[Federal Register Volume 76, Number 113 (Monday, June 13, 2011)]
[Rules and Regulations]
[Pages 34542-34572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-13623]
[[Page 34541]]
Vol. 76
Monday,
No. 113
June 13, 2011
Part IV
Department of Agriculture
-----------------------------------------------------------------------
Food and Nutrition Service
-----------------------------------------------------------------------
7 CFR Parts 210, 215, 220 et al.
Child and Adult Care Food Program Improving Management and Program
Integrity; Final Rule
Federal Register / Vol. 76 , No. 113 / Monday, June 13, 2011 / Rules
and Regulations
[[Page 34542]]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Parts 210, 215, 220, 225, and 226
RIN 0584-AC24
Child and Adult Care Food Program Improving Management and
Program Integrity
AGENCY: Food and Nutrition Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule incorporates into the Child and Adult Care
Food Program regulations modifications, clarifications, and technical
changes to the two interim rules published by the Department on June
27, 2002 and September 1, 2004. These changes result from over 1,000
public comments received in response to the two interim rules; State
agencies' and the Department's experience in implementing the changes
in these two rules over several years; and the Department's conduct of
an extensive data collection and analysis (the Child Care Assessment
Project) designed to evaluate implementation of these two interim rules
by family day care home sponsors and providers. This rule clarifies or
modifies regulatory provisions relating to: State agency criteria for
approving new and renewing institutions' applications; sponsoring
organization requirements pertaining to the ``block claim'' edit check
and review averaging; and State- and institution-level requirements
pertaining to the serious deficiency process. The changes in this final
rule are designed to further improve Program management and integrity
and, where possible, to streamline and simplify Program requirements.
DATES: Effective date: This final rule is effective July 13, 2011.
Approval date: The information collection requirements contained in
this rule is subject to OMB approval. Once they have been approved, FNS
will publish a separate action in the Federal Register announcing OMB's
approval.
FOR FURTHER INFORMATION CONTACT: Ms. Julie Brewer or Ms. Tina Namian at
3101 Park Center Drive, Room 634, Alexandria, VA 22302-1594, or by
telephone at (703) 305-2590. A regulatory impact analysis was completed
as part of the development of this final rule. Copies of this analysis
may be requested from Ms. Brewer or Ms. Namian.
SUPPLEMENTARY INFORMATION:
Background
Evolution of the Two Interim Rules
As noted in the SUMMARY, USDA has published two interim rules
intended to improve Program management and integrity in the Child and
Adult Care Food Program (CACFP), at 67 FR 43447 (June 27, 2002) and at
69 FR 53501 (September 1, 2004).
Section 243 of Public Law 106-224, the Agricultural Risk Protection
Act of 2000 (ARPA), included a number of nondiscretionary provisions
that amended section 17 of the Richard B. Russell National School Lunch
Act ([NSLA], 42 U.S.C. 1766). Section 307 of Public Law 106-472, the
Grain Standards and Warehouse Act of 2000, further amended one
provision in Sec. 17 of the NSLA. These statutory changes were
implemented in the CACFP regulations in the first interim rule,
published on June 27, 2002. Simultaneously, the Department was working
on a second rule. That rule was issued in proposed form on September
12, 2000 (65 FR 55101). In response to State and Federal review
findings of mismanagement and Program abuse and to audit findings and
recommendations by the Department's Office of Inspector General (OIG),
the rule proposed a series of changes to the CACFP regulations. After
analyzing 548 public comments on the proposed rule, the Department
modified some of its original proposals and published a second interim
rule on September 1, 2004, that implemented additional discretionary
changes to the CACFP regulations. Taken together, the changes
implemented in the two interim rules were designed to improve Program
management and accountability in the CACFP while also simplifying other
requirements, where possible, in order to offset some of the
administrative burden associated with the new requirements in those
rules.
Why is the Department publishing this final rule? Didn't the two
interim rules already implement those changes?
Yes, interim rules have the force and effect of law upon the stated
effective date. The changes in these two interim rules are fully
implemented. However, the Department anticipated the need to make
additional modifications to the provisions of the interim rules, based
on Federal, State, and institution experience in operating the Program
under the new rules and comments received on the interim rules. To that
end, the Department provided an extended comment period for both rules,
which gave State agencies and institutions adequate time to fully
implement the provisions. In addition, since the publication of the
second interim rule, the Department has undertaken an extensive data
collection and analysis, known as the Child Care Assessment Project
(CCAP). The CCAP was designed to evaluate implementation of the new
regulatory requirements by family day care home sponsors and providers.
During the comment period, the Department provided National
training on each of the interim rules and issued extensive guidance
designed to address implementation issues. The Department believes that
the National training and the guidance it provided have fully addressed
a number of the commenters' questions and concerns about the two
interim rules. Many of those comments were submitted prior to the
provision of the training and the guidance. For that reason, the
preamble will not address all of the comments received. The regulatory
language set forth at the end of this rulemaking is limited to the
changes to the two interim rules being made by this final rule.
Can you provide a list of the previously-published implementation
guidance?
Yes. In order to help State agencies implement ARPA's provisions
and the two interim rules, the Department issued the following
guidance:
July 20, 2000--``Implementing Statutory Changes to the
CACFP Mandated by the Agricultural Risk Protection Act of 2000 (Pub. L.
106-224)'';
October 16, 2000--``Monitoring Requirements for Sponsoring
Organizations in the CACFP'';
October 17, 2000--Letter to State agency directors on
termination of institutions and day care homes;
April 12, 2001--``Effects of the Agricultural Risk
Protection Act, Public Law 106-224, on termination of the agreements of
day care home providers in the CACFP'';
March 1, 2002--``Use of `stop payments' in the CACFP'';
February 21, 2003--``Implementation of Interim Rule:
Monitor Staffing Standards in the CACFP'';
January 27, 2004--``CACFP Memorandum 1-04:
Sponsor Monitoring Requirements in the CACFP'';
September 1, 2004--``Implementing Changes to the CACFP in
Interim Rule entitled, `Child and Adult Care Food Program: Improving
Management and Program Integrity ''';
December 23, 2004--``Additional Guidance on the CACFP
Second Interim Rule'';
[[Page 34543]]
March 11, 2005--``CACFP Policy 02-05: Collection
of Required Enrollment Information by Child Care Centers and Day Care
Homes'';
March 29, 2005--``Transfer of Data Related to the CACFP
and the Food Stamp Program'';
July 1, 2005--``CACFP Policy 03-05: Documenting
Reasons for Block Claims by Child Care Centers and Day Care Homes'';
September 23, 2005--``CACFP Policy 06-2005:
Questions and Answers Regarding Institution Applications from Training
on the Second Interim Rule'';
September 23, 2005--``CACFP Policy 07-2005:
Conducting a Five-Day Reconciliation in Centers Participating in the
CACFP'';
November 7, 2005--``CACFP Policy 03-2006:
Questions and Answers on the Serious Deficiency Process in the CACFP'';
February 23, 2006--``CACFP Policy 07-2006:
Questions and Answers on State Agency Oversight Tools, Sponsor
Oversight Tools, and Training and Other Operational Issues in the
CACFP'';
May 23, 2006--``CACFP 12-2006: Issues Relating to
Block Claims Submitted by Sponsored Child Care Centers and Family Day
Care Homes'';
January 26, 2007--``CACFP 01-2007: Retention of
records relating to institutions, responsible principals or responsible
individuals, and family day care homes on the National Disqualified
List; retention of records relating to serious deficiencies''; and
August 27, 2007--``CACFP 15-2007: Documentation
of Block Claims Submitted by Sponsored child Care Centers and Family
Day Care Homes''.
All of these guidance memorandums are available on the FNS Web site
at http://www.fns.usda.gov/cnd/Care/Regs-Policy/Policy/Memoranda.htm.
Can you describe in more detail the CACFP management improvement
training provided by the department before and after publication of the
two interim rules?
In the fall and winter of 1999-2000, the Department trained State
agencies on management improvement techniques that had been presented
in comprehensive management improvement guidance (MIG). In 2001, the
Department provided training on FNS Instruction 796-2,\1\ revision 3,
to State agencies. Training on the MIG and FNS Instruction 796-2 was
crucial to addressing the CACFP financial and administrative management
problems that had been uncovered by State and Federal reviewers and
auditors.
---------------------------------------------------------------------------
\1\ FNS Instruction 796-2 may be found at http://www.fns.usda.gov/cnd/care/Management/79-2.pdf.
---------------------------------------------------------------------------
Finally, after publishing each of the interim rules, the Department
developed extensive training related to each specific component of the
two interim rules. These training sessions were conducted in 2002-2003
and 2004-2005 at workshops around the country. Staff from each State
agency attended the trainings. The curricula and materials for each
training session on the interim rules were then re-formatted and
distributed to State agencies, so that State agencies could use them to
train participating institutions.
How, if at all, does this final rule differ from the two interim rules?
This final rule refines the wording of some provisions previously
implemented in the two interim rules and the implementation guidance,
mostly to clarify regulatory intent, but in several places, to make
changes to previous requirements. The preamble discussion will make
clear which provisions from the two interim rules have had wording
changed for clarification, and which have been changed in a substantive
manner.
In total, how many comments did the department receive on the two
interim rules?
We received a total of 1,009 comment letters or electronic
submissions on the two rules--747 on the first interim rule and 262 on
the second interim rule.
Who commented on the rules?
Of the 1,009 comments received on the two rules: 40 were from State
agencies; 448 were from individuals associated with institutions
participating in CACFP (either independent centers or sponsoring
organizations of homes or centers); 455 were from family day care home
providers participating in the Program; 39 were from State or National
CACFP or children's advocacy organizations; and 27 were from parents,
students, nutritionists, or other interested individuals whose
institutional affiliation could not be determined. In addition, in
writing this final rule, the Department also took into account the many
comments and suggestions made by participants in the training sessions
held in 2002-2003 and 2004-2005.
What issues raised by commenters will not be addressed in this
preamble?
Because of the extended comment period and the timing of the two
interim rules' publication, some public comments were submitted before
the provisions were fully implemented, or before training on the two
interim rules was provided. Therefore, as previously stated, a number
of the issues raised by commenters have already been addressed and
resolved in guidance or training, and do not require discussion in this
preamble.
In addition, the Department received a number of suggestions from
commenters concerning the terminology and definitions used in the two
interim rules. Although the Department believes that some of these
suggestions have merit, we have decided that, in order to avoid
confusion, we will not make any changes to terminology in this final
rulemaking, unless absolutely necessary to clarify the meaning of
specific regulatory terms. The Department may consider making changes
to regulatory terminology and format in the future. Readers should
assume that provisions from the two interim rules that are not
specifically discussed in this rulemaking preamble have not been
modified in this final rule. This rulemaking will specifically identify
those provisions being clarified or modified in the final rule in order
to improve the efficiency or effectiveness of the Program.
How is the remainder of this preamble organized?
The preamble is divided into four parts, and is organized in a
manner similar to the interim rules published in 2002 and 2004. The
four parts of this final rule are as follows:
I. Institution Eligibility Criteria and State Agency Review and
Approval of Institutions' Applications; the Serious Deficiency
Process for Institutions
II. State Agency and Institution Review and Oversight
Requirements;
III. Training and Other Operational Requirements; and
IV. Non-Discretionary Changes Required by the Personal
Responsibility and Work Opportunities Reconciliation Act, the
Healthy Meals Act, and the Goodling Act
Part I. Institution Eligibility Criteria and State Agency Review and
Approval of Institutions' Applications; the Serious Deficiency Process
for Institutions
A. Institution Eligibility Criteria and State Agency Review and
Approval of Institutions' Program Applications
Sections 243(a) and (b) of ARPA added a number of statutory
requirements that affected institution eligibility and the institution
application process. These changes were designed to improve Program
management and integrity by ensuring that the information in an
application being submitted by a new or renewing
[[Page 34544]]
institution (i.e., by an independent center or a sponsoring
organization of day care homes and/or centers) demonstrates that it is
fully capable of administering the Program in accordance with the
regulations. These changes not only required institutions to
demonstrate their ability to administer the Program, both before they
begin operations (in their initial applications) and at certain
intervals thereafter (in their renewal applications); they were also
intended to ensure that State agencies periodically assess and re-
assess each institution's potential ability to perform, based on a
thorough review of the institution's Program application.
The Department received public comments on five aspects of the two
interim rules relating to basic institution eligibility criteria and
the State agency's review of an institution's application to
participate in CACFP, as follows:
The reorganization of the institution application
requirements at Sec. Sec. 226.6(b) and 226.6(f);
The requirements relating to an institution's
documentation of its past performance in the Program application;
The requirement for all new and renewing institutions to
demonstrate ``VCA'' (financial viability, administrative capability,
and accountability) in their Program applications;
The procedures State agencies must follow when they deny
an application submitted by a new or renewing institution; and
The requirement that several institution principals must
submit their dates of birth as part of the institution's Program
application.
Comments relating to the last issue--the submission of dates of
birth--are addressed in Part III(C) of this preamble. The four
remaining issues listed above are addressed in the preamble discussion
that follows.
(1) Reorganization of the Institution Application Requirements at
Sec. Sec. 226.6(b) and 226.6(f)
The second interim rule reorganized Sec. Sec. 226.6(b) and
226.6(f), so that Sec. 226.6(b) includes the broad requirements for
institution applications and Sec. 226.6(f) specifies the frequency at
which an institution is required to update the information contained in
its original application. The second interim rule also consolidated or
cross-referenced application requirements previously found at
Sec. Sec. 226.6(b), 226.6(f), 226.7(g), 226.15(b), 226.16(b) and
226.23(a) into Sec. 226.6(b), so that State agencies and institutions
could more easily refer to them during the application process.
Two commenters stated that the rule was well written, clearly
presented and easy to read; seven other commenters felt that Sec.
226.6 was too complex and should be rewritten in a briefer and simpler
format. Other commenters made specific suggestions for changes in the
terminology used in, or the structure of, Sec. 226.6(b). In addition,
forty commenters expressed their concern that the new application
criteria were potentially too complex, and might prove to be a barrier
to applicants. These commenters recommended that, in order to minimize
the potential barrier, State agencies increase their outreach and
training efforts and streamline their application processes in the ways
permitted by the interim rules.
The Department acknowledges that the structural and other changes
made to Sec. 226.6 have added complexity and length to the rule. When
adding those new application requirements--many of which were mandated
by ARPA--the Department also attempted to find ways to reduce other
administrative burdens. For example, the option for State agencies to
take renewal applications on a three-year cycle, and to enter into
permanent agreements with all types of institutions, will offset some
of the administrative burden resulting from the new requirements added
in the two interim rules. Furthermore, the current length and structure
of this portion of the rules is the result of our more specific
delineation of application requirements for new and renewing
institutions. If State agencies fully implement these optional
provisions, administrative time and effort will be lessened, for them
and for institutions. Any further changes to the rule's organization
will be considered in the future, and the organization of this section
will remain as set forth in the second interim rule.
(2) Application Requirements Relating to an Institution's Past
Performance
The first interim rule implemented a series of ARPA provisions
designed to prohibit institutions and their principals from
participating in CACFP if they had been:
Determined ineligible to participate in any publicly
funded program due to violating these programs' requirements;
Disqualified from CACFP; or
Convicted of any activity that indicated a lack of
business integrity.
In order to fully implement these statutory requirements, the first
interim rule required that an institution's application list all
publicly funded programs in which the institution and its principals
had participated in the past seven years. The rule also required an
institution to certify in its application that neither the institution,
nor any of its principals, is ineligible to participate in such
programs due to violating those programs' requirements during the
seven-year period. In lieu of submitting this certification, the
interim rule permitted an institution to submit documentation that the
institution or principal previously determined ineligible was later
reinstated, or was again eligible to participate in, the publicly
funded program, and had paid all debts owed to that program. The rule
also required institution applications to include a certification
concerning the criminal backgrounds of the institution and its
principals.
As part of these certification requirements, the first interim rule
included language stating that institutions and principals providing
false certifications would be placed on the National Disqualified List
(NDL). This language was intended to deter the submission of
applications by ineligible institutions and principals, and to provide
them with notice regarding the consequences of submitting false
certifications. The rule also required that, when reviewing an
institution's application, the State agency check the NDL to ensure
that the institution is not on the NDL and is, therefore, eligible to
participate. Finally, the rule prohibited State agencies from approving
an institution's application if the institution or any of its
principals had been convicted of any activity indicating a lack of
business integrity during the past seven years.
Thirteen comments were received from eleven State agencies and two
advocates regarding several aspects of these ``past performance''
requirements. Two State agency commenters suggested that past
performance requirements be eliminated. This cannot be done, since
these are statutory requirements. The Department believes that
capturing this information on an institution's application is an
effective and efficient means of complying with this requirement.
In addition, five State agency commenters made suggestions which
they felt would reduce the administrative burden associated with
meeting the past performance requirements. One State agency commented
that requiring a new institution to list all publicly funded programs
in which it participated for the last seven years is burdensome, and
that an institution's submission of a ``certification of non-
disqualification'' should suffice. However, the Department believes it
is important to require the new institution to submit
[[Page 34545]]
both the certification of non-disqualification and the list of publicly
funded programs. The certificate of non-disqualification establishes a
clear basis for removal from the CACFP (submission of false
information) if the institution conceals a prior termination from a
publicly funded program. The Department also believes that it is
important for the State agency to have a list of publicly funded
programs in which the institution previously participated, because it
allows the State agency to verify the accuracy of the non-
disqualification certification if it chooses.
However, the Department agrees with, and will make, the change
suggested by another State agency. The comment suggested that the
burden associated with reporting on past performance could be minimized
by allowing a renewing institution to include on its application only
those new publicly funded programs in which it had begun to participate
since its last application was submitted. The Department believes that
this suggestion will lower administrative burden while still meeting
the intent of the law. Therefore, this regulation will allow a renewing
institution to update the list of programs that it submitted in its
last application, rather than provide the full list of programs in
which it participated for the past seven years. This will minimize
unnecessary ``re-reporting'' of information, which could be especially
burdensome for institutions that regularly receive grants or have many
other sources of public funding.
Two State agencies commented that an institution should only be
required to submit information about programs in which it participated
during the past three years, since a three-year record retention
requirement is standard in most publicly funded programs. Although the
Department agrees that most publicly funded programs require an
institution to retain records for a period of three years (or longer if
there are outstanding review or audit findings), we do not believe that
requiring the principals of an institution to know and document their
performance, and the institution's performance, for a seven-year period
will pose any special hardship. The principals charged with managing
the institution should know the institutions' and all of the
principals' record of performance over the past seven years.
One State agency suggested that, if an institution's participation
in a publicly funded program has been terminated, and the institution
has taken action to correct the deficiency that caused the termination,
the State agency should be able to approve the institution's
participation in the CACFP, even if the institution had not been
formally ``reinstated'' to eligibility in the other program. This
statutory change ensures that only institutions with records of sound
performance in other publicly funded programs be permitted to
participate in CACFP. Having the CACFP State agency assess an
institution's performance in another publicly funded program does not
meet that intent. Only if the institution has been reinstated to
participation by the other publicly funded program can the State agency
be assured that all corrective actions have been fully implemented, and
all debts fully repaid.
Finally, four State agencies and two advocacy groups commented
that, if the State agency was required to consult the NDL when
reviewing an institution's application, the NDL must be web-based and
searchable, and must include all the necessary information concerning
institutions, principals, and family day care home providers on the
list. The Department agrees that the NDL must be accessible and
complete if State agencies are to effectively comply with the
regulatory requirement to exclude institutions and individuals who are
on the List. To that end, the Department has made the NDL available to
State agencies. Although privacy issues initially made it impossible
for the Department to provide access to the NDL to institutions, they
have been able to obtain the information they need about providers and
principals from their State agency, and we anticipate being able to
make the NDL directly accessible to institutions in the near future.
Accordingly, the only change made to past performance requirements
in this final rule is the modification of Sec. 226.6(b)(2)(iii) to
permit renewing institutions to list in their applications only those
publicly funded programs in which they have begun to participate since
the submission of their last application.
(3) Application Requirements Relating to an Institution's ``VCA''
(Financial Viability, Administrative Capability, and Internal Controls
To Ensure Accountability)
The first interim rule implemented the requirement set forth in
section 243(b) of ARPA that, in order to participate, an institution
must demonstrate in its Program application that it meets three
performance standards now included in section 17(d)(1) of the Richard
B. Russell National School Lunch Act (NSLA). These standards require
the institution to be financially viable; to be administratively
capable; and to have in place internal controls to ensure the
accountability of Program funds and compliance with Program
requirements. Sections 226.6(b)(1)(xviii) and 226.6(b)(2)(vii), which
were added to the regulations by the first interim rule, require State
agencies to evaluate all applicant institutions against these three
performance standards, in order to assess their ability to properly
administer the Program, and to deny the application of any institution
which does not demonstrate conformance with these performance standards
or any other requirements set forth in Sec. 226.6(b). In addition, the
rule required ongoing compliance with the VCA standards by defining as
a serious deficiency a participating institution's ``[f]ailure to
operate the Program in conformance with the performance standards * *
*'' (Sec. 226.6(c)(3)(ii)(C))
A total of 325 comments were received concerning the VCA
performance standards. Of these comments, 263 dealt with the
requirement at Sec. Sec. 226.6(b)(1)(xviii)(A)(2) and
226.6(b)(2)(vii)(A)(2) that an institution demonstrate in its
application that it has adequate financial resources to operate the
CACFP and ``adequate sources of funds to withstand temporary
interruptions in Program payments and/or fiscal claims against the
institution.'' Many commenters suggested eliminating this language,
because they thought that it required family day care home sponsors to
pay claims to providers during periods when, for reasons beyond their
control, CACFP funding was delayed or unavailable.
