[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Rules and Regulations]
[Pages 10085-10099]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03241]


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LEGAL SERVICES CORPORATION

45 CFR Parts 1606, 1614, 1618, and 1623


Limited Reductions of Funding, Termination, and Debarment 
Procedures; Recompetition; Enforcement; Suspension Procedures; Private 
Attorney Involvement

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: This final rule amends the Legal Services Corporation's 
regulations on enforcement procedures through the addition of options 
for limited reductions of funding, expansion of non-audit based 
suspensions for up to ninety days, and immediate special grant 
conditions for compliance issues. The final rule provides updates and 
enhancements to the rules regarding enforcement generally, 
terminations, debarments, and suspensions. It also provides a technical 
conforming update to a cross-reference in the private attorney 
involvement regulation.

DATES: Effective Date: This rule is effective as of March 15, 2013.

FOR FURTHER INFORMATION CONTACT: Mark Freedman, Senior Assistant 
General Counsel, Office of Legal Affairs, Legal Services Corporation, 
3333 K Street NW., Washington, DC 20007; 202-295-1623 (phone); 202-337-
6519 (fax); mfreedman@lsc.gov.

SUPPLEMENTARY INFORMATION: 

I. Procedural Background

    On January 31, 2012, the Legal Services Corporation (LSC) published 
in the Federal Register at 77 FR 4749 a Notice of Proposed Rulemaking 
(NPRM) proposing changes to LSC's enforcement mechanisms. On August 7, 
2012, LSC published in the Federal Register at 77 FR 46995 a Further 
Notice of Proposed Rulemaking (FNPRM) expanding on the NPRM. LSC is now 
publishing final rules to conclude this rulemaking.
    LSC undertook this rulemaking to add three new enforcement options 
to the LSC regulations regarding grants for the provision of legal 
assistance:
    (1) A new ``limited reduction of funding'' that enables LSC to 
respond quickly to instances of substantial violation of LSC 
requirements through funding reductions of less than five percent using 
more simple procedures than for terminations of five percent or 
greater;
    (2) suspensions for non-audit based compliance issues that could 
last for up to ninety days, an increase from thirty days in the 
previous rule; and
    (3) special grant conditions regarding compliance issues that LSC 
could add immediately to a current grant.

    In the course of the rulemaking, LSC developed new administrative 
procedures to enhance the opportunities for informal resolution when 
LSC proposes to undertake a limited reduction of funding, a termination 
in whole or in part, or a debarment. The rule already provided for 
informal resolution through an informal conference with opportunities 
for settlement or compromise. The rule has enhanced the informal 
conference and added procedures to provide for resolution of the matter 
through prompt corrective action agreements, when appropriate.
    This rulemaking also clarifies existing regulations and makes 
conforming changes to the rules in order to accommodate the new process 
and procedures indicated. All of the comments and related memos 
submitted to the LSC Board regarding this

[[Page 10086]]

rulemaking are available in the open rulemaking section of LSC's Web 
site at www.lsc.gov.

http://www.lsc.gov/about/regulations-rules/open-rulemaking

    After the effective date of the rule, those materials will appear 
in the closed rulemaking section.

http://www.lsc.gov/about/regulations-rules/closed-rulemaking

II. General Authorities, Impetus for Rulemaking, and Existing 
Regulatory Compliance Mechanisms

    The LSC Act provides general authority to the Corporation ``to 
insure the compliance of recipients and their employees with the 
provisions of [the Act] and the rules, regulations, and guidelines 
promulgated pursuant to [the Act].'' 42 U.S.C. 2996e(b)(1)(A). LSC's 
principal regulation discussing general enforcement authority and 
procedures is the Enforcement Procedures regulation at 45 CFR part 
1618. LSC uses a variety of enforcement tools, formal and informal, to 
ensure compliance. Among these are informal consultations and 
compliance training, on-site Case Service Report/Case Management System 
reviews, the imposition of Required Corrective Actions (RCAs), and the 
imposition of Special Grant Conditions (SGCs) at the beginning of a 
grant award period or at grant renewal. Several enforcement tools 
involving suspending or reducing funding to a recipient to address 
significant non-compliance are provided in LSC-adopted regulations. LSC 
has adopted grant termination procedures (45 CFR part 1606) that 
provide for the termination of funding in whole or part in cases of a 
recipient's substantial noncompliance with LSC statutory or regulatory 
requirements and other policies, instructions, or grant terms and 
conditions. LSC has also adopted suspension procedures (45 CFR part 
1623) and disallowed-cost procedures (45 CFR part 1630). Lastly, part 
1606 provides authority for LSC to debar recipients from eligibility to 
receive future grants.
    LSC amended the part 1606 termination procedures in 1998 and 
created a separate provision for reductions of funding of less than 
five percent, which are not considered terminations and not subject to 
the full set of procedures that apply to terminations. The 1998 
amendments to the rule required, however, that to reduce funding to a 
recipient by less than five percent, LSC would have to establish 
additional procedures by rulemaking. 45 CFR 1606.2(d)(2)(v). LSC 
commenced this rulemaking to establish those procedures.
    The majority of LSC recipients are in substantial compliance with 
LSC requirements most of the time. When non-compliance occurs, 
recipients almost always work diligently and cooperatively with LSC 
staff to come promptly into compliance, but there have been exceptions 
and situations in which LSC has felt the need for the kind of 
enforcement tools covered by this rulemaking.
    This rulemaking also addresses a problem in the previous rules 
regarding LSC's ability to take timely actions. LSC can impose 
suspensions after as little as eleven days of process, but the previous 
rule limited suspensions to thirty days (other than audit-based 
suspensions). The next enforcement option available to LSC was 
terminations, which require five months or more of procedures if the 
recipient uses all available levels of review. Similarly, disallowed 
costs may be available to recover improperly spent funds, although that 
process is designed for recovery rather than enforcement and sanction. 
Also, disallowed costs can take over five months to complete (except 
for disallowed costs of less than $2,500). This rulemaking provides for 
suspensions of funding for up to ninety days, for limited reductions of 
funding that can be implemented in approximately eighty days, and for 
special grant conditions that can be added immediately to an existing 
grant.
    This rulemaking also addresses concerns expressed by the Government 
Accountability Office (GAO) in its report, Legal Services Corporation: 
Improved internal controls needed in grants management and oversight, 
GAO-08-37 (December 2007). In that report, the GAO opined that LSC has 
``limited options for sanctioning or replacing poor-performing 
recipients.'' GAO-08-37 at 17. The existing enforcement mechanisms 
available to LSC are best suited to situations involving numerous and/
or very significant violations that merit severe actions such as 
terminations, or to situations in which compliance issues are technical 
or minor and can be resolved through corrective actions, grant 
conditions, and similar actions. LSC has not had enforcement mechanisms 
well suited to violations or compliance issues in an intermediate range 
(e.g., material but not extreme, or multiple but not profuse) in 
situations where a recipient does not voluntarily take corrective 
action in a timely manner. Furthermore, disallowed costs are not a good 
substitute for an intermediate range enforcement mechanism. The amount 
of funds in question is not necessarily proportional to the severity of 
the violation. Minor violations could have large associated costs while 
major violations could have relatively small associated costs.
    LSC significantly revised LSC's enforcement rules in 1998 in 
response to Congressional changes to the governing law. Prior to 1996, 
section 1011 of the LSC Act provided minimum process requirements for 
suspensions over thirty days, terminations, and denials of refunding 
that included hearing rights and review by independent hearing 
examiners. 42 U.S.C. 2996j. LSC implemented these statutory 
requirements in 1976 and 1978 through the original enforcement 
regulations: part 1618 (General enforcement thresholds), part 1606 
(Terminations and denials of refunding), and part 1623 (Suspensions). 
In 1996, Congress suspended section 1011 via riders to the annual LSC 
appropriation, which have been reincorporated every year thereafter, 
including some modifications in 1998.

    For the purposes of the funding provided in this [FY 1996 
Appropriations] Act, rights under sections 1007(a)(9) [interim funding 
for refunding applicants] and 1011 of the Legal Services Corporation 
Act (42 U.S.C. 2996f(a)(9) and 42 U.S.C. 2996j) shall not apply.

