
revise the State agency list to indicate that the corrective action 
plan has been submitted, and provide a copy of the plan to the 
Department.
    Proposed Sec.  225.11(f), Successful corrective action, would 
identify the procedures a State agency must take if the serious 
deficiency is fully and permanently corrected. This proposed paragraph 
is new to SFSP and is modeled after the CACFP successful corrective 
action process found at Sec.  226.6(c)(1)(iii)(B) and Sec.  
226.6(c)(2)(iii)(B). Under the proposed rule, the State agency would 
notify all affected parties that the State agency has accepted the 
corrective action. For those sponsors whose applications were denied, 
the State agency would afford a new or renewing sponsor the opportunity 
to resubmit its application.
    Under the proposed rule, if the State agency initially determines 
that the sponsor's corrective action is complete, but later determines 
that the serious deficiency has recurred, the State agency would move 
immediately to issue a notice of termination and disqualification, 
which is similar to the process used in CACFP. However, FNS is 
particularly interested in comments regarding this proposed change and 
whether it would be more effective to provide the State agency with 
discretion to restart the serious deficiency process for recurring 
deficiencies when appropriate, rather than requiring immediate 
termination and disqualification.
    Proposed Sec.  225.11(g), Termination procedures, would incorporate 
the termination procedures a State agency must take if the corrective 
action plan is not successfully completed. Proposed paragraph (g)(1) 
would require the State agency to terminate the sponsor's agreement if 
timely corrective action is not taken to fully and permanently correct 
the serious deficiency. This paragraph is new to SFSP and is modeled 
after the CACFP termination procedures. However, the SFSP process 
differs in that termination occurs immediately following failed 
corrective action, but includes an opportunity for administrative 
review. As noted above in discussing the distinctions between the 
Programs' corrective action timeframes, the short duration of the SFSP 
dictates a more immediate need to protect Program integrity through 
quick resolution of an institution's serious deficiencies or removal 
from SFSP.
    Proposed paragraphs (g)(2) through (g)(4) would restate existing 
SFSP provisions requiring the State agency to terminate a sponsor's 
site if the sponsor fails to take corrective action noted in the State 
agency's review report or if there is an imminent threat to the health 
and safety of the participating children, and to notify any food 
service management company providing meals to a site within 48 hours of 
a site's termination.
    Proposed paragraphs (g)(5) and (g)(6) would require the State 
agency to terminate an institution's agreement if the Department or 
another State determines the institution to be seriously deficient and 
subsequently disqualifies the institution in this Program or any other 
Child Nutrition Program. Section 362 of the HHFKA amended section 12 of 
the NSLA (42 U.S.C. 1760) to prohibit any school, institution, service 
institution, facility, or individual that has been terminated from any 
Child Nutrition Program from participating in or administering any 
Child Nutrition Program. This provision requires expanded access to the 
CACFP or SFSP NDL allowing State agencies to conduct oversight of 
sections 322 and 362 of the HHFKA.
    Under proposed paragraph (g)(7), the State agency must notify all 
affected parties that the State agency has terminated the sponsor's 
agreement or participation of the sponsor's site. The notice would 
include the procedures for seeking an administrative review of the 
State agency's decision.
    Proposed Sec.  225.11(h), Disqualification procedures, would 
identify the disqualification procedures a State agency must take in 
the event that the time to request an administrative review expires or 
when the administrative review official upholds the State agency's 
decision.
    Under the proposed rule, the State agency must notify all affected 
parties who have been disqualified. At the same time the notice of 
disqualification is issued, the State agency must update the State 
agency list and provide a copy of the notice and related information to 
FNS. If the State agency does not administer all the Child Nutrition 
Programs, the State agency must notify the State agency administering 
the other programs of the disqualification. The proposed rule would 
also require State agencies to develop a process to notify WIC State 
agencies of entities or individuals terminated for cause or 
disqualified. These proposed actions are new to SFSP and are modeled 
after the CACFP agreement termination and disqualification procedures 
found at Sec.  226.6(c)(1)(iii)(E) and Sec.  226.6(c)(2)(iii)(E).
    Proposed Sec.  225.11(i), National disqualified list, would 
reference the authority of the Department to maintain an NDL and make 
the list available to all State agencies. This proposed paragraph is 
new to the SFSP and is modeled after the CACFP NDL requirements found 
at Sec.  226.6(c)(7). Once placed on the SFSP NDL, an entity or 
individual may not participate in any of the Child Nutrition Programs 
in any capacity. The entity or individual must remain on the list until 
the Department, in consultation with the State agency, determines that 
the entity or individual is no longer seriously deficient, or until 
seven years have elapsed since the disqualification, provided all debts 
owed have been paid.
    The Department also is proposing to amend Sec.  225.13, Appeal 
Procedures, to include the opportunity to appeal the termination of a 
sponsor's agreement and any other action of the State agency affecting 
a sponsor's participation, or its claim for reimbursement. Proposed 
Sec.  225.13(e) would require State agencies to provide its 
administrative review procedures to sponsors annually and upon request. 
Under this proposal, upon termination, sponsors would be provided an 
opportunity to request an administrative review. However, 
disqualification from the Program would not be subject to appeal. 
Although current regulations at Sec.  225.13(b)(1) allow sponsors to 
continue operation during an appeal of termination, unlike the 
procedures in CACFP, sponsors are not eligible for continued 
reimbursement during this period. This modification is necessary due to 
the short duration of the SFSP. If the termination is ultimately upheld 
upon review, the sponsor and responsible individuals would be 
disqualified; if the termination is overturned, the sponsor would be 
eligible for reimbursement for properly documented meals served during 
the review period, unless the termination

[[Page 17570]]

was based on imminent danger to the health or safety of children.
    Accordingly, the proposed rule changes are found at Sec. Sec.  
225.2, 225.6(b), 225.6(c)(2)(ii)(E), 225.6(c)(2)(ii)(D), 225.6(d), 
225.11, 225.13(a), 225.13(e), and 225.18(b).
Section 331(a) and 321 of the HHFKA: Termination of Operating 
Agreements in CACFP and SFSP
    Section 331(a) of the HHFKA amended section 17(d)(1) of the NSLA 
(42 U.S.C.1766(d)(1)) to require all institutions that meet the 
conditions of eligibility for participation in the CACFP to enter into 
permanent agreements with the respective State agency. Previously this 
was not a requirement, but only an option for State agencies. 
Similarly, section 321 of the HHFKA amended section 13(b) of the NSLA 
(42 U.S.C. 1761(b)) to require institutions that meet the conditions of 
eligibility for participation in the SFSP to enter into permanent 
agreements with the applicable State agency. State agencies were 
advised of the section 331(a) and section 321 requirements for 
permanent operating agreements in a memorandum issued January 14, 2011, 
Child Nutrition Reauthorization 2010: Permanent Agreements in the 
Summer Food Service Program and the Child and Adult Care Food Program 
(CACFP 07-2011 and SFSP 03-2011).
    Section 331(a) and section 321 allow State agencies and 
institutions which enter into permanent agreements in either the CACFP 
or SFSP to terminate a permanent agreement for convenience. As a 
result, either party to the permanent agreement may terminate the 
agreement for considerations unrelated to the institution's performance 
of program responsibilities under the agreement. In addition, sections 
331(a) and 321 require State agencies to (1) terminate the permanent 
agreement for cause; or (2) terminate the permanent agreement when an 
institution's participation in the program ends.
    To effect the changes required by section 331(a) in CACFP, the 
proposed rule would revise Sec.  226.6(b)(4) to require State agencies 
to: (1) Terminate an institution's agreement whenever an institution's 
participation in the Program ends; and (2) terminate the agreement for 
cause in accordance with CACFP regulations. In addition, the proposed 
rule would allow the State agency or institution to terminate the 
agreement at the convenience of the State agency for considerations 
unrelated to the institution's performance of Program responsibilities 
under the agreement. Examples of termination for convenience include a 
State agency's inability to effectively monitor a remote location or an 
institution's desire to self-terminate. No change is made to current 
regulations prohibiting termination for convenience once an entity has 
been declared seriously deficient and corrective action has not been 
completed and approved.
    The proposal also would amend the CACFP definition of Termination 
for convenience in Sec.  226.2. As currently defined, Termination for 
convenience means termination of a day care home's Program agreement by 
either the sponsoring organization or the day care home, due to 
considerations unrelated to either party's performance of Program 
responsibilities under the agreement. Under the proposed rule, the 
definition would be expanded to include agreements between the State 
agency and an institution, and a sponsoring organization and an 
unaffiliated center. This change is intended to reflect sections 331(a) 
and (c) of the HHFKA, which require permanent operating agreements 
between State agencies and institutions and between sponsoring 
organizations and sponsored centers.
    The proposed rule also would amend SFSP regulations at Sec.  
225.6(e) to incorporate changes related to termination for cause and 
end of Program activity in the SFSP comparable to those discussed above 
for the CACFP. Because the SFSP regulations currently do not include a 
definition of Termination for convenience, no changes are made to the 
SFSP definitions.
    Accordingly, the proposed rule changes are found at Sec. Sec.  
225.2, 225.6(b)(4) and 225.6(c).
Section 331(b) of the HHFKA: State Agency Sponsor Review Requirements 
in the CACFP
    Section 331(b) of the HHFKA amended section 17(d) of the NSLA (42 
U.S.C. 1766(d)) to direct the Department to develop a policy for 
required reviews of institutions in the CACFP. As directed by the 
statute, each State agency must conduct: (1) At least one scheduled 
site visit at not less than 3-year intervals to each institution to 
identify and prevent management deficiencies and fraud and abuse under 
the Program and to improve Program operations; and (2) more frequent 
reviews of any institution that sponsors a significant share of 
facilities participating in the Program, conducts activities other than 
the CACFP, has serious management problems as identified in a prior 
review, is at risk of having serious management problems, or meets such 
other criteria as are defined by the Department.
    Current regulations at Sec.  226.6(m)(6) require State agencies to 
annually review at least 33.3 percent of all institutions participating 
in the CACFP in each State. Institutions with 1 to 100 facilities must 
be reviewed at least once every three years. Institutions with more 
than 100 facilities must be reviewed at least once every two years. New 
institutions with five or more facilities must be reviewed within the 
first 90 days of operation. This proposed rule would amend Sec.  
226.6(m)(6) to modify the review requirements for institutions that 
must be reviewed at least every two years. In addition to reviewing 
institutions with more than 100 facilities as currently required, the 
proposal also would require the State agency to review, at least every 
2 years, institutions with 1 to 100 facilities that conduct activities 
other than CACFP, and institutions that have been identified during a 
previous review as having serious management problems, or that are at 
risk of having serious management problems. Institutions that conduct 
activities other than CACFP with more than 100 facilities are currently 
reviewed at least once every two years; therefore, the proposed rule 
would not alter the review requirement for these institutions.
    Examples of criteria to be considered as posing a risk of serious 
management problems include: Change in ownership or significant staff 
turnover; change in licensing status; complaints received by 
facilities, day care providers, or participants; significant change in 
the number of claims submitted; or significant increase in the number 
of sponsored facilities or day care homes.
    The composition of institutions varies throughout each State, 
therefore, determining the burden placed on State agencies by requiring 
more frequent reviews of institutions is difficult to predict. The 
Department asks for comments regarding the effect this proposed rule 
will have with respect to the frequency and number of reviews the State 
agency would be required to administer.
    Accordingly, the proposed rule changes are found at Sec.  
226.6(m)(6).
Section 332 of the HHFKA: State Liability for Payments to Aggrieved 
Child Care Institutions
    Section 17(e) of the NSLA (42 U.S.C. 1766(e)) requires State 
agencies to provide an opportunity for a fair hearing and a prompt 
determination to any institution aggrieved by any action by the State 
agency that affects either the participation of the institution in the 
CACFP or the claim of the institution for reimbursement in the CACFP.

[[Page 17571]]

    Section 332 of the HHFKA amended section 17(e) of the NSLA (42 
U.S.C. 1766(e)) to require State agencies failing to meet required 
timeframes in providing a fair hearing and a prompt determination to 
pay all valid claims for reimbursement to the appellant institution and 
the facilities of the institution, using funds from non-Federal 
sources. The State's liability for these claims begins on the day after 
the end of any regulatory deadline for providing the opportunity for a 
fair hearing and making the determination, and ending on the date on 
which a hearing determination is made. Section 332 directs the 
Department to provide written notice of this liability to a State 
agency at least 30 days prior to the imposition of any liability for 
reimbursement.
    Current regulations at Sec.  226.6(k)(5)(ix) specify the procedures 
for administrative reviews in CACFP. Under those procedures, State 
agencies must acknowledge the receipt of the request for an 
administrative review within 10 days of its receipt of the request. 
Within 60 days of the State agency's receipt of the request for an 
administrative review, the administrative review official must inform 
the State agency, the institution's executive director and chairman of 
the board of directors, and the responsible principals and responsible 
individuals of the administrative review's outcome. Current regulations 
at Sec.  226.6(c)(3)(iii)(E)(5) specify that all valid claims for 
reimbursement must be paid to the institution and the facilities of the 
institution while under administrative review unless the State or local 
health or licensing officials have cited an institution for serious 
health or safety violations.
    This proposed rule would make no changes to the existing 
administrative review procedures or timeframes. However, the proposed 
rule at Sec.  226.6(k)(5)(ii) would require the State agency to provide 
a copy of the written request for an administrative review, including 
the date of receipt of the request, to the Department within 10 days of 
receipt of the request. This information would allow the Department to 
track State agency progress and timeliness in meeting the required 
administrative review timeframe.
    The proposed rule at Sec.  226.6(k)(5)(ix) would inform State 
agencies failing to meet the required timeframe for providing a fair 
hearing and a prompt determination of their liability to pay all valid 
claims for reimbursement to the institution. Under Sec.  226.6(k)(11) 
of the proposal, a State agency that fails to meet the 60-day timeframe 
set forth in paragraph (k)(5)(ix) would pay all valid claims for 
reimbursement to the institution during the period beginning on the 
61st day and ending on the date on which the hearing determination is 
made. The Department would notify the State agency of its liability for 
all valid claims for reimbursement to an aggrieved institution(s) at 
least 30 days prior to imposing any liability. Liability for 
reimbursement would begin 61 days following the State agency's receipt 
of a request for an administrative review and end on the date on which 
a hearing determination is made. During this period, the State agency 
would be required to pay from non-Federal sources all valid claims for 
reimbursement to the aggrieved institution. The Department expects 
State agencies to assess the validity of such claims using the same 
standards used to review all claims for reimbursement. The Department 
would monitor the approval and payment of such claims during management 
evaluations to ensure State agencies act in good faith when assessing 
the validity of claims once State liability is imposed. This proposed 
requirement is expected to improve State compliance with the required 
timeframes for fair hearings, thus improving the stewardship of Federal 
funds.
    During fiscal years 2010 and 2011, the Department conducted CACFP 
Targeted Management Evaluations (TMEs) of State agencies administering 
the CACFP to identify patterns of regulatory non-compliance with the 
serious deficiency process. For the 10 most recent appeals of a Notice 
of Proposed Termination, State agencies were asked to determine the 
average number of days elapsed between the State agency's receipt of an 
institution's request and the date of the administrative review 
official's decision. Of the 21 State agencies for which TMEs were 
completed in FY 2010 and for which appeal data was provided, on 
average, 9 completed the administrative review process within the 
required 60 days; 13 within 90 days; and 14 within 120 days. In some 
instances, the date on which a hearing determination was made was 
hundreds of days after receipt of the State agency's request for an 
administrative review, resulting in appellants continuing to earn 
Federal reimbursement for long after the required 60-day review period 
had elapsed. Shifting the responsibility to State agencies for payments 
to aggrieved child care institutions is expected to serve as a 
deterrent to those State agencies that have habitually failed to meet 
the required timeframes.
    The Department considered changing the 60-day timeframe currently 
set forth in Sec.  226.6(k)(5)(ix) to alleviate any burden State 
agencies may face as a result of financial and/or administrative 
challenges. However, the 60-day timeframe is intended to provide those 
seeking administrative review with a prompt determination while 
protecting the use of Federal funds against noncompliant entities. The 
TME findings do not provide a clear resolution to meeting these 
counterbalancing priorities. Thus, the Department is requesting 
comments on the 60-day timeframe and any modification which would meet 
State needs without compromising the need for a timely decision for the 
appellant and maintaining CACFP integrity.
    Finally, the proposed rule at Sec.  226.6(k)(11)(ii) would afford a 
State agency the opportunity to seek a reduction or reconsideration of 
its liability by submitting to the Department information concerning 
the State's liability for reimbursement to an aggrieved institution, 
including information regarding any mitigating circumstances.
    The Department recognizes the financial implications for State 
agencies resulting from implementation of this proposed rule and will 
assist State agencies' efforts to ensure their administrative review 
structures meet the required timeframes. The Department also recognizes 
that many State agencies are experiencing difficult fiscal 
circumstances. The Department will work with the State agencies to 
establish milestones to implement this provision and minimize potential 
financial burdens. The Department encourages State agency commenters to 
address the financial implications of this proposed rule as related to 
their State and suggest appropriate milestones the Department could 
require of State agencies during implementation.
    Accordingly, the proposed rule changes are found at Sec. Sec.  
226.6(k)(5)(ii), 226.6(k)(5)(ix) and 226.6(k)(11).
Section 335 of the HHFKA: CACFP Audit Funding
    Section 17(i) of the NSLA (42 U.S.C. 1766(i)) authorizes the 
Secretary to provide funds to each CACFP State agency to conduct audits 
of participating institutions. Each fiscal year, each State agency 
receives up to 1.5 percent of the funds used by the State in the 
Program during the second preceding fiscal year for this purpose.
    Section 335 of the HHFKA amended section 17(i) of the NSLA, 42 
U.S.C. 1766(i), to allow the Department to