The Department understands that, if CACFP reimbursements were
temporarily unavailable, few if any sponsors would have the resources
to pay provider claims. The regulatory wording was intended to address
a different situation, involving the State agency's establishment of an
overclaim against an institution, or its denial of a portion of the
institution's claim for administrative reimbursement.
Many commenters stated their belief that CACFP is intended to be
``self-sufficient''; in other words, they believe that all the
resources needed to operate CACFP should come from Program
reimbursements. While this belief is largely accurate, there are a
number of one-time and recurring expenses for which Program funds may
not be used, including the costs of incorporation, the preparation of
annual IRS-990 reports, fines and penalties, and some other general
business costs. Furthermore, once an institution incurs any
[[Page 34546]]
administrative cost, there is always the possibility that the State
agency may later determine that the institution's use of Federal funds
for that expense is unallowable.
If Program reimbursements have already been used to pay a
contractor or supplier for an expense later deemed unallowable by the
State agency, the sponsor's repayment cannot come from Program funds,
because it is impermissible to use Program funds to repay debts to the
government. Therefore, every sponsor must have a source of ``non-
Program'' funds out of which such a claim can be paid. The Department
does not expect sponsors to reimburse providers if Federal
reimbursement is unavailable. However, a sponsor must still have a
source of non-Program funds with which to compensate its employees and
pay its suppliers.
In short, if the sponsor does not have a source of non-Program
funds in these instances, it runs the risk of going out of business,
due to its inability to repay the State agency, or to pay its employees
or suppliers. The Department would not advise a State agency to deny an
institution's application solely because it lacked a source of non-
Program revenue. However, the institution itself should be eager to
have such funds on hand, since its existence as a viable entity, and
its continued ability to provide Program benefits to children, may
depend on it.
To further clarify this regulatory language's intent, the
Department has made some minor modifications to the wording of
Sec. Sec. 226.6(b)(1)(xviii)(A)(2) and 226.6(b)(2)(vii)(A)(2). The
phrase, ``has adequate sources of funds to withstand temporary
interruptions in Program payments and/or fiscal claims against the
institution'' has been changed to read, ``has adequate sources of funds
to continue to pay employees and suppliers during periods of temporary
interruptions in Program payments and/or to pay debts when fiscal
claims have been assessed against the institution.'' This language more
clearly delineates the situations in which the institution would need
to have non-Program funding. In addition, the Department has added to
the introductory language at Sec. Sec. 226.6(b)(1)(xvii) and
226.6(b)(2)(vii) a sentence that reads, ``In ensuring compliance with
these performance standards, the State agency should use its discretion
in determining whether the institution's application, in conjunction
with its past performance in CACFP, establishes to the State agency's
satisfaction that the institution meets the performance standards.''
A related question was submitted by another State agency, which
suggested that an institution's budget should only be required to
address its planned expenditure of Program reimbursements, not its
planned use of non-Program funds. In fact, if the institution does not
plan to use non-CACFP funds to support some required CACFP functions,
there is no requirement that non-Program funds be addressed in the
budget. In that case, the only information needed in the budget or
management plan is the institution's source of non-Program funds that
could be used to pay overclaims or other costs identified in the
preceding paragraph.
However, if the institution plans to use any non-Program resources
to meet CACFP requirements, then these funds should be accounted for in
the institution's budget. For example, many multi-purpose sponsoring
organizations that operate the CACFP devote some non-Program resources
to the performance of critical CACFP functions like training or
monitoring. Similarly, an independent center may plan to rely on a
portion of the parent fees it collects to perform a required CACFP
function. In these cases, the institution's budget must account for
those non-Program funds that will be devoted to Program administration,
so that the State agency has a full understanding of how the
institution will fund its performance of all required Program
functions.
Accordingly, Sec. 226.7(g) is amended to specify the ways in which
``non-program funds'' must be addressed in the institution's budget.
In addition, commenters made a number of other suggestions for
changing or clarifying various aspects of the performance standards.
Forty-seven (47) commenters expressed concern that at-risk afterschool
care centers would have great difficulty meeting the performance
standards, and should not be held to the same standards as larger
Program operators like sponsoring organizations of centers or family
day care homes. During our training on the interim rules, we urged
State agencies to take into account an institution's size and
sophistication when examining different types of organizations'
applications. In fact, an entire session of our training on the second
interim rule was devoted to a discussion of how State agencies should
apply the regulatory language when examining applications submitted by
independent child care centers, as opposed to sponsoring organizations
of hundreds (or in some cases, thousands) of facilities. We recommend
that State agencies apply a ``rule of reason'' when reviewing materials
submitted by different types of institutions, with different levels of
Program reimbursement and, in many cases, different levels of
managerial sophistication.
One State agency suggested that sponsored centers, as well as
institutions, should be required to demonstrate compliance with the VCA
standards. We carefully considered the possibility of requiring
sponsored centers to comply with the VCA standards, but ultimately
rejected it. Even if a sponsored center has, in the past, operated as
an independent center in the CACFP, once a sponsoring organization
enters into an agreement with that center, the center becomes a
sponsored facility, and assumes a different Program relationship with
the State agency. As a result of the rule, a sponsoring organization
(not each sponsored center) now has primary responsibility for ensuring
that the CACFP is operated in accordance with the performance standards
in all of its sponsored facilities. That is why we so strongly
recommended in training that State agencies take extra care in
evaluating a sponsoring organization's compliance with the performance
standards, since the sponsor must be able to demonstrate that it can
adequately monitor, train, and provide technical assistance to all of
the facilities that it sponsors.
Finally, one other State agency requested that the final rule add a
definition of ``board of directors'' or ``governing board of
directors.'' Based on questions we have received since the publication
of the first interim rule, and based on the data collected in CCAP, we
agree that there is a need for further clarification of the regulatory
requirements pertaining to institution boards of directors.
When the first interim rule incorporated performance standards in
the CACFP regulations, Sec. Sec. 226.6(b)(1)(xviii)(C)(1) and
226.6(b)(2)(vii)(C)(1) specified that an institution must demonstrate
``adequate oversight of the Program by its governing board of
directors.'' At the time, the Department was reluctant to specify what
constitutes ``adequate oversight,'' since many States have their own
laws concerning the qualifications, structure, and responsibilities of
boards of directors. However, in the years since the first interim rule
took effect, the questions submitted to the Department by State
agencies and others have convinced us of the need to specifically
address two recurring issues concerning boards of directors in this
final rule.
[[Page 34547]]
First, we have been asked repeatedly how this requirement applies
to for-profit centers participating in the CACFP. Although large,
publicly-held for-profit corporations have boards of directors, there
may be some smaller for-profit entities that do not. In a small, for-
profit center, it is quite possible that there will be an owner, but no
formally-designated governing board. This rule clarifies this point in
a new definition of an ``independent governing board of directors'',
which will apply to any non-profit or for-profit organization that is
required by law to have a board of directors.
Second, we have received numerous questions concerning what
constitutes an ``independent'' governing board of directors. Although
some States' laws define the characteristics of board independence,
others do not. Therefore, this rule will delineate the characteristics
of ``independent governing boards of directors'' that are necessary to
assure the adequate oversight of CACFP operations. This final rule
requires--in a new definition at Sec. 226.2-- that an ``institution's
governing board of directors'' must: (1) Meet on a regular basis; and
(2) have the authority to hire and fire the institution's executive
director (i.e., the board must be independent of the executive
director's control).
Based on State agencies' input and on the information gathered by
the CCAP data collection, it appears that some private nonprofit
organizations currently participating in CACFP do not have a governing
board of directors that fully meets this definition because of lack of
independence,'' The CCAP assessment determined that 36 percent (18 of
50) of the sponsors assessed included sponsor officials or family
members serving on their governing boards of directors. In fact, in
almost 20 percent of the sponsors assessed (9 of 46), the board of
director's chairperson was a sponsor official or family member.
Although the current regulations do not directly address this aspect of
board independence, it is a critical aspect of a board's ability to
provide ``adequate oversight of the Program'', as described in the
Management Improvement Guidance (MIG). The MIG guidance and training
emphasized that governing boards of directors which include the CACFP
director, other sponsor officials, and/or members of their families
cannot perform the type of independent oversight required for the
sponsor's successful operation of the CACFP. One of the critical
hallmarks of a governing board of directors' independence--the board's
ability to hire and fire the organization's executive director--is
limited when sponsor officials or their families serve on the board. We
encourage State agencies to work closely with institutions
participating in CACFP to ensure that such boards are in place, and
that this requirement is fully met, as quickly as possible.
Accordingly, this final rule modifies the introductory language to
Sec. Sec. 226.6(b)(1)(xviii) and 226.6(b)(2)(vii), and has made some
minor modifications to Sec. Sec. 226.6(b)(1)(xviii)(A)(2) and
226.6(b)(2)(vii)(A)(2), to clarify the requirement that institutions
have ``adequate sources of funds'' in order to be determined
financially viable, as discussed above. In addition, this final rule
includes in Sec. Sec. 226.6(b)(1)(xviii)(C)(1) and
226.6(b)(2)(vii)(C)(1) new language concerning the minimum Program
requirements for an ``independent board of directors'', and adds to
Sec. 226.2 a new definition of ``independent board of directors.''
(4) State Agencies' Denial of Institution Applications
The Department received three public comments concerning State
agencies' denial of applications submitted by new or renewing
institutions. In addition, we received numerous, detailed questions
concerning this subject when we conducted training on the two interim
rules.
Two State agency commenters requested a change to the language
governing State agencies' denial of applications. Sections
226.6(c)(1)(i) and 226.6(c)(2)(i) require the State agency to deny an
application if it does not meet all of the requirements set forth at
Sec. Sec. 226.6(b), 226.15(b) and 226.16(b). These commenters
suggested that this portion of the regulations should instead state
that an application is considered incomplete, and that the State agency
does not have to formally deny the application, if it does not contain
all of the information required by Sec. Sec. 226.6(b), 226.15(b) and
226.16(b).
The Department cannot agree with this suggested change, because it
would prevent some institutions from ever having the opportunity to
appeal the State agency's denial of their applications. If a State
agency does not have to deny an ``incomplete application'', and no
application is considered to be ``complete'' unless it is approvable,
then the State agency will never have to formally deny any
institution's application. While we recognize that it is often
necessary for a State agency to request more information from an
institution before it can determine whether the institution's
application is approvable, the process of requesting this information
must have an end date, or the institution will, de facto, lose its
opportunity to appeal the State agency's action. Likewise, if there is
no end to the process of collecting additional information, a renewing
institution could continue participating indefinitely while it submits
additional information to the State agency.
For these reasons, the Department strongly recommends that State
agencies develop written policy governing the maximum amount of time it
will take to review an institution's new or renewal application,
including any time for the State agency to request additional
information from the institution. If, however, a State agency returns
an application to an institution because it was incomplete, and the
institution fails to submit more information, the State agency is under
no obligation to deny the application. In this instance, by not
submitting timely the additional required information, the institution
has effectively withdrawn its application from consideration. The only
time that the Department would require the State agency to take formal
action on an ``incomplete application'' before the State-established
deadline for submitting information is in the rare case where the State
agency discovers a serious deficiency when reviewing the institution's
application. In those instances, in accordance with Sec. Sec.
226.6(c)(1)(i) and 226.6(c)(1)(ii), the State agency would be required
to deny the institution's application and to declare the institution
seriously deficient.
Readers of this preamble should note that, although this final rule
continues to refer to ``renewal applications'' at Sec. 226.6(b)(2),
enactment of Public Law 111-296, the Healthy, Hunger-Free Kids Act of
2010, made substantial changes to the process by which participating
institutions verify their continuing compliance with Program
requirements. These changes were addressed in implementing guidance
issued on April 8, 2011 (``CACFP 19-2011, ``Child Nutrition
Reauthorization 2010: CACFP Applications''), as well as in in
forthcoming proposed and final rulemaking actions.
B. The Serious Deficiency Process for Institutions
Section 243(c) of ARPA added a number of provisions to section
17(d)(5) of the NSLA which modified the serious deficiency process for
institutions. As a result, several important aspects of the serious
deficiency process were changed in the first interim rule, including:
the content of the notice received by an
[[Page 34548]]
institution when it is notified that its performance is ``seriously
deficient;'' the time given the institution to correct its serious
deficiency and, if the serious deficiency is not corrected, the content
of the notice issued by the State agency informing the institution of
its intent to terminate and disqualify the institution and those
principals and/or individuals responsible for the serious deficiency;
and the process for suspending an institution's Program payments when
it has engaged in conduct that poses an imminent threat to children's,
or the public's, health or safety. In addition, Section 307(c) of the
Grain Standards and Warehouse Improvement Act of 2000 (Pub. L. 106-472,
November 9, 2000) further amended section 17(d)(5) of the NSLA by
prescribing a specific process for suspending an institution's CACFP
participation due to the submission of a false or fraudulent claim.
[Note: as used in this preamble, the phrase ``serious deficiency
process'' refers to all actions taken by a State agency after it
declares an institution seriously deficient, including the
institution's appeal and its placement on the National Disqualified
List (NDL).]
The most significant change to the serious deficiency process made
by ARPA was the requirement that, until the conclusion of the appeal
process and the termination of its agreement, an institution will
continue to receive Program payments for valid claims submitted. Prior
to this, a State agency terminated an institution's agreement and
discontinued Program payments at the same time that it declared the
institution seriously deficient. Only then did the institution have an
opportunity to appeal the State agency's adverse action. Thus, prior to
ARPA, the institution received no Program payments (even if it incurred
valid Program costs) until its appeal was resolved, and would then
receive payments only if it prevailed on appeal. This approach resulted
in two undesirable outcomes: (1) An institution could go out of
business while its appeal was pending (due to its inability to pay
legitimately-incurred costs), even if it later prevailed on appeal; and
(2) many State agencies were reluctant to require an institution to
improve program management, since the initiation of the serious
deficiency process carried with it the simultaneous termination of the
institution's agreement and the discontinuation of its Program
payments.
Part I (B) of this preamble discusses questions about the serious
deficiency process for institutions which were raised by commenters and
by those who attended the Department's training on the two interim
rules. As in Part I (A) of this preamble, the training and written
guidance provided by the Department have already addressed many of the
questions raised. Therefore, this portion of the preamble will discuss
only those aspects of the serious deficiency process that require
additional clarification, as well as any changes being made in this
final rule.
(1) General Questions About the Serious Deficiency Process for
Institutions
As a result of the statutory changes enacted in ARPA, the first
interim rule established more specific requirements governing each
stage of the serious deficiency process for institutions, including:
the State agency's issuance of a serious deficiency notice; the amount
of time given to an institution for corrective action; the appeal
process; the termination of the institution's agreement; and the
placement of the institution and its ``responsible principals and
individuals'' on the NDL. The Department received numerous written
comments, as well as questions during its training sessions, regarding
these changes to the serious deficiency process for institutions.
Several training attendees raised questions about the maximum
amount of time that may elapse between the State agency's discovery of
an institution's serious deficiency and its issuance of a serious
deficiency notice. Attendees also raised a related question: whether an
institution can terminate its agreement for convenience after the State
agency has discovered a serious deficiency, but prior to the time that
the serious deficiency notice is issued.
Once a State agency has discovered a serious deficiency, the first
interim rule's intent was that the serious deficiency process would be
completed (i.e., either corrective action would be taken or the
institution's agreement would be terminated), even if the institution
terminated its agreement ``for convenience'' before a formal notice of
serious deficiency was issued. The Department anticipated that, once a
serious deficiency had been discovered, a State agency would move
quickly to issue a serious deficiency notice. Therefore, the first
interim rule stated at Sec. Sec. 226.6(c)(2)(iii)(A)(6) and
226.6(c)(3)(iii)(A)(6) that, after a State agency has issued a notice
of serious deficiency, the institution could not voluntarily terminate
its agreement as a means of avoiding formal termination ``for cause''
and placement on the NDL; the serious deficiency process would still
proceed. However, during our training on the interim rules, it became
apparent that these questions arose because some State agencies do not,
in fact, issue a formal notice for months after discovering the serious
deficiency.
In some of these cases, the institution has been told at a review's
``exit conference'' that it is seriously deficient. However, if the
institution does not promptly receive a formal notice of serious
deficiency, the institution may decide that it is preferable to
terminate its agreement and withdraw from the Program, rather than go
through the serious deficiency process, and possibly be placed on the
NDL. Allowing institutions to leave CACFP before correcting their
serious deficiencies is very detrimental to the Program, because the
institution has neither corrected the serious deficiency nor been
placed on the NDL, thus making it more possible for the institution and
its responsible principals to re-enter the program later. Without
having issued a formal serious deficiency notice which defines the
institution's required corrective action, any State agency's ability to
deny the institution's future re-application is diminished. In
addition, if the issuance of a serious deficiency notice is delayed,
the institution may assume that there was, in fact, no real serious
deficiency, and no need for the institution to correct its management
practices.
For these reasons, it is critical that, once a State agency
discovers a serious deficiency, the institution promptly receive formal
notice of that finding. By definition, a serious deficiency involves
very serious Program management issues. The State agency must take
prompt action, including issuing the formal notice of serious
deficiency, to ensure that the institution corrects the serious
deficiency, or has its agreement terminated for cause, as expeditiously
as possible. Furthermore, if prompt action does not occur and the
institution subsequently appeals a proposed notice of intent to
terminate and disqualify, a hearing official may question the
``seriousness'' of the deficiency if the State agency took months to
issue a written notice.
The Department will not establish in this rule a maximum amount of
time for the State agency to issue a serious deficiency. We understand
that State agencies have different procedures for handling serious
deficiencies. There may be a need for supervisory clearance of a
reviewer's findings and conclusions, and there may be multiple internal
clearances of the written serious deficiency notice before it is
issued.
However, we strongly encourage State agencies to take steps to
minimize the amount of time that elapses between a
[[Page 34549]]
review and the issuance of a serious deficiency notice. Such steps
might include: Training State reviewers to ensure that they do not
exceed their authority in describing findings to an institution during
an exit conference; whenever possible, including on a review team a
person capable of speaking on behalf of the State agency concerning
serious deficiency determinations; and/or establishing internal
policies and procedures which ensure that an institution receives
timely notice of its serious deficiency. Once these steps are taken,
there should be no reason for a State agency to take more than two to
six weeks to issue the notice, after the discovery of the serious
deficiency.
A second general question raised in training sessions concerned a
State agency's determination of which institution employee(s) should be
named in a serious deficiency notice (i.e., which persons should be
named as ``responsible principals and individuals''). Since then, we
have observed instances in which either too many or too few principals
and individuals were named as responsible. The former approach will
slow the appeal process considerably, as hearing officials attempt to
discern whether every person named in the notice is truly responsible
for the serious deficiency and, therefore, should be disqualified from
Program participation. On the other hand, if the State agency fails to
name all of the responsible persons in the notice, it increases the
risk that these persons (who will not be placed on the NDL) will
continue to participate in CACFP as principals in other institutions.
There is, of course, no ``magic number'' of responsible principals
or individuals that should be named in every serious deficiency. The
regulations require that, in every instance, both the chairperson of
the institution's board of directors, as well as the executive director
or other person responsible for CACFP, receive the notice of serious
deficiency, as well as any other principals or individuals named as
``responsible'' for the institution's serious deficienc(ies). Although
it is not specifically stated in the regulations, typically the
executive director, owner, or other person with overall responsibility
for the CACFP within the institution would be named as ``responsible''
for the institution's serious deficiency. In general, the State agency
should name as ``responsible principals'' those organization officials
who, by virtue of their management position, bear responsibility for
the institution's serious deficiency. These management officials also
bear responsibility for the poor performance of non-supervisory
employees which may have caused the serious deficiency. Non-supervisory
employees, including contractors and unpaid staff, should be named
``responsible individuals'' only when they have been directly involved
in egregious acts, such as filing false reports or actively
participating with institution principals in a scheme to defraud the
Program.
A third general comment made by five State agency commenters was
that the first interim rule was burdensome in requiring State agencies
to provide FNSROs with a copy of each notice they issued relating to an
institution's serious deficiency. The Department included this language
in the first interim rule as a means of ensuring that FNSROs would be
able to provide State agencies with immediate feedback and technical
assistance on the State agency's implementation of the serious
deficiency process, and that FNSROs could detect trends across States
in the types of regulatory non-compliance leading to determinations of
serious deficiency.