Pub. L. 104-134, section 503(f), 110 Stat. 1321 (1996) (FY 1996); Pub. 
L. 104-208, section 501(b), 110 Stat. 3009 (1996) (FY 1997) 
(reiterating the FY 1996 language). For FY 1998, Congress reiterated 
the FY 1996 language and further elaborated that LSC ``may terminate'' 
a grant or contract if LSC finds ``that the recipient has failed to 
comply with any requirement of the Legal Services Corporation Act (42 
U.S.C. 2996 et seq.), this [appropriations] Act, or any other 
applicable law relating to funding for the Corporation * * *.'' Pub. L. 
105-119, sections 501(b) and (c), 111 Stat. 2440 (1997) (FY 1998). 
Congress has incorporated that language by reference in every annual 
LSC appropriation since 1998. Congress also mandated in 1996 and 
thereafter that LSC have the option to suspend funding to a recipient, 
in full or in part, if the recipient fails to have an acceptable audit. 
Audit-based suspensions last until completion of an acceptable audit. 
Pub. L. 104-134, section 509(c), 110 Stat. 1321 (1996) (FY 1996) 
(incorporated by reference thereafter).
    LSC implemented these statutory changes by revising 45 CFR parts 
1606 and 1623. 63 FR 64636 (1998) (parts

[[Page 10087]]

1606 and 1625), 63 FR 64646 (1998) (part 1623). LSC explained that:


the new law in the appropriations act emphasizes a congressional 
intent to strengthen the ability of the Corporation to ensure that 
recipients are in full compliance with the LSC Act and regulations 
and other applicable law. See H. Rep. No. 207, 105th. Cong., 1st 
Sess. 140 (1997). Accordingly, under this rule, the hearing 
procedures in part 1606 have been streamlined. The changes are 
intended to emphasize the seriousness with which the Corporation 
takes its obligation to ensure that recipients comply with the terms 
of their grants and provide quality legal assistance. At the same 
time, the Corporation intends that recipients be provided notice and 
a fair opportunity to be heard before any termination or debarment 
action is taken.

63 FR at 64637 (preamble to revised parts 1606 and 1625). LSC further 
elaborated in the preamble to the rulemaking that:

[t]he legislative intent underlying Sections 501(b) and (c) of the 
Corporation's FY 1998 appropriations act was to enable the 
Corporation to streamline its due process procedures in order to 
ensure that recipients are in full compliance with LSC grant 
requirements and restrictions.

Id. at 64640. LSC carefully balanced the concerns for ongoing client 
services and recipient rights with the clear direction from Congress to 
enhance accountability and oversight of recipients' use of LSC funds. 
The current rulemaking is designed to build upon, but not fundamentally 
alter, the rationale for the 1998 rulemaking.
    The changes in this final rule reflect LSC's obligation to 
safeguard public funds appropriated by Congress for civil legal aid by 
ensuring compliance with LSC rules, restrictions, and requirements. 
These additions to the enforcement mechanisms are consistent with LSC's 
understanding of Congress's intent to strengthen LSC's enforcement 
mechanisms, while carefully accounting for the importance of continued 
delivery of legal services and the rights of LSC recipients.

III. Summary of Existing Compliance Tools Not Covered by the 
Regulations

    LSC uses a variety of non-regulation based tools to track and 
ensure compliance. Among these are informal consultations and 
compliance training, on-site Case Service Report/Case Management System 
reviews, the imposition of Required Corrective Actions (RCAs), and the 
imposition of Special Grant Conditions (SGCs) at the beginning of a 
grant year.
    LSC relies primarily on RCAs to remedy compliance problems. The LSC 
Office of Compliance and Enforcement (OCE) estimates that in 
approximately 90 percent of cases in which RCAs are imposed, recipients 
implement the RCAs on a timely and satisfactory basis. In approximately 
ten percent of the cases, however, a recipient fails to implement the 
required corrective actions in a timely or satisfactory manner. In some 
instances in which recipients have failed to implement RCAs in a timely 
or satisfactory manner, LSC has imposed SGCs. Although SGCs may be 
substantively identical to the measures contained in RCAs, SGCs elevate 
the matter by formally incorporating the conditions into the 
recipient's grant documents and ensuring that the recipient's Board 
Chair, who has to sign the SGCs, is aware of an ongoing problem. In 
recent years, LSC has also used short-term funding to encourage 
compliance by providing a grant or successive grants for less than a 
year (e.g., month-to-month).

IV. Summary of Procedures for Compliance Tools

    Members of the LSC Board raised concerns that the parallel and 
interrelated procedures for different enforcement mechanisms could be 
confusing. For clarification, the table below summarizes the 
enforcement actions provided for in the rules and the respective 
procedures for each. This table uses the revised nomenclature provided 
in the final rule. The prior suspension and termination rules contained 
inconsistencies in the terms used for each stage of the process; those 
terms have been standardized in the final rule.

----------------------------------------------------------------------------------------------------------------
          Limited reductions                 Termination               Debarment                Suspension
----------------------------------------------------------------------------------------------------------------
Sec.   1606.2, Less than 5 Percent...  Sec.   1606.2, 5         Sec.   1606.2..........  Sec.   1623.2
                                        percent or more.
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                                                Type of Violation
----------------------------------------------------------------------------------------------------------------
Substantial violation,...............  Substantial violation,   .......................  Substantial violation,
Sec.   1606.2........................   Sec.   1606.2.                                    Sec.   1623.3(a), Sec.
                                                                                            1606.2.
                                       Substantial failure,     .......................  .......................
                                        Sec.   1606.3(a)(2).
                                       .......................  Good cause, Sec.         .......................
                                                                 1606.4(b).
                                       .......................  .......................  Prompt action is
                                                                                          necessary, Sec.
                                                                                          1623.3(a).
                                       .......................  .......................  Failure of an audit,
                                                                                          Sec.   1623.3(b).
----------------------------------------------------------------------------------------------------------------
                                                    Procedure
----------------------------------------------------------------------------------------------------------------
Preliminary Determination, Sec.        Preliminary              Preliminary              Proposed Determination,
 1606.6(a).                             Determination, Sec.      Determination, Sec.      Sec.   1623.4(b).
                                        1606.6(a).               1606.6(a).
Compliance Agreement (if available     Compliance Agreement     Compliance Agreement     Prompt Corrective
 and agreed to), Sec.   1606.7(a).      (if available and        (if available and        Action, Sec.   1623.2.
                                        agreed to), Sec.         agreed to), Sec.
                                        1606.7(a).               1606.7(a).
Submission of Written Materials in     Submission of Written    Submission of Written    Submission of Written
 Opposition to the Preliminary          Materials in             Materials in             Materials in
 Determination (if no compliance        Opposition to the        Opposition to the        Opposition to the
 agreement), Sec.   1606.7(b).          Preliminary              Preliminary              Proposed
                                        Determination (if no     Determination (if no     Determination, Sec.
                                        compliance agreement),   compliance agreement),   1623.4(f).
                                        Sec.   1606.7(b).        Sec.   1606.7(b).
Informal Conference, Sec.   1606.7(b)- Informal Conference,     Informal Conference,     Informal Meeting, Sec.
 (e).                                   Sec.   1606.7(b)-(e).    Sec.   1606.7(b)-(e).     1623.4(b)-(f).
Draft Final Decision, Sec.             Draft Final Decision,    Draft Final Decision,    Final determination,
 1606.7(f).                             Sec.   1606.7(f).        Sec.   1606.7(f).        Sec.   1623.4(f).
                                       Hearing, Sec.   1606.8.  Hearing, Sec.   1606.8.
                                       Recommended Decision,    Recommended Decision,
                                        Sec.   1606.9.           Sec.   1606.9.