[[Page 17572]]

make available, for each fiscal year beginning 2016 (i.e., October 1, 
2015), and each fiscal year thereafter, additional funding for a total 
of up to 2 percent of the funds used by each State agency in the 
Program during the second preceding year, if the State agency can 
effectively use the funds to improve Program management under criteria 
established by the Department. This provision is expected to allow for 
better Program management and improve the integrity of the CACFP.
    Program integrity audits are an integral component of the CACFP, 
allowing State agencies to monitor Program funding and operations to 
ensure that providers and sponsors are operating the Program in 
accordance with the law. In accordance with the NSLA, current 
regulations at Sec.  226.4(j) require funds be made available for the 
expense of conducting audits and reviews to each State agency in an 
amount equal to 1.5 percent of the Program reimbursement provided to 
institutions within the State. Additionally, the amount of assistance 
provided to a State agency for this purpose in any fiscal year may not 
exceed the State's expenditures for conducting audits as permitted 
under Sec.  226.8 during such fiscal year.
    To effect the changes envisioned by section 335, the Department 
proposes to amend Sec.  226.4(j), Audit funds, by making minor 
technical changes to existing language and including the opportunity 
for State agencies, beginning in fiscal year 2016 and each fiscal year 
thereafter, to request an increase in the amount of audit funds. The 
technical changes correct the misuse of the phrase `Program 
reimbursement provided to institutions' in reference to the Program 
funds used to conduct audits.
    This proposed change is consistent with section 17(i) of the NSLA 
(42 U.S.C. 1766(i)) and does not alter the current formula used to 
calculate audit funds. The proposed rule would also require approval by 
the Department for increased funding. Such approval would be based on 
criteria related to the State agency's ability to effectively use the 
funds to improve Program management. Additionally, the proposed rule 
would limit the total amount of audit funds made available to a State 
agency to 2 percent of Program funds used by the State during the 
second fiscal year preceding the fiscal year for which the funds are 
made available.
    The proposed rule would allow State agencies to submit a request 
for an increase in the amount of audit funds. The Department's approval 
will be based on criteria related to the effective use of funds to 
improve program management. The Department expects this criteria to 
include a description of the additional audit and other allowable 
activity (e.g., additional review activity) the State agency would 
conduct. The Department expects this process to be similar to the 
process currently used for reallocation of State administrative funds.
Section 362 of the HHFKA: Disqualified Schools, Institutions, and 
Individuals
    Section 362 of the HHFKA amended section 12 of the NSLA (42 U.S.C. 
1760) to prohibit any school, institution, service institution, 
facility, or individual that has been terminated from any Child 
Nutrition Program (i.e., the NSLP, SMP, SBP, SFSP, and CACFP), and that 
is on the CACFP and SFSP NDL, from being approved to participate in or 
administer any Child Nutrition Program. This provision is expected to 
protect program integrity and federal funds since entities that have 
been terminated or disqualified from one Child Nutrition Program will 
be prevented from participating in all of the Department's Child 
Nutrition Programs.
    In assessing implementation of section 362, the Department 
determined the need to clarify three areas. First, section 362 
prohibits approval of schools, institutions, service institutions, 
facilities, and individuals which have been terminated or disqualified 
from any Child Nutrition Program. However, additional types of entities 
participate in the Child Nutrition Programs. The Department concluded, 
then, that the prohibition in section 362 is not limited to those 
identified entities, but extends to all entities which participate in 
the Child Nutrition Programs in similar capacities. This furthers the 
intended effect of section 362, which is to prevent an entity 
terminated or disqualified from one Child Nutrition Program from 
participating in another Child Nutrition Program. Thus, the rule also 
would apply to school food authorities, child care institutions, 
sponsoring organizations, sites, day care centers, and day care homes 
which participate in the Child Nutrition Programs.
    This provision only applies to the entities authorized to 
participate in the Child Nutrition Programs. Entities administering the 
Special Supplemental Nutrition Program for Women, Infants and Children 
(WIC) (or to the WIC Farmers' Market Nutrition Program) under section 
17 of the Child Nutrition Act of 1966 are referred to as ``local 
agencies.'' Because section 362 does not include the term ``local 
agencies,'' the Department determined that this provision does not 
apply to the WIC Program, but State agencies must notify WIC State 
agencies of entities disqualified from participation in any Child 
Nutrition Program so WIC State agencies may look into potential threats 
to WIC Program integrity. Finally, the Department also determined that 
the term ``individuals'' refers to responsible principals or 
responsible individuals, and not individuals receiving nutrition 
assistance benefits under the Child Nutrition Programs.
    Second, section 362 identifies ``termination'' from a Child 
Nutrition Program as a criterion which results in ineligibility for 
participation in or administration of any Child Nutrition Program. 
However, as discussed later in this preamble, two types of termination 
may be invoked in CACFP. One type is termination for convenience which 
is not performance based, and can be used by either party. The 
Department determined that termination for convenience does not warrant 
disqualification from other Child Nutrition Programs because it is not 
based on failure to administer the Program. The second type of 
termination is termination for cause, based on failure to properly 
administer the program or otherwise perform pursuant to the agreement. 
Upon review, Department concluded that ``termination'' in section 362 
refers to termination for cause.
    Third, section 362 prohibits a State agency from approving for 
participation in or administration of the Child Nutrition Programs, any 
entity terminated from a Child Nutrition Program and appearing on the 
CACFP NDL or SFSP NDL. In practice, the NSLP, SMP, and SBP currently do 
not maintain or refer to an NDL. It is possible that school food 
authorities which also participate in CACFP would appear on the CACFP 
NDL. In the future and pursuant to section 322 as discussed earlier, a 
school food authority terminated from SFSP participation would be added 
to that Program's NDL. The Department concluded that in order to fully 
implement the intent of Congress to protect integrity of all Child 
Nutrition Programs as expressed in section 362, the implementation of 
the provision should be read more broadly to prohibit participation in 
or administration of any Child Nutrition Program.
    For these reasons, the proposed rule would prohibit an entity's 
participation if it meets either criterion. In other words, the State 
agency may not approve any entity terminated from a

[[Page 17573]]

Child Nutrition Program or any entity appearing on the CACFP or SFSP 
NDL for participation in or administration of any Child Nutrition 
Program. The Department encourages commenters to address this proposed 
interpretation.
    Thus, this proposed rule amends the regulations for the NSLP, SMP, 
SBP, and SFSP to prohibit a State agency from approving any school, 
school food authority, institution, service institution, facility, 
individual, sponsoring organization, site, child care institution, day 
care center, or day care home from participating in or administering 
the Program if the entity or its officials: (1) Have been terminated 
for cause from any Child Nutrition Program; or (2) are currently listed 
on the CACFP NDL or SFSP NDL.
    Current regulations for CACFP address the duration of 
ineligibility. Under Sec.  226.6(b)(1)(xiii), an entity remains 
included on the CACFP NDL and thus ineligible to participate in CACFP, 
until the State agency, in consultation with the Department, determines 
that the deficiency(ies) that resulted in the ineligible status has(ve) 
been corrected, or seven years have passed. In all cases, all debts 
owed must be repaid prior to removal from the CACFP NDL. State agencies 
are required to consult the CACFP NDL when reviewing any entity's new 
or renewal application, and to deny the entity's application if either 
the entity, or any of its principals, is on the CACFP NDL. The proposed 
rule would adopt the CACFP approach to limiting the duration of 
ineligibility.
    Under this proposed rule, the State agency's decision not to 
approve an entity to participate in or administer a program based on 
the entity's termination for cause from a Child Nutrition Program or 
placement on the CACFP NDL or SFSP NDL is final and not subject to 
further administrative or judicial review. This rule also proposes that 
for entities currently administering a program, the State agency must 
use procedures currently specified in regulations to suspend or 
terminate participation if it is discovered that the entity was 
terminated for cause from another Child Nutrition Program.
    Finally, the proposed rule would require State agencies to develop 
a process to share information about entities and individuals no longer 
eligible to administer or participate in the programs within the State. 
The process must be approved by the Department and must ensure the 
State agency works closely with any other State agency administering a 
Child Nutrition Program to ensure information is shared on a timely 
basis. The proposed rule would also require State agencies to develop a 
process to notify WIC State agencies of the entities' or individuals' 
termination for cause, since they might be associated with the WIC 
Program. The Department has chosen to allow State agencies to develop 
their own process due to the different organizational structures of 
each State.
    CACFP and SFSP State agencies will be required to develop a process 
to share information on entities and individuals terminated or 
disqualified with other Child Nutrition Programs if such a process is 
not presently in place. Under Sec.  226.6(b)(1)(xiii), Program 
participation is prohibited when the institution or any of its 
principals have been declared ineligible for any other publically 
funded program by reason of violation that program's requirements. 
Therefore, the Department expects CACFP State agencies to currently 
have such process in place. To avoid duplicative efforts and streamline 
efforts, the Department expects to utilize the database currently used 
to maintain the NDL by the Department for the CACFP for the SFSP NDL.
    The Department requests comments on this requirement, specifically 
the process State agencies may propose to share information, and the 
potential obstacles or burdens a State agency may face. The Department 
also asks for comments on the extent to which State agency access to 
the NDLs would have to be expanded under these proposed requirements.
    Accordingly, the proposed rule changes are found at Sec. Sec.  
210.9(d), 215.7(g), 220.7(h), 225.6(b)(12), 225.6(c)(2)(ii)(E)(3), 
225.6(d)(1)(v), 225.6(e), 225.11(c)(5), 225.11(h)(2), 225.14(c)(3), 
225.14(c)(4), and 226.6(b)(1)(xiii).
Serious Deficiency and Termination Procedures for Sponsored Centers in 
the CACFP
    This proposed rule also amends current CACFP regulations, to make a 
corresponding change as a result of the intended effect of section 362. 
The provision explicitly prohibits entities terminated or disqualified 
from one Child Nutrition Program from being approved to participate in 
or administer any Child Nutrition Program. Approval or participation of 
seriously deficient sponsored child or adult day care center, then, 
would be contrary to the intent of that provision. In order to 
implement section 362, this proposed rule would create serious 
deficiency, termination, and disqualification procedures which are 
essential to meeting the intent of statute.
    Current CACFP regulations at Sec.  226.6 include serious 
deficiency, termination, and disqualification procedures for sponsored 
day care homes, but not sponsored centers. There are two types of 
sponsored centers, affiliated and unaffiliated. Unlike affiliated 
centers, unaffiliated centers are not part of the same legal entity as 
the sponsoring organization responsible for administration of the 
CACFP. Currently, if an unaffiliated center is seriously deficient in 
the operation of the Program, it is the sponsor which a State agency 
would declare seriously deficient. In practice, it is the 
responsibility of the sponsor to complete the corrective action plan, 
and it is the sponsor that will ultimately be terminated and 
disqualified from the Program if the serious deficiency is not 
corrected. Additionally, current regulations permit the sponsor to 
simply end its association with a seriously deficient unaffiliated 
center, rather than implementing corrective action to eliminate the 
serious deficiency and come into compliance with Program regulations. 
Therefore, under current regulations, it is possible for a problematic 
unaffiliated center that has been removed from the CACFP to participate 
in the Program under another sponsor, or in another Child Nutrition 
Program, without the knowledge of the State agency that a serious 
management deficiency exists in that facility.
    The Department has identified CACFP integrity issues arising from 
the inability to declare unaffiliated centers as seriously deficient 
and to terminate and disqualify the centers from CACFP participation. 
Currently, problematic unaffiliated centers and operators of those 
centers are not disqualified from participation if they are found to be 
in violation of Program requirements. Rather they may terminate their 
participation voluntarily and seek to participate in the Program under 
another sponsoring organization, putting Program integrity at risk.
    This proposed rule would establish serious deficiency, termination, 
and disqualification procedures for unaffiliated sponsored centers 
consistent with the procedures established for day care homes in 
current regulations. Specifically, the Department proposes to amend 
Sec.  226.2, Definitions, to require inclusion of unaffiliated centers 
and the full legal name and any other names previously used of entities 
on the State agency list. The Department proposed to add the definition 
of Sponsored Center in a separate proposed rule published April 9, 
2012, in the Federal Register (77 FR

[[Page 17574]]

21018), Child and Adult Care Food Program: Amendments Related to the 
Healthy, Hunger-Free Kids Act of 2010. Under that proposal, Sponsored 
Center is defined to mean a center that operates the Program under the 
auspices of a sponsoring organization and is categorized as either an 
affiliated or unaffiliated center. Unaffiliated centers would be 
entities required to have permanent agreements with their sponsoring 
organization, as they are legally distinct from the sponsoring 
organizations, unlike affiliated centers that are part of the same 
legal entity.
    Under Sec.  226.6(c)(3)(ii)(R), State agencies would be required to 
declare sponsoring organizations seriously deficient if they fail to 
properly implement the termination and administrative procedures 
required in the Program. If an institution does not properly oversee 
the participation of their unaffiliated centers, they could be declared 
seriously deficient by the State agency or the Department.
    Under this proposed rule, throughout the disqualification process 
as specified in Sec.  226.6(c)(7) and Sec.  226.6(c)(8), where day care 
homes are referenced, unaffiliated centers are also included in the 
requirement. The request for removal of a day care home, unaffiliated 
center, or responsible principal and responsible individual from the 
CACFP NDL must be made by the State agency, with concurrence by the 
Department. The Department's concurrence is necessary to ensure the 
serious deficiencies no longer exist prior to removal.
    Under this rule, the administrative review process would be amended 
at Sec.  226.6(l) and Sec.  226.6(m) to include unaffiliated centers. 
The Department proposes to allow State agencies to make different 
elections with regard to who offers the administrative review, either 
the State agency or the sponsoring organization, to day care homes and 
unaffiliated centers. The Department anticipates that while a State 
agency may prefer the sponsoring organization offer administrative 
reviews to day care homes, the State agency may choose to offer 
administrative reviews to unaffiliated centers.
    Under this proposed rule, Sec.  226.16, Sponsoring organization 
provisions, would be amended to include unaffiliated centers wherever 
day care homes are referenced, as applicable. Additionally, Sec.  
226.16(l)(2) would be amended by adding specific serious deficiencies 
applicable for unaffiliated centers only. Serious deficiency procedures 
for sponsoring organizations are also amended under this proposed rule 
to include unaffiliated centers, applying the same requirements to day 
care homes and unaffiliated centers, where applicable.
    A technical change was made under the proposed rule in Sec.  226.2 
to the definition of `Facility' by removing the word `family' to 
correct the meaning of facility as sponsored center or day care home.
    Accordingly, the proposed rule changes are found at Sec. Sec.  
226.2, 226.6(c)(2)(ii)(H), 226.6(c)(3)(ii)(R), 226.6(c)(7), 
226.6(c)(8), 226.6(l), 226.6(m)(3)(ix), 226.16(b), 226.16(c), 
226.16(d), and 226.16(l).
Miscellaneous Provisions
Elimination of Cost-Reimbursement Contracts
    Current Program regulations at 7 CFR 210.16(c) prohibit contracts 
which permit all income and expenses to accrue to the food service 
management company, ``cost-plus-a-percentage-of-cost'' contracts, and 
``cost-plus-a-percentage-of-income'' contracts. School food authorities 
are currently permitted to use two types of contracts when procuring 
Program goods and services. Contracts that provide for fixed fees, 
commonly referred to as `fixed price contracts,' are those that provide 
for management fees established on a per meal basis. Cost-reimbursable 
contracts, an alternative to fixed price contracts, are those that 
provide for payment of allowable incurred costs. Unlike fixed price 
contracts, cost-reimbursable contracts require the return of rebates, 
discounts and credits on all costs from the food service management 
company to the school food authority. During management evaluations, 
FNS has observed that non-compliant cost-reimbursable contracts are 
becoming more common.
    Since 2002, the Department's OIG has conducted various reviews of 
the effectiveness of Federal and State oversight and monitoring of 
school food authority contracts with food service management companies 
(FSMCs). These OIG reports, entitled ``National School Lunch Program--
Food Service Management Company Contracts'' published January 2013, 
``National School Lunch Program Cost-Reimbursable Contracts with a Food 
Service Management Company'' published December 2005, and ``National 
School Lunch Program Food Service Management Companies'' published 
April 2002, identified compliance problems associated with procurements 
at the local level. OIG identified some instances where school food 
authorities were not receiving (1) purchase discounts and rebates in 
full and/or (2) the proper value of USDA foods returned to their 
nonprofit food service account. For the most part, OIG concluded that 
the instances arose from problematic language in cost-reimbursement 
contracts between FSMCs and local school food authorities. FNS has 
attempted to resolve such issues by requiring State agencies to review 
contracts prior to execution by school food authorities per Program 
regulations at 7 CFR 210.19(a)(5). Further efforts have been made by 
FNS to educate State agencies and school food authorities through 
trainings on procurement standards using national conferences, and 
stakeholder meetings. Likewise, Regional offices have offered 
additional trainings to State agency staff. FNS has also provided 
technical assistance during management evaluations, reviewed State 
agency prototype solicitations and contracts, if available; assisted on 
administrative reviews to assess school food authority contracts and 
monitoring of contractor performance; and developed tools to assist 
State agencies when reviewing and approving school food authority 
contracts with FSMCs. This proposal is the next step in ensuring the 
oversight and monitoring of school food authority contracts with FSMCs.
    All school food authorities, including sub grantees, must follow 
applicable Federal procurement regulations when entering into 
agreements to purchase products and services under the NSLP. However, 
in evaluating State agency oversight of FSMC contracts, during agency 
compliance reviews and with information provided by OIG audits and 
investigations, FNS determined that many school food authorities with 
FSMC cost-reimbursable contracts are engaged in practices that weaken 
the competitive procurement process. The most prevalent area of non-
compliance found in FSMC cost-reimbursable contracts is the failure to 
return the value of discounts, rebates, and credits to the nonprofit 
food service account. This loss represents millions of dollars for 
school food authority nonprofit food service accounts annually. FNS has 
determined that it is too complex and burdensome for school food 
authority staff to consistently and effectively ensure compliance with 
program requirements across all cost-reimbursable contracts. State 
agencies have expressed a lack of expertise and the magnitude of 
monitoring transactions at this level is unduly burdensome and growing. 
Increasingly, school food authorities are moving from self-operated 
programs to contracting