Initially, the Department was favorably disposed to reducing this
paperwork and requiring only one or two submissions from the State
agency to the FNSRO during the course of the serious deficiency
process. However, after analyzing the data collected in the CCAP, and
after finding a number of flawed State agencies' serious deficiency
processes during our conduct of management evaluations, we will not
make any change to this aspect of the serious deficiency process. We
believe that the most important benefit of maintaining these
requirements will be to enable FNSROs to carefully review each document
for regulatory compliance as soon as it is issued. If errors are
discovered, the FNSRO can then advise the State agency to issue a
revised notice to the institution, before the defects of the original
notice undermine the State agency's ability to prevail in a later
administrative review hearing. Thus, the final rule will make no change
to the requirement that the State agency notify its FNSRO at each stage
of the serious deficiency process.
Finally, one State agency commenter noted technical errors at
226.6(c)(3)(iii)(B)(1)(ii) and 226.6(c)(3)(iii)(B)(2)(iii), where
references to a ``renewing'' institution should instead read,
``participating'' institution. Accordingly, this final rule makes the
corrections.
(2) The Serious Deficiency Process as it Relates to Applications
Submitted by New or Renewing Institutions
The first interim rule added definitions of ``new institution'' and
``renewing institution'' to the CACFP regulations, and established new
requirements for State agencies' handling of Program applications, as
described in Part I(A) of this preamble. A number of attendees at
training raised three different questions concerning the interaction of
the serious deficiency process and the revised application process. All
three of the questions relate to changes made by ARPA to the serious
deficiency process. Each statutory change was structured to ensure that
an institution be provided with the opportunity for an administrative
review (``appeal'') before its agreement is terminated and the
institution and its responsible principals and individuals are
disqualified.
The first question asked whether a new institution could appeal a
State agency's denial of its application, if the denial was based on
the State agency's determination that either the institution and/or one
of its principals is on the NDL. The regulations at Sec. Sec.
226.6(c)(7)(ii) and 226.6(c)(7)(iv) make clear that no institution
which is on the NDL, and no institution having one or more of its
principals on the NDL, is eligible to participate in CACFP. Given this
requirement, the commenter saw no reason to offer the institution an
appeal, since the regulations clearly forbid the institution's
participation.
However, the regulations at Sec. 226.6(k)(2)(i) also state that,
whenever a new or renewing institution's application is denied, the
institution must be given the opportunity to appeal the denial. This is
true regardless of whether the new or renewing institution has
submitted false information on its application (e.g., a false
certification concerning the institution's or principals' eligibility
to participate in a publicly funded program), or whether the
application included the information that demonstrated the
institution's ineligibility (e.g., the applicant stated on the
application that the institution or one of its principals was
ineligible to participate by virtue of its past performance).
To handle situations like this, the first interim rule established
new procedures for an ``abbreviated'' appeal, as described in Sec.
226.6(k)(9). The abbreviated appeal must be used when the institution
appears to be ineligible by virtue of submitting false information on
its application or due to any of three types of past performance issues
(presence on
[[Page 34550]]
the NDL, termination from another publicly-funded program, or
conviction for an offense related to business integrity). Consistent
with ARPA, the abbreviated appeal ensures that the institution has an
opportunity to contest the State agency's adverse action before it
occurs, but shortens the appeal process by not permitting oral
presentations before a hearing official. The abbreviated appeal gives
the institution an opportunity to claim that the State agency had made
an error, perhaps by confusing the names of the applicant institution
or a principal with another, similarly-named, institution or person.
Therefore, any applicant institution--whether new or renewing--must be
given the opportunity for a regular or an abbreviated appeal,
regardless of the circumstances.
The second question was whether a new institution could evade the
potential consequences of a serious deficiency by withdrawing its
application for Program participation. Although the regulations at
Sec. Sec. 226.6(c)(2)(iii)(A)(6) and (c)(3)(iii)(A)(6) clearly state
that a renewing or participating institution's voluntary termination of
its Program agreement does not put an end to the serious deficiency/
disqualification process, similar language is lacking with regard to
new institutions at Sec. 226.6(c)(1)(iii)(A). The omission of similar
language in the first interim rule was an oversight. That oversight is
corrected by the addition of a new paragraph in this final rule, at
Sec. 226.6(c)(1)(iii)(A)(7), which clarifies that, after receiving a
notice of serious deficiency, a new institution may not evade the
potential consequences of its serious deficiency by withdrawing its
application to participate.
Finally, the third question involves the State agency's conduct of
the application or agreement renewal process when either occurs after
an institution has been declared seriously deficient. Because all State
agencies must require institutions to submit renewal applications no
less frequently than every three years, an institution's application
must sometimes be renewed while it is in the midst of the serious
deficiency process. Similarly, depending on the State agency's policy
regarding the duration of a Program agreement, the institution's
Program agreement may also expire while it is in the midst of the
serious deficiency process. When situations like these have arisen in
the past, some State agencies have mistakenly believed that they were
required to take no action on a renewal application, or that they were
required to deny the institution's renewal application, because the
institution has already been declared seriously deficient. Although
these issues have been partially addressed in training and in guidance
issued on November 7, 2005 (``CACFP Policy 03-2006: Questions
and Answers on the Serious Deficiency Process in the Child and Adult
Care Food Program''), they occur often enough to merit further
discussion in this preamble, and further clarification in this final
rule.
When a renewing institution's agreement expires during the serious
deficiency process, the first interim rule at Sec.
226.6(c)(2)(iii)(D)(1) made clear that the State agency must
temporarily extend the institution's agreement until the conclusion of
the serious deficiency process (whether the ``conclusion'' of the
process comes as a result of successful corrective action, the
institution's failure to appeal, or the end of the administrative
appeal process). Extending the agreement facilitates continued payment
of the valid claims submitted by the renewing institution during the
resolution of its serious deficiency. However, the first interim rule
did not explicitly state that the same principle would apply to a
``participating institution'' (i.e., an institution whose serious
deficiency is discovered during a review or audit) whose agreement
expired while the institution was in the midst of the serious
deficiency process. In fact, as with a ``renewing institution,'' the
participating institution's agreement must be extended through the
conclusion of the serious deficiency process in order to facilitate the
payment of valid claims submitted during the serious deficiency
process. This final rule will revise Sec. 226.6(c)(3)(iii)(D) to
clarify this point.
In the case of a participating institution that is renewing its
application during the serious deficiency process State agencies have
several options for how to handle the institution's renewal
application. First, the State agency may temporarily defer
consideration of the renewal application. If the State agency makes
this choice, it must continue to pay any valid claims submitted, based
on the institution's most recent approved budget (and, in the case of a
sponsoring organization, its management plan). Second, the State agency
may choose to temporarily approve the institution's budget and/or
management plan (provided, of course, that any unallowable costs cited
in the serious deficiency notice were handled appropriately in the
budget and/or management plan), pending the outcome of corrective
action. If the State agency decides to temporarily approve the
institution's budget and/or management plan, the institution would be
permitted to provide legitimate cost-of-living increases to employees,
and to make purchases approved in the new budget/management plan. In
this situation, the State agency must carefully review the
institution's renewal application (especially any proposed changes to
the institution's budget/management plan) to ensure that the
institution will continue to perform all of its required Program
responsibilities while it is seriously deficient. In some cases, there
may be compelling reasons for the State agency to approve portions of
the proposed budget, or even the proposed budget as a whole, especially
if the proposed budget shows that the institution will better perform
its Program responsibilities by reallocating funds among several budget
categories.
However, even if the State agency determines that timely and
permanent corrective action was not taken by the institution, and
denies the renewal application for that reason, it still needs to
extend the institution's agreement and make payments for valid claims,
based on the institution's most recent approved budget (and, in the
case of a sponsoring organization, its management plan) until any
pending administrative appeal is resolved. The most-recently approved
budget would be used as the basis for determining claims payments until
the end of the serious deficiency process. Therefore, this final rule
further revises Sec. 226.6(c)(3)(iii)(D) to clarify that, if a
participating institution's renewal application must be submitted
during the serious deficiency process, the State agency may either use
the most recently-approved budget/management plan as the basis for
determining the amount of valid claims to be paid, or it may approve
part or all of the institution's proposed renewal budget. Of course,
the State agency should only pursue this latter course if it is
convinced that the institution will be capable of carrying out all of
its Program responsibilities using the proposed budget.
Accordingly, this final rule will add a new paragraph, at Sec.
226.6(c)(1)(iii)(A)(7), which clarifies that, after receiving a notice
of serious deficiency, a new institution may not evade the potential
consequences of its serious deficiency by withdrawing its application
to participate. It also revises Sec. 226.6(c)(3)(iii)(D) to clarify
that a participating institution's agreement must be extended through
the conclusion of the serious deficiency
[[Page 34551]]
process, in order to facilitate the payment of valid claims submitted
during the serious deficiency process, and to clarify that, if a
participating institution's application must be renewed during the
serious deficiency process, the State agency may base valid claim
payments on either the institution's most recently-approved budget/
management plan or the budget/management plan submitted with the
institution's renewal application. Finally, this final rule also
revises Sec. 226.6(c)(2)(iii)(D) to make this same clarification
regarding the State agency's payment options when a renewing
institution is declared seriously deficient.
(3) Corrective Action
The Department received three questions about the first interim
rule's changes regarding a seriously deficient institution's obligation
to take corrective action after being declared seriously deficient.
First, one commenter asked the Department to add regulatory
language clarifying that an institution may not appeal the State
agency's decision that the institution's corrective action is not
complete and permanent. The Department agrees, and will add this
clarification to the final rule. An institution must have one
opportunity to complete corrective action and, failing that, must
receive one opportunity to appeal the State agency's notice of intent
to terminate and disqualify the institution and its responsible
principals and individuals. If, in fact, the State agency errs in
determining that the institution's corrective action was unsuccessful,
the hearing official will overturn the State agency's notice of intent
to terminate. In addition, the institution experiences no adverse
effect, since it will continue to receive payment for valid claims
submitted during its appeal. Appeal of the notice of intent to
terminate and disqualify is the one and only appeal allowed during the
serious deficiency process, unless the institution has been suspended
(see Part I(B)(xx) of this preamble regarding a ``suspension review'').
Therefore, Sec. 226.6(k)(3) will be amended to add to the list of
actions that may not be appealed the State agency's determination that
corrective action was not complete and permanent.
The Department will also act on a request from one State agency
commenter and several training attendees that the regulatory language
be modified where it states that, if the State agency deems the
institution's corrective action permanent and complete, it must
``rescind'' its notice of serious deficiency. The intent of the first
interim rule was that, if the State agency later discovered that the
institution's corrective action was not permanent (e.g., the
institution failed to continue taking the actions which the State
agency determined were necessary to completely and permanently correct
the serious deficiency), the State agency could resume the serious
deficiency process for that institution by immediately issuing a notice
of intent to terminate and disqualify.
We have learned, however, that the word ``rescind'' is being
interpreted by some hearing officials to preclude the possibility of
``re-starting'' the same serious deficiency process at the point of
issuing a notice of intent to terminate. Instead, hearing officials
have sometimes interpreted the word ``rescind'' to mean that, even if
the institution's ``corrective action'' lasts for only a week, the
State agency must begin the entire process over again. This could
expose the government to additional loss if, for example, an
institution was charging the Program for unallowable administrative
expenses.
To rectify this, the Department will remove the word ``rescind'' at
Sec. Sec. 226.6(c)(1)(iii)(B)(1)(i), 226.6(c)(2)(iii)(B)(1)(i),
226.6(c)(3)(iii)(B)(1)(i), and 226.6(c)(6)(ii)(C)(1) and replace it
with the words ``temporarily defer.'' In addition, the Department will
add new paragraphs at Sec. Sec. 226.6(c)(1)(iii)(B)(3),
226.6(c)(2)(iii)(B)(3), 226.6(c)(3)(iii)(B)(3), and
226.6(c)(6)(ii)(C)(3) to state clearly that, if the State agency
accepts the institution's corrective action, but later determines that
the corrective action was not permanent or complete, the State agency
must then move to the next step in the serious deficiency process,
without re-starting the serious deficiency process.
Finally, in response to questions raised by training attendees, the
Department will also amend the current regulatory language to help
ensure that State agencies are able to submit all required information
to FNS if an individual has been disqualified and is to be placed on
the NDL. The current regulations at Sec. Sec. 226.6(b)(1)(xv) and
226.6(b)(2)(v) require that, when it applies to participate, an
institution's application must include the dates of birth of the
executive director and the chairperson of the board of directors.
However, in many instances, State agencies are disqualifying additional
principals or individuals whose date of birth the State does not
possess. The date of birth is the only means by which the Department
will later be able to differentiate between disqualified individuals
with the same or similar names. [Note to readers: Comments on the
requirement to collect the dates of birth of institution officials and
of family day care home providers are addressed in Part III of this
preamble.]
To facilitate the collection of a date of birth for all responsible
principals and individuals, this final rule further amends Sec. Sec.
226.6(c)(1), 226.6(c)(2), and 226.6(c)(3) by adding new paragraphs
Sec. Sec. 226.6(c)(1)(iii)(A)(8), 226.6(c)(2)(iii)(A)(7), and
226.6(c)(3)(iii)(A)(7) to state 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, it must
make the submission of that person's date of birth a condition of
corrective action for the institution and/or individual. Then, if that
person is later disqualified and placed on the NDL, the State agency
will be able to forward the person's date of birth to the Department at
the time of disqualification.
Accordingly, this final rule will amend Sec. 226.6(k)(3) to add to
the list of actions that an institution may not appeal the State
agency's determination that corrective action was not complete and
permanent. It will also remove the word ``rescind'' at Sec. Sec.
226.6(c)(1)(iii)(B)(1)(i), 226.6(c)(2)(iii)(B)(1)(i),
226.6(c)(3)(iii)(B)(1)(i), and 226.6(c)(6)(ii)(C)(1) and replace it
with the words ``temporarily defer''. The final rule also adds new
paragraphs at Sec. Sec. 226.6(c)(1)(iii)(B)(3),
226.6(c)(2)(iii)(B)(3), 226.6(c)(3)(iii)(B)(3), and
226.6(c)(6)(i)(C)(3) to state that, if the State agency accepts the
institution's corrective action, but later determines that the
corrective action was not permanent or complete, the State agency must
then issue a notice of intent to terminate and disqualify the
institution and its responsible principals and individuals, without re-
starting the serious deficiency process. Finally, the final rule will
amend Sec. Sec. 226.6(c)(1)(iii)(A), 226.6(c)(2)(iii)(A), and
226.6(c)(3)(iii)(A) to state 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, it must make
submission of that individual's date of birth a condition of corrective
action for the institution and/or individual.
(4) Administrative Reviews (``Appeals'')
The Department received ten comments (from nine State agencies and
one advocacy group) regarding the
[[Page 34552]]
changes made to the institution appeals process in the first interim
rule. All of these commenters believed that the 60-day timeframe for
completing an institution's appeal (see Sec. 226.6(k)(5)(ix) of the
regulations) was too short, and suggested timeframes ranging from 90 to
180 days. Readers of this preamble should note that the 60-day
timeframe begins when the State agency receives the institution's
request for an appeal, which occurs after the State agency has sent the
institution a notice of intent to terminate and disqualify, or has
taken another adverse action against the institution, as set forth at
Sec. 226.6(k)(2). These commenters were especially concerned that, in
States where an agency other than the State agency employs or contracts
for the administrative review official, the State agency will be unable
to comply with the 60-day timeframe.
The Department understands the difficulties faced by many State
agencies in meeting the 60-day timeframe. However, ``due process'' is
prompt process for this purpose. Institutions and responsible
principals and individuals should be provided with a resolution of
their proposed termination and disqualification as expeditiously as
possible in the best interests of the Program. In addition, once an
institution's attempt to correct a serious deficiency has been judged
inadequate by the State agency, the Department has an obligation to
minimize the possibility that public funds will continue to be
improperly utilized. Although a State agency is expected to engage in a
more meticulous review of an institution's claim once it has been given
a notice of intent to terminate and disqualify, there will inevitably
be increased risks of improper expenditures during this period.
Therefore, this final rule does not alter the 60-day timeframe for
completing an institution's appeal.
(5) Suspension of an Institution's Program Participation
As previously noted, section 17(d)(5) of the NSLA sets forth a
specific process for suspending an institution's CACFP participation
based on the institution's knowing submission of a false or fraudulent
claim. Thus, although the law establishes procedural safeguards to
ensure that institutions continued to receive payment for valid claims
submitted, it also clarifies that there are two circumstances under
which an institution may be prohibited from receiving Program payments
from the outset of the serious deficiency process.
First, ARPA stated that, when an institution's conduct posed an
imminent threat to the health or safety of children or the public
(e.g., when a child care center has been cited by State or local health
or licensing officials for serious health or safety violations), the
State agency must suspend the institution's CACFP participation.
Second, Sec. 307 the Grain Standards and Warehouse Inspection Act
specified that, when a State agency determines that an institution has
submitted false or fraudulent claims, it may suspend the institution's
Program participation, subject to a suspension review that would
precede the normal administrative review process. The Department
received 11 written comments from State agencies concerning various
aspects of the new suspension requirements for institutions.
A number of these commenters asked us to reconsider aspects of
implementation that are mandated by law. For example, one State agency
commenter recommended that States be permitted to offer a suspension
review to institutions that had been suspended due to conduct that
posed an imminent threat to public health or safety. However, this is
inconsistent with ARPA's intent regarding suspension of an institution
for conduct that poses an imminent threat to the health or safety of
children or the public. When the State agency suspends an institution
for conduct that poses an imminent threat to public health or safety,
ARPA permits the institution to have only one appeal. In these
circumstances, the institution's single appeal before a hearing
official will involve all of the facts surrounding the State agency's
suspension action and its notice of intent to terminate and disqualify
the institution and its responsible principals and individuals.
Another commenter suggested that there be only one combined appeal
of the proposed suspension and the notice of intent to terminate when
the reason for suspension was the State agency's determination that the
institution had knowingly submitted a false or fraudulent claim.
However, in the case of a State agency's proposed suspension of an
institution for knowing submission of a false or fraudulent claim,
section 17(d)(5)(D)(ii)(II) of the NSLA clearly establishes that the
suspension of payments and participation may only occur after a
separate suspension review has occurred. In that review, the suspension
review official must determine, based on a preponderance of evidence,
whether the State agency's proposed suspension was appropriate. Thus,
the Department is constrained by the NSLA to maintain the suspension
procedures set forth in the first interim rule.
Similarly, another State agency commenter recommended that the
Department add additional circumstances (e.g., failure to address
review findings, failure to attend mandatory training) under which a
State agency would be permitted to suspend an institution's Program
participation, including payments. However, this suggestion also
contradicts the law. The ARPA specifically limited State agencies'
ability to suspend an institution's program payments, prior to the
resolution of its appeal, to two circumstances: conduct that poses an
imminent threat to children's or the public's health or safety; and the
State agency's determination that an institution knowingly submitted a
false or fraudulent claim.
Two State agency commenters suggested that the Department lengthen
the amount of time permitted by the interim rule during various stages
of the suspension review process. The commenters suggested that
institutions have 20 days (instead of 10 days, as specified at Sec.
226.6(c)(5)(ii)(B)(5)) to submit materials to a suspension review
official, and that suspension review officials have 30 days (instead of
10 days, as specified at Sec. 226.6(c)(5)(ii)(C)(3)) during which to
consider their decision to uphold or overturn the State agency's
proposed suspension. However, the Department carefully considered these
timeframes when developing the first interim rule, and will not modify
them in this final rule. Because the institution receiving the
suspension review has been suspended due to the State agency's
determination that it knowingly submitted a false or fraudulent claim,
the Department concluded that it is essential that the proposed
suspension be resolved quickly, in order to minimize the institution's
possible misuse of additional Program funds.
Two State agency commenters suggested that the first interim rule's
requirement for the State agency to ``take action'' prior to the formal
revocation of the institution's license may be unlawful in some States.
The Department carefully considered this possibility as well when
drafting the first interim rule. That is why Sec. 226.6(c)(5)(i)
requires the State agency to take different actions, depending on
whether or not State or local licensing or health officials have
``cited an institution for serious health or safety violations.''
If a citation has been issued by health or licensing officials for
conduct posing an ``imminent threat'' to children's health or safety,
the regulations require the State agency immediately to
[[Page 34553]]
suspend the institution's CACFP participation. If ARPA had intended
CACFP State agencies to wait until an institution's license was
revoked, the wording of section 17(d)(5)(C)(ii) of the NSLA would have
been meaningless, since unlicensed institutions are ineligible to
participate in CACFP. Instead, the law gave the Secretary the authority
to write regulations that required ``the immediate suspension of
operation of the program by an entity * * * , if the State agency
determines that there is an imminent threat to the health or safety''
of children or the public. We concluded that this wording recognizes a
difference between State laws or regulations governing an institution's
license to provide child care, and the Department's rules for
participation in CACFP. The law expects--and the regulations at Sec.
226.6(c)(5)(i)(B) require--that when an institution is cited by health
or licensing officials for an offense that constitutes an ``imminent
threat'' to children's or the public's health or safety, a State agency
will immediately declare the institution seriously deficient, suspend
the institution's CACFP participation, and provide notice of its intent
to terminate and disqualify the institution and its responsible
principals and individuals.