[[Page 10088]]

 
Review by the LSC President, Sec.      Review by the LSC        Review by the LSC        Review by the LSC
 1606.10.                               President, Sec.          President, Sec.          President (for a
                                        1606.10.                 1606.10.                 suspension lasting
                                                                                          more than 30 days not
                                                                                          based on an audit
                                                                                          failure), Sec.
                                                                                          1623.4(h).
Final Decision, Sec.   1606.10(e)....  Final Decision, Sec.     Final Decision, Sec.     Suspension Appeal
                                        1606.10(e).              1606.10(e).              Decision, Sec.
                                                                                          1623.4(h)(3).
----------------------------------------------------------------------------------------------------------------

V. Commentary on Rulemaking Process and Comments Received

    LSC received nineteen comments on the NPRM and eight comments on 
the FNPRM. All of the comments and LSC's analysis of them are posted on 
the rulemaking page of www.lsc.gov.http://www.lsc.gov/about/
regulations-rules
    The most extensive comments on both proposals were submitted by the 
LSC Office of Inspector General (OIG), the American Bar Association 
Standing Committee on Legal Aid and Indigent Defendants (SCLAID), and 
the National Legal Aid and Defender Association (NLADA). Colorado Legal 
Services and the Northwest Justice Project (NJP) also submitted 
detailed comments. The other comments generally endorsed the NLADA 
comments. Only the OIG fully supported the rulemaking, although the OIG 
recommended removing any time limit on suspensions and expressed 
concerns that the requirements for the new special grant conditions 
were too restrictive. SCLAID did not oppose the rulemaking, but it 
strongly recommended significant enhancements to standards and 
procedures similar to those recommended by NLADA. NLADA, and most of 
the other comments, opposed the rulemaking and recommended significant 
enhancements to standards and procedures if it proceeded.

a. New Compliance Tools

    The NPRM proposed a new set of procedures for limited reductions of 
funding based on the existing procedures for suspensions, which provide 
for one level of review through an informal meeting. In response to 
comments that this did not provide sufficient process, LSC revised the 
proposal in the FNPRM in two ways. First, the same process is used at 
the initial stage for terminations and for limited reductions. 
Thereafter, limited reductions may be appealed to the LSC President 
using procedures based on the disallowed cost appeal procedures in 45 
CFR part 1630. Some comments also raised similar concerns for 
suspensions, especially if they could last for up to ninety days. In 
response, the final rule also adds the same appeal process for 
suspensions once they extend beyond thirty days (thirty-day suspensions 
have always been permitted without further appeal). The NPRM proposed 
allowing LSC to impose SGCs immediately during a grant term rather than 
waiting for a new grant award or renewal. The OIG's comment expressed 
concern that the SGC language might appear to constrain some of LSC's 
authority, and other comments indicated concerns that the SGC language 
was too vague. In the FNPRM, LSC revised the language to clarify that 
it applies to the kinds of situations in which LSC has investigated a 
matter and developed RCAs. LSC may immediately impose SGCs that 
incorporate those RCAs into the grant documents.

b. Standards and Procedures

    The comments that recommended enhancements in the standards and 
procedures were not limited to the enforcement actions in the proposed 
rulemaking. Rather, they recommended revisions that would significantly 
change the rules as they have existed since 1998. In many cases, they 
would return to the pre-1998 standards, such as requiring non-LSC, 
independent hearing examiners, or exceed those standards, such as an 
increased intent requirement and a safe harbor for reliance on 
reasonable alternate interpretations of the LSC rules. LSC commenced 
this rulemaking to enhance enforcement options within the standards and 
procedures adopted in the 1998 rulemaking to respond to Congress's 
changes in the enforcement requirements of the LSC Act. The final rule 
does not adopt the many suggestions in the comments to change that 
carefully constructed enforcement framework. The OIG also suggested 
adding a requirement for publication of all final decisions to address 
due process concerns in the comments through transparency for those 
final actions. Rather than incorporating that suggestion as a 
regulatory requirement, LSC will address it in the policies and 
procedures for enforcement actions.

c. Informal Conference and Prompt Corrective Actions

    The final rule makes a number of revisions to increase the focus on 
attempts to resolve the violation at or before the informal conference. 
The final rule adds to the notice of the preliminary determination a 
requirement for summarizing prior attempts at resolution. The previous 
rule required that the same LSC employee who issued the notice would 
hold the informal conference. The final rule permits LSC to designate 
any senior employee to hold the informal conference, which provides LSC 
with more flexibility to set a dispute resolution tone. The final rule 
also adds ``implementation of corrective actions'' as an example of the 
types of settlement or compromise envisioned for the informal 
conference.
    The final rule includes a new alternative strategy for informal 
resolution prior to the implementation of an enforcement action. LSC 
has the option of notifying the recipient that it can avoid the 
enforcement action through corrective action, if appropriate. The 
recipient may elect to accept that corrective action through timelines 
and implementation plans acceptable to LSC and documented in a 
compliance agreement; LSC could hold the enforcement action in abeyance 
so long as the recipient honors the agreement. If the recipient 
completes the corrective actions to LSC's satisfaction (in both 
substance and timeliness), then LSC would withdraw the preliminary 
determination without implementing the enforcement action. If LSC at 
any time decides that the recipient has failed to adhere to the agreed-
upon corrective action plan, including failing to act in accordance 
with the established timeline, then LSC could continue with the 
enforcement process.

d. Suspension Appeals

    In response to the comments received, LSC has included in the final 
rule an appeals process for suspensions that last over thirty days. The 
appeals process is based on the appeals process for limited reductions 
of funding. As with suspension decisions, the timeframe is short to 
enable LSC to resolve the appeal quickly. Unlike other enforcement 
actions, suspensions are enforced during the appeal period.

[[Page 10089]]

e. Scope of Enforcement Action

    The final rule discusses the scope of partial terminations and 
limited reductions of funding by using the language of the previous 
rule regarding the level of financial assistance provided by the 
Corporation to a recipient pursuant to a grant or contract. 45 CFR 
1600.1 defines ``financial assistance'' as the ``annualized funding 
from the Corporation granted under section 1006(a)(1)(A) for the direct 
delivery of legal assistance to eligible clients.'' These grants are 
for the provision of general-purpose legal assistance in a geographic 
area or to a specific population. Currently, LSC provides these grants 
for three types of service areas: basic field, Native American, and 
migrant. When LSC awards multiple service areas to a recipient (e.g., 
both a basic field service area and migrant service area), it typically 
does so through a single grant or contract. Part 1606 enforcement 
actions affect the level of financial assistance, which will include 
all of the 1006(a)(1)(A) service areas.
    Other LSC grants, under sections 1006(a)(1)(B) or (a)(3) of the LSC 
Act, are not subject to these procedures. Rather, LSC may provide for 
terminations or other enforcement actions for those grants pursuant to 
policies and procedures specific to those grant programs. For example, 
funding for Technology Initiative Grants is project-based and 
specifically tied to acquisitions, tasks, and timelines.
    The final rule implements the NPRM provision that limited 
reductions apply only to one grant year. The final rule continues the 
provisions of the previous rule that a partial termination 
presumptively applies to only one grant year, but that LSC can specify 
a longer period up to the entire funding term.

VI. Section-by-Section Analysis

Part 1606--Termination, Limited Reduction of Funding, and Debarment 
Procedures; Recompetition