[[Page 17575]]

operations with a FSMC. As a result of State agency challenges, FNS has 
published guidance for school food authorities on considerations before 
contracting the operation with a FSMC and on the benefits and burdens 
of fixed-price contracts and cost-reimbursable contracts. FNS has 
conducted trainings on this guidance for State agencies and made 
presentations at stakeholder national conferences, provided technical 
assistance during management evaluations, assisted State agencies on 
administrative reviews of school food authorities and developed review 
tools to assist State agencies with oversight. Additionally, FNS has 
engaged many stakeholders (industry, State Agencies, school food 
authorities, GAO, and OIG) in discussion on how to best address these 
concerns. Despite FNS's technical assistance, training, and guidance, 
State agencies continue to report challenges, which are costly to 
school food authority nonprofit food service accounts. Based on FNS' 
engagements, requiring fixed price contracts is the next logical step 
in protecting and strengthening Program integrity.
    This rule proposes to amend Sec.  210.16(c) to eliminate cost-
reimbursable contracts as a type of food service management company 
contract school food authorities may use in the NSLP. This rule 
proposes to require the use of only fixed-price contracts, such as 
contracts that provide per meal and/or management fees established on a 
per meal basis, either with or without economic price adjustments tied 
to a standard index. In solicitations seeking and resulting in a fixed-
price contract, contractors respond with bids/proposals that have 
already taken discounts, rebates and other credits into consideration 
when formulating their final bid prices; this holds true for any fixed-
fee component of a cost-reimbursable contract.
    Current Program regulations at 7 CFR 210.16(a)(10) require school 
food authorities who employ a FSMC in the operation of its nonprofit 
school food service to ensure that the State agency has reviewed and 
approved the contract terms. However, current Program regulations at 7 
CFR 210.19(a)(5) require each State agency to annually review, not 
approve, each contract and contract amendment between any school food 
authority and FSMC to ensure compliance with all the provisions and 
standards before the execution of the contract by either party. This 
rule also proposes to amend and align 7 CFR 210.19(a)(5) with the 
requirements in 7 CFR 210.16(a)(10) to require each State agency to 
annually review, and now also approve, each contract and contract 
amendment between any school food authority and food service management 
company. Requiring approval will serve to strengthen oversight of 
compliance with all the provisions and standards before the execution 
of the contract by either party. State agencies, institutions, and 
FSMCs are encouraged to address the elimination of cost-reimbursable 
contracts as a type of food service management company contract school 
food authorities may use in the NSLP in their comments on the rule.
    Accordingly, the proposed rule changes are found at Sec.  210.16 
and Sec.  210.19(a)(5).
Annual Procurement Training in NSLP
    This rule also proposes to incorporate recommendations made by the 
Department of Agriculture's Office of Inspector General (OIG) audit 
report entitled ``National School Lunch Program-Food Service Management 
Company Contracts'' (Audit). Specifically, the audit found risk of 
misuse of Federal funds due to difficulties experienced by State 
agencies and school food authorities enforcing contractual terms and 
regulatory procurement requirements. Therefore, this rule proposes that 
a portion of the professional standards required for school nutrition 
programs include procurement training specifically for personnel tasked 
with this key area. Further, such training must be documented.
    Currently, regulatory requirements related to program operations 
training are found in the professional standards requirements for the 
NSLP. The Department issued a memorandum on February 12, 2013, strongly 
encouraging periodic training for State agency and school food 
authority staff tasked with procurement responsibilities. See Guidance 
Reaffirming the Requirement that State agencies and School Food 
Authorities Periodically Review Food Service Management Company Cost 
Reimbursable Contracts and Contracts Associated with USDA Foods (SP 23-
2013), http://www.fns.usda.gov/guidance-reaffirming-requirement-state-agencies-and-school-food-authorities-periodically-review-food. Given 
that the Audit, as well as the Department's own monitoring activities, 
determined that program integrity may be at risk, it is necessary to 
specifically require training to ensure that all relevant staff are 
aware of procurement requirements. Under such a requirement, State 
agency and school food authority staff annually would gain knowledge of 
procurement requirements for implementation at the State and local 
level.
    This proposed rule would require State agency and school food 
authority staff tasked with procurement responsibilities to 
successfully complete procurement training annually. The Department 
expects State agencies to ensure required training includes applicable 
State and Federal procurement requirements as found in existing 
statutes and regulations. This requirement may be met at the discretion 
of the State agency through a variety of methods, including using State 
developed procurement training or trainings on the aforementioned 
procurement areas developed by other expert organizations such as the 
USDA web-based procurement training offered by the National Food 
Service Management Institute, available at no cost (http://www.nfsmi.org/Templates/TemplateDefault.aspx?qs=cElEPTEzNQ). State 
agencies and school food authorities would be required to maintain 
documentation of compliance with this provision.
    Accordingly, the proposed rule changes are found at Sec.  
210.15(b)(8), Sec.  210.20(b)(16), and Sec.  210.21(h).
Financial Reviews of Sponsors in the CACFP
    Through TMEs of State agencies conducted by the Department in 
fiscal years 2010 and 2011 and previous management evaluations, it was 
determined that misuse of funds was often an indicator of a sponsoring 
organization's systemic Program abuse. It was also determined that 
financial reviews of sponsors conducted by State agencies could be 
improved to better detect and prevent the misuse of funds.
    Current regulations at Sec.  226.7(g) require State agencies to 
approve sponsors' budgets and assess sponsors' compliance with Program 
requirements, including ensuring that Program funds are used only for 
allowable expenses. Currently, the process by which sponsor compliance 
with CACFP financial rules is assessed is left to the discretion of the 
State agency, consistent with Program regulations. Thorough reviews of 
sponsor financial records are vital in ensuring Program integrity. The 
Department found that the financial reviews conducted by State agencies 
were inconsistent with federal regulations and often lacked focus on a 
sponsor's CACFP bank account activity, but rather focused on matching 
the sponsors' representation of their expenses to supporting documents. 
This often resulted in other suspicious transactions on a sponsor's 
CACFP bank account to be left unnoticed if supporting documents 
presented were valid.

[[Page 17576]]

    Currently federal regulations do not require sponsors to fully 
account for their expenditure of CACFP funds. A sponsor may use funds 
for both allowable and unallowable expenditures, but provide a State 
agency reviewer with receipts for only the allowable costs to support 
Program administration. It is possible for the amount of the allowable 
expenditures to appear reasonable to a State reviewer if the 
expenditures match the approximations made in the sponsor's approved 
budget for that fiscal year. However, a reviewer is only required to 
confirm support for the receipts provided by the sponsor and thus may 
never be provided with or become aware of the sponsor's unallowable 
expenditures.
    Also, the State agency's current ability to monitor sponsors' use 
of CACFP funds is limited. While sponsors must submit annual budgets 
for State agency approval, which must detail the project expenditures 
by cost category, sponsors are not required to report actual 
expenditures. Requiring annual reporting of actual expenditures would 
improve sponsor accountability, and provide State agencies a means by 
which to identify misuse of CACFP funds. State agencies could then 
reconcile reported expenditures to Program payments to ensure funds are 
spent on allowable costs, and use the reported actual expenditures as 
the basis for selecting a sample of expenditures for validation against 
the sponsor's CACFP bank account activity. To facilitate 
reconciliation, the report should use the same cost categories as are 
used on the sponsor's approved annual budget.
    The Department proposes to require State agencies to have a system 
in place to annually review at least one month's bank account activity 
of all sponsoring organizations compared to documents adequate to 
demonstrate that the transactions meet Program requirements. Under this 
rule, if the State agency identifies any expenditures that have the 
appearance of violating Program requirements, the State agency reviewer 
could continue to investigate the account activity further or refer the 
matter to someone else within the State agency, such as an auditor.
    This proposed rule also would require State agencies to have a 
system in place to annually review a report of actual expenditures of 
Program funds and the amount of meal reimbursement funds retained from 
centers (if any) for administrative costs for all sponsoring 
organizations of unaffiliated centers. Under this rule, State agencies 
would be required to reconcile reported expenditures with Program 
payments to ensure funds are fully accounted for, and use the reported 
actual expenditures as the basis for selecting a sample of expenditures 
for validation. If the State agency identifies any expenditures that 
have the appearance of violating Program requirements, the State agency 
would be required to refer the sponsoring organization's account 
activity to the appropriate State authorities for verification as 
discussed above.
    Accordingly, the proposed rule changes are found at Sec. Sec.  
226.7(b), 226.7(m) and 226.10(c).
Informal Purchase Methods
    Informal purchase methods are used in conducting the procurement of 
services, supplies, and other property whose cost falls below the 
threshold established for requiring a procuring entity to formally 
solicit bids or proposals from suppliers. The availability of informal 
purchase methods for procurements under Federal awards is covered in 
the Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards (the ``Uniform Guidance'') published by 
the OMB at 2 CFR part 200 and adopted by USDA at 2 CFR part 400. The 
Department is proposing to update applicable program regulations at 7 
CFR 226.21 and 226.22 in order to bring their procurement provisions 
into conformity with the government-wide and departmental 
pronouncements referenced above.
    There are two types of informal purchase methods: small purchases 
and micro-purchases. These methods differ in terms of dollar thresholds 
below which their use is permitted, and the degree of informality that 
characterizes each of them. The Uniform Guidance sets the applicable 
dollar thresholds, which are periodically adjusted for inflation. 2 CFR 
200.67 of the Uniform Guidance authorizes a program operator to use the 
micro-purchase method for a transaction in which the aggregate cost of 
the items purchased does not exceed the prescribed threshold. 2 CFR 
200.67 currently sets the micro-purchase threshold at $3,500. Under 
section 200.88, a program operator can use the small purchase method 
for purchases ranging in cost from $3,501 to the simplified acquisition 
threshold of $150,000. As noted above, formal advertising is required 
for procurements above that threshold.
    7 CFR 226.21 (Food service management companies) and 226.22 
(Procurement standards) of the CACFP regulations currently contain 
procurement provisions that are inconsistent with the foregoing 
requirements. Specifically, they do not mention the micro-purchase 
threshold and set the threshold for small purchases at $10,000. The 
$10,000 threshold does not align with current practices and is thus 
obsolete.
    Given the foregoing, the Department is proposing to remove the 
$10,000 figure and substitute language referencing the applicable 
passages in the Uniform Guidance. This will benefit the CACFP by 
expanding the availability of the informal purchase methods. It will 
also resolve all questions about which threshold applies, the one set 
by program regulations or the one(s) given in the Uniform Guidance. The 
Department will no longer need to update the Program regulations each 
time the thresholds are adjusted for inflation.
    Accordingly, the proposed rule changes are found at Sec. Sec.  
226.21(a), 226.22(i)(1), 226.22(l)(2), and 226.22(l)(3).
    The Department recognizes that the provisions in this proposed rule 
impact many aspects of State administration of Child Nutrition 
Programs. As a result, the Department will provide guidance and 
technical assistance to State agencies to ensure successful 
implementation of this regulation. USDA anticipates that the provisions 
under this proposed rule would be implemented 90 days following 
publication of the final rule, with the exception of those related to 
assessments against State agencies and program operators and CACFP 
audit funds. The provision establishing criteria for assessments 
against State agencies and program operators would be implemented one 
school year following publication of the final rule. The provision 
granting eligible State agencies additional CACFP audit funds will be 
implemented upon publication of the final rule.

IV. 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

[[Page 17577]]

reducing costs, of harmonizing rules, and of promoting flexibility.
    This proposed rule has been determined to be significant and was 
reviewed by the Office of Management and Budget (OMB) in conformance 
with Executive Order 12866.

B. Regulatory Impact Analysis Summary

    As required for all rules that have been designated significant by 
the Office of Management and Budget, a Regulatory Impact Analysis (RIA) 
was developed for this proposal. A summary is presented below.
Need for Action
    The proposed rule updates the regulations governing the 
administration of USDA's child nutrition programs in response to 
statutory changes made by The Healthy, Hunger-Free Kids Act of 2010.\1\ 
These changes, as well as other discretionary changes, will help ensure 
proper and efficient administration of the programs, reduce misuse of 
program funds, improve compliance with meal patterns and nutrition 
standards, reduce participant certification error, improve the 
integrity of the procurement process, and reduce meal counting and 
claiming error through increased administrative review and penalties 
for non-compliance.
---------------------------------------------------------------------------

    \1\ Public Law 111-296.
---------------------------------------------------------------------------

Benefits
    Each of the proposed rule's provisions is intended to remedy 
deficiencies in the administration of USDA's child nutrition programs 
at the sponsor, provider, SFA, and State agency levels. The rule 
addresses the types of problems commonly encountered in CACFP sponsor 
reviews, in USDA's Targeted Management Evaluations of the CACFP, and in 
Coordinated Review Effort (CRE) and in School Meals Initiative (SMI) 
reviews of schools and school food authorities. Through the reforms 
outlined in the preceding sections, the rule is expected to increase 
the quality of program meals served to participants, as inefficiently 
managed funds and improper payments subvert the nutritional intent of 
program meals. This rule generates these benefits through the following 
specific actions:
     A reduction in the incidence of existing meal pattern 
violations, resulting in improved nutrition for program participants; 
and
     prompt compliance with new Federal regulations on school 
meal nutrition standards and nutrition standards for competitive school 
foods that will further improve the school nutrition environment;
and through the following specific transfers:
     An increase in Federal audit funding available to State 
agencies;
     a reduction in financial mismanagement that diverts 
Federal funds from their intended purpose of providing nutritious meals 
to children;
     a reduction in certification errors that will better 
target Federal benefits to eligible children; and
     full compliance with Sections 205 and 206 of HHFKA that 
prevent Federal meal reimbursements, intended primarily to provide 
meals to low income students, from subsidizing meals for more affluent 
students, and from subsidizing non-program foods.
    These are the expected results of the rule's provisions, which add 
new requirements to existing reviews of child nutrition program 
sponsors, subject additional sponsors to periodic review, increase USDA 
and State agency authority to penalize seriously deficient sponsors and 
providers, and standardize the processes of termination and 
disqualification from program participation, all of which will 
contribute to an increase in the quality of program meals served to 
program participants.
    We cannot quantify these nutritional benefits, nor can we quantify 
the dollar effects of the actions and transfers listed above, as we do 
not know the rates or magnitudes of error in the population, nor do we 
know the percentage of errors that will be avoided or rectified because 
of the implementation of these provisions. However, the size of the 
problem addressed by the proposed rule has been partly quantified:
     The 2014 USDA Agency Financial Report (http://www.ocfo.usda.gov/docs/USDA%20AFR%202014-12.30.2014.pdf) estimates that 
improper payments in the NSLP and the SBP due to certification error 
\2\ and meal counting and claiming errors \3\ totaled $2.67 billion 
($1.75 billion in the NSLP and $923 million in the SBP) in FY 2014. 
Even small percentage point reductions in these improper payment 
amounts, which the rule's provisions can help to promote, would quickly 
exceed the cost of its implementation.
---------------------------------------------------------------------------

    \2\ Improper payments due to certification error include both 
overpayments and underpayments. Overpayments occur when children are 
certified for free or reduced-price meals when their household 
incomes exceed the thresholds for those benefits. Federal 
reimbursements for meals served to those children are too high. 
Underpayments occur when children are denied free or reduced-price 
benefits, and Federal reimbursements for meals served to those 
children are too low.
    \3\ These include cashier errors, when meals are identified as 
reimbursable when they are missing a required meal component, or 
when the cashier makes a mistake in identifying the child receiving 
the meal as free, reduced-price, or paid eligible. Counting and 
claiming errors also include mistakes made in totaling the number of 
free, reduced-price, or paid meals served when submitting claims for 
reimbursement.
---------------------------------------------------------------------------

     The 2014 USDA Agency Financial Report estimates that 
improper payments in the CACFP due to mistakes by program sponsors in 
determining the reimbursement eligibility of family day care home 
providers (``tiering'' errors) totaled $10 million in FY 2014. In 
addition, data gathered by USDA during its 2004-2007 Child Care 
Assessment Project (CCAP) are suggestive of possible over-reporting of 
Federally reimbursable meals served by family day care home 
providers.\4\ Estimates of the value of improper claims by CACFP 
centers, or by sponsors and service providers in the remaining USDA 
child nutrition programs, are not available.
---------------------------------------------------------------------------

    \4\ ``Child Care Assessment Project Final Report'', USDA Food 
and Nutrition Service, Child Nutrition Division, July 2009, pp. 34-
36 (http://www.fns.usda.gov/cnd/Care/Management/pdf/CCAP_Report.pdf).
---------------------------------------------------------------------------

    Though the data available is limited, the estimates of improper 
payments in the NSLP and SBP alone indicate that the potential impact 
of the proposed rule is substantial.
Costs/Administrative Impact
    Most of the cost of complying with the rule is associated with the 
additional review responsibilities placed on State administering 
agencies. Other State agency costs are tied to documentation, and 
establishing and carrying out new procedures for termination and 
disqualification of program sponsors, providers, and responsible 
individuals. Program sponsors will incur minimal additional cost to 
provide their State agencies with additional financial data. The 
primary Federal government cost, an increase in funds made available 
for CACFP audits, is expected to offset the additional administrative 
costs incurred by State agencies.
    The regulatory impact analysis quantifies the impact of the three 
provisions in the rule that we estimate have non-negligible cost 
implications for the Federal government, State agencies, and/or SFAs, 
as well as the new reporting and recordkeeping requirements of the 
rule. The following table summarizes these effects.