However, the Department realized that it might not be appropriate
to take the same immediate actions if the State agency, rather than
health or licensing officials, had discovered the conditions that might
constitute an ``imminent threat'' to public health or safety. State
agency staff are not trained licensors or health inspectors. For that
reason, the first interim rule established a different standard for
State agency conduct when the State agency--not the licensing or health
department--discovered the potential threat to health and safety.
Section 226.6(c)(5)(i) of the first interim rule requires the State
agency to ``notify the appropriate State or local licensing and health
authorities and take action that is consistent with the recommendations
and requirements of those authorities.'' The wording recognizes that,
in this circumstance, it may be inadvisable for the State agency to
take action related to the institution's CACFP participation until it
has conferred with the appropriate health or licensing authorities and
obtained their input.
In addition, three State agency commenters recommended that, if a
suspension review official upheld the State agency's determination that
a sponsoring organization's program payments be suspended for knowing
submission of a false claim, the State agency should have the authority
to suspend all Program payments, and not just the sponsor's
administrative reimbursements. These commenters feared that, if
facility meal payments continued to flow through a sponsoring
organization that had submitted a false claim, there was a strong
possibility that the sponsor would fail to provide full payment to
providers, since its own administrative funding had been discontinued.
The first interim rule at Sec. 226.6(c)(5)(ii)(E) required that,
when a sponsor was suspended for submission of a false claim, the State
agency must ``ensure that sponsored facilities continue to receive
reimbursement for eligible meals served.'' This language is based on
section 17(d)(5)(D)(ii)(III)(ee) of the NSLA, which requires State
agencies to ensure that payments for eligible meals served by
facilities continue to be made during the period of their sponsor's
suspension. The Department urges State agencies to make meal payments
directly to sponsored facilities during the period of their sponsor's
suspension, and invites State agencies to contact FNS for guidance in
situations like these. However, if there is no other way to provide
facilities with earned meal reimbursements than by passing payments
through the sponsor, then the law requires these payments to continue.
Such circumstances further underscore the need for State hearing
officials to provide prompt determinations to CACFP appellants in these
cases.
Finally, one State agency requested that the final rule clarify
that a suspended institution may still operate, that only CACFP payment
is suspended. As the previous discussion makes clear, the program
``operation'' of an institution must cease as soon as it is suspended,
regardless of whether the institution is still licensed to provide
child care. For example, if an independent center is suspended based on
a licensing citation for an ``imminent threat'', it will receive no
program payments for meals served during the period of suspension,
regardless of whether the licensing citation resulted in the State's
suspension of the center's license to operate. If an administrative
review officer (hearing official) later rules in favor of the
institution and overturns the State agency's proposed termination and
disqualification, the institution could then submit claims for
properly-documented meals served that met meal pattern requirements
throughout the period of suspension.
If, on the other hand, a sponsoring organization is suspended for
submission of false claims, it will not receive administrative
reimbursement for the period of its suspension. If an administrative
review officer (hearing official) later rules in favor of the sponsor
and overturns the State agency's proposed termination and
disqualification, the sponsor could then submit claims for properly-
documented and allowable program administrative costs incurred during
the period of suspension.
(6) National Disqualified List (NDL)
In the first interim rule, the Department developed new procedures
and requirements for a ``National Disqualified List'', or NDL. These
new requirements were designed to ensure that an institution or a day
care home which failed to correct its serious deficiencies--as well as
any principals and individuals responsible for the institution's or
home's serious deficiencies--would not participate in the program for
the next seven years (or longer if a Program debt remained
unsatisfied). (Note to readers: the serious deficiency process for day
care homes is dealt with in Part III of this preamble). The first
interim rule also provided that, if an institution or a responsible
principal or individual implements corrective action which, in the
judgment of both the State agency and FNS, permanently and completely
resolved the serious deficienc(ies), the institution or individual
could be removed from the NDL. The Department received eight State
agency comments concerning the process for placing institutions and
responsible principals and individuals on the NDL, and/or for removing
them from the NDL after successful corrective action.
Four State agencies commented on various aspects of the process by
which an institution may re-enter the Program after having been placed
on the NDL. Two of these commenters believed that placement on the NDL
should completely remove an institution, responsible principal, or
responsible individual's opportunity to re-enter CACFP for a period of
seven years. When drafting the regulations to implement ARPA, the
Department carefully considered various options regarding the length of
time that an institution or responsible principal or individual would
remain on the list and what opportunity, if any, they would have to be
removed from the NDL. Like these commenters, the Department does not
want institutions or responsible principals or individuals to routinely
be removed from the NDL prior to the end of the seven-year
disqualification period (or longer if they owe a debt to the Program).
If such removals were to
[[Page 34554]]
become routine, it would partially undermine the premise stated in Part
I(B)(3) of the preamble: That the period designated by the State agency
for corrective action in its initial notice of serious deficiency
provides the institution and its responsible principals and individuals
with its primary opportunity to completely and permanently correct its
serious deficiencies, prior to having its agreement terminated for
cause and being placed on the NDL.
Nevertheless, the Department is also aware that, on occasion, an
otherwise capable institution might fail to correct serious
deficiencies in a timely manner due to the deficiencies of its current
managers. Once these managers are removed from Program participation,
it might be possible for the institution's board of directors to re-
organize management in a way that would permit the institution to again
provide Program benefits to children in a manner consistent with all
Program requirements. It must also be stressed, as another State agency
commenter noted, that if the institution takes these actions after it
has been terminated and disqualified, the institution is in no way
``entitled'' to again participate in CACFP. The institution would again
be required to re-apply for participation as a ``new institution,'' and
to meet all of the requirements for approval set forth at Sec.
226.6(b)(1) of the regulations. The State agency must consider the
institution's entire application and must find that the institution is
fully capable of operating the Program in accordance with all
requirements. It is possible that the institution's correction of its
prior serious deficiencies will not, by itself, make its new
application to participate approvable.
In addition, another State agency commenter requested that the
Department emphasize that the decision to remove an institution or a
responsible principal or individual from the NDL is a two-part process.
The State must first determine that the corrective action taken after
placement on the NDL has completely and permanently corrected the
serious deficiencies that led to the disqualification. Then, FNS must
concur with the State agency's decision. Furthermore, once an
institution or a responsible principal or individual is placed on the
NDL, it has forfeited its right to appeal the State agency or FNS's
decision that its corrective action is inadequate. To underscore this
point, this final rule will further amend Sec. 226.6(k)(3) to clarify
that an institution may not appeal the State agency's or FNS's
determination that its corrective action is insufficient to justify
removal from the NDL.
Another State agency commenter requested that the final regulation
include stronger language to clarify the State agency's responsibility
when an institution on the NDL submits an application to participate.
In this situation, the State agency has only one responsibility: to
determine whether the institution knowingly submitted false information
on its application (in which case, consistent with Sec. 226.6(c)(1),
the State agency must initiate a serious deficiency process with an
abbreviated appeal, so that the expiration of the institution's seven-
year disqualification can be extended). Otherwise, the State agency may
simply return the application, stating that the institution is not
eligible to have its application considered until it has been removed
from the NDL. To underscore this point, this final rule further amends
Sec. 226.6(k)(3) to state that an institution on the NDL may not
appeal the State agency's refusal to consider its application to
participate until the institution has been removed from the NDL, nor
may an institution appeal if the State agency refuses to consider an
application submitted on behalf of a sponsored facility that is on the
NDL.
Finally, this final rule amends Sec. Sec. 226.6(b)(1)(xii),
226.6(b)(2)(ii), and 226.6(c)(7) to modify current regulatory language
stating that the State agency must ``deny the application'' of an
institution or sponsored facility on the NDL, and that such institution
``may not submit'' an application for itself or on behalf of a
sponsored facility on the NDL. Several State agency commenters
correctly noted that it is impossible to prohibit any entity from
``submitting'' an application. The changes to the regulatory wording we
are making in this final rule will more appropriately focus on the
State agency's responsibility to not approve the application, and the
institution's absence of appeal rights, in this circumstance.
Accordingly, this final rule further amends Sec. 226.6(k)(3) by
adding Sec. 226.6(k)(3)(vi) to state that an institution may not
appeal the State agency or FNS's decision that an institution's
corrective action is inadequate to be removed from the NDL, and by
adding Sec. 226.6(k)(3)(vii) to state that an institution on the NDL
may not appeal the State agency's refusal to consider an application to
participate until it, or a sponsored facility on whose behalf the
institution has applied, has been removed from the NDL. In addition,
this final rule amends Sec. Sec. 226.6(b)(1)(xii), 226.6(b)(2)(ii),
and 226.6(c)(7) to modify current regulatory language stating that the
State agency must ``deny the application'' of an institution or
facility on the NDL, and that such institution and facility ``may not
submit'' an application. Instead, the regulatory language will be
amended to state that the State agency may not approve an application
submitted by an institution on the NDL, or an application submitted by
an institution on behalf of a sponsored facility that is on the NDL,
and that a State agency's refusal to consider an application in this
circumstance is not subject to administrative review.
Part II. State Agency and Institution Review and Oversight Requirements
Introduction
Sections 243(a) and (b) of ARPA added three statutory requirements
which affected the regulatory requirements for State agency monitoring
of institutions and sponsoring organizations' monitoring of their
sponsored facilities. These changes were designed to improve Program
management and integrity by strengthening the requirements affecting
the review and oversight functions performed by State agencies and
sponsoring organizations participating in the CACFP. These three
changes were discussed in Part II of the interim rule published on June
27, 2002, which implemented all of the changes mandated by ARPA in the
CACFP regulations.
In addition, a number of additional regulatory changes affecting
State agency and sponsor monitoring and oversight were suggested by the
``Operation Kiddie Care'' report, issued by the United States
Department of Agriculture's Office of Inspector General (OIG) in August
of 1999. On September 12, 2000, the Department issued a proposed rule
that addressed most of the changes to review and oversight requirements
suggested in the Kiddie Care report. After analyzing public comments on
this proposed rule, the Department published a second interim rule on
September 1, 2004, which implemented these changes to State and sponsor
review and oversight requirements in the CACFP regulations. These
changes were addressed in Part II of the second interim rule, published
on September 1, 2004.
In total, the two interim rules addressed twelve different aspects
of CACFP review and oversight requirements, as follows:
Unannounced reviews conducted by sponsoring organizations
and State agencies;
[[Page 34555]]
The minimum number of sponsor organization staff devoted
to performance of the monitoring function;
The frequency of State agency reviews of institutions
(referred to as ``the State agency review cycle'');
Enrollment form requirements for children participating in
CACFP facilities;
The minimum content of State agency reviews of
institutions (referred to as ``State agency review elements'');
The minimum content of sponsor reviews of facilities
(referred to as ``sponsoring organization review elements'');
Requirements for monthly State agency and sponsoring
organization edit checks of meal claims submitted by institutions and
facilities;
Requirements for sponsoring organizations and State
agencies to conduct ``household contacts'' to the families of children
participating in CACFP;
The frequency of facility reviews conducted by sponsoring
organizations (referred to as ``the sponsoring organization review
cycle'');
State agency disallowance of fraudulent or otherwise
unlawful facility meal claims;
The rules governing audits of institutions participating
in CACFP; and
Requirements concerning family day care home providers who
qualify for tier I reimbursements on the basis of their receipt of
benefits under the Supplemental Nutrition Assistance Program (SNAP),
formerly known as the Food Stamp Program.
The Department received public comments on all but two of the above
items: State agency disallowance of fraudulent or otherwise unlawful
facility meal claims, and the changes to the Department's rules
governing audits at 7 CFR Part 3052. On several other items, comments
focused solely on one aspect of the new requirements (e.g., all
comments concerning edit checks had to do with the Department's
requirement that sponsoring organizations implement an edit check that
would identify ``block claims'' submitted by their facilities). As in
Part I of this preamble, a number of the issues raised by commenters
have already been addressed in guidance or training, and do not require
extensive discussion in this preamble.
A. Unannounced Reviews
Prior to the issuance of the first interim rule, the CACFP
regulations required that most sponsoring organizations make three
reviews of each of their facilities each year, but did not specify
whether these reviews should be announced or unannounced. Common
practice, prior to the first interim rule, was to make most provider
reviews announced (i.e., the sponsor would schedule the review with the
provider in advance). However, the OIG's ``Operation Kiddie Care''
report strongly recommended that sponsor reviews be unannounced, and
Section 243(b)(2) of ARPA amended section 17(d)(2) of the NSLA by
requiring that some State agency and sponsor reviews be unannounced.
Consequently, the first interim rule continued to require that each
sponsor conduct three reviews per facility per year, but added the
requirements that two of the three reviews be unannounced, and that one
of the unannounced reviews include a review of a meal service. The
first interim rule encouraged State agencies to conduct unannounced
reviews of problem-prone institutions, and required that, when
conducting a review of a sponsoring organization, at least 15 percent
of the facility reviews conducted by State agency staff must be
unannounced.
Furthermore, the rule established certain requirements for
notifying facilities of these new requirements, and for sponsor staff
to have photo identification--to demonstrate that they are sponsor
employees--when conducting unannounced reviews. Finally, in response to
sponsor concerns that unannounced reviews would increase costs due to a
provider's absence at the time of the review, the Department also added
a requirement that providers must notify sponsors in advance whenever
the provider planned to be out of the home with the children in care
during a scheduled period of meal service.
The Department received 366 comments regarding the required
frequency of unannounced sponsor reviews of facilities. Of these, 320
were from family day care home providers, 37 from institutions, four
from State agencies, four from advocacy groups, and one with no
identifiable affiliation. Twelve (12) commenters supported the
provision as written. The remaining commenters offered a wide variety
of alternative suggestions for the frequency with which unannounced
reviews must be conducted. The most common alternative suggested (by
306 commenters) was that the Department should require one unannounced
and two announced reviews of each facility each year. Seventeen
providers opposed any requirement that sponsors conduct unannounced
reviews, while the remaining 31 commenters suggested ways in which the
Department could either lower the total number of required reviews
below three per year and/or permit sponsors to focus more reviews on
providers with suspicious claiming patterns.
Based on the results of the CCAP, the Department remains convinced
that the requirement for two unannounced reviews per facility per year
is appropriate. The results of the CCAP report suggested that, although
there has been improvement in some areas of program management
following publication of the two interim rules, significant problems
still remain with regard to the accuracy of family day care home
provider meal counts. There are two CCAP findings which relate directly
to this issue. First, of all visits completed during CCAP, over one-
fourth of providers' meal and/or menu records were not up-to-date at
the time of the assessment team's visit. Unfortunately, this problem
was not confined to particular sponsors: for over 80 percent of the
sponsors assessed, more than 20 percent of homes lacked up-to-date meal
and/or menu records on the day of the CCAP assessment. Second, on other
days of the month in which the CCAP was conducted, more than 40 percent
of providers' meal counts were, on average, one or more meals higher
than the number of meals observed for the same meal service on the day
of the assessment team's visit.
While these findings do not prove the existence or frequency of
misreporting on provider claims, taken together, they suggest that meal
count integrity is in need of improvement among family day care homes
participating in CACFP. Unannounced sponsor reviews should be an
excellent tool for identifying these issues. Therefore, the rule
continues to require that two unannounced reviews must be made to each
facility each year, as set forth in the first interim rule. In
addition, as discussed further in Part II(H), commenters should note
that the second interim rule did provide a new approach to ``review
averaging,'' which provides sponsoring organizations with greater
flexibility to focus their review efforts on new or ``problem''
facilities.
In addition, the Department received 671 comments concerning the
requirement that providers notify sponsors in advance whenever the
provider planned to be claim a meal served outside of the home to
children in care during a scheduled period of meal service. A total of
278 comments (from 240 institutions, 22 advocates, one provider, four
State agencies, and 11 commenters with no clear affiliation)
recommended that the requirement be made optional, at the discretion of
the sponsoring organization. Some of the sponsor commenters felt that
they
[[Page 34556]]
already had reasonable provider ``call-in'' requirements in place, and
that such requirements needed to be individualized for each sponsor. A
total of 386 other commenters (361 providers, 16 institutions, one
State agency, one advocacy group, and seven with no organizational
affiliation) were opposed to the requirement, and believed it should
not be addressed at all in the Federal regulations governing CACFP.
These commenters felt it would be difficult for providers to remember
the requirement when they were preparing the children to leave the
home.
The Department wishes to correct a misunderstanding that has
frequently been expressed about this requirement--namely, that it
requires a CACFP provider to call the sponsor any time she leaves her
home with the children in her care. In fact, providers are required to
contact the sponsor only if they plan to be out of the home during a
scheduled meal service. This provision was promulgated as a way to
address the issue of inflated meal counts. Often, sponsors would report
that their unannounced visits were unsuccessful because providers were
not at home during the specified time of meal service. These same
providers would often claim that reimbursable meals were served at
another location (e.g., a nearby park) during the same time of meal
service. Sponsors were frustrated by their inability to address
suspicious meal claims in these circumstances.
Thus, the regulatory language that required providers to notify the
sponsor when they would be out of the home and provide a reimbursable
meal to enrolled children was intended to give sponsors the clear
authority to disallow meal claims when the provider had not given such
notification. In addition, it was hoped that the call-in requirement
would minimize sponsors' costs in instances where sponsor monitors had
to travel a great distance to conduct an unannounced review, and where
providers were so geographically dispersed that the monitor might find
it difficult to return to an absent provider's home on the same day.
Removing the call-in requirement would impair our ongoing efforts to
improve the integrity of provider meal counts, and might place a
special hardship on sponsors of day care homes that are widely
dispersed and located in rural areas.
B. Sponsoring Organization Monitoring Staff (``Monitor-Staff Ratio'')
Section 243(a)(8) of ARPA amended section 17(a)(6) of the NSLA to
require that, in order to be eligible to participate in CACFP, a
sponsoring organization must employ an appropriate number of monitoring
staff, based on the number and type of facilities it sponsors. Based on
that statutory language, the first interim rule established different
ratios of facilities to full-time monitor staff that sponsors of homes
or centers must employ. The rule provided a range of facilities (50 to
150 for day care homes, 25 to 150 for sponsored centers) which the
State agency could use in determining whether the sponsor's management
plan documented employment of enough staff to properly monitor the
number and type of homes it administered. Establishing ranges was
intended to provide State agencies with the flexibility to take into
account such factors as whether the sponsor's facilities were rural or
urban, the facilities' geographic dispersion, and the monitors'
proximity to the facilities. It is the Department's understanding that
few if any State agencies have taken advantage of this opportunity to
``customize'' the staff-monitor ratio for sponsors with differing
circumstances, opting instead to determine only whether the sponsoring
organization's management plan documents that the sponsor meets or
exceeds the ratio of one full-time equivalent monitor for each 150
facilities administered. The Department required sponsors to comply by
July 29, 2003, one year after the effective date of the first interim
rule, but later extended the deadline to October 1, 2003.
A total of 772 comments (including multiple comments about
different aspects of this requirement) were received from 435
institutions, 298 providers, 17 State agencies, 8 advocates, and 14
others with no clear organizational affiliation. One group of 240
respondents focused their comments on the numerical range of facilities
(50-150 homes or 25-150 centers) for which Sec. 226.16(b)(1) requires
a sponsor to employ one ``full-time equivalent'' staff. These
commenters suggested that the high end of the range of facilities per
monitor should be raised (to 200, 250, or even 300), that the
requirement should be abolished, or that the rule should only be
applied ``for cause,'' when sponsoring organizations were found to have
serious monitoring problems.
The regulatory requirement cannot be abolished, since it is based
on the previously-mentioned statutory language describing the minimum
requirements for sponsor eligibility. The Department has concluded that
this provision is not restricted to sponsors with documented monitoring
problems. The provision's greatest value may be to prevent the
development of serious monitoring problems, by ensuring that each
sponsor devotes adequate human resources to the monitoring function.
Furthermore, we are concerned that many of these comments may have
been developed without benefit of the information provided in the
extensive implementation guidance for this provision that was issued on
February 21, 2003. That guidance established procedures for State
agencies to use to request a waiver for the upper limit of facilities
per monitor, if the State agency determined that a sponsor that did not
meet the upper limit was effectively monitoring and managing the CACFP,
and was already devoting a reasonable portion of its budget to
monitoring. The Department implemented this waiver policy well before
the monitor-staff requirements became effective on October 1, 2003, but
has not received any requests for waivers. A second group of 259
comments focused on the methods State agencies must use to calculate
whether a sponsor employs sufficient staff to meet the monitor-staff
standards specified at Sec. 226.16(b) of the regulations. Of these,
226 commenters reminded the Department that staff persons with the
title of ``monitor'' also perform other functions, and that these
functions should also be counted towards the sponsor's fulfillment of
the monitor-facility ratio.
This issue was thoroughly addressed in the guidance issued by the
Department on February 21, 2003. It clarified that not every duty
performed by an employee with the title of ``monitor'' is monitoring-
related, but that monitoring-related functions performed by any
employee, regardless of title, should be counted towards the sponsor's
number of full-time monitoring equivalents. For example, that portion
of clerical staff time devoted to the preparation of monitoring-related
correspondence, or that portion of supervisory staff time dedicated to
quality control or other oversight of monitors and reviews, should also
be counted in calculating the sponsor's full-time monitoring
equivalents. The 2003 guidance contained a list of the tasks that
should and should not be counted as ``monitoring-related,'' and readers
are urged to consult this guidance whenever questions arise.