1606.1 Purpose
    Section 1601.1(b) contains two additions. First, the phrase 
``proportional to the proposed action'' is added to modify ``timely and 
fair due process procedures.'' This addition corresponds to the 
addition of procedures for limited reductions of funding of less than 
five percent, which do not include a hearing before a hearing officer. 
The rule provides two sets of overlapping procedures, one for 
debarments and terminations of funding (five percent and greater) and 
the other for limited reductions of funding (less than five percent). 
Second, the phrase ``or to impose a limited reduction of funding'' is 
added to the list of remedies available under the rule.
    A new Sec.  1601.1(d) reflects a reorganization of the rule in the 
interest of clarity. It relocates the previous Sec.  1606.2(c), without 
change, which described provisions of other LSC regulations that 
involve funding changes but are not subject to the termination 
procedures. This relocation emphasizes and clarifies that the indicated 
situations are not subject to the actions under part 1606. A 
corresponding change to matching language in 45 CFR part 1614 is 
included in this final rule.
1606.2 Definitions
    This section has substantive and structural changes. All of the 
definitions now appear alphabetically.
    The term ``Corporation'' is defined in 45 CFR 1600.1 to mean the 
Legal Services Corporation. The definition has been expanded here to 
provide that decisions of the Corporation, such as initiating a part 
1606 proceeding, must be made by an individual acting at the level of, 
or senior to, an LSC office director. A deputy director could make 
these decisions if he or she is acting with the authority of the 
director, such as when the director's position is vacant, or the 
director is unavailable due to an illness and the deputy director has 
taken over the relevant responsibilities. The FNPRM had proposed that 
decisions could be made by deputy directors. The final rule narrows the 
circumstances in which deputy directors can act, in part responding to 
concerns raised by a commenter.
    ``Days'' is added as a defined term to mean calendar days as 
computed under the Federal Rules of Civil Procedure, unless business 
days are specified, in which case Saturdays, Sundays, and legal 
holidays recognized under those rules are excluded. The rule had not 
previously defined days, which could have caused confusion regarding 
deadlines. In particular, some deadlines were five days, which in some 
cases could be as little as two business days. All time periods below 
fifteen days are changed in the rule to business days.
    ``Funding term'' is added as a defined term to mean the time period 
for an award of financial assistance for a service area as that term is 
used in grant-making. The funding term is the longest period between 
competitions for a service area. Under 45 CFR part 1634, LSC can award 
a section 1006(a)(1)(A) grant or contract for up to five years, which 
is the funding term. LSC provides section 1006(a)(1)(A) awards for a 
maximum funding term, which is normally no greater than three years. 
Within the funding term, LSC provides funding for grant award periods 
of no more than one year, which can be renewed for additional grant 
award periods.
    ``Limited reduction of funding'' is added as a defined term for 
reductions of funding of less than five percent, which the previous 
rule excluded from the definition of terminations. Unlike partial 
terminations, limited reductions apply only to the current grant year.
    ``LSC requirements'' is added as a defined term in 45 CFR part 1618 
to capture the full list of statutory, regulatory, and other 
requirements that apply to LSC grants or contracts for financial 
assistance under the LSC Act. Parts 1606 and 1623 of the previous rules 
repeatedly referenced the list of sources specified in this definition. 
For both clarity and consistency, the term is now defined using the 
language appearing in the previous rules and is cross-referenced in 
both parts 1606 and 1623.
    ``Receipt'' of materials is added as a defined term to provide 
clarity in calculating deadlines under the rule. Formal service of 
process is not required. Service must be sufficient to ensure that both 
LSC and the recipient are fully aware of the proceedings and the 
actions taken by both entities at each stage.
    The definition of ``recipient'' is functionally unchanged from the 
previously published version of this rule, which reiterated the 
definition at 45 CFR 1600.1. The final rule replaces that reiteration 
with a simple cross-reference.
    The term ``substantial noncompliance'' is clarified in this rule. 
The term is defined to mean either a substantial violation of the LSC 
requirements or a substantial failure to provide high quality, 
economical, and effective legal assistance.
    A definition of ``substantial violation'' has been added using the 
functional definition from Sec.  1606.3(a) without any material 
modifications that would change its meaning or application from the 
previous rule.
    The definition of ``termination'' has been updated to reflect new 
definitions in the rule and relocation of the cross-references to other 
regulations; no material modifications that would change its meaning or 
application from the previous rule have been made.
    A definition of ``violation'' has been added to make clear that the 
scope of violations at issue under this rule is limited to the LSC 
requirements.

[[Page 10090]]

1606.3 Grounds for a Termination or a Limited Reduction of Funding
    The title of this section is updated to add limited reductions of 
funding.
    Section 1606.3(a) has minor nomenclature changes to conform to the 
new definitions and terms, including the new definition of 
``substantial violation,'' but without any material modifications that 
would change its meaning or application from the previous rule. The 
definition of a ``substantial failure'' remains in Sec.  1606.3(a)(2) 
with two adjustments: 1) the LSC appropriations have been added as a 
measure of performance, and 2) the term ``guidance'' is changed to 
``guidelines or instructions'' consistent with the use of those terms 
in lieu of ``guidance'' throughout the previous and revised rules.
    Section 1606.3(b) is added to specify that LSC may impose a limited 
reduction of funding for substantial violations, but not substantial 
failures, when LSC determines that a termination, in whole or in part, 
is not warranted. As with terminations, LSC can base a limited 
reduction of funding only on substantial violations occurring within 
the past five years.
    Section 1606.3(c), the former paragraph (b), is changed to add 
limited reductions of funding. The requirements for a ``substantial 
violation'' are moved, without material modifications that would change 
their meaning or application from the previous rule, to the new 
definition of ``substantial violation.'' As proposed in the NPRM those 
same criteria apply to the determination of the magnitude of a proposed 
termination or limited reduction of funding. LSC stated in the NPRM 
that consideration of these factors was already implicit in 
considerations of how much funding should be affected by a proposed 
enforcement mechanism. SCLAID's comments recommended that LSC add an 
entire new section and criteria for determinations of magnitude, 
including the impact on client services and other funding for the 
recipient. The final rule does not do so because the magnitude of an 
enforcement action should relate directly to the magnitude of the 
violation and deterrence of future violations. LSC has general 
discretion to consider the totality of the situation when deciding how 
to proceed with an enforcement action to foster ongoing compliance 
while minimizing disruption of client services.
1606.4 Grounds for Debarment
    This section does not include any material modifications that would 
change its meaning or application from the previous rule. All changes 
are technical adjustments.
    The language of section 1606.4(b)(4) is modified to clarify that it 
applies to any arrangements that are covered by debarments, not only 
subgrants or subcontracts, and that reference to a debarred ``IPA,'' 
which is undefined in the previous rule, means any debarred independent 
public accountant or other auditor.
    Last, the reference to the ``effective date of this rule'' in Sec.  
1606.4(b)(5) is changed to December 23, 1998, the effective date of the 
previous rule.
1606.5 Procedures
    The heading and Sec.  1606.5(a) are updated to remove the limited 
reference to terminations and debarments in order to include limited 
reductions of funding. These procedures are available for, and apply 
to, all part 1606 enforcement mechanisms.
    A new Sec.  1606.5(b) is added to correspond to the new level of 
review in Sec.  1606.10 for limited reductions of funding. The LSC 
President, or another senior LSC employee, will hear any final appeal 
of a limited reduction draft final decision. Those procedures are 
modeled on the 45 CFR part 1630 final appeal procedures for disallowed 
costs. The person hearing the appeal must have not been involved in the 
prior proceedings. The final rule requires that LSC designate the 
person to hear the final appeal before LSC considers whether or not to 
proceed with a preliminary determination for a limited reduction of 
funding.
1606.6 Preliminary Determination and Final Decision
    The title of this section is updated to include reference to a 
final decision, which may be issued under this section if the recipient 
does not request any review of the preliminary determination. The 
language of this section is updated for clarity and to include limited 
reductions of funding, without material modifications that would change 
its meaning or application from the previous rule.
    Section 1606.6(a)(6) is added to explicitly provide an option for 
LSC to specify corrective action that could resolve the situation 
without a termination or limited reduction of funding. This language is 
based on the previous suspension rule at 45 CFR part 1623; it does not 
appear in the previous part 1606 rule. LSC is not required to provide 
the recipient with a corrective action option, and the recipient does 
not have a right to avoid a termination or limited reduction of funding 
through corrective actions unless explicitly authorized by LSC. This 
language provides a clear option for resolving these situations through 
corrective action if LSC determines that doing so would be sufficient 
pursuant to the new Sec.  1606.7(a).
    Section 1606.6(a)(7) is added to require that the preliminary 
determination summarize any prior attempts at resolution of the 
situation. The addition of this paragraph does not require LSC to seek 
resolution prior to initiating a part 1606 action. Rather, when LSC and 
the recipient have attempted to resolve the situation, the rule will 
now require that LSC summarize those attempts and make them part of the 
administrative record.
    References to a ``designated employee'' in this section are 
replaced with references to the Corporation as the actor, consistent 
with the definition of Corporation.
1606.7 Corrective Action, Informal Conference, Review of Written 
Materials in Opposition to the Preliminary Determination, and Final 
Decision
    The title and content of this section have been updated to expand 
and clarify the options available after a recipient receives a 
preliminary determination. As stated in the previous rule, the informal 
conference is designed to create the opportunity for narrowing the 
issues and exploring the possibility of settlement or compromise. The 
informal conference is retained without material modifications that 
would change its meaning or application from the previous rule. The 
rule is changed to permit any senior LSC employee to hold the informal 
conference rather than the previous requirement that it be held by the 
same employee who issued the preliminary determination. In some cases, 
the same employee should handle both matters to bring consistent 
perspective and experience to the matter. In other situations, it may 
foster an atmosphere of settlement or compromise to have different LSC 
employees handle each stage of the process.
    This section now explicitly provides an option for the recipient to 
submit written materials in opposition to the preliminary determination 
without a request for an informal conference. This option to present 
arguments in writing only is based on the similar option in the 
suspension rule at 45 CFR part 1623; a conference is not required if 
the recipient requests only a paper review.
1606.7(a) Corrective Action
    Paragraph (a) provides a new option for resolving a preliminary