[[Page 17578]]



                                          Table 1--Summary of Estimable Administrative Costs and Resources \5\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Fiscal year  (millions)
                                                         -----------------------------------------------------------------------------------------------
                                                               2017            2018            2019            2020            2021            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            State agency administrative costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
State agency sponsor reviews (CACFP)....................            $2.7            $2.8            $2.8            $2.9            $3.0           $14.2
State agency bank statement reviews (CACFP).............             1.3             1.3             1.3             1.4             1.4             6.7
Information collection burden (reporting and                         0.3             0.3             0.4             0.4             0.4             1.8
 recordkeeping).........................................
                                                         -----------------------------------------------------------------------------------------------
    Total State agency administrative costs.............             4.3             4.4             4.5             4.7             4.8            22.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       School Food Authority administrative costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
SFA Information collection burden (reporting and                    $0.1            $0.1            $0.1            $0.1            $0.1            $0.6
 recordkeeping).........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Increase in Federal audit funding for State agencies (CACFP)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Low estimate............................................            $2.1            $2.2            $2.3            $2.4            $2.5           $11.6
Upper bound estimate....................................            16.3            17.3            17.8            18.5            19.2            89.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

We note that the maximum available amount of additional federal audit 
funding for State agencies (presented as the projected upper bound 
estimate in Table 1) exceeds the combined estimated costs of the rule's 
State agency sponsor review, sponsor bank statement review, and 
information collection requirements.
---------------------------------------------------------------------------

    \5\ Numbers shown in Table 1 may not add due to rounding.
---------------------------------------------------------------------------

C. Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-
612). Pursuant to that review, it has been determined that this rule 
will not have a significant impact on a substantial number of small 
entities. This rule sets forth proposed provisions to implement 
sections 303, 322, 331(b), 332, 335, 362, of Public Law 111-296, the 
HHFKA that affects the management of USDA's Child Nutrition programs. 
Most of the provisions included in the proposed rule increase the 
authority of USDA and State agencies to enforce existing program rules, 
and do not impose additional burden on small entities. The rule does 
impose some additional reporting and documentation requirements on 
program sponsors and providers, but we expect these costs to be very 
small relative to existing program requirements.

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 Secretary 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 NSLP, SBP, SAE, SMP, CACFP and SFSP are listed in the Catalog 
of Federal Domestic Assistance Programs under NSLP No. 10.555, SBP No. 
10.553, SAE No. 10.560, SMP No. 10.556, CACFP No. 10.558, and SFSP No. 
10.559, respectively and are subject to Executive Order 12372 which 
requires intergovernmental consultation with State and local officials 
(See 2 CFR chapter IV). The Child Nutrition Programs are federally 
funded programs administered at the State level. The Department 
headquarters and regional office staff engage in ongoing formal and 
informal discussions with State and local officials regarding program 
operational issues. This structure of the Child Nutrition Programs 
allows State and local agencies to provide feedback that forms the 
basis for any discretionary decisions made in this and other rules.

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. Prior to drafting this 
proposed rule, FNS held several conference calls and meetings with the 
State agencies and organizations representing local program operators, 
advocacy groups and State government to discuss the statutory 
requirements addressed in this proposed rule.

[[Page 17579]]

2. Nature of Concerns and the Need To Issue This Rule
    State agencies expressed concern regarding the implementation of 
the provisions, specifically the administrative burden that may be 
placed on the State agencies. State agencies also expressed concerns 
relating to the fiscal consequences of the state liability provision.
3. Extent to Which the Department Meets Those Concerns
    FNS has considered the impact of this proposed rule on State and 
local operators. We have attempted to balance the goal of strengthening 
the integrity of the Child Nutrition Programs against the need to 
minimize the administrative burden placed on program operators. FNS 
will provide guidance and technical assistance to program operators 
once the final rule is published, and expects to provide on-going 
assistance to State and local program operators to ensure the 
provisions of this rulemaking are implemented efficiently and in a 
manner that is least burdensome.

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 Sec.  210.18(q), Sec.  225.13, 
Sec.  226.6(k) and Sec.  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 the spring of 2011, FNS offered opportunities for consultation 
with Tribal officials or their designees to discuss the impact of the 
HHFKA on tribes or Indian Tribal governments. The consultation sessions 
were coordinated by FNS and held on the following dates and locations:

1. HHFKA Consultation Webinar & Conference Call--April 12, 2011
2. HHFKA Consultation In-Person--Rapid City, SD--March 23, 2011
3. HHFKA Consultation Webinar & Conference Call--June 22, 2011
4. Tribal Self-Governance Annual Conference In-Person Consultation in 
Palm Springs, CA--May 2, 2011
5. National Congress of American Indians Mid-Year Conference In-Person 
Consultation, Milwaukee, WI--June 14, 2011
6. FNS Quarterly Consultation Conference Call, May 2, 2012

    The six consultation sessions in total provided the opportunity to 
address Tribal concerns related to school meals. There was only one 
question asked about this regulation, regarding how the NDL functions, 
which was explained by FNS staff during an aforementioned Tribal 
Consultation session. Additional comments were not received. Reports 
from these consultations are part of the USDA annual reporting on 
Tribal consultation and collaboration. FNS will respond in a timely and 
meaningful manner to Tribal government requests for consultation 
concerning this rule. Currently, FNS provides regularly scheduled 
quarterly consultation sessions as a venue for collaborative 
conversations with Tribal officials or their designees.

I. Civil Rights Impact Analysis

    FNS and the Department has reviewed this proposed rule in 
accordance with the Departmental Regulation 4300-4, ``Civil Rights 
Impact Analysis,'' to identify any major civil rights impacts the rule 
may have on program participants on the basis of age, race, color, 
national origin, sex, or disability. After a careful review of the 
rule's intent and provisions, FNS has determined that this rule is no 
intended impact in any of the protected classes and is not intended to 
reduce a child or eligible adult's ability to participate in the 
National School Lunch Program, School Breakfast Program, Special Milk 
Program, Child and Adult Care Food Program or Summer Food Service 
Program.

J. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35; see 5 
CFR part 1320) requires that 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 
proposed rule contains information collections that are subject to 
review and approval by OMB; therefore, FNS has submitted an information 
collection under 0584-NEW, which contains the burden information in the 
proposed rule for OMB's review and approval. 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.
    Comments on the information collection in this proposed rule must 
be received by May 31, 2016.
    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, Andrea Farmer, Child Nutrition 
Programs, Food and Nutrition Service, U.S. Department of Agriculture, 
3101 Park Center Drive, Alexandria, Virginia 22302. For further 
information, or for copies of the information collection requirements, 
please contact Andrea Farmer 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. Once OMB approval is obtained, FNS will 
merge burden hours into the currently approved National School Lunch 
Program, OMB Control Number 0584-0006, expiration date 2/29/2016; Child 
and Adult Care Food Program, OMB Control Number 0584-0055, expiration 
date 9/30/2016; and Summer Food Service Program for Children, OMB 
Control Number 0584-0280, expiration date 3/31/2016, respectfully.

[[Page 17580]]

    Title: 7 CFR parts 210, 215, 220, 225, 226 and 235, Child Nutrition 
Programs Integrity Proposed Rule.
    OMB Number: Not Yet Assigned.
    Expiration Date: Not Yet Determined.
    Type of Request: New Collection.
    Abstract: This rule proposes to codify several provisions of the 
Healthy, Hunger-Free Kids Act of 2010 affecting the management of the 
Child Nutrition Programs, including the National School Lunch Program 
(NSLP), the Special Milk Program for Children, the School Breakfast 
Program, the Summer Food Service Program (SFSP), the Child and Adult 
Care Food Program (CACFP) and State Administrative Expense Funds. The 
Department is proposing to establish criteria for establishing 
assessments against State agencies and program operators who jeopardize 
the integrity of any Child Nutrition Program; eliminate cost-
reimbursement food service management company contracts in the NSLP; 
establish procurement training requirements for State agency and school 
food authority staff in the NSLP, establish procedures for termination 
and disqualification in the SFSP; modify State agency site review 
requirements in the CACFP; establish State liability for reimbursements 
incurred as a result of a State's failure to conduct a timely hearing 
in the CACFP; establish criteria for an increase in State audit 
funding; establish procedures to prohibit the participation of entities 
or individuals terminated from any of the Child Nutrition Programs; and 
establish serious deficiency and termination procedures for sponsored 
centers in the CACFP. In addition, this rule would make several 
operational changes to improve oversight of an institution's financial 
management and would also include several technical corrections. The 
proposed rule is intended to improve the integrity of all Child 
Nutrition Programs. The average burden per response and the annual 
burden hours for reporting and recordkeeping are explained below and 
summarized in the charts which follow.
CACFP--7 CFR Part 226
    Affected Public: State Agencies.
    Estimated Number of Respondents: 54.
    Estimated Number of Responses per Respondent: 39.29.
    Estimated Total Annual Responses: 2,122.
    Estimated Time per Response: 2.4345.
    Estimated Total Annual Burden: 5,166.
    Refer to the table below for estimated total annual burden.

----------------------------------------------------------------------------------------------------------------
                                     Estimated       Number of                       Estimated
         Affected public             number of     responses per   Total annual     total hours      Estimated
                                    respondents     respondent       responses     per response    total burden
----------------------------------------------------------------------------------------------------------------
                                                    Reporting
----------------------------------------------------------------------------------------------------------------
State Agencies..................              54           13.15             710           4.095         2,907.5
----------------------------------------------------------------------------------------------------------------
                                                  Recordkeeping
----------------------------------------------------------------------------------------------------------------
State Agencies..................              54           26.15           1,412          1.5995         2,258.5
----------------------------------------------------------------------------------------------------------------
                                   Total of Reporting and Recordkeeping CACFP
----------------------------------------------------------------------------------------------------------------
Reporting.......................              54           13.15             710           4.095         2,907.5
Recordkeeping...................              54           26.15           1,412          1.5995         2,258.5
                                 -------------------------------------------------------------------------------
    Total.......................              54           39.29           2,122           2.435           5,166
----------------------------------------------------------------------------------------------------------------
With OMB Approval, 0584-NEW CACFP burden will be merged to OMB Control Number 0584-0055.

SFSP--7 CFR Part 225
    Affected Public: State Agencies.
    Estimated Number of Respondents: 53.
    Estimated Number of Responses per Respondent: 21.
    Estimated Total Annual Responses: 1,113.
    Estimate Time per Response: 6.214.
    Estimated Total Annual Burden: 6,916.5.
    Refer to the table below for estimated total annual burden.

----------------------------------------------------------------------------------------------------------------
                                     Estimated       Number of                       Estimated
         Affected public             number of     responses per   Total annual     total hours      Estimated
                                    respondents     respondent       responses     per response    total burden
----------------------------------------------------------------------------------------------------------------
                                                    Reporting
----------------------------------------------------------------------------------------------------------------
State Agencies..................              53              20           1,060             6.5           6,890
----------------------------------------------------------------------------------------------------------------
                                                  Recordkeeping
----------------------------------------------------------------------------------------------------------------
State Agencies..................              53               1              53              .5            26.5
----------------------------------------------------------------------------------------------------------------
                                    Total of Reporting and Recordkeeping SFSP
----------------------------------------------------------------------------------------------------------------
Reporting.......................              53              20           1,060             6.5           6,890
Recordkeeping...................              53               1              53              .5            26.5
                                 -------------------------------------------------------------------------------
    Total.......................              53              21           1,113           6.214         6,916.5
----------------------------------------------------------------------------------------------------------------
With OMB Approval, 0584-NEW SFSP burden will be merged to OMB Control Number 0584-0280.


[[Page 17581]]

NSLP--7 CFR Part 21
    Affected Public: State Agencies and School Food Authorities.
    Estimated Number of Respondents: 20,914.
    Estimated Number of Responses per Respondent: 2.0054.
    Estimated Total Annual Responses: 41,940.
    Estimate Time per Response: .25.
    Estimated Total Annual Burden: 10,485.
    Refer to the table below for estimated total annual burden.

----------------------------------------------------------------------------------------------------------------
                                    Estimated       Number of                    Estimated total
        Affected public             number of     responses per   Total annual      hours per        Estimated
                                   respondents     respondent       responses        response      total burden
----------------------------------------------------------------------------------------------------------------
                                                    Reporting
----------------------------------------------------------------------------------------------------------------
State Agencies.................               0               0               0                0               0
----------------------------------------------------------------------------------------------------------------
                                                  Recordkeeping
----------------------------------------------------------------------------------------------------------------
State Agencies.................              56               1              56              .25              14
School Food Authorities........          19,822               1          19,878              .20         3,964.4
----------------------------------------------------------------------------------------------------------------
                                    Total of Reporting and Recordkeeping NSLP
----------------------------------------------------------------------------------------------------------------
Reporting *....................               0               0               0                0               0
Recordkeeping..................          19,878               1          19,878              .20         3,978.4
----------------------------------------------------------------------------------------------------------------
    Total......................          19,878               1          19,878               .2           3,978
----------------------------------------------------------------------------------------------------------------
* There is no reporting burden associated with procurement training requirements for State agency and SFA staff
  in the NSLP.
With OMB Approval, 0584-NEW NSLP burden will be merged to OMB Control Number 0584-0006.

K. E-Government Act Compliance

    The Food and Nutrition Service 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, Penalties, 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 225

    Food assistance programs, Grant programs--health, Infants and 
children, Labeling, Reporting.

7 CFR Part 226

    Accounting, Aged, Day care, Food assistance programs, Grant 
programs, Grant programs--health, American Indians, Individuals with 
disabilities, Infants and children, Intergovernmental relations, Loan 
programs, Reporting and recordkeeping requirements, Surplus 
agricultural commodities.

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, 225, 226, and 235 are 
proposed to be amended as follows:

PART 210--NATIONAL SCHOOL LUNCH PROGRAM

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

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

0
2. In Sec.  210.9, add paragraph (d) to read as follows:


Sec.  210.9  Agreement with State agency.

* * * * *
    (d) Terminations or disqualifications. (1) General. The State 
agency may not approve any school food authority or school to 
participate in or administer the Program if the school food authority, 
school, or its officials:
    (i) Have been terminated for cause from any program authorized 
under this part or parts 215, 220, 225 and 226 of this chapter; or
    (ii) Are currently included on the National disqualified lists 
under Sec. Sec.  225.11 or 226.6 of this chapter.
    (2) Duration. State agencies must ensure that school food 
authorities or schools described in paragraph (d)(1) of this section do 
not participate in or administer the Program until the State agency, in 
consultation with FNS, determines that the deficiency(ies) has(ve) been 
corrected, or until seven years have elapsed since they were terminated 
or disqualified. However, if a school food authority, school or 
official has failed to repay debts owed under the Program, they will 
remain ineligible until the debt has been repaid.
    (3) State actions. The State agency's decision not to approve a 
school food authority or school to participate in or administer the 
Program as required by paragraph (d)(1) of this section is final and 
not subject to further administrative or judicial review. For school 
food authorities and schools currently administering the Program, the 
State agency must suspend or terminate the Program in accordance with 
the procedures set forth in Sec.  210.25.
    (4) Process for identifying terminations and disqualifications. 
State agencies must develop a process to

[[Page 17582]]

share information on school food authorities, schools and individuals 
not approved to administer or participate in the programs as described 
under paragraph (d)(1) of this section. The process must be approved by 
the Food and Nutrition Service Regional Office (FNSRO) and must ensure 
the State agency works closely with any other State agency within the 
State administering the programs under parts 215, 220, 225 226, 246 and 
248 of this chapter to ensure information is shared for program 
purposes and on a timely basis.
0
3. In Sec.  210.15, add paragraph (b)(8) to read as follows:


Sec.  210.15  Reporting and recordkeeping.

* * * * *
    (b) * * *
    (8) Records to document compliance with the procurement training 
requirements under Sec.  210.21(h).
0
4. In Sec.  210.16, revise paragraph (c) introductory text and add 
paragraph (c)(4) to read as follows:


Sec.  210.16  Food service management companies.

* * * * *
    (c) Contracts. Contracts that permit all income and expenses to 
accrue to the food service management company, ``cost-plus-a-
percentage-of-cost,'' ``cost-plus-a-percentage-of-income,'' and ``cost-
reimbursable'' contracts are prohibited. Contracts that provide for 
fixed-fees such as those that provide for management fees established 
on a per meal basis are allowed. Only fixed-price contracts, such as 
contracts that provide a per meal and/or management fees established on 
a per meal basis, either with or without economic price adjustments 
tied to a standard index, are allowed. Contractual agreements with food 
service management companies shall include provisions which ensure that 
the requirements of this section are met. Such agreements must also 
include the following:
* * * * *
    (4) Provisions in 7 CFR part 250, subpart D must be included to 
ensure the value of donated foods, i.e., USDA Foods are credited to the 
nonprofit school food service account.
0
5. In Sec.  210.18, revise paragraph (q) introductory text and 
paragraph (q)(1) introductory text to read as follows:


Sec.  210.18  Administrative reviews.

* * * * *
    (q) 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, withholding payment arising from 
administrative or follow-up review activity conducted by the State 
agency under Sec.  210.18, or assessments established under Sec.  
210.26. 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, withholding of 
payment, or assessments established under Sec.  210.26, and the State 
agency shall acknowledge the receipt of the request for appeal within 
10 calendar days;
* * * * *


Sec.  210.19  [Amended]

0
6. In Sec.  210.19: Amend paragraph (a)(5) by adding the phrase ``and 
approve'' after the words ``annually review'' in the first sentence.
0
7. In Sec.  210.20, add paragraph (b)(16) to read as follows:


Sec.  210.20  Reporting and recordkeeping.

* * * * *
    (b) * * *
    (16) Records to document compliance with the procurement training 
requirements under Sec.  210.21(h).
0
8. In Sec.  210.21, add paragraph (h) to read as follows:


Sec.  210.21  Procurement.

* * * * *
    (h) Procurement training. State agency and school food authority 
staff tasked with procurement responsibilities shall successfully 
complete annual training in procurement standards including but not 
limited to the procurement process generally, government-wide Federal 
procurement requirements, competitive procurements, the Buy American 
provision, State agency and school food authority responsibilities in 
regard to food service management company contracts and all contract 
changes, USDA Foods, intergovernmental cooperation, geographic 
preference, protests, and ethics in accordance with Sec.  210.21(a). 
State agencies and school food authorities must retain records to 
document compliance with the procurement training requirements in this 
paragraph.
0
9. Revise Sec.  210.26 to read as follows:


Sec.  210.26  Penalties and assessments.