Another group of commenters questioned the number of hours that the
Department used in estimating the time necessary to perform three
reviews for one facility over the course of a year. In the preamble to
the first interim rule, the Department estimated that a sponsor would
need to devote 12 to 15 hours per
[[Page 34557]]
facility to conduct all monitoring-related activities for that
facility. Thirty-three commenters stated that the Department had
greatly overestimated the amount of time spent by monitors on a typical
review. However, as explained in the 2003 guidance, that per-facility
estimate included not only the time a reviewer spends conducting three
onsite reviews (adjusted upward to account for new regulatory
requirements such as unannounced reviews, five-day reconciliations,
annual enrollment updates, and other monitoring-related functions), but
also all of the other aspects of the monitoring process, including
travel time, planning, follow-up report writing, the time needed to
conduct household contacts and, if necessary, the time required to
conduct the serious deficiency process established for day care homes
in the first interim rule.
Finally, 273 providers submitted comments questioning why the
Department was ``micro-managing'' sponsors' program management. The
Department implemented a statutory requirement that a sponsor employ
adequate staff to perform all of the monitoring-related activities that
are now required following publication of the two interim rules.
Responsibility for the implementation is not, therefore, ``micro-
managing''.These commenters are also reminded that ARPA required the
Department to establish a method of determining whether sponsors
employed enough staff to perform adequate monitoring, taking into
account the number and type of facilities in which the sponsor
administered the Program. The Department chose this particular approach
after considering a number of other alternatives, as fully explained in
the preamble to the first interim rule.
C. State Agency Review Cycle
Section 243(b)(2) of ARPA amended the requirements at section
17(d)(2) of the NSLA for State agency reviews of institutions (i.e.,
independent centers and sponsoring organizations). Prior to ARPA, State
agencies were required to review all institutions no less than once
every four years. As a result of the change made by ARPA, State
agencies were required to review each institution no less frequently
than once every three years, in order to ``identify and prevent
management deficiencies and fraud and abuse under the Program.''
The Department implemented these required changes at Sec.
226.6(m)(4) of the first interim rule. In addition, consistent with the
amendment's requirement to identify and prevent fraud and abuse, the
Department added a requirement at Sec. 226.6(m)(2) that, in
establishing its review priorities, State agencies must target for more
frequent review those institutions in which the prior review had
included a finding of serious deficiency. Finally, the Department
elected to modify one other aspect of the former State agency review
requirements in the first interim rule, by requiring that all sponsors
of more than 100 facilities (the threshold had previously been 200
facilities) be reviewed by the State agency no less than every other
year.
The Department received five comments on these changes, four from
State agencies and one from an advocacy group. Three commenters
believed that State agencies would be unable to increase their reviews
from once every four years to once every three years. However, this
change was required by ARPA, and may only be altered by amendment to
Federal law. Two other commenters believed that, in order to meet the
amendment's minimum requirements, the Department should simply require
that each State agency review one-third of all participating
institutions each year. Although this would provide a simple way of
meeting the law's numerical requirements for institution reviews, the
Department strongly believes that the large percentage of Program
expenses utilized by sponsors of over 100 facilities justifies the
requirement that State agencies review them every other year.
D. Updating Children's Enrollment in CACFP and Other Enrollment-Related
Requirements
The CACFP regulations have always required that, in order for meals
to be reimbursed under the Program, the children receiving the meals
must be ``enrolled for child care'' in a day care facility that meets
the licensing or approval requirements set forth at Sec. 226.6(d) of
the regulations. Prior to the publication of the Kiddie Care report,
the frequency of collecting enrollment forms and the content of those
forms were not addressed in the regulations. Enrollment requirements
were established by each State's licensing agency, and thus were
specific to each State.
Although these State licensing requirements for children's
enrollment remain in effect, the findings of the Kiddie Care audits
showed that, in order to ensure the integrity of Program funds, the
Department needed to establish CACFP-specific enrollment requirements
that established minimum requirements for all States. Specifically, the
Kiddie Care audits uncovered instances in which enrolled children were
being claimed for meal reimbursement long after the child had left the
CACFP facility. To address these improper claims, OIG recommended that
the Department establish requirements regarding the updating and
content of children's enrollment forms.
In response, the second interim rule established the requirement
that children's enrollment forms must be updated annually, and that the
form must be signed by a parent or guardian. These changes were
primarily made to help sponsor monitors, quickly identify ``old''
enrollments for children no longer in care, and to reduce the number of
improperly claimed meals by having parents or guardians annually update
the form.
In addition, the second interim rule required that the enrollment
form indicate each child's days and hours of care and the meals the
child normally receives while in care. For example, a toddler in care
might normally be present five days a week and receive breakfast,
lunch, and an AM snack each day, whereas a child attending a pre-
kindergarten program would normally have different hours and receive
different meals for those days on which he/she attended preschool.
School-age children would usually have the same schedule of care every
day, but might normally be in care only after school and receive a PM
snack only. Requiring that the enrollment form include information on
each child's normal days and hours of care and the meals he/she
received was intended to help sponsors determine the validity of
facility claims, and especially to assist sponsor monitors in
conducting five-day reconciliations, which the second interim rule
required to be conducted as a part of each facility review (see Part
II(E) of this preamble).
To facilitate this provision's implementation, the Department
included several accommodating provisions in the second interim rule
and in guidance. First, to accommodate larger sponsors (some of which
handle many thousands of enrollment forms every year), full
implementation of this requirement was delayed until April 1, 2005, so
that sponsors could phase in the requirement over a period of time.
This delay permitted larger sponsors to ``stagger'' the end date of
enrollments and to spread their enrollment workload over a longer
period of time. In addition, although new enrollment forms collected on
or after April 1, 2005 were required to comply, the Department
permitted the enrollments of then currently-participating children to
be
[[Page 34558]]
updated later (by no later than September 30, 2005).
Second, in response to concerns from States in which only the State
licensing agency could make changes to the State-required enrollment
form, the delayed implementation gave State agencies more time to
coordinate with their counterparts in the State licensing agency
concerning these changes. In addition, if it proved impossible for
State licensing to effect these changes by the required deadline,
guidance issued with the second interim rule provided State agencies
with the option of capturing this ``enrollment'' information on a CACFP
income eligibility form.
Third, in response to concerns expressed by State agencies in
States where parents were required by licensing to sign children in and
out of care each day, the Department issued guidance on March 11, 2005,
which relieved such States of the requirement to collect each child's
days and hours of care on the enrollment form, since the child's
presence or absence at the facility is clearly documented on the sign-
in/sign-out sheet. Finally, recognizing that not all States require
enrollment for children in all types of facilities that participate in
CACFP, the second interim rule exempted outside-school-hours care
centers, at-risk afterschool snack programs, and emergency shelters
from the child enrollment requirement. Of course, if State licensing
rules require any of these types of facilities to be licensed, the
facilities would have to be licensed in order to be eligible to
participate in CACFP.
The Department received 156 comments on the enrollment form
requirements promulgated in the second interim rule, from 141
institutions, seven advocacy groups, four State agencies, and four
providers. Eight commenters fully approved of the changes to enrollment
requirements, and 17 opposed them, either partially or in their
entirety. Among other commenters, 88 asked for flexibility in
permitting sponsors to ``stagger'' the due dates of enrollment forms
throughout the year. As noted above, this flexibility was addressed in
guidance issued on December 23, 2004, and in the training the
Department conducted on the interim rule in 2005.
In addition, 43 commenters suggested that the Department permit
enrollments to be updated every 14 months, to avoid the possibility
that providers or centers would lose reimbursement for families that
were late in turning in their enrollment forms. The Department
recognizes that, for any number of reasons, enrollment forms may not be
updated exactly on a 12-month cycle. This was addressed in guidance
(questions and answers) issued on February 23, 2006, which permitted
State agencies to allow a ``rule of reason'' about the enrollment
deadline. Although that guidance did not specify a maximum period of
time that could elapse between enrollments, it did provide the example
of an enrollment form first collected on September 7, 2005, which could
be considered valid through the end of September 2006. The Department
expects State agencies and ``sponsoring organizations'' to use this
flexibility responsibly, consistent with the regulatory requirement at
Sec. Sec. 226.15(e)(2) and (e)(3), 226.17(b)(7), and 226.18(e) to
collect enrollment forms ``annually.''
E. Required State Agency and Sponsor Review Elements
The second interim rule established specific requirements for the
content of sponsoring organization reviews of facilities and State
agency reviews of institutions. Prior to this, the CACFP regulations
had simply mandated the timing and number of facility and institution
reviews to be conducted, not their content.
The changes were initially presented in a proposed rule issued on
September 12, 2000, and implemented in the second interim rule. These
proposed changes elicited widespread support, and were adjusted only
slightly in the second interim rule, based on comments submitted in
response to the Department's proposed rule of September 12, 2000.
Comments were received on two aspects of the interim rule's State and
sponsor review elements: The requirement that both State agencies and
sponsoring organizations conduct a ``five-day reconciliation'' as a
part of each facility review they conducted; and, the requirements
pertaining to the State agency's conduct of unannounced reviews of a
meal service.
The second interim rule required that every State agency review of
a sponsor (which also includes reviews of a representative sample of
the sponsor's facilities), and every sponsor review of facilities must
include a ``five-day reconciliation.'' Five-day reconciliation
requirements were included as a sponsor review element in the second
interim rule as a means for a sponsor to ``spot check'' the accuracy of
facility claims. They were required to be included in State agency
reviews of sponsors' facilities in order to again check the accuracy of
the facility's meal counts, and to ``spot check'' the effectiveness of
the sponsor reviewers' conduct of five-day reconciliations.
The theory and practice of five-day reconciliations is simple.
Reviewers must check enrollment, attendance and meal counts in the
facility for a five-day period to see if they match, or ``reconcile.''
If they do, it is more likely that the facility is keeping accurate
enrollment and attendance records and is accurately reporting the
number of meals served each day. If they do not, the reviewer must
attempt to determine the reason(s) for the discrepancies, and decide
whether an overclaim should be established.
Nine comments were received on the five-day reconciliation
requirement implemented in the second interim rule: Four from
institutions; four from State agencies, and one from an advocacy group.
One State agency commenter suggested that meal counts be reconciled to
enrollment only, while the other eight commenters suggested that meal
counts be reconciled to attendance alone. The regulations at Sec. Sec.
226.15(e)(2), (3), and (4), and at Sec. 226.18(e) require that all
participating facilities have both types of records, except in those
types of facilities in which enrollment forms are not required
(outside-school-hours care centers, at-risk afterschool programs, and
emergency shelters). Thus, the Department believes that comparing both
enrollment and attendance records to five days of facility meal counts
will ensure that the meal claimed was served to a child who was
enrolled for care and who was in attendance at the time of the meal
service.
In order to minimize the possibility of future misunderstanding of
these requirements, the Department will make one minor change in this
final rule to the language governing five-day reconciliations at
Sec. Sec. 226.6(m)(4) and 226.16(d)(4)(ii). As currently written,
Sec. 226.6(m)(4) states that State agency facility reviews must
compare ``available'' enrollment and attendance records to five days of
meal counts. The current language at Sec. 226.16(d)(4)(ii) states that
sponsor reviews must compare five days of facility meal counts to
``enrollment and/or attendance'' records. In both cases, the wording
was meant to recognize the previously-mentioned exception to formal
enrollment requirements for outside-school-hours care centers, at-risk
afterschool programs, and emergency shelters. However, the Department
is concerned that this language might be misconstrued to provide
sponsors with the option to use either enrollment or attendance
records, rather than both, even in facilities where
[[Page 34559]]
both types of records are required, and in outside-school-hours care
centers, where the free and reduced price application form is often
used as a type of ``enrollment'' form and can be compared to attendance
records.
Finally, the Department will make one technical correction to the
second interim rule's regulatory language governing the five-day
reconciliation. In instructing sponsors on how to conduct a five-day
reconciliation in a sponsored facility, Sec. 226.16(d)(4)(ii) states
in part that ``For each day examined, reviewers must use enrollment
and/or attendance records to determine the number of children in care *
* *,'' and later refers to ``children in care.'' Although the five-day
reconciliation is a required part of all facility reviews conducted by
all sponsors, the use of the words ``children in care'' could be
misread to limit this provision to child care centers only, when in
fact it applies to adult day care centers as well. This final rule will
amend Sec. 226.16(d)(4)(ii) to substitute the word ``participants''
for the word ``children'' both times it occurs.
Accordingly, this final rule amends Sec. Sec. 226.6(m)(4) and
226.16(d)(4)(ii) to further clarify that five-day reconciliations must
include a comparison of meal counts to both attendance and enrollment
records, except in those facilities (outside-school-hours care centers,
at-risk afterschool programs, and emergency shelters) in which
enrollments are not required by the CACFP regulations. It also
substitutes the word ``participant'' for the word ``children'' both
times it occurs at Sec. 226.16(d)(4)(ii).
The second aspect of these requirements about which we received
comment involved State agency observations of meal services during
reviews. The second interim rule at Sec. 226.6(m)(3)(vii) required
that each State agency review of an independent center include an
observation of the center's meal service. By contrast, the second
interim rule did not require that each State agency review of a
sponsored facility (i.e., a review conducted of a sponsored center or a
family day care as part of the State agency's review of a sponsoring
organization) include the observation of a meal service. Three
commenters (two State agencies and one advocacy organization) suggested
an expansion of the required State agency review elements, to require
that each State agency review of a sponsored facility include an
observation of a meal service.
The apparent logic behind this suggestion is sound: The Department
requires State agencies to conduct five-day reconciliations when
reviewing sponsored facilities, in part as a means of checking on the
adequacy of the sponsoring organization's conduct of five-day
reconciliations. The State agency's observation of a meal service would
be a means of checking the adequacy of the sponsor monitors' review of
the facilities' meal service.
Ideally, the Department would like each State agency review of a
facility to cover every aspect of the facility review conducted by the
sponsor, including the observation of a meal service. However, the
Department was reluctant to add too many requirements to the content of
State reviews of facility. The State agency's primary responsibility,
in reviewing a sponsor, is determining the adequacy of the sponsor's
policies, procedures, and internal controls to ensure effective
operation of the program and compliance with program requirements by
both the sponsors and its facilities. We strongly encourage State
agencies to observe a meal service whenever possible when conducting
facility reviews. However, in this final rule, we will not require that
a meal service observation always take place, as we do for State agency
reviews of independent centers, where no other entity reviews the
center's meal service for program compliance.
Finally, the Department will make one technical correction
pertaining to sponsor review elements in this final rule. The second
interim rule clarified at Sec. 226.15(e)(4) that meal counts may be
recorded at the end of the day in family day care homes, as opposed to
centers, which are required to record the meal count at the ``time of
service.'' However, Sec. 226.11(c)(1) still implies incorrectly that
all meals must be recorded at the time of the meal service.
Accordingly, this final rule amends Sec. 226.11(c)(1) to clarify
that reimbursements to day care home providers are calculated based on
daily meal counts, as opposed to time of service meal counts.
F. State Agency and Sponsor Edit Checks, Including Block Claim Edit
Check
The second interim rule amended the CACFP regulations to require
that both State agencies and sponsoring organizations establish monthly
edit checks to improve the accuracy of claims payments to institutions
and facilities, respectively. Prior to this time, the regulations did
not require either State agencies or sponsoring organizations to have
particular monthly edit checks built into their payment systems.
Nevertheless, most State agencies and sponsoring organizations already
had some monthly edit checks in place in their payment systems, and
OIG's suggestion to add two specific edit checks to the CACFP
regulations generated little controversy after being proposed in
September of 2000.
The one edit check that did generate opposition was that requiring
sponsoring organizations to identify ``block claims,'' defined in the
second interim rule as any claim submitted by a facility on which the
number of meals claimed, for one or more meal type, is identical for 15
consecutive days within a claiming period (generally one calendar
month). In addition, the rule required that, once a facility submitted
a block claim, a sponsoring organization must conduct an unannounced
review of that facility within the next 60 days. In order to provide
adequate time for sponsoring organizations to modify their edit checks
and review protocols, the Department delayed implementation for 13
months, until October 1, 2005.
In most cases, the Department concluded that this requirement would
result in sponsors conducting an additional (fourth) review of a
facility during a review year. If the monitor could document a
compelling reason for the block claim, no further ``60-day follow-up
reviews'' would be required for the remainder of the review year. In
addition, since sponsors were already required to conduct three reviews
per year, at least two of which were unannounced, the Department
anticipated that the largest impact of this provision--and one that was
entirely desirable, from the Department's standpoint--was that
sponsoring organizations would need to regularly re-adjust their review
schedules, offsetting some sponsors' tendency to conduct reviews of the
same facility on approximately the same schedule every year. The
Department received 397 comments about the definition of a block claim
added to Sec. 226.2 by the second interim rule, and 443 additional
comments concerning the requirement that sponsors conduct an
unannounced follow-up review within 60 days of a block claim's
submission.
Of the 397 comments received concerning the definition of a block
claim, 361 were submitted by sponsoring organizations, 14 by providers,
and 11 each by State agencies and advocacy groups. All 397 commenters
suggested some type of change(s) to the regulatory definition, with
most suggesting that the period of the block claim either be revised
from 15 days to one full month of claiming the same number of one or
more meal types, or that a block claim be defined
[[Page 34560]]
as the submission of identical meal counts for all meal services
(instead of one or more meal services) over a 15-day period.
Of the 443 comments received concerning the unannounced follow-up
review requirement, 417 were from institutions, 18 from advocacy
groups, 6 from providers, and 2 from others with no clear affiliation.
Four ideas for changing the provision were made in these comments:
149 commenters suggested that the time allowed for the
conduct of an unannounced followup review should be extended to 90 days
following the block claim's submission;
94 commenters suggested that, after block claims were
identified, sponsors should be required to review a sample of 10
percent of the facilities identified as having submitted such claims
(as opposed to reviewing all facilities submitting block claims within
60 days);
42 commenters suggested that block claims identified by a
monitor during a facility review could be verified during a review, as
opposed to requiring a separate follow-up visit (which the Department
permitted in guidance issued on July 1, 2005 and May 23, 2006, and made
permanent on August 27, 2007); and
136 suggested the permanent implementation of a temporary
policy permitted by the Department in guidance issued on July 1, 2005
and May 23, 2006, which stated that block claims verified during the
last two months of the current review year would eliminate the need to
conduct any unannounced followup reviews in the next review year (the
Department made this change permanent on August 27, 2007).
Based on the CCAP results, the Department remains very concerned
about meal claim integrity in the CACFP. However, based on feedback we
have received in comments on the second interim rule and through
feedback in other forums, we are now convinced that this particular
approach to improving claim integrity has been ineffective. It appears
that, when questioning providers about the submission of a block claim
after the fact, sponsor monitors do not have enough information to
confirm or refute the providers' explanations of the reasons for their
block claims. Therefore, this final rule eliminates all reference to
block claims and unannounced follow-up reviews at Sec. Sec. 226.2 and
226.10(c)(3). The Department will continue to explore more effective
means of monitoring erroneous meal claims, especially in the family day
care home portion of the CACFP. Readers of this preamble should note
that this change is consistent with section 331(b) of Public Law 111-
296, the Healthy, Hunger-Free Kids Act of 2010, which was enacted on
December 13, 2010.
Accordingly, this final rule removes the definition of ``block
claim'' at Sec. 226.2 of the CACFP regulations and all of Sec.
226.10(c)(3), which described the block claim edit check and the 60-day
follow-up review requirement. However, readers should note that, given
the evidence in CCAP that a substantial minority of providers continue
to be out of compliance with recordkeeping and daily meal counting
requirements, the Department will continue to try to develop an
efficient and effective means of identifying improper payments by
family day care homes and sponsored centers. Ultimately, the Department
is required by the Improper Payments Information Act of 2002 to
establish a means of measuring facility error in CACFP. If our efforts
indicate the need for sponsors to take other actions to minimize
improper facility claims, the Department will issue a proposed
rulemaking at that time.
G. Household Contacts
Based on the results of the Kiddie Care report, the Department
proposed in 2000 to require that sponsors make ``household contacts''
if they detected block claims submitted by their providers. Commenters
on the proposed rule were strongly opposed to this, and in the second
interim rule published in 2004, requirements pertaining to both block
claims and household contacts were quite different than what had been
proposed in 2000. Commenters' responses to the block claim edit check
requirements promulgated in the second interim rule were discussed in
Part II(F) of this preamble. This part of the preamble addresses
commenters' responses to the new household contact requirements
established in the second interim rule.
After having attempted, in the proposed rule published in 2000, to
provide detailed guidance on when and how household conducts should be
made, the Department adopted a very different approach in the second
interim rule. We still believed that the OIG report had presented a
compelling case for the use of household contacts as an oversight
tool--whether by sponsoring organizations, State agencies, or both--as
a means of confirming children's attendance at and enrollment for child
care, which is critical to ensuring the integrity of facility meal
counts in CACFP. However, we adopted commenters' suggestion that the
Department should not attempt to describe and require all of the
elements of a household contact system. Instead, the second interim
rule required State agencies to develop (by April 1, 2005) a system
which defined the circumstances under which the State agency and
sponsoring organizations would be required to make household contacts.