[[Page 10091]]

determination through adoption of any corrective action proposed by 
LSC, in its sole discretion, as a clear path to settlement of the 
issues. A corrective action proposed by the recipient that 
significantly differs from the LSC proposal may be considered at an 
informal conference but not as part of the Sec.  1606.7(a) procedures. 
The recipient must agree to the terms and timing of implementation of 
the corrective actions to the satisfaction of LSC, as memorialized in a 
written compliance agreement. If, at any time, LSC determines that the 
recipient is not sufficiently implementing the corrective action, LSC 
can proceed to issue a draft final decision, subject to the further 
rights of review under later sections of this part. If a recipient 
chooses this new process, then the recipient cannot later request an 
informal conference under this section. This option responds to a 
comment that the proposed rule did not clearly address what would 
happen if the recipient adopted the suggested corrective action. It 
also implements suggestions from the LSC Board that the rule should 
provide better means of alternative resolution when appropriate.
1606.7(b)-(g)
    The provisions regarding the informal conference have been revised 
to clarify the procedures, permit any senior LSC employee to hold the 
conference, and to require that a draft decision to proceed with the 
enforcement option contain a summary of the issues raised in the 
conference or in submitted written materials.
1606.8 Hearing for a Termination or Debarment
    The title of this section is updated to specify that hearings are 
available only for terminations and debarments, but not for limited 
reductions of funding. There are no material modifications that would 
change the meaning or application of this section from the previous 
rule. The deadlines have been designated as business or calendar days 
consistent with the new definition of days.
1606.9 Recommended Decision for Termination or Debarment
    The title and language of this section are updated to specify that 
the recommended decision is applicable only to hearings for 
terminations or debarments. The only substantive change is a new Sec.  
1606.9(a)(2) that permits the hearing officer to recommend reducing a 
termination to below five percent, and thus convert a termination into 
a limited reduction of funding. The previous rule permitted the hearing 
officer to recommend terminations only, which would exclude the option 
of funding reductions of below five percent. Reference to limited 
reductions of funding is added to Sec.  1606.9(a)(3) for consistency 
without any material modifications that would change its meaning or 
application from the previous rule referencing terminations or 
debarments.
1606.10 Final Decision for a Termination, Debarment, or Limited 
Reduction of Funding
    This section is updated to add direct appeals to the LSC President, 
or designee, of draft final decisions for limited reductions of 
funding. This type of appeal is similar to the final appeal of a 
disallowed cost decision in 45 CFR part 1630. The final review is 
identical as that provided for in other part 1606 actions, with one 
exception. For limited reduction of funding appeals to the President, 
in which there in no right to review by a hearing officer, new 
paragraph (d) provides that the President must not have had prior 
involvement with the limited reduction of funding proceedings under 
this part. That provision is also based on the part 1630 process, which 
requires that the President not review actions in which he or she had 
prior involvement. As discussed in the FNPRM, the President is not 
disqualified merely because he or she is briefed about the situation, 
contacted by the recipient or other parties, or otherwise is aware but 
not actively involved in the part 1606 proceedings.
    A number of comments recommended that the hearing officers or the 
final decision maker for appeals be non-LSC employees. As discussed 
earlier, in 1996 Congress lifted the LSC Act requirement for 
enforcement actions to be reviewed by an independent hearing examiner. 
The final rule does not change the impartiality requirement for hearing 
officers for terminations and debarment that they have not had prior 
involvement in the part 1606 enforcement action being reviewed. It also 
does not change the ability of LSC to suspend funding for up to thirty 
days without impartial review. For the new limited reductions of 
funding and suspensions of over thirty days, the final rule provides 
the same requirement of impartiality for the LSC President or other 
senior LSC employee providing final review of the matter. These 
impartiality requirements are sufficient for the process rights of 
recipients within the statutory framework and LSC's understanding of 
Congress's expectations for LSC's enforcement procedures. Other changes 
to this section clarify the process and deadlines without substantive 
changes. The FNPRM suggested adding the Sec.  1606.6(a) preliminary 
determination requirements to any final decision modifying or extending 
the draft final decision. That suggestion is not retained in this final 
rule because it became apparent during the comment period that those 
requirements are tailored to the preliminary determination, e.g., 
including the notice of rights to appeal and continued funding, and are 
not appropriate for final decisions.
1606.11 Qualifications on Hearing Procedures
    This section is updated for clarity without material modifications 
that would change its meaning or application from the previous rule. 
Section 1606.11(c)(3) is updated to require that LSC provide the final 
decision to the recipient within five days of the expiration of the 
appeal period. The previous rule stated that the recommended decision 
would become final if not appealed, but did not state when it must be 
provided as a final decision.
1606.12 Time and Waiver
    This section is updated for clarity without material modifications 
that would change its meaning or application from the previous rule.
1606.13 Interim and Other Funding, Reprogramming, Implementation
    This section is updated to include reference to limited reductions 
of funding. A new Sec.  1606.13(d) is added to state explicitly that 
the manner of implementation is at the sole discretion of LSC. For 
example, depending on the situation, including the timing of the action 
in the grant year and funding term, LSC may choose to pro-rate a 
partial termination or limited reduction through the remaining grant 
payments or to withhold the reduced funds in one lump sum. The previous 
rule did not address that issue and this new section is consistent with 
the options available to LSC within its discretion under that rule.
    Section 1606.13(e), the former paragraph (d), is modified to remove 
the reference to using the terminated or reduced funds for the same 
service area, as proposed in the NPRM. The previous rule provided that 
LSC may keep the funds in the same service area or otherwise reallocate 
them for any basic field purposes. Some of the comments recommended 
keeping the existing rule. As discussed in the NPRM, this language is 
eliminated because it could

[[Page 10092]]

lead to an erroneous expectation that LSC would give preference to 
keeping the funds from a termination in part or from a limited 
reduction of funding in the same service area in which the same 
recipient continued to provide services through the end of the funding 
term. LSC had the authority under the previous rule and has the 
authority under this final rule to exercise its discretion to determine 
the best use of these funds in light of considerations such as the 
needs of the service area, the behavior of the recipient, and other 
uses of recovered funds for emergencies or special grants in other 
service areas. The change in language does not change the substance of 
the rule.

Part 1614--Private Attorney Involvement

1614.7(b) Failure To Comply
    One technical update to 45 CFR part 1614 relates to this 
rulemaking. Although not included in the NPRM or FNPRM, this update 
includes no material modifications that would change the meaning or 
application of this section from the previous rule and is necessary to 
harmonize that rule with this rulemaking and other prior changes to the 
LSC regulations. Part 1614 requires that an LSC recipient expend an 
amount equivalent to at least 12.5 percent of a basic field award on 
private attorney involvement (PAI) activities. The failure to do so may 
result in LSC withholding or recovering some funds from the recipient, 
depending on the circumstances. Section 1614.7 of the previous rule 
provided the requirements for those situations and stated that the 
withholding or recovery of funds for a failure to meet the part 1614 
requirements does not constitute either a termination or a denial of 
refunding. The reference to terminations is changed to a reference to 
any action under 45 CFR part 1606. The reference to denials of 
refunding is eliminated, as LSC withdrew the denial of refunding 
regulation in 1998.

Part 1618--Enforcement Procedures

    This final rule incorporates some substantive changes and some 
extensive structural, but non-substantive, changes to 45 CFR part 1618 
as proposed in the FNPRM. The significant substantive change to the 
rule involves adding the imposition of special grant conditions during 
a grant year to Sec.  1618.5(c). The final rule also changes references 
to violations of the LSC Act throughout the rule to violations of the 
LSC requirements as the term ``LSC requirements'' is defined for use in 
parts 1606 and 1623. The previous rule defined the ``Act'' as the LSC 
Act or the LSC rules and regulations, but did not include other 
applicable laws, such as the LSC appropriations riders, or LSC 
guidelines and instructions, which have been included in both parts 
1606 and 1623 as they have been updated over the past thirty years. 
Part 1618 is both outdated and confusing in this regard. The new 
definition of LSC requirements is based on the language used in parts 
1606 and 1623, and this definition applies in all three sections for 
consistency and clarity.
    Some of the comments suggested changing the threshold standard 
under Sec.  1618.5(b) for proceeding to enforcement actions under parts 
1606 and 1623. The rule provides that LSC can proceed to consider 
enforcement actions:

    [w]henever there is substantial reason to believe that a 
recipient has persistently or intentionally violated the Act, or, 
after notice, has failed to take appropriate remedial or 
disciplinary action to insure compliance by its employees with the 
Act, and attempts at informal resolution have been unsuccessful. * * 
*