    (a) Penalties. Whoever embezzles, willfully misapplies, steals, or 
obtains by fraud any funds, assets, or property provided under this 
part whether received directly or indirectly from the Department shall, 
if such funds, assets, or property are of a value of $100 or more, be 
fined no more than $25,000 or imprisoned not more than 5 years or both; 
or if such funds, assets, or property are of a value of less than $100, 
be fined not more than $1,000 or imprisoned not more than 1 year or 
both. Whoever receives, conceals, or retains for personal use or gain, 
funds, assets, or property provided under this part, whether received 
directly or indirectly from the Department, knowing such funds, assets, 
or property have been embezzled, willfully misapplied, stolen, or 
obtained by fraud, shall be subject to the same penalties.
    (b) Assessments.
    (1) The State agency may establish an assessment against any school 
food authority when it has determined that the school food authority or 
school under its agreement has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the school food 
authority or school had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish an assessment 
against any school food authority when it has determined that the 
school food authority or school meets the criteria set forth under 
paragraph (b)(1) of this section.
    (3) Funds used to pay assessments established under this paragraph 
must be derived from non-federal sources. In calculating an assessment, 
the State agency must base the amount of the assessment on the 
reimbursement earned by the school food authority or school for this 
Program for the most recent fiscal year for which closeout

[[Page 17583]]

data are available, provided that the assessment does not exceed the 
equivalent of:
    (i) For the first assessment, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second assessment, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent assessment, 10 percent of the 
amount of meal reimbursement earned for the fiscal year.
    (4) The State agency must inform the FNSRO at least 30 days prior 
to establishing the assessment under this paragraph. The State agency 
must send the school food authority written notification of the 
assessment established under this paragraph and provide a copy of the 
notification to the FNSRO. The notification must:
    (i) Specify the violations or actions which constitute the basis 
for the assessment and indicate the amount of the assessment;
    (ii) Inform the school food authority that it may appeal the 
assessment and advise the school food authority of the appeal 
procedures established under Sec.  210.18(q);
    (iii) Indicate the effective date and payment procedures should the 
school food authority not exercise its right to appeal within the 
specified timeframe.
    (5) Any school food authority subject to an assessment under 
paragraph (b)(1) of this section may appeal the State agency's 
determination. In appealing an assessment, the school food authority 
must submit to the State agency any pertinent information, explanation, 
or evidence addressing the Program violations identified by the State 
agency. Any school food authority seeking to appeal the State agency 
determination must follow State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay an assessment established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of an assessment 
established under this paragraph against a school food authority and 
any interest charged in the collection of these assessments must be 
remitted to FNS.

PART 215--SPECIAL MILK PROGRAM FOR CHILDREN

0
10. The authority citation for part 215 continues to read as follows:

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

0
11. In Sec.  215.7, add paragraph (g) to read as follows:


Sec.  215.7  Requirements for participation.

* * * * *
    (g) Terminations or disqualifications.
    (1) General. The State agency may not approve any school food 
authority, school or child care institution to participate in or 
administer the Program if the school food authority, school, child care 
institution or its officials:
    (i) Have been terminated for cause from any program authorized 
under this part or parts 210, 220, 225 and 226 of this chapter; or
    (ii) Are currently included on the National disqualified lists 
under Sec. Sec.  225.11 or 226.6 of this chapter.
    (2) Duration. State agencies must ensure that school food 
authorities, schools or child care institutions described in paragraph 
(g)(1) of this section do not participate in or administer the Program 
until the State agency, in consultation with FNS, determines that the 
deficiency(ies) has(ve) been corrected, or until seven years have 
elapsed since they were terminated or disqualified. However, if a 
school food authority, school, child care institution or official has 
failed to repay debts owed under the Program, they will remain 
ineligible until the debt has been repaid.
    (3) State actions. The State agency's decision not to approve a 
school food authority, school or child care institution to participate 
in or administer the Program as required by paragraph (g)(1) of this 
section is final and not subject to further administrative or judicial 
review. For school food authorities, schools and child care 
institutions currently administering the Program, the State agency must 
suspend or terminate the Program in accordance with the procedures set 
forth in Sec.  215.16.
    (4) Process for identifying terminations and disqualifications. 
State agencies must develop a process to share information on school 
food authorities, schools, child care institutions and individuals not 
approved to administer or participate in the programs as described 
under paragraph (g)(1) of this section. The process must be approved by 
the FNSRO and must ensure the State agency works closely with any other 
State agency within the State administering the programs under parts 
210, 220, 225, 226, 246 and 248 of this chapter to ensure information 
is shared for program purposes and on a timely basis.
0
12. Revise Sec.  215.15 to read as follows:


Sec.  215.15  Withholding payments and establishing assessments.

    (a) Withholding payments. In accordance with OMB regulations at 2 
CFR part 200.338 (Remedies for noncompliance), implemented by 
Departmental regulations at 2 CFR part 400, the State agency may 
withhold Program payments in whole or in part, to any school food 
authority which has failed to comply with the provisions of this part. 
Program payments shall be withheld until the school food authority 
takes corrective action satisfactory to the State agency, or gives 
evidence that such corrective actions will be taken, or until the State 
agency terminates the grant in accordance with Sec.  215.16. Subsequent 
to the State agency's acceptance of the corrective actions, payments 
will be released for any milk served in accordance with the provisions 
of this part during the period the payments were withheld.
    (b) Assessments. (1) The State agency may establish an assessment 
against any school food authority, school under its agreement, or child 
care institution when it has determined that the school food authority 
or child care institution has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the school food 
authority, school, or child care institution had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish an assessment 
against any school food authority or child care institution when it has 
determined that the school food authority, school, or child care 
institution has committed one or more acts the under paragraph (b)(1) 
of this section.
    (3) Funds used to pay an assessment established under this 
paragraph must be derived from non-federal sources. In calculating an 
assessment, the State agency must base the amount of the assessment on 
the reimbursement earned by the school food authority, school, or child 
care institution for this Program for the most recent fiscal year for 
which closeout data are available, provided that the assessment does 
not exceed the equivalent of:
    (i) For the first assessment, 1 percent of the amount of 
reimbursement earned for the fiscal year;
    (ii) For the second assessment, 5 percent of the amount of 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent assessment, 10 percent of the 
amount of reimbursement earned for the fiscal year.

[[Page 17584]]

    (4) The State agency must inform the FNSRO at least 30 days prior 
to establishing an assessment under this paragraph. The State agency 
must send the school food authority or child care institution written 
notification of the assessment established under this paragraph and 
provide a copy of the notification to the FNSRO. The notification must:
    (i) Specify the violations or actions which constitute the basis 
for the assessment and indicate the amount of the assessment;
    (ii) Inform the school food authority or child care institution 
that it may appeal the assessment and advise the school food authority 
or child care institution of the appeal procedures established under 
Sec.  210.18(q) of this chapter;
    (iii) Indicate the effective date and payment procedures should the 
school food authority or child care institution not exercise its right 
to appeal within the specified timeframe.
    (5) Any school food authority or child care institution subject to 
an assessment under paragraph (b)(1) of this section may appeal the 
State agency's determination. In appealing an assessment, the school 
food authority or child care institution must submit to the State 
agency any pertinent information, explanation, or evidence addressing 
the Program violations identified by the State agency. Any school food 
authority or child care institution seeking to appeal the State agency 
determination must follow State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay an assessment established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of an assessment 
established under this paragraph against a school food authority and 
any interest charged in the collection of these assessments must be 
remitted to FNS.

PART 220--SCHOOL BREAKFAST PROGRAM

0
13. The authority citation for part 220 continues to read as follows:

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

0
14. In Sec.  220.7, add paragraph (h) to read as follows:


Sec.  220.7  Requirements for participation.

* * * * *
    (h) Terminations or disqualifications.
    (1) General. The State agency may not approve any school food 
authority or school to participate in or administer the Program if the 
school food authority, school or its officials:
    (i) Have been terminated for cause from any program authorized 
under this part or parts 210, 215, 225 and 226 of this chapter; or
    (ii) Are currently included on the National disqualified lists 
under Sec. Sec.  225.11 or 226.6 of this chapter.
    (2) Duration. State agencies must ensure that school food 
authorities or schools described in paragraph (h)(1) of this section do 
not participate in or administer the Program until the State agency, in 
consultation with FNS, determines that the deficiency(ies) has(ve) been 
corrected, or until seven years have elapsed since they were terminated 
or disqualified. However, if a school food authority, school or 
official has failed to repay debts owed under the Program, they will 
remain ineligible until the debt has been repaid.
    (3) State actions. The State agency's decision not to approve a 
school food authority or school to participate in or administer the 
Program as required by paragraph (h)(1) of this section is final and 
not subject to further administrative or judicial review. For school 
food authorities and schools administering the Program, the State 
agency must suspend or terminate the Program in accordance with the 
procedures set forth in Sec.  220.19.
    (4) Process for identifying terminations and disqualifications. 
State agencies must develop a process to share information on school 
food authorities, schools and individuals not approved to administer or 
participate in the programs as described under paragraph (h)(1) of this 
section. The process must be approved by the FNSRO and must ensure the 
State agency works closely with any other State agency within the State 
administering the programs under parts 210, 215, 225, 226, 246 and 248 
of this chapter to ensure information is shared for program purposes 
and on a timely basis.
0
15. Revise Sec.  220.18 to read as follows:


Sec.  220.18  Withholding payments and assessments.

    (a) Withholding payments. In accordance with Departmental 
regulations 2 CFR part 400, the State agency may withhold Program 
payments, in whole or in part, to any school food authority which has 
failed to comply with the provisions of this part. Program payments 
shall be withheld until the school food authority takes corrective 
action satisfactory to the State agency, or gives evidence that such 
corrective actions will be taken, or until the State agency terminates 
the grant in accordance with Sec.  220.19. Subsequent to the State 
agency's acceptance of the corrective actions, payments will be 
released for any breakfasts served in accordance with the provisions of 
this part during the period the payments were withheld.
    (b) Assessments. (1) The State agency may establish an assessment 
against any school food authority or school under its agreement when it 
has determined that the school food authority has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the school food 
authority or school had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish an assessment 
against any school food authority when it has determined that the 
school food authority or school has committed one or more acts the 
under paragraph (b)(1) of this section.
    (3) Funds used to pay an assessment established under this 
paragraph must be derived from non-federal sources. In calculating an 
assessment, the State agency must base the amount of the assessment on 
the reimbursement earned by the school food authority or school for 
this Program for the most recent fiscal year for which closeout data 
are available, provided that the assessment does not exceed the 
equivalent of:
    (i) For the first assessment, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second assessment, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent assessment, 10 percent of the 
amount of meal reimbursement earned for the fiscal year.
    (4) The State agency must inform the FNSRO at least 30 days prior 
to establishing an assessment under this paragraph. The State agency 
must send the school food authority written notification of the 
assessment established under this paragraph and provide a copy of the 
notification to the FNSRO. The notification must:
    (i) Specify the violations or actions which constitute the basis 
for the assessment and indicate the amount of the assessment;
    (ii) Inform the school food authority that it may appeal the 
assessment and advise the school food authority of the appeal 
procedures established under Sec.  210.18(q) of this chapter;

[[Page 17585]]

    (iii) Indicate the effective date and payment procedures should the 
school food authority not exercise its right to appeal within the 
specified timeframe.
    (5) Any school food authority subject to an assessment under 
paragraph (b)(1) of this section may appeal the State agency's 
determination. In appealing an assessment, the school food authority 
must submit to the State agency any pertinent information, explanation, 
or evidence addressing the Program violations identified by the State 
agency. Any school food authority seeking to appeal the State agency 
determination must follow State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay an assessment established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of an assessment 
established under this paragraph against a school food authority and 
any interest charged in the collection of these assessments must be 
remitted to FNS.

PART 225--SUMMER FOOD SERVICE PROGRAM

0
16. The authority citation for part 225 continues to read as follows:

    Authority:  Secs. 9, 13, and 14, Richard B. Russell National 
School Lunch Act, as amended (42 U.S.C. 1758, 1761 and 1762a).

0
17. In Sec.  225.2, add new definitions ``Administrative review'', 
``Administrative review official'', ``National disqualified list'', 
``Responsible principal or responsible individual'', ``Seriously 
deficient'' and ``State agency list'' in alphabetical order to read as 
follows:


Sec.  225.2  Definitions.

* * * * *
    Administrative review means the fair hearing provided upon request 
to:
    (a) A sponsor that has been given notice by the State agency of any 
action that will affect their participation or reimbursement under the 
Program, in accordance with Sec.  225.13; and
    (b) A principal or individual responsible for a sponsor's serious 
deficiency after the responsible principal or responsible individual 
has been given a notice of intent to disqualify them from the Program.
    Administrative review official means the independent and impartial 
official who conducts the administrative review held in accordance with 
Sec.  225.13.
* * * * *
    National disqualified list means the list, maintained by the 
Department, of sponsors, responsible principals, and responsible 
individuals disqualified from participation in the Program.
* * * * *
    Responsible principal or responsible individual means:
    (a) A principal, whether compensated or uncompensated, who the 
State agency or FNS determines to be responsible for a sponsor's 
serious deficiency;
    (b) Any other individual employed by, or under contract with, a 
sponsor who the State agency or FNS determines to be responsible for 
the sponsor's serious deficiency; or
    (c) An individual not compensated by the sponsor who the State 
agency or FNS determines to be responsible for a sponsor's serious 
deficiency.
* * * * *
    Seriously deficient means the status of a sponsor that has been 
determined to be non-compliant in one or more aspects of its operation 
of the Program; such noncompliance is also referred to as a serious 
deficiency.
* * * * *
    State agency list means an actual paper or electronic list, or the 
retrievable paper records, maintained by the State agency, which 
includes a synopsis of information concerning seriously deficient 
sponsors in that State. The list must be made available to FNS upon 
request, and must include the following information:
    (a) Sponsors determined to be seriously deficient by the State 
agency, including the names and mailing addresses of the sponsors, the 
basis for each serious deficiency determination, and the status of the 
sponsors as they move through the possible subsequent stages of 
corrective action, agreement termination, and/or disqualification, as 
applicable;
    (b) Responsible principals and responsible individuals determined 
by the State agency to be associated with the serious deficiency, 
including their full legal names, and any other names previously used, 
mailing addresses, and dates of birth.
* * * * *
0
18. In Sec.  225.5, add paragraph (g) to read as follows:


Sec.  225.5  Payments to State agencies and use of Program funds.

* * * * *
    (g) FNS may establish an assessment against any State agency 
administering the Program, consistent with the provisions set forth in 
Sec.  235.11(c) of this chapter.
0
19. In Sec.  225.6,
0
a. Revise paragraph (b)(9);
0
b. Add paragraph (b)(12);
0
c. Amend paragraph (c)(1) by revising the third sentence;
0
d. Add paragraph (c)(2)(ii)(E);
0
e. Add paragraph (c)(3)(ii)(D);
0
f. Add paragraph (d)(1)(v);
0
g. Revise paragraph (e) introductory text;
    The revisions and additions read as follows:


Sec.  225.6  State agency responsibilities.

* * * * *
    (b) * * *
    (9) The State agency shall not approve the application of any 
applicant sponsor identifiable through its organization or principals 
as a sponsor which has been determined to be seriously deficient as 
described in Sec.  225.11(c). However, the State agency may approve the 
application of a sponsor which has been determined to be seriously 
deficient in prior years in accordance with this paragraph if the 
applicant demonstrates to the satisfaction of the State agency that it 
has taken appropriate corrective actions to prevent recurrence of the 
deficiencies. The State agency must develop policies and procedures to 
confirm that serious deficiencies have been fully and permanently 
corrected. This confirmation must address the circumstances that led to 
the serious deficiency, the responsible parties, the timeframe for 
corrective action and policies and/or procedures that are in place to 
avoid recurrence of the serious deficiency within the same Program year 
or in subsequent Program years.
* * * * *
    (12) Terminations or disqualifications.
    (i) General. The State agency may not approve any sponsor or site 
to participate in or administer the Program if the sponsor, site or its 
responsible principals or individuals:
    (A) Have been terminated for cause from any program authorized 
under this part, parts 210, 215, 220, or 226 of this chapter; or
    (B) Are currently included on the National disqualified lists under 
this part or Sec.  226.6 of this chapter.
    (ii) Duration. State agencies must ensure that sponsor or sites 
described in paragraph (b)(12)(i) of this section do not participate in 
or administer the Program until the State agency, in consultation with 
FNS, determines that the deficiency(ies) has(ve) been corrected, or 
until seven years have elapsed since they were terminated or 
disqualified. However, if a sponsor, site or its responsible principals 
or individuals has failed to repay debts owed under the Program, they 
will

[[Page 17586]]

remain ineligible until the debt has been repaid.
    (iii) State actions. The State agency's decision not to approve a 
sponsor or site to participate in or administer the Program as required 
by paragraph (b)(12)(i) of this section is final and not subject to 
further administrative or judicial review.
    (c) * * *
    (1) * * * The State agency may use the application form developed 
by FNS, or it may develop an application form, for use in the Program; 
provided that such form requests the full legal name, any previously 
used names; mailing address; date of birth of the sponsor's principals 
which includes the Executive Director and Chairman of the Board; and 
the sponsor's Federal Employer Identification Number (FEIN) and/or Dun 
and Bradstreet Data Universal Numbering System (DUNS) number. * * *
    (2) * * *
    (ii) * * *
    (E) Sponsors must submit a certification of the following 
information:
    (1) That all information on the application is true and correct;
    (2) That serious deficiencies identified during the previous year 
have been fully and permanently corrected;
    (3) That the sponsor, sites under its jurisdiction or any 
responsible principals have not been terminated for cause from any 
program authorized under this part, parts 210, 215 220, and 226 of this 
chapter during the past seven years or are not currently included on 
the National disqualified lists under this part or Sec.  226.6 of this 
chapter. Or, if the sponsor has been terminated for cause from any 
program authorized under this part, parts 210, 215 220, and 226 of this 
chapter during the past seven years, the sponsor has been reinstated 
in, or determined eligible for, that program, including the payment of 
any debts owed; and
    (4) That the sponsor, sites under its jurisdiction or any 
responsible principals have not been convicted of any activity that 
occurred during the past seven years and that indicated a lack of 
business integrity. A lack of business integrity includes fraud, 
antitrust violations, embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, obstruction of justice, 
or any other activity indicating a lack of business integrity as 
defined by the State agency.
    (3) * * *
    (ii) * * *
    (D) Certification that all information on the application is true 
and correct.
* * * * *
    (d) * * *
    (1) * * *
    (v) The site and its responsible individuals are not currently on 
the National disqualified lists under this part or 226.6 of this 
chapter and have not been terminated for cause from any program 
authorized under this part, parts 210, 215, and 220 of this chapter as 
specified in Sec.  225.6(b)(12).
* * * * *
    (e) State-Sponsor Agreement. A sponsor approved for participation 
in the Program must enter into a permanent written agreement with the 
State agency. The existence of a valid permanent agreement does not 
limit the State agency's ability to terminate the agreement, as 
provided under Sec.  225.11(g). The State agency must terminate the 
sponsor's agreement whenever a sponsor's participation in the Program 
ends. The State agency must terminate the agreement for cause under 
Sec.  225.6(b)(12)(i), or if the sponsor or its responsible principal 
or responsible individual are on the National disqualified lists under 
this part or Sec.  226.6 of this chapter, as required under Sec.  
225.11(i). The State agency or sponsor may terminate the agreement at 
its convenience for considerations unrelated to the institution's 
performance of Program responsibilities under the agreement. All 
sponsors must agree in writing to: * * *
* * * * *
0
20. Revise Sec.  225.11 to read as follows:


Sec.  225.11  Administrative actions for program violations.