State agencies were also required to review and evaluate sponsors'
implementation of the State agency's system during every review of the
sponsor.
The Department received 213 comments on this aspect of the second
interim rule. Ninety-eight (98) commenters (93 institutions, 4 advocacy
groups, and one State agency) stated that sponsors should have the
flexibility to define their own household contact systems, rather than
having the State agency develop a household contact system for all
sponsors in the State. The Department made a deliberate choice to
provide this authority to State agencies, rather than sponsors.
Although we expected and wanted State agencies to consult with sponsors
in developing these systems, the Department believed it would be
inappropriate to permit sponsoring organizations to define the way this
oversight tool would be used, since it would have a direct impact on
their workload and, if not properly established and implemented, would
not yield meaningful results.
In addition, 15 provider commenters expressed concern that
vindictive parents could abuse a household contact system, by
deliberately providing false information to the sponsor or State
representative making the contact. While we acknowledge that this is a
possibility, the Department believes that it is a remote possibility.
Parents who are dissatisfied with their child's day care home provider
tend to change providers, making it less likely that a ``vindictive''
parent would deliberately provide false information. Meanwhile, in our
training on this provision, we emphasized that sponsors should consider
multiple sources of information when attempting to discern whether
their providers were submitting accurate meal counts. A household
contact is one way--but certainly not the only way--of establishing the
accuracy and integrity of provider meal counts.
Finally, 98 commenters (93 institutions, 4 advocacy groups, and one
State agency) stated that State agencies' household contact systems
should never link the submission of block claims to the requirement to
conduct a household
[[Page 34561]]
contact. The Department notes that, although this final rule removes
all Federal requirements pertaining to block claims, it does not affect
a State agency's ability to link household contact requirements to
block claims. Each State agency will have its own approach to defining
the circumstances under which sponsors must conduct household contacts,
and the Department will not attempt to limit State agencies' options in
this regard. We expect that, in establishing and modifying household
contact systems, a State agency will devise a system that it believes
is best suited to the particular management challenges to proper
implementation of CACFP in their State.
H. Sponsoring Organization Review Cycle
The second interim rule implemented several changes to the cycle
for sponsoring organizations' conduct of facility reviews. Several
small differences that previously existed between the review cycle for
different types of facilities were eliminated in the interim rule,
which now requires sponsors to review each facility (regardless of
whether it is a home or any type of center) three times a year, with
two of these visits being unannounced and at least one unannounced
review being conducted of the facility's meal service. Having uniform
review requirements for all types of facilities had been positively
received by commenters on the original proposed rule issued in 2000,
and no further comments on this aspect of the review cycle changes were
received. The only aspect of the review cycle about which comments were
received was the change made to the provisions governing sponsors' use
of ``review averaging.''
Prior to the second interim rule, sponsoring organizations could
``average'' their facility reviews only with the approval of the State
agency. ``Review averaging'' simply means that a sponsoring
organization with 100 facilities, must still conduct 300 reviews, but
does not have to review each of its 100 facilities three times each.
This flexibility has always been intended to permit sponsoring
organizations to devote more time reviewing facilities that are new, or
that have a history of problems with program compliance.
Given the two interim rules' emphasis on targeting problem
institutions and facilities for more oversight, and given the number of
new oversight requirements that sponsors would have to perform, the
Department decided that sponsoring organizations should have the
flexibility to decide (without prior State agency approval) whether or
not to use review averaging as a management tool. In this way, sponsors
would be able to review high-performing facilities less frequently and
error-prone facilities more frequently.
The second interim rule placed several limits on sponsors' use of
review averaging. First, for those facilities not being reviewed three
times in a review year, the Department required that sponsors still
conduct two unannounced reviews. Second, no facility could be reviewed
only two times in a review year if it was determined seriously
deficient in one of the reviews, or if it submitted a block claim at
any time during the review year. Finally, regardless of the sponsor's
use of review averaging, individual facility reviews would have to
occur no more than nine months apart from one another.
The Department received 208 comments on its implementation of
review averaging, including 195 from institutions, five from advocacy
groups, one from a State agency, and seven from commenters whose
affiliation could not be determined. These commenters asked for
slightly more flexibility for sponsors in utilizing this provision.
Specifically, they requested that the concept of ``averaging'' be
extended from the total number of reviews to the averaging of
unannounced reviews as well. In other words, the sponsor of 100
facilities would still have to conduct 300 reviews, 200 of which would
be unannounced, but could distribute the unannounced reviews in any
manner it saw fit.
The Department largely agrees with this proposal, but does want to
ensure that each facility receives at least one unannounced review each
year. This will give sponsors more flexibility than they currently have
in targeting review resources to error-prone facilities, but will
continue to ensure that each sponsored center or family day care home
receives one or more unannounced reviews each year.
Accordingly, the Department will make the appropriate changes to
Sec. 226.16(d)(4)(iv), including the elimination of the last sentence,
which previously limited the provision's applicability when a facility
had submitted a block claim. Because the block claim requirements have
been removed in this final rule, the last sentence of Sec.
226.16(d)(4)(iv) is no longer relevant, and will be removed.
I. Requirements Pertaining to Family Day Care Home Providers Who
Qualify for Tier I Reimbursements on the Basis of Their Receipt of
Benefits Under the Supplemental Nutrition Assistance Program (SNAP)
The second interim rule included new requirements for oversight of
a family day care home provider who established eligibility for tier I
meal reimbursements on the basis of the provider's household's
participation in the Supplemental Nutrition Assistance Program (SNAP),
formerly known as the Food Stamp Program. Our attention was called to
this issue by the OIG's Kiddie Care report, which found that some of
these providers were not revealing, or were understating, the amount of
income they received as child care providers when applying for SNAP
benefits. In so doing, the provider either received a larger SNAP
allotment than she was entitled to receive, or was incorrectly
determined eligible for SNAP. In some cases, a full accounting of
household income would also have made the day care home provider
ineligible to receive CACFP reimbursement for meals served to her own
child(ren).
To deal with this problem, the second interim rule required that
sponsoring organizations provide to the CACFP State agency a list of
day care home providers who qualified for tier I eligibility on the
basis of the household's SNAP participation. The CACFP State agency, in
turn, was required within 30 days to provide this information to the
agency of State government responsible for administering SNAP. After
receipt of the information, the SNAP State agency was required,
consistent with 7 CFR Part 273.12(c), to consider this information in
determining the household's SNAP eligibility.
The Department received 138 comments on these provisions of the
second interim rule. Of these, 92 commenters (88 institutions and 4
advocacy groups) recommended that the Department monitor the impact of
this provision to ensure that providers on the list were not ``unfairly
targeted'' for investigation by State or local SNAP offices. Forty-six
(46) other commenters (including 43 institutions, one State agency, and
two advocacy groups) stated that the onus for gathering this
information should be on State and local SNAP offices and not on the
sponsors and State agencies responsible for administering the CACFP.
As an agency, the FNS is responsible for administering both SNAP
and the CACFP. While we encourage
[[Page 34562]]
participation by eligible individuals in both programs, we must also
ensure that those receiving the programs' benefits meet the statutory
requirements for eligibility. Specifically, we must ensure that
providers accurately report their household income, including the
income they receive for providing child care, in order to determine
that accurate benefits are being provided under both CACFP and SNAP.
The OIG report raised concerns about providers' self-employment income
which FNS could not ignore, and we addressed these concerns in a way
that would provide the information necessary to the State agencies
responsible for administering these programs under agreements entered
into with FNS. As stated in our implementation guidance of March 29,
2005, the inclusion of a provider on this list does not demonstrate
noncompliant activity, and State or local SNAP offices receiving the
list would not use it to ``target'' individuals for inappropriate
review.
Part III. Training and Other Operational Requirements
Introduction
Sections 243(c), (d), (e), and (f) of ARPA added statutory
provisions which affected various aspects of State agencies and
sponsoring organizations' operation of the Program. These changes were
designed to improve Program management and integrity by establishing
requirements concerning:
Center sponsors' use of administrative funds;
Family day care homes' ability to transfer from one
sponsor to another;
State agencies' recovery of funds disbursed to
institutions; and
Serious deficiency, termination, and appeals procedures
for family day care homes participating in the Program.
The changes made to these aspects of Program operations were
discussed in Part III of the interim rule published on June 27, 2002,
which implemented all of the changes mandated by ARPA in the CACFP
regulations. Comments were received on three of these changes, and are
discussed below.
As part of the discussion of the serious deficiency process for
family day care homes, this section of the preamble will also include a
discussion of the requirement that sponsors collect each provider's
date of birth on the provider's Program application, and that the
sponsor report the provider's date of birth to the Department whenever
a provider is added to the NDL. As in Parts I and II of this preamble,
a number of the issues raised by commenters have already been addressed
in guidance or training, and do not require extensive discussion in
this preamble.
A. Ceiling on Administrative Reimbursements for Sponsors of Centers
Section 243(e) of ARPA established a fifteen (15) percent limit on
the amount of meal reimbursement that sponsors of centers could retain
to cover their administrative costs. This statutory limit grew out of
OIG audit and State review findings that showed some sponsors of
centers retaining 50 percent or more of the meal reimbursement for
administrative costs. Because administrative costs for monitoring may
be higher when a center sponsor administers CACFP in widely dispersed
rural centers (especially if many of the children served in those
centers do not qualify for free or reduced price meals), the law
permitted a center sponsor to apply to the State agency for a waiver of
the 15 percent ``ceiling,'' if warranted.
The Department received 152 comments on these provisions from 7
State agencies, 119 institutions, 19 advocates, and 7 commenters whose
institutional affiliation could not be identified. Many of these
commenters (106) believed that the ceiling on administrative costs
would significantly increase administrative burden for center sponsors,
and that administrative reimbursement rates should be adjusted
accordingly. However, as there is no separate administrative
reimbursement rate for sponsors of centers, it appears that these
commenters may have been suggesting that the ``ceiling'' on the amount
that sponsors of centers could retain for their administrative costs
should be increased above 15 percent. Because the ceiling is set by
law, the Department is not in a position to modify it. Furthermore, the
Department believes that the 15 percent ceiling--which is roughly
comparable to the separate administrative rate received by sponsors of
family day care homes--is adequate to cover center sponsors'
administrative expenses, especially since sponsors have the ability to
request a waiver when unusual circumstances might cause them to exceed
the 15 percent ceiling.
Forty (40) other commenters stated that, in order to implement this
provision more easily, center sponsors should simply receive 15 percent
of their centers' total meal reimbursement, However, the Department
reminds commenters that the law stated that center sponsors should be
allowed to retain ``up to 15 percent'' of the meal reimbursement earned
by their centers. This wording makes clear that Congress expected a
sponsor with documented, Program-related administrative costs that
totaled only 10 percent of its centers' meal reimbursements would
receive that amount (10 percent), and not more. Even if the statute had
not included the words ``up to,'' a system under which center sponsors
simply received 15 percent of the meal reimbursements earned by their
sponsored centers each month would potentially expose these sponsors to
large overclaims. If the State agency later reviewed the sponsors'
financial records and found inadequate documentation to support the
reasonableness, necessity, and allowability of all administrative costs
being charged to the program, the State agency would be required to
establish an overclaim against the sponsor.
Finally, six State agencies submitted other comments related to
these provisions. Three State agencies stated that the provision should
apply only to sponsors of ``unaffiliated'' centers (i.e., centers that
are not owned by the sponsoring organization). As this idea has been
explained to us in meetings, these State agencies believe that a for-
profit sponsor that owns sponsored centers can ``do what it pleases''
with regard to the funding that is targeted to the sponsored centers.
While this may be true for other aspects of a for-profit sponsor's
operation of the centers it owns, it is the Department's intent that
all CACFP sponsors--regardless of whether they are nonprofit or for-
profit in nature--operate the program principally for the benefit of
children. The law makes no distinction between affiliated and
unaffiliated centers, and therefore requires us to apply the 15 percent
ceiling to all center sponsors.
One State agency recommended that the waiver option be removed, or
that State agencies' decisions regarding a waiver not be subject to
administrative appeal. The Department notes that section
17(f)(2)(C)(ii) of the NSLA establishes these waivers, and the
Department may not remove the waiver provision without a change to the
law. Furthermore, section 17(e) of the law requires that institutions
be provided with the opportunity for an administrative hearing whenever
an action taken by the State agency affects the institution's claim for
reimbursement.
One State agency recommended that a higher rate be established for
sponsors of centers located in rural areas. Again, there is no
administrative ``rate,'' per se, for sponsors of centers. The law
establishes a ``ceiling'' on the amount of the sponsored centers' meal
reimbursement that the sponsor may retain for its Program-related
administrative expenses. In describing
[[Page 34563]]
the waiver provision in the preamble to the first interim rule, the
Department specifically discussed the possible need for waivers when
sponsors operated CACFP in rural areas, especially when its rural
centers were geographically dispersed and/or served large numbers of
children whose meals were not eligible for free or reduced price
reimbursement.
Finally, one State agency recommended that the 15 percent ceiling
apply only to sponsors of centers, and not to the individual centers
being sponsored. As explained in the preamble to the first interim
rule, the Department anticipates that centers choosing to be sponsored
(as opposed to independent centers, which take responsibility for all
aspects of Program operation and sign an agreement to do so with the
State agency) do so only when they feel they are not capable of taking
on the administrative challenges of CACFP and, therefore, anticipate
that their sponsor will handle all Program-related administrative
tasks. The Department believes that requiring the sponsor to account
separately for administrative tasks performed by sponsored centers is
necessary to discourage center sponsors that might be tempted to pass
some Program-related administrative responsibilities to their sponsored
centers, but still retain 15 percent of the centers' meal
reimbursement.
B. Procedures for Recovering Funds Disbursed to Institutions
Section 243(d) of ARPA added provisions to the NSLA affecting the
recovery of funds already disbursed to institutions. The statute
amended section 17(f)(1)(B) of the NSLA to permit State agencies to
establish ``payment schedules'' that allowed institutions to repay
claims over a period of one or more years; clarified that institutions
may not repay Program claims out of funds intended for meal
reimbursement; and underscored that institutions must be provided the
opportunity to appeal when claims were established. Despite permitting
payment schedules, the law did not waive normal debt collection
procedures, and the Department added language in the first interim rule
to clarify that, when claims were not repaid promptly, interest would
accrue on the outstanding debt until it was paid in full.
The Department received eight State agency comments on its
implementation of these provisions in the first interim rule. All of
these comments concerned the inclusion of regulatory language regarding
the collection of interest from institutions owing a debt to the
government. Commenters stated that the collection of interest in CACFP
imposed a special burden unlike other child nutrition programs. They
also requested instructions on how to calculate interest owed and
suggested that interest be calculated as of 30 days from the due date,
not from the date of the claim notice.
Calculation of interest follows the annually-update ``current value
of funds rate,'' which is available at http://www.fms.treas.gov/cvfr/index.html. However, the Department does believe that it erred in
promulgating regulatory language stating that ``the State agency must
assess interest beginning with the initial demand for remittance.''
This language will be amended in this final rule, to require the
collection of interest if the debt is not paid by the date stipulated
in the State agency's demand letter, or 30 days after the date of the
demand letter, whichever date is later.
Accordingly, Sec. 226.14(a) is amended to include the change to
the language regarding the assessment of interest as described
immediately above.
C. The Serious Deficiency Process for Family Day Care Homes (FDCH)
As mentioned above, ARPA added to the NSLA a requirement that the
Department establish a serious deficiency process for FDCH providers.
Prior to this, some State agencies had established their own serious
deficiency processes for providers, and had compiled lists of providers
whose Program participation had been terminated for cause. Section
243(c) of ARPA amended section 17(d)(5) of the NSLA to require that the
Department establish a nationwide serious deficiency process for
providers and that, if disqualified from CACFP, these providers would
be placed on the NDL, just like institutions that failed to correct
their serious deficiencies.
The Department received 595 comments on its implementation of
ARPA's provision establishing a serious deficiency process for
providers. The vast majority of these comments (487) were submitted by
institutions. Other comments came from advocacy groups (55), State
agencies (2), providers (2), and persons for whom an institutional
affiliation could not be determined (49).
Of these, 40 commenters stated that they were pleased with the
change to the statute and the way that FNS implemented the law's
provisions in the first interim rule. Another 278 commenters (236
institutions, 22 advocates, one provider, and 19 ``others'') believed
that the regulatory language used in the interim rule was not specific
enough. Most of these (273 of 278) believed that the regulatory
language should be changed to require that a sponsor declare a provider
seriously deficient only when the provider, in the words of ARPA,
``substantially fails to fulfill the terms of its agreement.'' These
commenters believed that, as written, the second interim rule would
force sponsors to declare providers seriously deficient whenever an
error was made, regardless of the frequency or severity of the error.
Since that time, the Department has provided extensive training to
State agencies on implementing the first interim rule and State
agencies, in turn, have provided extensive training to sponsoring
organizations. Throughout its training on the serious deficiency
process for providers, the Department has emphasized that, in
determining whether a declaration of serious deficiency is warranted,
sponsoring organizations should assess the frequency and severity of
the errors committed by providers. In the years since the first interim
rule was published, the Department has encountered few, if any,
instances of sponsoring organizations interpreting the regulations too
narrowly, and declaring providers seriously deficient for minor
clerical errors. In fact, the CCAP report more strongly suggests that
too many sponsors may be slow to require providers to implement
meaningful corrective action when serious problems with meal counting
occur, and overly-reluctant to employ the serious deficiency process.
In addition, the Department received 275 comments concerning the
amount of time given providers to resolve serious deficiencies. All but
one of these commenters stated that providers should be given more than
30 days to correct a serious deficiency. In the first interim rule,
institutions were given varying lengths of time to resolve such issues,
depending on the nature of the serious deficiency. Providers, on the
other hand, always have a maximum of 30 days to fully correct any
serious deficiency. The Department understands that this disparity may
appear to be detrimental or unfair to providers. However, giving
institutions and providers different periods of time to correct a
serious deficiency is necessary because of the nature of sponsors'
monitoring of providers and the financial incentives that sponsors have
to retain providers in the Program.
Sponsors conduct three reviews of each provider each year, two of
which are unannounced. Unless the monitor finds an egregious problem
involving intentional over-claiming of meals or serious non-compliance
with the
[[Page 34564]]
Program meal pattern, the sponsor usually does not declare the provider
seriously deficient when the problem is first discovered. More
typically, the monitor requires that the provider take corrective
action without finding the provider seriously deficient, then returns
for the next review three to four months later to determine whether the
provider has fully implemented the corrective action. Unfortunately,
even if a monitor continues to find serious problems with the
provider's operation of the Program, some sponsors are still very
reluctant to issue a declaration of serious deficiency unless there is
clear proof that the provider has falsified its meal claims. By the
time a serious deficiency is declared, almost all providers will have
already had one or more chances (in other words, given the interval
between the monitor's reviews of that provider, three to nine months)
to implement effective corrective action. Once a sponsor reaches the
point of issuing a notice of serious deficiency to a provider, then it
is imperative that the sponsor require the provider to quickly correct
the deficiency, knowing that if the provider does not, the sponsor will
propose to terminate Program participation in 30 days or less.
Two State agency commenters also made suggestions for changes to
the first interim rule. One suggested that the State agency option to
hear provider appeals be removed; the other suggested that sponsors of
centers should also be required to establish a serious deficiency
process for their sponsored centers. After consideration, we concluded
that it is unnecessary to remove an option that a small number of State
agencies have chosen to exercise. If the State agency in question
wishes to decline hearing provider appeals, it may do so. It should
assist sponsors in establishing a sponsor-level appeals process, and
then turn the process over to sponsors once it is in place.
With regard to a serious deficiency process for centers, the
Department has taken every opportunity to recommend that State agencies
or center sponsors establish a serious deficiency and appeals process
for sponsored centers. Section 17(d)(5) of the NSLA requires the
process to be established for institutions (and by extension, those
responsible principals and individuals from institutions that are
proposed for disqualification) and for family day care home providers,
but does not mention sponsored centers. Therefore, the requirement for
such a process for sponsored centers was not included in the first
interim rule. Nevertheless, we believe that establishing such a process
for sponsored centers is an excellent management practice. We again
urge State agencies or sponsors to establish a serious deficiency
process for sponsored centers, and we will consider proposing such a
change, and soliciting public comment, in future rulemakings.
Finally, the Department received 264 comments concerning the first
interim rule's requirement at 226.18(b) that a provider must submit her
date of birth as part of the sponsor's agreement with the provider.
[Please note that the first interim rule also required that the
executive director and the chairperson of the institution's board of
directors must submit their dates of birth on the institution's
application. Several of the comments discussed below pertain to that
requirement, as opposed to the provider date of birth requirement.]
Most of these comments (223) requested more time to implement this
requirement, which now has been fully implemented. Among the other 41
comments, 25 (6 State agencies, 9 institutions, 7 providers, and 3
advocates) stated that the date of birth requirement should be
eliminated because it was not verifiable and because it is an
``invasion of privacy.'' Three other State agencies believed that the
provision of a date of birth made providers on the National
Disqualified List (NDL) more likely to be the victims of identity
theft.