    45 CFR 1618.5(b). Those comments suggested adding a ``knowing and 
willful'' standard to this section. The OIG's comment notes that the 
1998 rulemaking considered using ``intent'' as a factor in the standard 
for terminations and choose instead to use the defined term ``knowing 
and willful.'' The final rule does not change this language and retains 
the longstanding ``intent'' prong of the part 1618 analysis consistent 
with original structure of the rule under the LSC Act and the 1998 
changes to parts 1606 and 1623. ``Knowing and willful'' was adopted in 
1998 as a defined term in those regulations as one of many factors for 
consideration, while ``intentionally violated'' was retained in part 
1618.
1618.1 Purpose
    The purpose section is updated to incorporate the broader scope of 
the LSC requirements.
1618.2 Definitions
    The definitions section is updated to incorporate the broader scope 
of the LSC requirements. A definition of ``violation'' has been added 
to make clear that the scope of violations at issue under this rule is 
limited to the LSC requirements.
1618.3 Complaints
    The language of this section is updated for clarity and to 
reference the new definitions.
1618.4 Duties of Recipients
    The language of this section is updated for clarity and to 
reference the new definitions. A new Sec.  1618.4(c) is added to 
emphasize that this section does not create rights for recipient 
employees. Rather, this section is designed to ensure that recipients 
adopt and follow procedures designed to ensure that employees implement 
and follow the LSC requirements, and that the recipient applies those 
requirements consistent with LSC's interpretation of them.
1618.5 Duties of the Corporation
    The language of this section is updated for clarity and to 
reference the new definitions and include reference to limited 
reductions of funding. Section 1618.5(a) has a new final sentence 
clarifying that LSC's investigation of a possible violation may be 
limited to determining if the recipient is taking sufficient actions.
    The existing language in Sec.  1618.5(b) requires ``attempts at 
informal resolution'' prior to proceeding to consider enforcement 
actions under some circumstances. There are no changes to this 
language, but LSC notes that the informal resolution referenced here 
includes consideration of remedial actions, preventative actions, and 
sanctions, as discussed in the FNPRM.
    A new Sec.  1618.5(c) is added regarding immediate special grant 
conditions. Under previous LSC practice, special grant conditions were 
imposed only when a new grant was awarded or an existing grant was 
renewed. Under that practice, a recipient had an opportunity to 
consider the special grant conditions prior to agreeing to them. The 
NPRM proposed language to permit LSC to impose immediate grant 
conditions any time that the Sec.  1618.5(b) thresholds are met. The 
FNPRM revised that language to permit immediate special grant 
conditions only after LSC determines that three factors are met: (1) A 
violation has occurred, (2) corrective actions are required, and (3) 
special grant conditions are needed prior to the next renewal or 
competition. The immediate special grant conditions enable LSC to 
convert required corrective actions contained in reports, such as OCE 
reports, into specific grant requirements.

Part 1623--Suspension Procedures

    The NPRM proposed to change only the language regarding the thirty-
day limit on non-audit based suspensions to increase it to a ninety-day 
limit. The FNPRM, and this final rule, make a number of non-
substantive, technical changes to harmonize the suspension

[[Page 10093]]

rule with 45 CFR part 1606. In the previous rule, some, but not all, of 
the relevant definitions are repeated in both rules. The final rule 
provides a cross reference to the definitions in 45 CFR part 1606 for 
consistency. An additional change is made in the final rule to permit 
commencement of other enforcement actions during a suspension. This 
change is consistent with the overall rulemaking and the revised 
enforcement mechanisms structure.
    Comments on the NPRM and the FNPRM recommended an appeal process 
for suspensions, especially those that go beyond certain dollar 
thresholds. The OIG agreed that some appeal might be appropriate, but 
expressed concern about adopting appeal procedures that are too 
cumbersome and emphasized that appeals should occur during the pendency 
of the suspension, which is meant to protect funds from future misuse. 
The final rule includes an appeal procedure that mirrors the procedure 
for limited reductions of funding, which is based on the 45 CFR part 
1630 disallowed cost appeal procedure.
    The OIG also recommended eliminating any time limit for 
suspensions, and permitting suspensions to continue until compliance, 
as is the case for audit-based suspensions. In the 1998 rulemaking, LSC 
decided to retain a thirty-day limit on suspensions because LSC 
determined that a termination process was more appropriate than a 
prolonged suspension. 63 FR 64636 at 64638 (1998). In this rulemaking 
LSC has expanded suspensions to ninety days to make them more effective 
in short timeframes, but LSC continues to believe that terminations or 
reductions of funding with their corresponding procedures are more 
appropriate for intractable concerns that cannot be resolved within a 
limited suspension period.
1623.2 Definitions
    The definitions of ``knowing and willful'' and ``recipient'' are 
deleted and replaced with a cross-reference to the definitions in 45 
CFR part 1606, which include both of those terms. The definitions are 
identical in the previous rules and this change makes no substantive 
change to either. The use of the same definitions for other terms in 
both rules provides consistency throughout the regulations, e.g., ``LSC 
requirements'' and ``substantial violation.''
1623.3 Grounds for Suspension
    The previous rule provided a definition of ``substantial 
violation'' identical to the use of that term in 45 CFR part 1606. The 
term is deleted in favor of the new cross-reference to definitions in 
part 1606. There are no substantive changes to the definition.
    Similarly the term ``LSC requirements'' replaces the list of LSC 
requirements that appeared in this rule and in other places in the 
regulations. It is defined in 45 CFR part 1618 and cross-referenced in 
45 CFR part 1606.
1623.4 Suspension Procedures
    In response to comments regarding the need for appeals of 
suspensions, LSC is adding an appeals process for suspensions that last 
longer than thirty days. The process is specified in Sec.  1623.4(a) 
and (h). This addition preserves the previous rule's requirements for 
commencing suspensions based on notice and an informal meeting and 
continuing those suspensions for up to thirty days without further 
appeal. If the suspension lasts longer than thirty days, then the 
recipient may appeal to the LSC President. The appeal procedures are 
based on the new part 1606 limited reduction of funding appeal 
procedures, which are in turn based on the part 1630 disallowed cost 
appeal procedures. The discussion of those procedures in part 1606 
applies equally to this section. Unlike part 1606 actions, the 
suspension will continue pending the appeal. The final rule requires 
that LSC issue a suspension decision within fifteen calendar days of 
receipt of the appeal in order to resolve the appeal promptly.
    New Sec.  1623.4(d) and (e) are copied from the revised informal 
conference procedures in 45 CFR part 1606. That language emphasizes 
seeking settlement or compromise and provides that the informal meeting 
can be conducted by the same employee who issued the proposed 
determination, or another senior LSC employee.
    Section 1623.4(k), regarding audit-based suspensions, is updated to 
state that the new appeal process does not apply to audit-based 
suspensions, preserving the previous rule's requirements.
1623.6 Interim Funding
    A technical change is made to Sec.  1623.6(b) to state that 
suspended funds will be ``released'' at the end of the suspension 
period rather than ``returned.''

Promulgation of Regulations

List of Subjects

45 CFR Part 1606

    Administrative practice and procedure, Grant programs-law, Legal 
services.

45 CFR Part 1614

    Grant programs-law, Legal services, Reporting and recordkeeping 
requirements.

45 CFR Part 1618

    Grant programs-law, Legal services.

45 CFR Part 1623

    Administrative practice and procedure, Grant programs-law, Legal 
services.

    For the reasons set forth above, and under the authority of 42 
U.S.C. 2996g(3), LSC proposes to amend 45 CFR chapter XVI as follows:

0
1. 1. Revise part 1606 to read as follows:

PART 1606--TERMINATION, LIMITED REDUCTION OF FUNDING, AND DEBARMENT 
PROCEDURES; RECOMPETITION

Sec.
1606.1 Purpose.
1606.2 Definitions.
1606.3 Grounds for a termination or a limited reduction of funding.
1606.4 Grounds for debarment.
1606.5 Procedures.
1606.6 Preliminary determination and final decision.
1606.7 Corrective action, informal conference, review of written 
materials, and final decision.
1606.8 Hearing for a termination or debarment.
1606.9 Recommended decision for a termination or debarment.
1606.10 Final decision for a termination, debarment, or limited 
reduction of funding.
1606.11 Qualifications on hearing procedures.
1606.12 Time and waiver.
1606.13 Interim and termination funding; reprogramming, 
implementation.
1606.14 Recompetition.

    Authority:  42 U.S.C. 2996e(b)(1), 2996f(a)(3), and 2996f(d); 
Pub. L. 105-119, Title V, Secs. 501(b) and (c), 502, 503, and 504, 
111 Stat. 2440, 2510-12; Pub. L. 104-134, Title V, Sec. 503(f), 110 
Stat. 1321, 1321-53.