    (a) Investigations. Each State agency shall promptly investigate 
complaints received or irregularities noted in connection with the 
operation of the Program, and shall take appropriate action to correct 
any irregularities. The State agency shall maintain on file all 
evidence relating to such investigations and actions. The State agency 
shall inform the appropriate FNSRO of any suspected fraud or criminal 
abuse in the Program which would result in a loss or misuse of Federal 
funds. The Department may make investigations at the request of the 
State agency, or where the Department determines investigations are 
appropriate.
    (b) Meal disallowances. (1) If the State agency determines that a 
sponsor has failed to plan, prepare, or order meals with the objective 
of providing only one meal per child at each meal service at a site, 
the State agency shall disallow the number of children's meals prepared 
or ordered in excess of the number of children served.
    (2) If the State agency observes meal service violations during the 
conduct of a site review, the State agency shall disallow all of the 
meals observed to be in violation.
    (3) The State agency shall also disallow children's meals which are 
in excess of a site's approved level established under Sec.  
225.6(d)(2).
    (c) List of serious deficiencies. The list of serious deficiencies 
is not identical for each category of sponsor (new, renewing, 
participating) because the type of information likely to be available 
to the State agency is different, depending on whether the State agency 
is reviewing a new or renewing sponsor's application or is conducting a 
review of a participating sponsor. The State agency shall afford a 
sponsor an opportunity not greater than 10 days, unless approved by the 
FNSRO, to correct problems before terminating the sponsor for being 
seriously deficient. Serious deficiencies which are not fully and 
permanently corrected will result in the sponsor's termination from the 
program. Serious deficiencies which are grounds for termination or 
disapproval of application include, but are not limited to, any of the 
following:
    (1) Noncompliance with the applicable bid procedures and contract 
requirements of Federal child nutrition program regulations;
    (2) The submission of false information to the State agency, 
including but not limited to a determination that the sponsor has 
concealed a conviction for any activity that occurred during the past 
seven years and that indicates a lack of business integrity. A lack of 
business integrity includes fraud, antitrust violations, embezzlement, 
theft, forgery, bribery, falsification or destruction of records, 
making false statements, receiving stolen property, making false 
claims, obstruction of justice, or any other activity indicating a lack 
of business integrity as defined by the State agency;
    (3) Failure to return to the State agency any start-up or advance 
payments which exceeded the amount earned for serving meals in 
accordance with this part, or failure to submit all claims for 
reimbursement in any prior year, provided that failure to return any 
advance payments for months for which claims for reimbursement are 
under dispute from any prior year shall not be grounds for disapproval 
in accordance with this paragraph;
    (4) Significant number of Program violations at a site, or Program

[[Page 17587]]

violations at a significant proportion of the sponsor's sites. Such 
violations include, but are not limited to, the following:
    (i) Noncompliance with the meal service requirements;
    (ii) Failure to maintain adequate records;
    (iii) Failure to adjust meal orders to conform to variations in the 
number of participating children;
    (iv) The simultaneous service of more than one meal to any child;
    (v) The claiming of Program payments for meals not served to 
participating children;
    (vi) Service of a significant number of meals which did not include 
required quantities of all meal components;
    (vii) Excessive instances of off-site meal consumption; and
    (viii) Continued use of food service management companies that are 
in violation of health codes.
    (5) Termination or disqualification from another Child Nutrition 
Program, in accordance with Sec.  225.6(b)(12)(i); and
    (6) Any action affecting the sponsor's ability to administer the 
Program in accordance with Program requirements.
    (d) Serious deficiency procedures. (1) If the State agency 
determines that a sponsor has committed one or more serious 
deficiencies listed in paragraph (c) of this section, the State agency 
must declare the sponsor to be seriously deficient.
    (2) If the State agency determines that a responsible principal or 
individual has committed one or more serious deficiencies listed in 
paragraph (c) of this section, the State agency must declare the 
responsible principal or individual to be seriously deficient.
    (3) If the State agency holds an agreement with a sponsor whose 
principal FNS determines to be seriously deficient and subsequently 
disqualified, the State agency must determine the sponsor to be 
seriously deficient and initiate action to terminate and disqualify the 
sponsor. The State agency must initiate these actions no later than 10 
days after the date of the principal's disqualification by FNS.
    (4) If the State agency determines a sponsor, responsible principal 
or individual to be seriously deficient, the State agency must notify 
the sponsor's Executive Director and Chairman of the Board of 
Directors. The notice must identify the responsible principals and 
responsible individuals (e.g., for new sponsor, the person who signed 
the application) and must be sent to those persons as well. The State 
agency may specify in the notice different corrective action, and time 
periods for completing the corrective action for the sponsor, the 
responsible principals and responsible individuals. The notice must 
also specify:
    (i) The serious deficiency(ies);
    (ii) The actions to be taken to correct the serious 
deficiency(ies);
    (iii) The time allotted to correct the serious deficiency(ies);
    (iv) That the serious deficiency determination is not subject to 
administrative review;
    (v) For new sponsors, that failure to fully and permanently correct 
the serious deficiency(ies) within the allotted time will result in 
either the denial of a new sponsor's application and the 
disqualification of the sponsor and the responsible principals and 
responsible individuals;
    (vi) For renewing and participating sponsors, that failure to fully 
and permanently correct the serious deficiency(ies) within the allotted 
time will result in the State agency's denial of the renewing sponsor's 
application, the termination of the sponsor's agreement, and the 
disqualification of the sponsor and the responsible principals and 
responsible individuals;
    (vii) That the State agency will not pay any claims for 
reimbursement or allowable administrative expenses incurred until the 
State agency has approved any sponsor's application and the sponsor has 
signed a Program agreement;
    (viii) For renewing and participating sponsors, that the sponsor's 
withdrawal of its application, after having been notified that it is 
seriously deficient, will still result in the sponsor's formal 
termination by the State agency and placement of the sponsor and its 
responsible principals and individuals on the National disqualified 
list;
    (ix) That, if the sponsor voluntarily terminates its agreement 
after receiving the notice of serious deficiency, the sponsor and the 
responsible principals and responsible individuals will be 
disqualified; and
    (x) That, if the State agency does not possess the date of birth 
for any individual named as a ``responsible principal or individual'' 
in the serious deficiency notice, the submission of that person's date 
of birth is a condition of corrective action for the sponsor and/or 
individual.
    (5) State agency list. At the same time the notice is issued, the 
State agency must add the sponsor, responsible principals and/or 
individuals to the State agency list, indicate that the notice of 
serious deficiency(ies) has(ve) been issued, include the basis for the 
serious deficiency determination, and provide a copy of the notice to 
the appropriate FNSRO.
    (e) Corrective action procedures. (1) Whenever the State agency 
observes violations during the course of a site review, it shall 
require the sponsor to take corrective action within 10 days, unless 
approved by the FNSRO. If the State agency finds a high level of meal 
service violations, the State agency shall require a specific immediate 
corrective action plan to be followed by the sponsor and shall either 
conduct a follow-up visit or in some other manner verify that the 
specified corrective action has been taken.
    (2) For serious deficiencies requiring the long-term revision of 
management systems or processes, the corrective action must be approved 
by the FNSRO and must include milestones and a definite completion date 
that the State agency will monitor. The determination of serious 
deficiency will remain in effect until the State agency determines that 
the serious deficiency(ies) has(ve) been fully and permanently 
corrected within the allotted time.
    (3) At the same time the notice of serious deficiency is issued, 
the State agency must also update the State agency list to indicate 
that the corrective action plan has been issued and provide a copy of 
the corrective action plan to the appropriate FNSRO.
    (f) Successful corrective action. If corrective action has been 
taken to fully and permanently correct the serious deficiency(ies) 
within the allotted time and to the State agency's satisfaction, the 
State agency must:
    (1) Notify the sponsor's Executive Director and Chairman of the 
Board of Directors, and the responsible principals and responsible 
individuals, that the State agency has temporarily deferred its serious 
deficiency determination; and
    (2) Offer the new or renewing sponsor the opportunity to resubmit 
its application. If the new or renewing sponsor resubmits its 
application, the State agency must complete its review of the 
application within 30 days after receiving a complete and correct 
application.
    (3) If corrective action is complete for the sponsor but not for 
all of the responsible principals and responsible individuals (or vice 
versa), the State agency must continue with the actions against the 
remaining parties;
    (4) At the same time the notice is issued as required under 
paragraph (f)(1), the State agency must also update the State agency 
list to indicate that the serious deficiency(ies) has(ve) been 
corrected and provide a copy of the notice to the appropriate FNSRO; 
and
    (5) If the State agency initially determines that the sponsor's 
corrective

[[Page 17588]]

action is complete, but later determines that the serious 
deficiency(ies) has recurred, the State agency must move immediately to 
issue a notice of termination and proposed disqualification, in 
accordance with paragraph (g) of this section.
    (g) Termination procedures. (1) If corrective action is not taken 
to fully and permanently correct the serious deficiency(ies) within the 
timeframe established in paragraph (e)(1) of this section, the State 
agency must immediately terminate the sponsor's agreement.
    (2) The State agency shall terminate the participation of a 
sponsor's site if the site or sponsor fails to take action to correct 
the Program violations noted in a State agency review report within the 
timeframes established by the corrective action plan.
    (3) The State agency shall immediately terminate the participation 
of a sponsor's site if during a review it determines that the health or 
safety of the participating children is imminently threatened.
    (4) If the site is vended, the State agency shall within 48 hours 
notify the food service management company providing meals to the site 
of the site's termination.
    (5) If the State agency holds an agreement with a sponsor that FNS 
determines to be seriously deficient and subsequently disqualifies, the 
State agency must terminate the institution's agreement effective no 
later than 10 days after the date of the sponsor's disqualification by 
FNS. As noted in Sec.  225.13(f)(4), the disqualification is not 
subject to administrative review. At the same time the notice of 
disqualification is issued, the State agency must add the sponsor to 
the State agency list and provide a copy of the notice to the 
appropriate FNSRO.
    (6) If the State agency holds an agreement with a sponsor operating 
in more than one State that another State determines to be seriously 
deficient and subsequently disqualifies, the State agency must 
terminate the institution's agreement effective no later than 10 days 
after the date of the sponsor's disqualification by FNS. As noted in 
Sec.  225.13(f)(4), the disqualification is not subject to 
administrative review. At the same time the notice of disqualification 
is issued, the State agency must add the sponsor to the State agency 
list and provide a copy of the notice to the appropriate FNSRO.
    (7) If the State agency terminates the sponsor's agreement for 
cause, the State agency must notify the sponsor's Executive Director 
and Chairman of the Board of Directors, and the responsible principals 
and responsible individuals, of the termination and disqualification. 
At the same time the notice is issued, the State agency also must 
update the State agency list and provide a copy of the notice to the 
appropriate FNSRO. The notice also must specify:
    (i) That the State agency is terminating the sponsor's agreement 
and will disqualify the sponsor and the responsible principals and 
responsible individuals;
    (ii) The basis for the actions; and
    (iii) The procedures for seeking an administrative review of the 
application denial and/or termination as provided in Sec.  225.13.
    (8) If this action results in children not receiving meals under 
the Program, the State agency shall make reasonable effort to locate 
another source of meal service for these children.
    (h) Disqualification procedures. (1) When the time for requesting 
an administrative review expires or when the administrative review 
official upholds the State agency's denial of the sponsor's application 
or termination, the State agency must notify the sponsor's Executive 
Director and Chairman of the Board of Directors, and the responsible 
principals and responsible individuals that the sponsor and the 
responsible principal and responsible individuals have been 
disqualified.
    (2) At the same time the notice of disqualification is issued, the 
State agency must update the State agency list. The State agency must 
provide a copy of the notice and the mailing address and date of birth 
for each responsible principal and responsible individual to the 
appropriate FNSRO to place the sponsor, responsible principal and/or 
responsible individuals on the National disqualified list. If the State 
agency does not administer all programs authorized under this part or 
parts 210, 215, 220 and 226 of this chapter, the State agency must 
develop a process to share information on sponsors, responsible 
principals and responsible individuals that were terminated and 
disqualified, with any other State agency in its State, administering a 
Child Nutrition Program. The State agency also must notify any State 
agency in its State, administering a program under parts 246 and 248 of 
this chapter, of the termination and disqualification of any sponsor, 
responsible principal, or responsible individual. The process must be 
approved by the FNSRO and must ensure the State agency works closely 
with any other State agency within the State administering the programs 
under parts 210, 215, 220, 226, 246, and 248 of this chapter to ensure 
information is shared for Program purposes and on a timely basis.
    (i) National disqualified list. (1) FNS will maintain the National 
disqualified list and make it available to all State agencies. In 
addition:
    (i) No sponsor, responsible principals or responsible individuals 
on the National disqualified lists under this part or Sec.  226.6 of 
this chapter may participate in the Program as a sponsor or site. The 
State agency must not approve the application of a new or renewing 
sponsor if the sponsor, responsible principals or responsible 
individuals are on the National disqualified lists under this part or 
Sec.  226.6 of this chapter. If the State agency holds an agreement 
with a sponsor that has been placed on the National disqualified lists 
under this part or Sec.  226.6 of this chapter, the State agency must 
terminate the agreement.
    (ii) No individual on the National disqualified lists under this 
part or Sec.  226.6 of this chapter, may serve as a principal for any 
sponsor or as a site operator.
    (2) Once included on the National disqualified list, a sponsor and 
responsible principals and responsible individuals remain on the 
National disqualified list until such time as FNS, in consultation with 
the appropriate State agency, determines that the serious 
deficiency(ies) that led to their placement on the list has(ve) been 
corrected, or until seven years have elapsed since they were 
disqualified from participation. However, if the sponsor, principal or 
individual has failed to repay debts owed under the Program, they will 
remain on the list until the debt has been repaid; and
    (3) Within 10 days of disqualifying a sponsor, the State agency 
must provide the appropriate FNSRO the full legal name, previously used 
names, mailing address, and date of birth of each responsible party, 
which includes, but is not limited to, the Executive Director and 
Chairman of the Board of Directors. In addition, the sponsor's Federal 
Employer Identification Numbers (FEIN) and/or the Dun and Bradstreet 
Data Universal Numbering System (DUNS) numbers must be provided.
    (4) A sponsor or a responsible principal or individual may only be 
removed from the National disqualified list based on the determination 
of the State agency with concurrence from FNS.
0
21. In Sec.  225.13,
0
a. Revise paragraph (a); and
0
b. Add paragraphs (e) and (f).
    The revision and additions read as follows:

[[Page 17589]]

Sec.  225.13  Appeal procedures.

    (a) Each State agency shall establish a procedure to be followed by 
an applicant appealing: A denial of an application for participation 
(except if the applicant has failed to complete a corrective action 
plan from the previous year); a denial of a sponsor's request for an 
advance payment; a denial of a sponsor's claim for reimbursement 
(except for late submission under Sec.  225.9(d)(6)); a State agency's 
refusal to forward to FNS an exception request by the sponsor for 
payment of a late claim or a request for an upward adjustment to a 
claim; a claim against a sponsor for remittance of a payment; an 
assessment established under Sec.  225.18(k); the termination of the 
sponsor or a site; termination of a sponsor's agreement; a denial of a 
sponsor's application for a site; a denial of a food service management 
company's application for registration, if applicable; the revocation 
of a food service management company's registration, if applicable; or 
any other action of the State agency affecting a sponsor's 
participation, or its claim for reimbursement. Appeals shall not be 
allowed on decisions made by FNS with respect to late claims or upward 
adjustments under Sec.  225.9(d)(6).
* * * * *
    (e) The State agency's administrative review procedures must be 
provided:
    (1) Annually to all sponsors;
    (2) To a sponsor and to each responsible principal and responsible 
individual when the State agency takes any action subject to an 
administrative review; and
    (3) Any other time upon request.
    (f) The State agency is prohibited from offering administrative 
reviews of the following actions:
    (1) A decision by FNS to deny an exception request by a sponsor for 
payment of a late claim, or for an upward adjustment to a claim;
    (2) A determination that a sponsor is seriously deficient;
    (3) A determination by the State agency that the corrective action 
taken by a sponsor does not completely and permanently correct a 
serious deficiency;
    (4) Disqualification of a sponsor or a responsible principal or 
responsible individual, and the subsequent placement on the State 
agency list and the National disqualified list; or
    (5) Termination of a sponsor or responsible principal or 
responsible individual under Sec.  225.6(b)(12(i).
0
22. In Sec.  225.14, redesignate paragraphs (c)(3) through (c)(7) as 
paragraphs (c)(5), through (c)(9); and add new paragraphs (c)(3) and 
(c)(4).
    The additions read as follows:


Sec.  225.14  Requirements for sponsor participation.