In order to ensure that those using the NDL could differentiate
between multiple individuals with the same name, the Department needed
to include a unique identifier for each name on the list. This was
especially important after the law expanded the number of names that
could be placed on the list by including FDCH providers. Although the
Department is permitted by law to collect Social Security Numbers on
household applications for child nutrition benefits, ARPA law did not
provide such authority as part of requiring that providers be placed on
the NDL. Therefore, the Department needed to obtain an identifier that
would differentiate between persons with the same name who appear on
the NDL. The Department is very sensitive to Program participants'
concerns regarding identity theft, and has allowed access to the NDL
only to those Program personnel who must determine institution or
provider eligibility. Therefore, we are convinced that the provider's
date of birth is the best identifier available for this purpose.
Six other State agency staff suggested that collection of the date
of birth be optional; that State agencies should be allowed to make
exceptions to these requirements for good cause; or that it be required
only after a provider or institution is determined seriously deficient.
Because, as explained above, the Department determined that this is the
best identifier available for this purpose, none of these changes will
be made.
The Department received two comments from State agencies on the
collection of a date of birth from an institution's executive director
or board chair. One commenter suggested that the date of birth should
be collected from all ``responsible staff'' at the time of the
institution's application; the other suggested that the owners of for-
profit independent centers (who are neither the ``executive director''
nor the ``board chair'' of their organization) should also be required
to submit their date of birth.
With regard to the first comment, the Department will not expand
the date of birth requirement beyond the executive director and board
chair in this final rule. We do wish to point out, however, that
consistent with Sec. 226.25(b), any State agency wishing to require
that more dates of birth for additional personnel be collected on an
institution's application may establish that requirement. With regard
to the second comment, the Department will clarify in this final rule
that the regulation at Sec. Sec. 226.6(b)(1)(xv) and 226.6(b)(2)(v)
should be construed to require that State agencies collect dates of
birth from owners of for-profit independent centers at the time of the
center's application.
Accordingly, this final rule amends Sec. Sec. 226.6(b)(1)(xv) and
226.6(b)(2)(v) to clarify that for-profit owners, and other individuals
with overall responsibility for an institution's management of the
CACFP, regardless of title, must submit a date of birth on the
institution's Program application.
Finally, to clarify the word ``rescind,'' as was done in Part I(B)
of the preamble, the Department will remove the word ``rescind'' at
Sec. 226.16(l)(3)(ii) and replace it with the words ``temporarily
defer.'' In addition, the Department will add a new sentence to Sec.
226.6(l)(3)(ii) to state clearly that, if the sponsor accepts the
provider's corrective action, but later determines that the corrective
action was not permanent or complete, the sponsor must then move to the
next step in the serious deficiency process (i.e., proposed termination
and disqualification), without re-starting the serious deficiency
process.
Accordingly, this final rule makes the changes to Sec.
226.16(l)(3)(ii) described in the preceding paragraph.
[[Page 34565]]
D. Technical Corrections
This final rule also corrects five technical errors relating to the
regulations dealing with training and other operational requirements,
and updates the mailing address for the Agency's Western Regional
Office in 7 CFR parts 210, 215, 220, 225, 226, and 245.
First, the second interim rule included language at Sec.
226.16(l)(3)(i)(F) that states that a day care home will be terminated
``by the State institution.'' This should instead read, ``by the
sponsor.'' The final rule also clarifies references to the
``institution'' in Sec. Sec. 226.16(l)(3)(i)(E) and (F) by
substituting the words ``sponsoring organization.''
Second, the regulations at Sec. 226.15(e)(2) state that, because
of the nature of care provided, outside-school-hours care centers,
emergency shelters, and at-risk after-school care centers are exempt
from the requirement to enroll each child in care, and maintain and
update annually documentation of that enrollment. However, the
definition of ``claiming percentage'' at Sec. 226.2 still states that
a claiming percentage is calculated based on the number of ``enrolled''
participants. This final rule amends the definition by adding a second
sentence describing how outside-school-hours care centers may calculate
a claiming percentage.
Third, when printing the CFR, errors were made in transcribing the
amended text of Sec. Sec. 226.18(a)(1), 226.18(a)(2), 226.18(b)(1),
and 226.18(b)(2) as it was submitted in the first interim rule. This
final rule corrects the errors, which will result in a corrected text
in the CFR.
Fourth, in amending the regulations at Sec. 226.15(e)(14), the
second interim rule did not make clear that sponsor monitors are to be
trained annually. Even though Sec. 226.16(d)(3) stated that all of a
sponsor's ``key staff'' must be trained annually, we believe that Sec.
226.15(e)(14) should be amended to make clear that monitors are among
the ``key staff'' who must be trained annually.
Fifth, this final rule corrects an error in the first sentence of
Sec. 226.23(d) by inserting two words (``public release'')
inadvertently dropped from that sentence in a previous rule.
Finally, this rule updates the address of the FNS's Western
Regional Office in Sec. Sec. 210.30(e), 215.17(f), 220.21(e), 225.19
(g), and 226.26(g).
Accordingly, this final rule makes changes to Sec.
226.16(l)(3)(i)(F); the definition of ``claiming percentage'' at Sec.
226.2; Sec. Sec. 226.18(a)(1), 226.18(a)(2), 226.18(b)(1),
226.18(b)(2); Sec. 226.15(e)(14); Sec. 226.23(d); and Sec. Sec.
210.30(e), 215.17(f), 220.21(e), 225.19 (g), and 226.26(g), as
described immediately above.
Part IV. Non-Discretionary Changes Required by PRWORA, the Healthy
Meals Act, and the Goodling Act
In addition to the changes discussed in parts I-III of this
preamble, the second interim rule also included a number of
nondiscretionary changes from statutes other than ARPA. Non-
discretionary changes are those that are specifically mandated by
Congress, and, therefore, must be included in the Program regulations.
Although nondiscretionary changes may be issued without first
soliciting public comment, we included these provisions in the second
interim rule both as a matter of convenience and as a means of
gathering comments on the manner in which we implemented the
provisions.
The Department received public comments on three of the non-
discretionary changes included in part IV of the preamble to the second
interim rule: the issuance of advances to institutions participating in
CACFP; the provision of information on the WIC Program; and the
provision of audit funding to State agencies. We received no comment on
any other changes made in part IV of the preamble of the second interim
rule and, therefore, all of those provisions are adopted without change
in this final regulation.
A. Issuance of Advances to Institutions Participating in the CACFP
Prior to passage of the Public Law 104-193, the Personal
Responsibility and Work Opportunity Reconciliation Act (PRWORA), State
agencies were required to issue advance payments to CACFP institutions
that requested them. Section 708(f) of the PRWORA, however, amended
section 17(f) of the NSLA (42 U.S.C. 1766(f)) to make the issuance of
advances optional. To implement this statutory requirement, the second
interim rule amended the Program regulations to make clear that
issuance of advances is at the discretion of the State agency. In the
preamble to that rule, and in previous guidance issued in 1997, we had
clarified that State agencies may elect to issue advances to all
institutions, no institutions, specific types of institutions, or
institutions with records of adequate Program administration. Only when
a State agency denies an advance to an institution based on the
institution's Program performance is it necessary to offer an appeal of
the State agency's decision.
We received a total of 133 comments on this provision. Of those, 88
sponsors and 2 advocacy groups recommended that we encourage State
agencies to continue issuing advances. The comments suggested that
denying advance payments would have a negative impact on participation
in CACFP. Additionally, 38 sponsors and 4 advocacy groups urged us to
request that Congress eliminate the State agency option with regard to
administrative advances and, instead, reinstate the requirement that
State agencies make administrative advances available to all sponsors
upon request. One State agency submitted a comment in support of the
proposed changes.
Congress has required that the issuance of advances be at the
discretion of the States. We have provided States with guidelines on
the appropriate means for providing advances should they decide to do
so. It would be inappropriate for us to encourage or discourage
advances when Congress clearly left this decision up to the States.
Accordingly, the final regulation is unchanged.
B. Provision of Information on the WIC Program
Section 107(i) of Public Law 105-336, the William F. Goodling Child
Nutrition Reauthorization Act (Goodling Act), required the Department
to provide information to State agencies regarding the Special
Supplemental Nutrition Program for Women, Infants, and Children (WIC)
Program. In the interim rule, we amended Sec. 226.6(r) to require that
State agencies distribute this information to each participating
institution and Sec. 226.15(n) to require that institutions make this
information available to parents of enrolled children. (Since the
publication of the interim rule, additional revisions have been made to
Sec. 226.15, and the provision relating to providing WIC information
is now located at Sec. 226.15(o).)
We received six comments on this provision. One sponsor and one
advocacy organization recommended that the WIC notification be a one-
time requirement when a family enrolls in CACFP. However, the statute
requires the State agency to ensure that participating family and group
day care homes and child care centers receive periodic updates of WIC
information and that the information is provided to parents of enrolled
children. Therefore, WIC information must be provided to parents upon
enrollment, and additional updates must be provided when there are
changes to the way in which households may obtain information
[[Page 34566]]
about WIC or when there are changes to the WIC Program's eligibility
rules.
Of the remaining comments, one State agency and two sponsors
suggested that the WIC State agency bear the cost of the WIC
notification materials, rather than the sponsors, and one sponsor
suggested that WIC agencies be required to distribute CACFP outreach
materials. These requirements were not included in the legislation and
may not be imposed through this final rule.
Finally, this regulation makes technical corrections to the WIC
provision in the interim rule. In our prior implementation of this
statutory requirement, Sec. 226.6(r) requires State agencies to
provide WIC information to ``participating institutions,'' which would
include all institutions participating in CACFP. Additionally, Sec.
226.15(n) [now Sec. 226.15(o)] required institutions to provide
information to the parents of all ``enrolled children.'' However, the
statutory language limited this provision to family and group day care
homes and child care centers and specifically excluded institutions
providing care to school children outside school hours. Therefore, the
regulation should have exempted from this requirement those
institutions participating in CACFP as outside school hours care
centers, at-risk afterschool snack programs, homeless shelters, and
adult day care centers.
Accordingly, this final regulation is amended at Sec. Sec.
226.6(r) and 226.15(o) to clarify that WIC information must only be
distributed to the parents of children enrolled in family and group day
care homes and in traditional child care centers.
C. Audit Funding for State Agencies
Section 107(e) of the Goodling Act amended section 17(i) of the
NSLA (42 U.S.C. 1766(i)) by reducing the amount of audit funding
available to State agencies. Prior to this change, State agencies
received an amount equal to two percent of Program expenditures during
the second preceding fiscal year in order to conduct program audits. In
1999, this was reduced to one and one-half percent of Program
expenditures and to one percent for fiscal years 2005 to 2007. In the
interim rule, we amended Sec. 226.4(h) to include these reductions.
(Since the publication of the interim rule, additional revisions have
been made to Sec. 226.4, and the provision relating to audit funds is
now located at Sec. 226.4(j).)
We received 136 comments on this provision, all of which supported
the restoration of State audit funds to the two percent level. Because
the Goodling Act called for the reduction, the final regulation
incorporates the reduction to the one and one-half percent level.
However, the reference in the interim rule to the one percent level of
funding for fiscal years 2005 to 2007 is no longer necessary as this
period has expired and the funding level has returned to one and one-
half percent.
Accordingly, Sec. 226.4(j) is amended in the final regulation to
remove the reference to the one percent funding level for fiscal years
2005 to 2007.
Part V. Procedural Matters
Executive Order 12866 and Executive Order 13563
Executive Orders 13563 and 12866 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule has been designated a ``significant regulatory
action'' although not economically significant, under section 3(f) of
Executive Order 12866. Accordingly, the rule has been reviewed by the
Office of Management and Budget.
Regulatory Flexibility Act
This final rule has been reviewed with regard to the requirements
of the Regulatory Flexibility Act (5 U.S.C. 601-612). It has been
certified that this rule will not have a significant economic impact on
a substantial number of small entities.
The CACFP is administered by State agencies and by over 21,000
institutions (sponsoring organizations and independent centers) in over
194,000 facilities (independent and sponsored centers and family day
care homes). The vast majority of institutions and facilities
participating in CACFP are ``small entities''. Nevertheless, the
changes implemented in this rule will not have a significant economic
impact on most of them. This rule finalizes requirements in the two
interim rules that institutions seeking to operate CACFP provide in
their applications information related to past performance, financial
viability, administrative capability, and internal controls to ensure
accountability, and some additional recordkeeping and reporting
requirements. These represented marginal increases in the application
burden for almost all of these institutions.
This rule finalizes requirements that primarily affect the
procedures used by State agencies in reviewing institutions'
applications to participate in CACFP and in monitoring participating
institutions' performance. These changes will have a major impact on
institutions which are unable to operate CACFP under the new
application requirements, or on institutions and facilities which are
terminated from CACFP participation as a result of improved monitoring
procedures by the State agency or sponsoring organization. However,
this occurred for only a small proportion (roughly 2 percent or less)
of CACFP institutions and facilities when the requirements were
implemented under the interim rules.
In short, there will be little or no adverse impact on those
entities administering the CACFP in accordance with Program
requirements, since almost all of these changes were implemented in the
two previously-issued interim rules in order to improve compliance with
existing regulations and in accordance with statutory changes to
Program operations.
Regulatory Impact Analysis
A regulatory impact analysis was completed as part of the
development of this final rule. Copies of this analysis may be
requested from Ms. Julie Brewer or Ms. Tina Namian at 3101 Park Center
Drive, Room 634, Alexandria, VA 22302-1594, or by telephone at (703)
305-2590.
This final rule implements a number of clarifications and changes
to existing Program regulations, as implemented in the two interim
rules published at 67 FR 43447 (June 27, 2002) and at 69 FR 53501
(September 1, 2004). These changes will affect all entities involved in
administering the CACFP. Those most affected will be State agencies,
institutions, and facilities.
Despite the conduct of numerous OIG audits, State and FNS reviews,
and the Department's own Child Care Assessment Project (CCAP), there is
no Nationally-representative information available on the prevalence of
meal counting or other errors that impact CACFP integrity. OIG reports
have focused on purposely-selected institutions and facilities. Reviews
conducted by State agencies and ``management evaluations'' conducted by
FNS are not designed to capture information for the purpose of
developing Nationally valid estimates of fraud or mismanagement. The
CCAP data collection was limited to family
[[Page 34567]]
day care home sponsors operating CACFP in 200 or more homes.
While all of these reports indicate that there are weaknesses in
parts of the Program, and that there have been significant weaknesses
in oversight by some State agencies and sponsoring organizations, none
of these reports can fully estimate the prevalence or magnitude of
Program errors. This lack of information makes it difficult for us to
estimate with any precision the amount of CACFP reimbursement lost due
to fraud, abuse, or mismanagement.
Nevertheless, we are confident that the overall impact of this
final rule will be to strengthen program management and integrity in
the CACFP:
By helping to ensure that service providers with
inadequate administrative capacity or financial controls or serious
management deficiencies are prevented from participating in the
program, the rule eliminates important risks of erroneous payments;
By increasing and improving State oversight of sponsors
and providers, the rule helps to ensure that integrity risks are
identified and addressed early; and
By increasing reporting of negative findings by States to
USDA, the rule strengthens the Department's ability to identify problem
trends and emerging issues and take action.
While the CCAP findings demonstrated that some State and local Program
administrators have not fully implemented all of the provisions in the
first and second interim rules, they also demonstrated that the rules
have helped to eliminate some of the worst types of program fraud
uncovered by the Department's Office of Inspector General in the late
1990s. This final rule's further refinement of some of the provisions
in those interim rules will continue to improve safeguards against
fraud, waste, and abuse, and will result in the more efficient use of
Program funds.
Executive Order 12372
The Child and Adult Care Food Program is listed in the Catalog of
Federal Domestic Assistance under No. 10.558. For the reasons set forth
in the final rule in 7 CFR Part 3015, subpart V and related Notice
published at 48 FR 29114, June 24, 1983, this Program is included in
the scope of Executive Order 12372, which requires intergovernmental
consultation with State and local officials.
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
regulation describing the agency's considerations in terms of the three
categories enumerated in Sec. 6(a)(B) of Executive Order 13132:
Prior Consultation With State Officials
Prior to drafting this final rule, the Department analyzed more
than 1,000 comments submitted in response to the two interim rules. In
addition, the Department receives a great deal of ongoing input from
State and local agencies.
Since the CACFP is a State administered, Federally funded program,
our regional offices regularly have formal and informal discussions
with State and local officials regarding Program implementation and
performance. This allows State and local agencies to contribute input
that may inform our rulemaking, the implementation of statutory
provisions, and even our own Departmental legislative proposals. In
addition, over the past fourteen years, our headquarters staff has
informally consulted with State administering agencies, Program
sponsors, and CACFP advocates on ways to improve Program management and
integrity in the CACFP. Discussions with State agencies took place in
the joint Management Improvement Task Force meetings held between 1995
and 2000; in seven biennial National meetings of State and Federal
Program administrators (Seattle in 1996, New Orleans in 1998, Chicago
in 2000, New York in 2002, Madison, Wisconsin, in 2004, Orlando in
2006, and Phoenix in 2008); at the December 1999 meeting of the State
Child Nutrition Program administrators in New Orleans, and in a variety
of other small- and large-group meetings. Discussions with Program
advocates and sponsors occurred in the Management Improvement Task
Force meetings held in 1999-2000; in annual National meetings of The
Sponsors Association, the CACFP Sponsors Forum, and the Western
Regional Office-Child Care Food Program Roundtable from 1995 to the
present; and in a variety of other small- and large-group meetings.
Nature of Concerns and Need To Issue this Rule
The issuance of a regulation is necessary to improve Program
management and, more specifically, to respond to management problems
identified by State and local Program administrators and by OIG. Many
of the interim rule's provisions were discussed in the meetings with
State and local cooperators mentioned above. The Department attempted
to address in this final rule many of the concerns expressed by
commenters on the two interim rules.
Extent to Which We Meet Those Concerns
FNS has considered the impact of these changes on State and local
administering agencies, and has attempted to balance Program integrity
concerns with the need to maintain Program access for capable
institutions and family day care homes, and to ensure that improvements
in accountability do not place undue burdens on State and local Program
administrators. The preamble above contains a more detailed discussion
of our attempt to balance integrity and access concerns, while
implementing these provisions in a manner consistent with both the
letter and the intent of the NSLA. Adjustments made by this final rule
in response to public comment are discussed at length in the preamble.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, requires 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 Food and Nutrition
Service must usually prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal
mandates'' that may result in new annual expenditures of $100 million
or more by State, local, or tribal governments or the private sector.
When such a statement is needed, section 205 of the UMRA requires the
Food and Nutrition Service to identify and consider regulatory
alternatives and adopt the least costly, more cost-effective, or least
burdensome alternative that achieves the objective of the rule.
This rule contains no Federal mandates (as defined in title II of
the UMRA) that would lead to new annual expenditures exceeding $100
million for State, local, or tribal governments or the private sector.
Therefore, the rule is not subject to the requirements of sections 202
and 205 of the UMRA.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. This rule is intended to have preemptive effect with
respect to any State or local laws, regulations, or
[[Page 34568]]
policies which conflict with its provisions or which would otherwise
impede its full implementation. This rule is not intended to have
retroactive effect unless so specified in the DATES section of the
preamble of the final rule. All available administrative procedures
must be exhausted prior to any judicial challenge to the provisions of
this rule or the application of its provisions. This includes any
administrative procedures provided by State or local governments. In
the CACFP, the administrative procedures are set forth at: (1)
Sec. Sec. 226.6(k), 226.6(l), and 226.16(l) which establish
administrative review procedures for institutions, individuals, and day
care homes; and (2) Sec. 226.22 and 7 CFR parts 3016 and 3019, which
address administrative review procedures for disputes involving
procurement by State agencies and institutions.
Civil Rights Impact Analysis
FNS has reviewed this final rule in accordance with Department
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify any
major civil rights impacts this rule might have on children on the
basis of age, race, color, national origin, sex, or disability. A
careful review of the rule revealed that the rule's intent does not
affect the participation of protected individuals in CACFP.
Executive Order 13175
USDA will undertake, within 6 months after this rule becomes
effective, a series of Tribal consultation sessions to gain input by
elected Tribal officials or their designees concerning the impact of
this rule on Tribal governments, communities and individuals. These
sessions will establish a baseline of consultation for future actions,
should any be necessary, regarding this rule. Reports from these
sessions for consultation will be made part of the USDA annual
reporting on Tribal Consultation and Collaboration. USDA will respond
in a timely and meaningful manner to all Tribal government requests for
consultation concerning this rule and will provide additional venues,
such as webinars and teleconferences, to periodically host
collaborative conversations with Tribal leaders and their
representatives concerning ways to improve this rule in Indian country.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35, see 5 CFR
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
final rule incorporates into the Child and Adult Care Food Program
regulations modifications, clarifications, and technical changes to the
two interim rules published by the Department on June 27, 2002 and
September 1, 2004. Interim rules have the force of law, and the changes
in these two interim rules are fully implemented. Thus, information
collection requirements for this final rule were included in the
renewal of OMB No. 0584-0055 and were approved by OMB on August 3,
2010, with an expiration date of August 31, 2013. During the renewal of
OMB No. 0584-0055, information collection requirements were adjusted
from the previously reported collection requirements to reflect changes
in the number of respondents, time required to respond due to
automation and technology enhancements by respondents and removal of
obsolete or erroneous burdens listings.