Sec.  1606.1  Purpose.

    The purpose of this rule is to:
    (a) Ensure that the Corporation is able to take timely action to 
deal with incidents of substantial noncompliance by recipients with a 
provision of the LSC Act, the Corporation's appropriations act or other 
law

[[Page 10094]]

applicable to LSC funds, a Corporation rule, regulation, guideline or 
instruction, or the terms and conditions of the recipient's grant or 
contract with the Corporation;
    (b) Provide timely and fair due process procedures, proportional to 
the proposed action, when the Corporation has made a preliminary 
decision to terminate a recipient's LSC grant or contract, to debar a 
recipient from receiving future LSC awards of financial assistance, or 
to impose a limited reduction in funding; and
    (c) Ensure that scarce funds are provided to recipients who can 
provide the most effective and economical legal assistance to eligible 
clients.
    (d) None of the following actions are subject to the procedures or 
requirements of this part:
    (1) A reduction of funding required by law, including but not 
limited to a reduction in, or rescission of, the Corporation's 
appropriation that is apportioned among all recipients of the same 
class in proportion to their current level of funding;
    (2) A reduction or deduction of LSC support for a recipient under 
the Corporation's fund balance regulation at 45 CFR part 1628;
    (3) A recovery of disallowed costs under the Corporation's 
regulation on costs standards and procedures at 45 CFR part 1630;
    (4) A withholding of funds pursuant to the Corporation's Private 
Attorney Involvement rule at 45 CFR part 1614.


Sec.  1606.2  Definitions.

    For the purposes of this part:
    Corporation, when used to refer to decisions by the Legal Services 
Corporation, means that those decisions are made by an individual 
acting with a seniority level at, or equivalent to, the level of an 
office director or higher.
    Days shall mean the number of calendar days as determined by the 
rules for computing time in the Federal Rules of Civil Procedure, Rule 
6, except that computation of business days shall exclude Saturdays, 
Sundays, and legal holidays (as defined in those rules).
    Debarment means an action taken by the Corporation to exclude a 
recipient from receiving an additional award of financial assistance 
from the Corporation or from receiving additional LSC funds from 
another recipient of the Corporation pursuant to any other means, 
including a subgrant, subcontract or similar agreement, for the period 
of time stated in the final debarment decision.
    Funding term means the maximum time period for an award or awards 
of financial assistance under section 1006(a)(1)(A) of the LSC Act 
provided by the Corporation to a recipient selected pursuant the 
competition requirements at 45 CFR part 1634. LSC may award grants or 
contracts for a period of the entire funding term or for shorter 
periods that may be renewed or extended up to the funding term.
    Knowing and willful means that the recipient had actual knowledge 
that its action or lack thereof constituted a violation and despite 
such knowledge, undertook or failed to undertake the action, as the 
case may be.
    Limited reduction of funding means a reduction of funding of less 
than five percent of a recipient's current level of financial 
assistance imposed by the Corporation in accordance with the procedures 
and requirements of this part. A limited reduction of funding will 
affect only the recipient's current year's funding.
    LSC requirements means the same as that term is defined in 45 CFR 
Part 1618.
    Receipt of materials shall mean that the materials were sent to the 
normal address for physical mail, email, or fax transmission, and there 
is reliable secondary confirmation of delivery. For physical delivery, 
confirmation may be provided through tracking information from the 
delivery service. For other forms of delivery, confirmation may be 
provided through a document such as a confirmation email or a fax sent 
from an authorized person at the recipient. Receipt of materials by the 
LSC recipient or the Corporation is sufficient for the running of 
applicable time periods. Proof of receipt by the Chair of the governing 
body is not necessary unless delivery to the recipient itself cannot be 
reasonably accomplished.
    Recipient means the same as the term is defined in 45 CFR Part 
1600.
    Substantial noncompliance means either a substantial violation, as 
defined in this part, or a substantial failure, as indicated at Sec.  
1606.3(a) of this part.
    Substantial violation means a violation that merits action under 
this part based on consideration of the following criteria by the 
Corporation:
    (1) The number of restrictions or requirements violated;
    (2) Whether the violation represents an instance of noncompliance 
with a substantive statutory or regulatory restriction or requirement, 
rather than an instance of noncompliance with a non-substantive 
technical or procedural requirement;
    (3) The extent to which the violation is part of a pattern of 
noncompliance with LSC requirements or restrictions;
    (4) The extent to which the recipient failed to take action to cure 
the violation when it became aware of the violation; and
    (5) Whether the violation was knowing and willful.
    Termination means that a recipient's level of financial assistance 
under its grant or contract with the Corporation will be reduced in 
whole or in part in the amount of five percent or greater prior to the 
expiration of the funding term of a recipient's current grant or 
contract. A partial termination will affect only the level of funding 
for the current grant year, unless the Corporation provides otherwise 
in the final decision.
    Violation means a violation by the recipient of the LSC 
requirements.


Sec.  1606.3  Grounds for a termination or a limited reduction of 
funding.

    (a) A grant or contract may be terminated in whole or in part when:
    (1) There has been a substantial violation by the recipient, and 
the violation occurred less than 5 years prior to the date the 
recipient receives a preliminary determination pursuant to Sec.  
1606.6(a) of this part; or
    (2) There has been a substantial failure by the recipient to 
provide high quality, economical, and effective legal assistance, as 
measured by generally accepted professional standards, the provisions 
of the LSC Act or LSC appropriations, or a rule, regulation, including 
45 CFR 1634.9(a)(2), or guidelines or instructions issued by the 
Corporation.
    (b) The Corporation may impose a limited reduction of funding when 
the Corporation determines that there has been a substantial violation 
by the recipient but that termination of the recipient's grant, in 
whole or in part, is not warranted, and the violation occurred less 
than 5 years prior to the date the recipient receives a preliminary 
determination pursuant to Sec.  1606.6(a) of this part.
    (c) A determination of whether there has been a substantial 
violation for the purposes of this part, and the magnitude of any 
termination, in whole or in part, or any limited reduction in funding, 
shall be based on consideration of the criteria set forth in the 
definition of ``substantial violation'' in Sec.  1606.2 of this part.


Sec.  1606.4  Grounds for debarment.

    (a) The Corporation may debar a recipient, on a showing of good 
cause, from receiving an additional award of financial assistance from 
the Corporation.
    (b) As used in paragraph (a) of this section, ``good cause'' means:

[[Page 10095]]

    (1) A termination of financial assistance to the recipient pursuant 
to part 1640 of this chapter;
    (2) A termination of financial assistance in whole of the most 
recent grant or contract of financial assistance;
    (3) The substantial violation by the recipient of the restrictions 
delineated in Sec.  1610.2(a) and (b) of this chapter, provided that 
the violation occurred within 5 years prior to the receipt of the 
debarment notice by the recipient;
    (4) Knowing entry by the recipient into:
    (i) Any agreement or arrangement, including, but not limited to, a 
subgrant, subcontract, or other similar agreement, with an entity 
debarred by the Corporation during the period of debarment if so 
precluded by the terms of the debarment; or
    (ii) An agreement for professional services with an independent 
public accountant or other auditor debarred by the Corporation during 
the period of debarment if so precluded by the terms of the debarment; 
or
    (5) The filing of a lawsuit by a recipient, provided that the 
lawsuit:
    (i) Was filed on behalf of the recipient as plaintiff, rather than 
on behalf of a client of the recipient;
    (ii) Named the Corporation, or any agency or employee of a Federal, 
State, or local government as a defendant;
    (iii) Seeks judicial review of an action by the Corporation or such 
government agency that affects the recipient's status as a recipient of 
Federal funding, except for a lawsuit that seeks review of whether the 
Corporation or agency acted outside of its statutory authority or 
violated the recipient's constitutional rights; and
    (iv) Was initiated after December 23, 1998.


Sec.  1606.5  Procedures.

    (a) Before any final action is taken under this part, the recipient 
will be provided notice and an opportunity to be heard as set out in 
this part.
    (b) Prior to a preliminary determination involving a limited 
reduction of funding, the Corporation shall designate either the 
President or another senior Corporation employee to conduct any final 
review that is requested pursuant to Sec.  1606.10 of this part. The 
Corporation shall ensure that the person so designated has had no prior 
involvement in the proceedings under this part so as to meet the 
criterion set out in Sec.  1606.10(d) of this part.


Sec.  1606.6  Preliminary determination and final decision.