* * * * *
    (c) * * *
    (3) Has not been terminated from any program authorized under this 
part or parts 210, 215, 220 and 226 of this chapter during the past 
seven years unless reinstated in, or determined eligible for, that 
program, as specified in Sec.  225.6(b)(12);
    (4) Is not currently listed on the National disqualified lists 
under this part or Sec.  226.6 of this chapter;
* * * * *
0
23. In Sec.  225.18,
0
a. Remove paragraph (b)(2) and redesignate paragraph (b)(3) as 
paragraph (b)(2);
0
b. Amend newly redesignated paragraph (b)(2) by removing the words 
''any funds paid to the State agency or a sponsor or'' and ''or by the 
State agency from a sponsor'';
0
c. Add paragraph (k).
    The addition reads as follows:


Sec.  225.18  Miscellaneous administrative provisions.

* * * * *
    (k) Assessments.
    (1) The State agency may establish an assessment against any 
sponsor when it has determined that the sponsor or site has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the sponsor or site 
had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish an assessment 
against any sponsor when it has determined that the sponsor or site 
meets the criteria set forth under paragraph (k)(1) of this section.
    (3) Funds used to pay an assessment established under this 
paragraph must be derived from non-federal sources. In calculating an 
assessment, the State agency must base the amount of the assessment on 
the reimbursement earned by the sponsor or site for this Program for 
the most recent fiscal year for which closeout data are available, 
provided that the assessment does not exceed the equivalent of:
    (i) For the first assessment, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second assessment, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent assessment, 10 percent of the 
amount of meal reimbursement earned for the fiscal year.
    (4) The State agency must inform the FNSRO at least 30 days prior 
to establishing an assessment under this paragraph. The State agency 
must send the sponsor written notification of the assessment 
established under this paragraph and provide a copy of the notification 
to the FNSRO. The notification must:
    (i) Specify the violations or actions which constitute the basis 
for the assessment and indicate the amount of the assessment;
    (ii) Inform the sponsor that it may appeal the assessment and 
advise the sponsor of the appeal procedures established under Sec.  
225.13; and
    (iii) Indicate the effective date and payment procedures should the 
sponsor not exercise its right to appeal within the specified 
timeframe.
    (5) Any sponsor subject to an assessment under paragraph (k)(1) of 
this section may appeal the State agency's determination. In appealing 
an assessment, the sponsor must submit to the State agency any 
pertinent information, explanation, or evidence addressing the Program 
violations identified by the State agency. Any sponsor seeking to 
appeal the State agency determination must follow State agency appeal 
procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay an assessment established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of an assessment 
established under this paragraph against a sponsor and any interest 
charged in the collection of these assessments must be remitted to FNS.

PART 226--THE CHILD AND ADULT CARE FOOD PROGRAM

0
24. The authority citation for part 226 continues to read as follows:

    Authority:  Secs. 9, 11, 14, 16, and 17, Richard B. Russell 
National School Lunch Act, as amended (42 U.S.C. 1758, 1759a, 1762a, 
1765 and 1766).

0
25. In Sec.  226.2,
0
a. Amend the definition of ``Facility'' by removing the word 
``family''; and
0
b. Revise the definitions of ``State agency list'' and ``Termination 
for convenience''.
    The revisions read as follows:


Sec.  226.2  Definitions.

* * * * *
    State agency list means an actual paper or electronic list, or the

[[Page 17590]]

retrievable paper records, maintained by the State agency, that 
includes a synopsis of information concerning seriously deficient 
institutions and providers or unaffiliated centers terminated for cause 
in that State. The list must be made available to FNS upon request, and 
must include the following information:
    (a) Institutions determined to be seriously deficient by the State 
agency, including the full legal names, and any other names previously 
used, and mailing addresses of the institutions, the basis for each 
serious deficiency determination, and the status of the institutions as 
they move through the possible subsequent stages of corrective action, 
proposed termination, suspension, agreement termination, and/or 
disqualification, as applicable;
    (b) Responsible principals and responsible individuals who have 
been disqualified from participation by the State agency, including 
their full legal names, and any other names previously used, mailing 
addresses, and dates of birth; and
    (c) Day care home providers or unaffiliated centers whose 
agreements have been terminated for cause by a sponsoring organization 
in the State, including their full legal names, and any other names 
previously used, mailing addresses, and dates of birth.
* * * * *
    Termination for convenience means termination of a Program 
agreement due to considerations unrelated to either party's performance 
of Program responsibilities under the agreement between;
    (a) A State agency and the sponsoring organization;
    (b) A sponsoring organization and the unaffiliated center; or
    (c) A sponsoring organization and the day care home.
* * * * *
0
26. In Sec.  226.4, revise paragraph (j) to read as follows:


Sec.  226.4  Payments to States and use of funds.

* * * * *
    (j) Audit funds. For the expense of conducting audits and reviews 
under Sec.  226.8, funds shall be made available to each State agency 
in an amount equal to one and one-half percent of the Program funds 
used by the State during the second fiscal year preceding the fiscal 
year for which these funds are to be made available. Beginning in 
fiscal year 2016 and each fiscal year thereafter, State agencies may 
request an increase in the amount of funds made available under this 
paragraph. FNS approval for increased funding will be based on criteria 
related to the effective use of funds to improve program management. 
The total amount of audit funds made available to any State agency 
under this paragraph may not exceed two percent of Program funds used 
by the State during the second fiscal year preceding the fiscal year 
for which the funds are made available. The amount of assistance 
provided to a State under this paragraph in any fiscal year may not 
exceed the State's expenditures under Sec.  226.8 during the fiscal 
year in which funds are made available.
* * * * *
0
27. In Sec.  226.6,
0
a. Revise paragraph (b)(1)(xiii)(A);
0
b. Revise paragraph (b)(1)(xv);
0
c. Revise paragraph (b)(4)
0
d. Amend paragraph (c)(2)(ii)(H) by removing the words ``day care 
home'' and adding the phrase ``relating to day care homes and 
unaffiliated centers as'' after the word ``provisions'';
0
e. Amend paragraph (c)(3)(ii)(R) by removing the words ``day care 
home'' and adding the phrase ``relating to day care homes and 
unaffiliated centers as'' after the word ``provisions'';
0
f. Revise paragraphs (c)(7)(vi) and (c)(8);
0
g. Amend paragraph (k)(2)(xi) by removing `and'
0
h. Redesignate paragraph (k)(2)(xii) as paragraph (k)(2)(xiii) and add 
new paragraph (k)(2)(xii);
0
i. Amend paragraph (k)(5)(ii) by adding a second sentence at the end of 
the paragraph;
0
j. Amend paragraph (k)(5)(ix) by adding the third sentence at the end 
of the paragraph;
0
k. Add paragraph (k)(11);
0
l. Amend paragraph (l) by revising the paragraph heading and by 
revising paragraph (l)(1);
0
m. Amend paragraph (l)(2) by adding the words ``and/or unaffiliated 
center'' after the word ``home'';
0
n. Amend paragraph (l)(4) by adding the words ``and unaffiliated 
centers'' after the word ``homes'' in the paragraph heading;
0
o. Amend paragraph (l)(4)(i) by adding the words ``and unaffiliated 
centers'' after the word ``homes'';
0
p. Amend paragraph (l)(4)(ii) by adding the words ``or an unaffiliated 
center'' after the word ``home'';
0
q. Amend paragraph (l)(5) by removing the words ``election pursuant'' 
and adding the words ``election(s) according'' in their place; by 
adding the words ``or unaffiliated centers'' after the word ``home'' in 
all instances it appears; and by adding the words ``or unaffiliated 
centers'' after the word ``homes'';
0
r. Revise paragraph (m)(3)(ix); and
0
s. Revise paragraphs (m)(6)(i) and (m)(6)(ii).
    The additions and revisions read as follows:


Sec.  226.6  State agency administrative responsibilities.

* * * * *
    (b) * * *
    (1) * * *
    (xiii) Ineligibility for other publicly funded programs.
    (A) General. A State agency is prohibited from approving an 
institution's application if, during the past seven years, the 
institution or any of its principals have been declared ineligible for 
any other publicly funded program by reason of violating that program's 
requirements. This prohibition does not apply if the institution or the 
principal has been fully reinstated in, or determined eligible for, 
that program, including the payment of any debts owed.
    (1) A State agency is prohibited from approving an institution's 
application if, during the past seven years, the institution, 
unaffiliated center, day care home provider, or any principals were 
terminated for cause from any program authorized under parts 210, 215, 
220, 225 of this chapter; or any institution, unaffiliated center, day 
care home provider, or any principals are currently listed on the 
National disqualified lists under this part or Sec.  225.11 of this 
chapter.
    (2) State agencies must develop a process to share information on 
any institution, unaffiliated center, day care home provider, or 
principal terminated or disqualified under this part with any agency 
within the State administering a Child Nutrition Program under parts 
210, 215, 220, and 225 of this chapter. State agencies also must notify 
any agency within the State administering a program under parts 246 and 
248 of this chapter, of the termination and disqualification of any 
institution, unaffiliated center, day care home provider, or principal. 
The process must be approved by the FNSRO and must ensure the State 
agency works closely with any other State agency within the State 
administering the programs under parts 210, 215, 220, 225, 246 and 248 
of this chapter to ensure information is shared for program purposes 
and on a timely basis.
* * * * *
    (xv) Certification of truth of applications and submission of names 
and addresses. Institutions must submit a certification that all 
information on the application is true and correct, along with the 
name, mailing address, and

[[Page 17591]]

date of birth of the institution's executive director and chairman of 
the board of directors or, in the case of a for-profit center that does 
not have an executive director or is not required to have a board of 
directors, the owner of the for-profit center. In addition, the 
institution's Federal Employer Identification Numbers (FEIN) and/or the 
Dun and Bradstreet Data Universal Numbering System (DUNS) numbers must 
be provided;
* * * * *
    (4) Program agreements.
    (i) The State agency must require each institution that has been 
approved for participation in the Program to enter into a permanent 
agreement governing the rights and responsibilities of each party. The 
existence of a valid permanent agreement, however, does not eliminate 
the need for an institution to comply with the reapplication and 
related provisions at paragraphs (b) and (f) of this section.
    (ii) The existence of a valid permanent agreement does not limit 
the State agency's ability to terminate the agreement, as provided 
under paragraph (c)(3) of this section. The State agency must terminate 
the institution's agreement whenever an institution's participation in 
the Program ends. The State agency must terminate the agreement for 
cause based on violations by the institution or its responsible 
principals in accordance with paragraph (c) of this section. The State 
agency or institution may terminate the agreement at its convenience 
for considerations unrelated to the institution's performance of 
Program responsibilities under the agreement.
* * * * *
    (c) * * *
    (7) * * *
    (vi) Removal of day care homes and unaffiliated centers or 
responsible principals and responsible individuals from the list. Once 
included on the National disqualified list, a day care home, 
unaffiliated center, or responsible principals and responsible 
individuals will remain on the list until such time as the State 
agency, in concurrence with the appropriate FNSRO, determines that the 
serious deficiency(ies) that led to its placement on the list has(ve) 
been corrected, or until seven years have elapsed since its agreement 
was terminated for cause. However, if the day care home, unaffiliated 
center, or responsible principals and responsible individuals remain as 
failed to repay debts owed under the Program, it will remain on the 
list until the debt has been repaid.
    (8) State agency list.
    (i) Maintenance of the State agency list. The State agency must 
maintain a State agency list (in the form of an actual paper or 
electronic list or retrievable paper records). The list must be made 
available to FNS upon request, and must include the following 
information:
    (A) Institutions determined to be seriously deficient by the State 
agency, including the full legal names, and any other names previously 
used, and mailing addresses of the institutions, the basis for each 
serious deficiency determination, and the status of the institutions as 
they move through the possible subsequent stages of corrective action, 
proposed termination, suspension, agreement termination, and/or 
disqualification, as applicable;
    (B) Responsible principals and individuals who have been 
disqualified from participation by the State agency, including their 
full legal names, and any other names previously used, mailing 
addresses, and dates of birth; and
    (C) Day care home providers and unaffiliated centers whose 
agreements have been terminated for cause by a sponsoring organization 
in the State, including their full legal names, and any other names 
previously used, mailing addresses, and dates of birth.
    (ii) Referral of disqualified day care homes and unaffiliated 
centers to FNS. Within 10 days of receiving a notice of termination and 
disqualification from a sponsoring organization, the State agency must 
provide the appropriate FNSRO the name, mailing address, and date of 
birth of each day care home provider, unaffiliated centers, or 
responsible principals and responsible individuals whose agreement is 
terminated for cause.
* * * * *
    (k) * * *
    (2) * * *
    (xi) Overpayment demand. Demand for the remittance of an 
overpayment (see Sec.  226.14(a));
    (xii) Assessment. An assessment established by FNS or the State 
agency under Sec.  226.25(i); and
* * * * *
    (5) * * *
    (ii) * * * The State agency must provide a copy of the written 
request for an administrative review, including the date of receipt of 
the request to the appropriate FNSRO within 10 days of its receipt of 
the request.
* * * * *
    (ix) * * * State agencies failing to meet the timeframe set forth 
in this paragraph are liable for all valid claims for reimbursement to 
aggrieved institutions, as specified in paragraph (k)(11)(i) of this 
section.
* * * * *
    (11) State liability for payments.
    (i) A State agency that fails to meet the 60-day timeframe set 
forth in paragraph (k)(5)(ix) of this section must pay from non-Federal 
sources all valid claims for reimbursement to the institution during 
the period beginning on the 61st day and ending on the date on which 
the hearing determination is made.
    (ii) FNS will notify the State agency of its liability for 
reimbursement at least 30 days before liability is imposed. The 
timeframe for written notice from FNS is an administrative requirement 
and may not be used to dispute the State's liability for reimbursement. 
The State agency may submit for FNS review information supporting a 
request for a reduction or reconsideration of the State's liability for 
reimbursement. After review, FNS will recover any improperly paid 
Federal funds.
    (l) Administrative reviews for day care homes and unaffiliated 
centers.
    (1) General. The State agency must ensure that, when a sponsoring 
organization proposes to terminate its Program agreement with a day 
care home or unaffiliated center for cause, the day care home or 
unaffiliated center and any responsible principals are provided an 
opportunity for an administrative review of the proposed termination. 
The State agency may do this either by electing to offer a State-level 
administrative review, or by electing to require the sponsoring 
organization to offer an administrative review. State agencies may make 
different elections with regard to who offers the administrative review 
for day care homes and for unaffiliated centers; however, the same 
election must apply to all day care homes and the same election must 
apply to all unaffiliated centers. The State agency must notify the 
appropriate FNSRO of its election under this option, or any change it 
later makes under this option within 30 days of any subsequent change 
under this option. The State agency or the sponsoring organization must 
develop procedures for offering and providing these administrative 
reviews, and these procedures must be consistent with this paragraph 
(l).
* * * * *
    (m) * * *
    (3) * * *
    (ix) If a sponsoring organization of day care homes or unaffiliated 
centers, implementation of the serious deficiency and termination 
procedures for day care homes or unaffiliated

[[Page 17592]]

centers and, if such procedures have been delegated to sponsoring 
organizations in accordance with paragraph (l)(1) of this section, the 
administrative review procedures for day care homes and unaffiliated 
centers;
* * * * *
    (6) * * *
    (i) At least once every three years, independent centers and 
sponsoring organizations of 1 to 100 facilities must be reviewed. A 
review of such a sponsoring organization must include reviews of 10 
percent of the sponsoring organization's facilities;
    (ii) At least once every two years, sponsoring organizations with 
more than 100 facilities, sponsoring organizations that conduct 
activities other than CACFP with 1 to 100 facilities and independent 
centers and sponsoring organizations that have been identified during a 
previous review as having serious management problems or that are at 
risk of having serious management problems must be reviewed. These 
reviews must include reviews of 5 percent of the first 1,000 facilities 
and 2.5 percent of the facilities in excess of 1,000; and
* * * * *
0
28. In Sec.  226.7,
0
a. Revise paragraph (b); and
0
b. Remove paragraph (m).
    The revision reads as follows:


Sec.  226.7  State agency responsibilities for financial management.

* * * * *
    (b) Financial management system. Each State agency shall establish 
and maintain an acceptable financial management system, adhere to 
financial management standards and otherwise carry out financial 
management policies in accordance with 2 CFR parts 200, 400, 415, 416, 
417, 418, 421, and FNS Instruction 796-2, as applicable, and related 
FNS guidance to identify allowable Program costs and establish 
standards for institutional recordkeeping and report. The State agency 
shall provide guidance on financial management requirements to each 
institution.
    (1) State agencies shall also have a system in place for:
    (i) Annually reviewing at least one month's bank account activity 
of all sponsoring organizations against documents adequate to support 
that the transactions meet program requirements. If the State agency 
identifies any expenditures that have the appearance of violating 
Program requirements, the State agency must refer the sponsoring 
organization's account activity to the appropriate State authorities 
for verification;
    (ii) Annually reviewing actual expenditures reported of Program 
funds and the amount of meal reimbursement funds retained from centers 
(if any) for administrative costs for all sponsoring organizations of 
unaffiliated centers. State agencies shall reconcile reported 
expenditures with Program payments to ensure funds are fully accounted 
for, and use the reported actual expenditures as the basis for 
selecting a sample of expenditures for validation. If the State agency 
identifies any expenditures that have the appearance of violating 
Program requirements, the State agency must refer the sponsoring 
organization's account activity to the appropriate State authorities 
for verification: And
    (iii) Monitoring and reviewing the institutions' documentation of 
their nonprofit status to ensure that all Program reimbursement funds 
are used:
    (A) Solely for the conduct of the food service operation; or
    (B) To improve such food service operations, principally for the 
benefit of the participants.
    (2) The financial management system standards for institutional 
recordkeeping and reporting shall:
    (i) Prohibit claiming reimbursement for meals provided by 
participant's family, except as authorized Sec.  226.18(e); and
    (ii) Allow the cost of meals served to adults who perform necessary 
food service labor under the Program, except in day care homes.
* * * * *
0
29. In Sec.  226.10, revise paragraph (c) to read as follows:


Sec.  226.10  Program payment procedures.