This final rule contains information collection requirements that
are subject to review and approval by OMB. FNS will publish a document
in the Federal Register once these requirements have been approved. The
recordkeeping and reporting burden contained in this final rule have
been previously reviewed by OMB, as discussed above. The final rule
removes the requirement at 226.10(c)(3) that, ``If block claiming is
detected, the sponsoring organization must not include that facility
among those facilities receiving less than three reviews during the
current year, in accordance with Sec. 226.16(d)(4), and must ensure
that any facility submitting a block claim receives an unannounced
review within 60 days of the discovery of the block claim. If, in the
course of conducting this review, the sponsoring organization
determines that there is a logical explanation for the facility to
regularly submit a block claim, the sponsoring organization must note
this in the facility's review file and is not required to conduct an
unannounced visit after other block claims detected during the current
year.'' The deletion of this provision results in a reduction of
23,498.40 hours in the reporting and 2,937.30 hours in the
recordkeeping burden hours in the currently approved OMB No. 0584-0055,
with an expiration date of August 31, 2013. No burden hours were
assigned to the State agency since this is primarily a sponsor
requirement. FNS is decreasing the burden hours from 7,032,870.18 to
7,006,434.482.
Reporting
Estimated number of respondents: 2,200,066.
Estimated Number of Responses per Respondent: 2.229056
Estimated Number of Annual Responses: 4,904,071
Estimated hours per response: 1.279542
Estimated Total Annual Response: 6,274,963.604
Recordkeeping
Estimated number of respondents: 183,120
Estimated Number of Responses per Respondent: 3.586
Estimated Number of Annual Responses: 656,731
Estimated hours per response: 1.11381
Estimated Total Annual Response: 731,470.878
E-Government Act Compliance
FNS is committed to compliance with the E-Government Act of 2002,
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
Children, Commodity School Program, Food assistance programs,
Grants programs-social programs, National School Lunch Program,
Nutrition, Reporting and recordkeeping requirements, 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 and recordkeeping requirements.
7 CFR Part 226
Accounting, Aged, Day care, Food assistance programs, Grant
programs, Grant programs--health, American
[[Page 34569]]
Indians, Individuals with disabilities, Infants and children,
Intergovernmental relations, Loan programs, Reporting and recordkeeping
requirements, Surplus agricultural commodities.
Accordingly, 7 CFR parts 210, 215, 220, 225, and 226 are 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.
Sec. 210.30 [Amended]
0
2. Section 210.30(e) is amended by removing the words ``550 Kearny
Street, Room 400, San Francisco, California 94108'', and adding in
their place the words ``90 Seventh Street, Suite 10-100, San Francisco,
California 94103-6701''.
PART 215--SPECIAL MILK PROGRAM FOR CHILDREN
0
1. The authority citation for part 215 continues to read as follows:
Authority: 42 U.S.C. 1772 and 1779.
Sec. 215.17 [Amended]
0
2. Section 215.17(f) is amended by removing the words ``550 Kearny
Street, Room 400, San Francisco, California 94108'', and adding in
their place the words ``90 Seventh Street, Suite 10-100, San Francisco,
California 94103-6701''.
PART 220--SCHOOL BREAKFAST PROGRAM
0
1. The authority citation for part 220 continues to read as follows:
Authority: 42 U.S.C. 1773, 1779, unless otherwise noted.
Sec. 220.21 [Amended]
0
2. Section 220.21 (e) is amended by removing the words ``550 Kearny
Street, Room 400, San Francisco, California 94108'', and adding in
their place the words ``90 Seventh Street, Suite 10-100, San Francisco,
California 94103-6701''.
PART 225--SUMMER FOOD SERVICE PROGRAM
0
1. 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)
Sec. 225.19 [Amended]
0
2. Section 225.19(g) is amended by removing the words ``550 Kearney
Street, Room 400, San Francisco, California 94108-2518'', and adding in
their place the words ``90 Seventh Street, Suite 10-100, San Francisco,
California 94103-6701''.
PART 226--CHILD AND ADULT CARE FOOD PROGRAM
0
1. The authority citation for part 226 continues to read as follows:
Authority: Secs. 9, 11, 14, 16, and 17, National School Lunch
Act, as amended (42 U.S.C. 1758, 1759a, 1762a, 1765 and 1766).
0
2. Section 226.2 is amended by removing the definition of Block Claim,
amending the definition of Claiming percentage by adding a second
sentence, and by adding a new definition of Independent board of
directors.
The revision and addition specified above read as follows:
Sec. 226.2 Definitions.
* * * * *
Claiming percentage * * *. In the case of an outside-school-hours
care center that is not required to collect enrollment forms from each
participating child, a claiming percentage is the ratio of the number
of children in each reimbursement category (free, reduced-price or
paid) to the total number of children participating in the program in
that center.
* * * * *
Independent governing board of directors means, in the case of a
nonprofit organization, or in the case of a for-profit institution
required to have a board of directors, a governing board which meets
regularly and has the authority to hire and fire the institution's
executive director.
* * * * *
Sec. 226.4 [Amended]
0
3. Section 226.4(j) is amended by removing the second sentence.
0
4. Section 226.6 is amended as follows:
0
a. Revise paragraph (b)(1)(xii).
0
b. Amend paragraph (b)(1)(xv) by adding, after the words ``board of
directors'', the words ``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''.
0
c. Amend paragraph (b)(1)(xviii) introductory text by adding a sentence
at the end.
0
d. Revise paragraphs (b)(1)(xviii)(A)(2), (b)(1)(xviii)(C)(1),
(b)(2)(ii), and (b)(2)(iii)(B)(1).
0
e. Amend paragraph (b)(2)(v) by adding, after the words ``board of
directors'', the words ``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''.
0
f. Amend paragraph (b)(2)(vii) introductory text by adding a sentence
at the end.
0
g. Revise paragraphs (b)(2)(vii)(A)(2) and (b)(2)(vii)(C)(1).
0
h. Amend paragraph (c)(1)(iii)(A)(5) by removing the word ``and'' after
the semicolon and amend paragraph (c)(1)(iii)(A)(6) by removing the
period at the end and adding in its place ``; and''.
0
i. Add paragraphs (c)(1)(iii)(A)(7) and (c)(1)(iii)(A)(8).
0
j. In paragraph (c)(1)(iii)(B)(1)(i), remove the word ``rescinded'' and
add in its place the words ``temporarily defer''.
0
k. Add paragraph (c)(1)(iii)(B)(3).
0
l. Amend paragraph (c)(2)(iii)(A)(5) by removing the word ``and'' after
the semicolon, and amend paragraph (c)(2)(iii)(A)(6) by removing the
period at the end and adding in its place ``; and'';
0
m. Add new paragraph (c)(2)(iii)(A)(7).
0
n. In paragraph (c)(2)(iii)(B)(1)(i), remove the word ``rescinded'' and
add in its place the words ``temporarily defer''.
0
o. Add paragraph (c)(2)(iii)(B)(3).
0
p-q. Revise paragraph (c)(2)(iii)(D).
0
r. Amend paragraph (c)(3)(iii)(A)(5) by removing the word ``and'' after
the semicolon, and amend paragraph (c)(3)(iii)(A)(6) by removing the
period at the end and adding in its place ``; and''.
0
s. Add new paragraph (c)(3)(iii)(A)(7).
0
t. In paragraph (c)(3)(iii)(B)(1)(i), remove the word ``rescinded'' and
add in its place the words ``temporarily defer''.
0
u. In paragraphs (c)(3)(iii)(B)(1)(ii) and (c)(3)(iii)(B)(2)(iii),
remove the word ``renewing'' and add in its place the word
``participating''.
0
v. Add paragraph (c)(3)(iii)(B)(3).
0
w. Revise paragraph (c)(3)(iii)(D).
0
x. In paragraph (c)(6)(ii)(C)(1), remove the word ``rescinded'' and add
in its place the words ``temporarily defer''.
0
y. Add paragraph (c)(6)(ii)(C)(3).
0
z. In paragraph (c)(7), remove the word ``deny'' and add in its place
the words ``must not approve''.
0
aa. Redesignate paragraphs (k)(3)(iii) and (k)(3)(iv) as paragraphs
(k)(3)(iv) and (k)(3)(v), respectively, and add a new paragraph
(k)(3)(iii).
0
bb. In newly redesignated paragraph (k)(3)(iv), remove the word ``or''
after the semicolon; in newly redesignated paragraph (k)(3)(v), remove
the period at the end and add in its place a semicolon;
0
cc. Add paragraphs (k)(3)(vi) and (vii).
0
dd. In paragraph (m)(4), remove the words ``available enrollment and
[[Page 34570]]
attendance records'' and add in their place the words ``enrollment and
attendance records (except in those outside-school-hours care centers,
at-risk afterschool care centers, and emergency shelters where
enrollment records are not required''.
0
ee. In the first sentence of paragraph (r), add after the word
``institution'' the words ``(other than outside-school-hours care
centers, at-risk afterschool care centers, emergency shelters, and
adult day care centers)''.
The additions and revisions read as follows:
Sec. 226.6 State agency administrative responsibilities.
* * * * *
(b) * * *.
(1) * * *
(xii) Presence on the National disqualified list. If an institution
or one of its principals is on the National disqualified list and
submits an application, the State agency may not approve the
application. If a sponsoring organization submits an application on
behalf of a facility, and either the facility or any of its principals
is on the National disqualified list, the State agency may not approve
the application. In accordance with paragraph (k)(3)(vii) of this
section, in this circumstance, the State agency's refusal to consider
the application is not subject to administrative review.
* * * * *
(xviii) * * * In ensuring compliance with these performance
standards, the State agency should use its discretion in determining
whether the institution's application, in conjunction with its past
performance in CACFP, establishes to the State agency's satisfaction
that the institution meets the performance standards.
(A) * * *
(2) Fiscal resources and financial history. A new institution must
demonstrate that it has adequate financial resources to operate the
CACFP on a daily basis, has adequate sources of funds to continue to
pay employees and suppliers during periods of temporary interruptions
in Program payments and/or to pay debts when fiscal claims have been
assessed against the institution, and can document financial viability
(for example, through audits, financial statements, etc.); and
* * * * *
(C) * * *.
(1) Governing board of directors. Has adequate oversight of the
Program by an independent governing board of directors as defined at
Sec. 226.2;
* * * * *
(2) * * *.
(ii) Presence on the National disqualified list. If, during the
State agency's review of its application, a renewing institution or one
of its principals is determined to be on the National disqualified
list, the State agency may not approve the application. If a renewing
sponsoring organization submits an application on behalf of a facility,
and the State agency determines that either the facility or any of its
principals is on the National disqualified list, the State agency may
not approve the application. In accordance with paragraph (k)(3)(vii)
of this section, in this circumstance, the State agency's refusal to
consider the application is not subject to an administrative review.
(iii) * * *.
(B) * * *.
(1) A statement listing any publicly funded programs in which the
institution and its principals have begun to participate since the
institution's previous application; and
* * * * *
(vii) * * * In ensuring compliance with these performance
standards, the State agency should use its discretion in determining
whether the institution's application, in conjunction with its past
performance in CACFP, establishes to the State agency's satisfaction
that the institution meets the standards.
(A) * * *
(2) Fiscal resources and financial history. A renewing institution
must demonstrate that it has adequate financial resources to operate
the CACFP on a daily basis, has adequate sources of funds to continue
to pay employees and suppliers during periods of temporary
interruptions in Program payments and/or to pay debts when fiscal
claims have been assessed against the institution, and can document
financial viability (for example, through audits, financial statements,
etc.); and
* * * * *
(C) * * *.
(1) Governing board of directors. Has adequate oversight of the
Program by an independent governing board of directors as defined at
Sec. 226.2;
* * * * *
(c) * * *
(1) * * *
(iii) * * *
(A) * * *
(7) That the institution's withdrawal of its application, after
having been notified that it is seriously deficient, will still result
in the institution's formal termination by the State agency and
placement of the institution and its responsible principals and
individuals on the National disqualified list; and
(8) 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 institution and/or
individual.
(B) * * *
(3) If the State agency initially determines that the institution's
corrective action is complete, but later determines that the serious
deficiency(ies) has recurred, the State agency must move immediately to
issue a notice of intent to terminate and disqualify the institution,
in accordance with paragraph (c)(1)(iii)(C) of this section.
* * * * *
(2) * * *
(iii) * * *
(A) * * *
(7) 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 institution and/or
individual.
(B) * * *
(3) If the State agency initially determines that the institution's
corrective action is complete, but later determines that the serious
deficiency(ies) have recurred, the state agency must move immediately
to issue a notice of intent to terminate and disqualify the
institution, in accordance with paragraph (c)(2)(iii)(C) of this
section.
* * * * *
(D) Program payments. If the renewing institution's agreement
expires before the end of the time allotted for corrective action and/
or the conclusion of any administrative review requested by the
participating institution:
(1) The State agency must temporarily extend its current agreement
with the renewing institution and continue to pay any valid unpaid
claims for reimbursement for eligible meals served and allowable
administrative expenses incurred; and
(2) During this period, the State agency may base administrative
payments to the institution on the institution's previous approved
budget, or may base administrative payments to the institution on the
budget submitted by the institution as part of its renewal application;
and
(3) The actions set forth in paragraphs (c)(3)(iii)(D)(1) and
(c)(3)(iii)(D)(2) of this section must be taken either until
[[Page 34571]]
the serious deficiency(ies) is corrected or until the institution's
agreement is terminated, including the period of any administrative
review;
* * * * *
(3) * * *.
(iii) * * *
(A) * * *.
(7) 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 institution and/or
individual.
(B) * * *.
(3) If the State agency initially determines that the institution's
corrective action is complete, but later determines that the serious
deficiency(ies) has recurred, the State agency must move immediately to
issue a notice of intent to terminate and disqualify the institution,
in accordance with paragraph (c)(1)(iii)(C) of this section.
* * * * *
(D) Program payments and extended agreement. If the participating
institution must renew its application, or its agreement expires,
before the end of the time allotted for corrective action and/or the
conclusion of any administrative review requested by the participating
institution:
(1) The State agency must temporarily extend its current agreement
with the participating institution and continue to pay any valid unpaid
claims for reimbursement for eligible meals served and allowable
administrative expenses incurred; and
(2) During this period, the State agency may base administrative
payments to the institution on the institution's previous approved
budget, or may base administrative payments to the institution on the
budget submitted by the institution as part of its renewal application;
and
(3) The actions set forth in paragraphs (c)(3)(iii)(D)(1) and
(c)(3)(iii)(D)(2) of this section must be taken either until the
serious deficiency(ies) is corrected or until the institution's
agreement is terminated, including the period of any administrative
review;
* * * * *
(6) * * *
(ii) * * *
(C) * * *
(3) If FNS initially determines that the institution's corrective
action is complete, but later determines that the serious
deficiency(ies) has recurred, FNS will move immediately to issue a
notice of intent to terminate and disqualify the institution, in
accordance with paragraph (c)(6)(ii)(D) of this section.
* * * * *
(k) * * *
(3) * * *.
(iii) State agency determination that corrective action is
inadequate. A determination by the State agency that the corrective
action taken by an institution or by a responsible principal or
individual does not completely and permanently correct a serious
deficiency;
* * * * *
(vi) State agency or FNS decision regarding removal from the
National disqualified list. A determination, by either the State agency
or by FNS, that the corrective action taken by an institution or a
responsible principal or individual is not adequate to warrant the
removal of the institution or the responsible principal or individual
from the National disqualified list; or
(vii) State agency's refusal to consider an application submitted
by an institution or facility on the National disqualified list. The
State agency's refusal to consider an institution's application when
either the institution or one of its principals is on the National
disqualified list, or the State agency's refusal to consider an
institution's submission of an application on behalf of a facility when
either the facility or one of its principals is on the National
disqualified list.
* * * * *
0
5. Section 226.7(g) is amended by adding a new fifth and sixth sentence
to read as follows:
Sec. 226.7 State agency responsibilities for financial management.
* * * * *
(g) * * * If the institution does not intend to use non-CACFP funds
to support any required CACFP functions, the institution's budget must
identify a source of non-Program funds that could be used to pay
overclaims or other unallowable costs. If the institution intends to
use any non-Program resources to meet CACFP requirements, these non-
Program funds should be accounted for in the institution's budget, and
the institution's budget must identify a source of non-Program funds
that could be used to pay overclaims or other unallowable costs. * * *
* * * * *
Sec. 226.10 [Amended]
0
6. Section 226.10(c) is amended in paragraph (c)(1) by adding the word
``and'' after the semicolon at the end of the sentence, in paragraph
(c)(2) by removing the semicolon and the word ``and'' and adding a
period in their place, and by removing paragraph (c)(3).
0
7. Section 226.11(c)(1) is amended by removing the word ``institution''
both times it appears and by adding in its place the word ``center'',
and by adding a new last sentence to read as follows:
Sec. 226.11 Program payments for centers.
* * * * *
(c) * * *.
(1) * * * In the case of a sponsoring organization of family day
care homes, each State agency must base reimbursement to each approved
family day care home on daily meal counts recorded by the provider.
* * * * *
Sec. 226.14 [Amended]
0
8. In Sec. 226.14, paragraph (a) introductory text is amended in the
fourth sentence by removing the words ``with the initial demand for
remittance'' and by adding in their place the words ``with the date
stipulated in the State agency's demand letter, or 30 days after the
date of the demand letter, whichever date is later''.
Sec. 226.15 [Amended]
0
9. Section 226.15 is amended in the first sentence of paragraph (e)(14)
by adding the word ``annual'' after the word ``at'' and in paragraph
(o) by adding the words ``(other than outside-school-hours care
centers, at-risk afterschool care centers, emergency shelters, and
adult day care centers)'' after the words ``Each institution''.
0
10. Section 226.16 is amended as follows:
0
a. Paragraph (d)(4)(ii) by removing the words ``enrollment and/or
attendance records'' and adding in their place ``enrollment and
attendance records (except in those outside-school-hours care centers,
at-risk afterschool care centers, and emergency shelters where
enrollment records are not required)'' and by removing the word
``children'' both times it appears, and by adding the word
``participants'' in its place.
0
b. Revise paragraph (d)(4)(iv).
0
c. Paragraph (l)(3)(i)(E) by removing ``institution's'' and adding in
its place ``sponsoring organization''.
0
d. Paragraph (l)(3)(i)(F) by removing ``institution'' the first time it
appears and adding in its place ``sponsoring organization'' and by
removing the words ``State institution'' and adding in their place the
words ``sponsoring organization''.
0
e. Paragraph (l)(3)(ii) by removing ``rescinded'' and adding in its
place
[[Page 34572]]
``temporarily defer'' and by adding a new sentence to the end of the
paragraph.
The revision and addition read as follows:
Sec. 226.16 Sponsoring organization provisions.
* * * * *
(d) * * *
(4) * * *
(iv) Averaging of required reviews. If a sponsoring organization
conducts one unannounced review of a facility in a year and finds no
serious deficiencies (as described in paragraph (l)(2) of this section,
regardless of the type of facility), the sponsoring organization may
choose not to conduct a third review of the facility that year, and may
make its second review announced, provided that the sponsoring
organization conducts an average of three reviews of all of its
facilities that year, and that it conducts an average of two
unannounced reviews of all of its facilities that year. When the
sponsoring organization uses this averaging provision, and a specific
facility receives two reviews in one review year, its first review in
the next review year must occur no more than nine months after the
previous review.
* * * * *
(l) * * *
(3) * * *
(ii) Successful corrective action. * * *. However, if the
sponsoring organization accepts the provider's corrective action, but
later determines that the corrective action was not permanent or
complete, the sponsoring organization must then propose to terminate
the provider's Program agreement and disqualify the provider, as set
forth in paragraph (l)(3)(iii) of this section.
* * * * *
0
11. Section 226.18 is amended by revising paragraphs (a)(1) and (b)(1)
to read as follows:
Sec. 226.18 Day care home provisions.
* * * * *
(a) * * *
(1) It receives title XX funds for providing child care; or
* * * * *
(b) * * *
(1) The right of the sponsoring organization, the State agency, the
Department, and other State and Federal officials to make announced or
unannounced reviews of the day care home's operations and to have
access to its meal service and records during normal hours of
operation.
* * * * *
Sec. 226.23 [Amended]
0
12. Section 226.23 is amended by adding to the first sentence of
paragraph (d) the words ``public release'' after the word ``a'' the
first time it appears.
Sec. 226.26 [Amended]
0
13. Section 226.26 is amended in paragraph (g) by removing the words
``550 Kearney Street, Room 400, San Francisco, California 94108'', and
adding in their place the words ``90 Seventh Street, Suite 10-100, San
Francisco, California 94103-6701''.
Dated: May 25, 2011.
Kevin Concannon,
Under Secretary for Food, Nutrition, and Consumer Services.
[FR Doc. 2011-13623 Filed 6-10-11; 8:45 am]
BILLING CODE 3410-30-P