* * * * *
    (c) Claims for Reimbursement shall report information in accordance 
with the financial management system established by the State agency, 
and in sufficient detail to justify the reimbursement claimed and to 
enable the State agency to provide the final Report of the Child and 
Adult Care Food Program (FNS 44) required under Sec.  226.7(d). In 
submitting a Claim for Reimbursement, each institution shall certify 
that the claim is correct and that records are available to support 
that claim.
    (1) Prior to submitting its consolidated monthly claim to the State 
agency, each sponsoring organization must perform edit checks on each 
facility's meal claim. At a minimum, the sponsoring organization's edit 
checks must:
    (i) Verify that each facility has been approved to serve the types 
of meals claimed; and
    (ii) Compare the number of children or eligible adults enrolled for 
care at each facility, multiplied by the number of days on which the 
facility is approved to serve meals, to the total number of meals 
claimed by the facility for that month. Discrepancies between the 
facility's meal claim and its enrollment must be subjected to more 
thorough review to determine if the claim is accurate.
    (2) Sponsoring organizations of unaffiliated centers must submit an 
annual report detailing actual expenditures of Program funds and the 
amount of meal reimbursement funds retained from centers (if any) for 
administrative costs for the year to which the claims apply. The report 
shall use the same cost categories as the approved annual budget 
submitted by the sponsoring organization.
    (3) Sponsoring organizations of for-profit child care centers or 
for-profit outside-school-hours care centers must submit the number and 
percentage of children in care (enrolled or licensed capacity, 
whichever is less) that documents that at least 25 percent are eligible 
for free or reduced-price meals or are title XX beneficiaries. 
Sponsoring organizations of such centers must not submit a claim for 
any for-profit center in which less than 25 percent of the children in 
care (enrolled or licensed capacity, whichever is less) during the 
claim month were eligible for free or reduced-price meals or were title 
XX beneficiaries.
    (4) For each month in which independent for-profit child care 
centers and independent for-profit outside-school-hours care centers 
claim reimbursement, they must submit the number and percentage of 
children in care (enrolled or licensed capacity, whichever is less) 
that documents at least 25 percent are eligible for free or reduced-
price meals or are title XX beneficiaries. However, children who only 
receive at-risk afterschool snacks and/or at-risk afterschool meals 
must not be considered in determining this eligibility.
    (5) Independent for-profit adult day care centers shall submit the 
percentages of enrolled adult participants receiving title XIX or title 
XX benefits for the month claimed for months in which not less than 25 
percent of enrolled adult participants were title XIX or title XX 
beneficiaries. Sponsoring organizations of such adult day care centers 
shall submit the percentage of enrolled adult participants receiving 
title XIX or title XX benefits for each center for the claim. 
Sponsoring organizations of such centers shall not submit claims for 
adult day care centers

[[Page 17593]]

in which less than 25 percent of enrolled adult participants were title 
XIX or title XX beneficiaries for the month claimed.
* * * * *
0
30. In Sec.  226.16,
0
a. Amend paragraph (b)(2) and (b)(3) by removing the phrase ``child 
care and adult day care'';
0
b. Amend paragraph (b)(4) by removing the phrase ``on or after June 20, 
2000'';
0
c. Amend paragraph (b)(6), by adding the phrase ``or unaffiliated 
center'' after the word ``home'' in the first sentence; and by adding 
the phrase ``or an unaffiliated center's'' after the word ``home's'' in 
the second sentence;
0
d. Amend paragraph (b)(8) by adding the phrase ``or unaffiliated 
centers'' after the word ``homes'';
0
e. Amend paragraph (c) by removing the phrase ``child care and adult 
day care'';
0
f. Amend paragraph (d)(1) by removing the phrase ``child care and adult 
day care'' after the word ``each'' and the phrase ``child care'' after 
the phrase ``capability of the'';
0
g. Revise paragraph (d)(3);
0
h. Amend paragraph (i) by removing the phrase ``child care and adult 
day care'';
0
i. Amend paragraph (l)(1) by adding the phrase ``or an unaffiliated 
center'' after the word ``home'' both times it appears in the text;
0
j. Amend paragraph (l)(2) by adding the phrase ``or unaffiliated 
centers'' after the word ``homes'' in the paragraph heading and in the 
introductory text;
0
k. Amend paragraph (1)(2)(vii) by adding the phrase ``, unaffiliated 
center or responsible principle'' after the word ``home'';
0
l. Add paragraph (l)(2)(x);
0
m. Amend paragraph (l)(3) by adding the phrase ``or unaffiliated 
center'' after the word ``home'' each time it appears in the text;
0
n. Amend paragraph (l)(3)(i) by adding the phrase ``or unaffiliated 
center'' after the word ``home'';
0
o. Amend paragraph (l)(3)(i)(B) by adding the phrase ``or unaffiliated 
center'' after the word ``home'';
0
p. Amend paragraph (l)(3)(i)(E) by adding the phrase ``or unaffiliated 
center's'' after the word ``home's''; and removing the words ``and 
its'' and adding the words ``, unaffiliated center or any responsible'' 
in their place;
0
q. Amend paragraph (l)(3)(i)(F) by adding the phrase ``or unaffiliated 
center's'' after the word ``home's'' both times it appears in the text; 
and removing the words ``and its'' and adding the words ``, 
unaffiliated center, or any responsible'' in their place;
0
r. Revise paragraphs (l)(3)(ii) and (l)(3)(iii);
0
s. Amend paragraph (l)(3)(iv) by adding the phrase ``or unaffiliated 
center's'' after the word ``home's'';
0
t. Amend paragraph (l)(3)(v) by adding the phrase ``or unaffiliated 
center's'' after the word ``home's'' both times it appears and adding 
the phrase ``or unaffiliated center'' after the word ``home'';
0
u. Revise paragraph (l)(4); and
0
v. Revise paragraph (m).
    The addition and revisions read as follows:


Sec.  226.16  Sponsoring organization provisions.

* * * * *
    (d) * * *
    (3) Additional mandatory training sessions, as defined by the State 
agency, for key staff from all sponsored facilities not less frequently 
than annually. At a minimum, such training must include instruction, 
appropriate to the level of staff experience and duties, on the 
Program's meal patterns, meal counts, claims submission and review 
procedures, recordkeeping requirements, and reimbursement system.
* * * * *
    (l) * * *
    (2) * * *
    (x) For unaffiliated centers only:
    (A) Use of a food service management company that is in violation 
of health codes;
    (B) Failure to adjust meal orders to conform to variations in the 
number of participants;
    (C) Claiming reimbursement for meals served by a for-profit child 
care center or a for-profit outside-school-hours case center during a 
calendar month in which less than 25 percent of the children in care 
(enrolled or licensed capacity, whichever is less) were eligible for 
free or reduced-price meals or were title XX beneficiaries;
    (D) Claiming reimbursement for meals served by a for-profit adult 
day care center during a calendar month in which less than 25 percent 
of its enrolled adult participants were title XIX or title XX 
beneficiaries;
    (E) Failure to perform any of the other financial and 
administrative responsibilities required by this part;
    (F) The fact that the unaffiliated sponsored center or any of its 
responsible principals have been declared ineligible for any other 
publicly funded program by reason of violating that program's 
requirements during the past seven years unless reinstated in, or 
determined eligible for, that program, including the payment of any 
debts owed. However this prohibition does not apply if the unaffiliated 
center or any of its responsible principals have been fully reinstated 
in, or are now eligible to participate in, that program.
    (3) * * *
    (ii) Successful corrective action. If the day care home or 
unaffiliated center corrects the serious deficiency(ies) within the 
allotted time and to the sponsoring organization's satisfaction, the 
sponsoring organization must notify the day care home or unaffiliated 
center that it has temporarily deferred its determination of serious 
deficiency. The sponsoring organization must also provide a copy of the 
notice to the State agency. However, if the sponsoring organization 
accepts the day care home's or unaffiliated center's corrective action, 
but later determines that the corrective action was not permanent or 
complete, the sponsoring organization must then propose to terminate 
the day care home's or unaffiliated center's Program agreement and 
disqualify any responsible principals, as set forth in paragraph 
(l)(3)(iii) of this section.
    (iii) Proposed termination of agreement and proposed 
disqualification. If timely corrective action is not taken to fully and 
permanently correct the serious deficiency(ies) cited, the sponsoring 
organization must issue a notice proposing to terminate the day care 
home's or unaffiliated center's agreement for cause. The notice must 
explain the day care home's or unaffiliated center's opportunity for an 
administrative review of the proposed termination in accordance with 
Sec.  226.6(l). The sponsoring organization must provide a copy of the 
notice to the State agency. The notice must specify that:
    (A) It may continue to participate and receive Program 
reimbursement for eligible meals served until its administrative review 
is concluded;
    (B) Termination of the day care home's or unaffiliated center's 
agreement will result in termination for cause and disqualification; 
and
    (C) If the day care home seeks to voluntarily terminate its 
agreement after receiving the notice of intent to terminate, the day 
care home or unaffiliated center or any responsible principals will 
still be placed on the National disqualified list.
* * * * *
    (4) Suspension of participation for day care homes or unaffiliated 
centers.
    (i) General. If State or local health or licensing officials have 
cited a day care

[[Page 17594]]

home or an unaffiliated center for serious health or safety violations, 
the sponsoring organization must immediately suspend the day care 
home's or unaffiliated center's CACFP participation prior to any formal 
action to revoke the day care home's or unaffiliated center's licensure 
or approval. If the sponsoring organization determines that there is an 
imminent threat to the health or safety of participants at a day care 
home or an unaffiliated center, or that the day care home or an 
unaffiliated center has engaged in activities that threaten the public 
health or safety, and the licensing agency cannot make an immediate 
onsite visit, the sponsoring organization must immediately notify the 
appropriate State or local licensing and health authorities and take 
action that is consistent with the recommendations and requirements of 
those authorities. An imminent threat to the health or safety of 
participants and engaging in activities that threaten the public health 
or safety constitute serious deficiencies; however, the sponsoring 
organization must use the procedures in this paragraph (l)(4) of this 
section (and not the procedures in paragraph (l)(3) of this section) to 
provide the day care home or an unaffiliated center notice of the 
suspension of participation, serious deficiency, and proposed 
termination of the day care home's or an unaffiliated center's 
agreement.
    (ii) Notice of suspension, serious deficiency, and proposed 
termination. The sponsoring organization must notify the day care home 
or unaffiliated center that its participation has been suspended, that 
the day care home or unaffiliated center has been determined seriously 
deficient, and that the sponsoring organization proposes to terminate 
the agreement for cause, and must provide a copy of the notice to the 
State agency. The notice must specify that:
    (A) The serious deficiency(ies) found and the day care home or 
unaffiliated center's opportunity for an administrative review of the 
proposed termination in accordance with Sec.  226.6(l);
    (B) Participation (including all Program payments) will remain 
suspended until the administrative review is concluded;
    (C) If the administrative review official overturns the suspension, 
the day care home or unaffiliated center may claim reimbursement for 
eligible meals served during the suspension;
    (D) Termination of the day care home's or unaffiliated center's 
agreement will result in the placement of the day care home or 
unaffiliated center on the National disqualified list; and
    (E) If the day care home or unaffiliated center seeks to 
voluntarily terminate its agreement after receiving the notice of 
proposed termination, the day care home or unaffiliated center will 
still be terminated for cause and disqualified.
    (iii) Agreement termination and disqualification. The sponsoring 
organization must immediately terminate the day care home's or 
unaffiliated center's agreement and disqualify the day care home or 
unaffiliated center when the administrative review official upholds the 
sponsoring organization's proposed termination, or when the day care 
home's or unaffiliated center's opportunity to request an 
administrative review expires.
    (iv) Program payments. A sponsoring organization is prohibited from 
making any Program payments to a day care home or unaffiliated center 
that has been suspended until any administrative review of the proposed 
termination is completed. If the suspended day care home or 
unaffiliated center prevails in the administrative review of the 
proposed termination, the sponsoring organization must reimburse the 
day care home or unaffiliated center for eligible meals served during 
the suspension period.
    (m) Sponsoring organizations of day care homes or unaffiliated 
centers must not make payments to employees or contractors solely on 
the basis of the number of homes or centers recruited. However, such 
employees or contractors may be paid or evaluated on the basis of 
recruitment activities accomplished.


Sec.  226.21  [Amended]

0
31. In Sec.  226.21, amend paragraph (a) by removing the text 
``$10,000'' and adding in its place the words ``the small purchase 
threshold as defined by 2 CFR 200.88 and established by 41 U.S.C. 134, 
as applicable,''.
0
32. In Sec.  226.22,
0
a. Amend paragraph (i)(1) by removing the text ``$10,000'' and adding 
in its place the words ``the small purchase threshold as defined by 2 
CFR 200.88 and established by 41 U.S.C. 134 as applicable'' both times 
it appears; and
0
b. Amend paragraph (l)(2) and (l)(3) by removing the text ``$10,000'' 
and adding in its place the words ``the small purchase threshold as 
defined by 2 CFR 200.88 and established by 41 U.S.C. 134, as 
applicable,'' both times it appears:
0
33. In 226.25, add paragraph (i) to read as follows:


Sec.  226.25  Other provisions.

* * * * *
    (i) Assessments.
    (1) The State agency may establish an assessment against any 
institution when it has determined that the institution, unaffiliated 
center, or day care provider has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the institution, 
unaffiliated center, or day care provider had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish an assessment 
against any institution when it has determined that the institution, 
unaffiliated center, or day care provider has committed one or more 
acts under paragraph (i)(1) of this section.
    (3) Funds used to pay an assessment established under this 
paragraph must be derived from non-federal sources. In calculating an 
assessment, the State agency must base the amount of the assessment on 
the reimbursement earned by the institution, unaffiliated center, or 
day care provider for this Program for the most recent fiscal year for 
which closeout data are available, provided that the assessment does 
not exceed the equivalent of:
    (i) For the first assessment, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second assessment, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent assessment, 10 percent of the 
amount of meal reimbursement earned for the fiscal year.
    (4) The State agency must inform the FNSRO at least 30 days prior 
to establishing an assessment under this paragraph. The State agency 
must send the institution written notification of an assessment 
established under this paragraph and provide a copy of the notification 
to the FNSRO. The notification must:
    (i) Specify the violations or actions which constitute the basis 
for the assessment and indicate the amount of the assessment;
    (ii) Inform the institution that it may appeal the assessment and 
advise the institution of the appeal procedures established under Sec.  
226.6(k);
    (iii) Indicate the effective date and payment procedures should the 
institution not exercise its right to appeal within the specified 
timeframe.
    (5) Any institution subject to an assessment under paragraph (i)(1) 
of this

[[Page 17595]]

section may appeal the State agency's determination. In appealing an 
assessment, the institution must submit to the State agency any 
pertinent information, explanation, or evidence addressing the Program 
violations identified by the State agency. Any institution seeking to 
appeal the State agency determination must follow State agency appeal 
procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay an assessment established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of an assessment 
established under this paragraph against an institution and any 
interest charged in the collection of these assessments must be 
remitted to FNS.

PART 235--STATE ADMINISTRATIVE EXPENSE FUNDS

0
34. The authority citation for 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
35. In Sec.  235.11,
0
a. Redesignate paragraphs (c), (d), (e) and (f) as paragraphs (d), (e), 
(f) and (g); and add new paragraph (c);
0
b. Amend newly redesignated paragraph (e) by removing the phrase ``or 
(c)'' after the phrase ``paragraphs (b)'' and adding in its place the 
phrase ``, (c) or (d)''; and
0
c. Amend newly redesignated paragraph (g) by adding in the first 
sentence ``and (c)'' after the words ``provisions of paragraph (b)''; 
and adding the words ``or assessment'' after the word ``sanction'' each 
time it appears.
    The addition reads as follows:


Sec.  235.11  Other provisions.

* * * * *
    (c) Assessments.
    (1) FNS may establish an assessment against any State agency 
administering the programs under parts 210, 215, 220, 225 and 226 of 
this chapter and in part 250 of this chapter as it applies to the 
operation of the Food Distribution Program in schools and child and 
adult care institutions when it has determined that the State agency 
has:
    (i) Failed to correct a State or local mismanagement of the 
programs;
    (ii) Disregarded a program requirement of which the State has been 
informed; or
    (iii) Failed to correct repeated violations of the program 
requirements.
    (2) Funds used to pay an assessment established under paragraph 
(c)(1) must be derived from non-federal sources. The amount of the 
assessment will not exceed the equivalent of:
    (i) For the first assessment, 1 percent of the funds made available 
under Sec.  235.4 during the most recent fiscal year for which closeout 
data are available;
    (ii) For the second assessment, 5 percent of the funds made 
available under Sec.  235.4 during the most recent fiscal year for 
which closeout data are available; and
    (iii) For the third or subsequent assessment, 10 percent of the 
funds made available under Sec.  235.4 during the most recent fiscal 
year for which closeout data are available.
    (3) State agencies seeking to appeal an assessment established 
under this paragraph must follow the procedures set forth in Sec.  
235.11(g). Failure to pay an assessment established under this 
paragraph may be grounds for suspension or termination.
* * * * *

    Dated: March 22, 2016.
Kevin Concannon,
Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 2016-06801 Filed 3-28-16; 8:45 am]
BILLING CODE 3410-30-P