    (a) When the Corporation has made a preliminary determination of 
one or more of the following, the Corporation shall issue a written 
notice to the recipient and the Chair of the recipient's governing 
body: that a recipient's grant or contract should be terminated, that a 
limited reduction of funding shall be imposed, or that a recipient 
should be debarred. The notice shall:
    (1) State the substantial noncompliance that constitutes the 
grounds for the proposed action;
    (2) Identify, with reasonable specificity, any facts or documents 
relied upon as justification for the proposed action;
    (3) Inform the recipient of the proposed amount and proposed 
effective date for the proposed action;
    (4) Advise the recipient of its procedural rights for review of the 
proposed action under this part;
    (5) Inform the recipient of its right to receive interim funding 
pursuant to Sec.  1606.13 of this part;
    (6) Specify what, if any, corrective action the recipient can take 
to avoid the proposed action; and
    (7) Summarize prior attempts, if any, for resolution of the 
substantial noncompliance.
    (b) If the recipient does not request review, as provided for in 
this part, before the relevant time limits have expired, then the 
Corporation may issue a final decision to the recipient. No further 
appeal or review will be available under this part.


Sec.  1606.7  Corrective action, informal conference, review of written 
materials, and final decision.

    (a) If the Corporation proposes a corrective action in the 
preliminary determination pursuant to Sec.  1606.6(a)(6) of this part, 
then the recipient may accept and implement the corrective action, in 
lieu of an informal conference or submission of written materials under 
this section, subject to the following requirements:
    (1) Within 10 business days of receipt of the preliminary 
determination, the recipient may submit a draft compliance agreement to 
accept the terms of the proposed corrective action, which must include 
an implementation plan and timeline;
    (2) If the Corporation approves the draft compliance agreement, 
including any modifications suggested by the recipient or the 
Corporation, then it shall be memorialized in a final compliance 
agreement signed by the Corporation and the recipient, which shall stay 
these proceedings;
    (3) If the recipient completes the terms of the written compliance 
agreement in a time and manner that is satisfactory to the Corporation, 
then the Corporation shall withdraw the preliminary determination; and
    (4) If the Corporation determines at any time that the recipient 
has not presented an acceptable draft compliance agreement, or has not 
fulfilled any terms of the final compliance agreement, then the 
Corporation shall notify the recipient in writing. Within 15 calendar 
days of that notice, the Corporation shall modify or affirm the 
preliminary determination as a draft final decision. The draft final 
decision shall summarize these attempts at resolution. The draft final 
decision need not engage in a detailed analysis of the failure to 
resolve the substantial noncompliance.
    (b) A recipient may submit written materials in opposition to the 
preliminary determination, request an informal conference, or both, as 
follows:
    (1) For terminations or debarments, within 30 calendar days of 
receipt of the preliminary determination; or
    (2) For limited reductions in funding, within 10 business days of 
receipt of the preliminary determination.
    (c) Within 5 business days of receipt of a request for a 
conference, the Corporation shall notify the recipient of the time and 
place the conference will be held. Some or all of the participants in 
the conference may attend via telephone, unless the recipient requests 
an in-person meeting between the Corporation and at least one 
representative of the recipient. If the recipient requests an in-person 
meeting, then other participants may attend via telephone. Alternative 
means of participation other than the telephone are permissible at the 
sole discretion of the Corporation.
    (d) The informal conference shall be conducted by the Corporation 
employee who issued the preliminary determination or any other 
Corporation employee with a seniority level equivalent to the level of 
an office director or higher.
    (e) At the informal conference, the Corporation and the recipient 
shall both have an opportunity to state their case, seek to narrow the 
issues, explore the possibilities of settlement or compromise including 
implementation of corrective actions, and submit written materials.
    (f) If an informal conference is conducted or written materials are 
submitted in opposition to the proposed determination by the recipient, 
or both, the Corporation shall consider any written materials and any 
oral presentation or written materials submitted by the recipient at an 
informal conference. Based on any of these materials or the informal

[[Page 10096]]

conference, or both, the Corporation shall modify, withdraw, or affirm 
the preliminary determination through a draft final decision in 
writing, which shall be provided to the recipient within the later of 
15 calendar days after the conclusion of the informal conference or 
after the recipient of written materials in opposition to the proposed 
determination (when no informal conference is requested). Except for 
decisions to withdraw the preliminary determination, the draft final 
decision shall include a summary of the issues raised in the informal 
conference and presented in any written materials. The draft final 
decision need not engage in a detailed analysis of all issues raised.
    (g) If the recipient does not request further process, as provided 
for in this part, then, after the relevant time limits have expired, 
the Corporation shall notify the recipient that no further appeal or 
review will be available under this part and may proceed to issue the 
final decision.


Sec.  1606.8  Hearing for a termination or debarment.

    (a) For terminations or debarments only, the recipient may make a 
written request for a hearing within the later of: 30 calendar days of 
its receipt of the preliminary determination, or 15 calendar days of 
receipt of the draft final decision issued under Sec.  1606.7 of this 
part, as the case may be.
    (b) Within 10 business days after receipt of a request for a 
hearing, the Corporation shall notify the recipient in writing of the 
date, time, and place of the hearing and the names of the hearing 
officer and of the attorney who will represent the Corporation. The 
time, date, and location of the hearing may be changed upon agreement 
of the Corporation and the recipient.
    (c) A hearing officer shall be appointed by the President or 
designee and may be an employee of the Corporation. The hearing officer 
shall not have been involved in the current termination or debarment 
action, and the President or designee shall determine that the person 
is qualified to preside over the hearing as an impartial decision 
maker. An impartial decision maker is a person who has not formed a 
prejudgment on the case and does not have a pecuniary interest or 
personal bias in the outcome of the proceeding.
    (d) The hearing shall be scheduled to commence at the earliest 
appropriate date, ordinarily not later than 30 calendar days after the 
Corporation receives the notice required by paragraph (b) of this 
section.
    (e) The hearing officer shall preside over and conduct a full and 
fair hearing, avoid delay, maintain order, and insure that a record 
sufficient for full disclosure of the facts and issues is maintained.
    (f) The hearing shall be open to the public unless, for good cause 
and the interests of justice, the hearing officer determines otherwise.
    (g) The Corporation and the recipient shall be entitled to be 
represented by counsel or by another person.
    (h) At the hearing, the Corporation and the recipient each may 
present its case by oral or documentary evidence, conduct examination 
and cross-examination of witnesses, examine any documents submitted, 
and submit rebuttal evidence.
    (i) The hearing officer shall not be bound by the technical rules 
of evidence and may make any procedural or evidentiary ruling that may 
help to insure full disclosure of the facts, to maintain order, or to 
avoid delay. Irrelevant, immaterial, repetitious or unduly prejudicial 
matter may be excluded.
    (j) Official notice may be taken of published policies, rules, 
regulations, guidelines, and instructions of the Corporation, of any 
matter of which judicial notice may be taken in a Federal court, or of 
any other matter whose existence, authenticity, or accuracy is not open 
to serious question.
    (k) A stenographic or electronic record shall be made in a manner 
determined by the hearing officer, and a copy shall be made available 
to the recipient at no cost.
    (l) The Corporation shall have the initial burden to show grounds 
for a termination or debarment. The burden of persuasion shall then 
shift to the recipient to show by a preponderance of evidence on the 
record that its funds should not be terminated or that it should not be 
debarred.


Sec.  1606.9  Recommended decision for a termination or debarment.

    (a) For termination or debarment hearings under Sec.  1606.8 of 
this part, within 20 calendar days after the conclusion of the hearing, 
the hearing officer shall issue a written recommended decision to the 
recipient and the Corporation, which may:
    (1) Terminate financial assistance to the recipient commencing as 
of a specific date;
    (2) Impose a limited reduction of funding commencing as of a 
specific date;
    (3) Continue the recipient's current level of financial assistance 
under the grant or contract, subject to any modification or condition 
that may be deemed necessary on the basis of information adduced at the 
hearing; or
    (4) Debar the recipient from receiving an additional award of 
financial assistance from the Corporation.
    (b) The recommended decision shall contain findings of the 
significant and relevant facts and shall state the reasons for the 
decision. Findings of fact shall be based solely on the record of, and 
the evidence adduced at the hearing or on matters of which official 
notice was taken.


Sec.  1606.10  Final decision for a termination, debarment, or limited 
reduction of funding.

    (a) If neither the Corporation nor the recipient requests review by 
the President of a draft final decision pursuant to Sec.  1606.7 of 
this part or a recommended decision pursuant to Sec.  1606.9, as 
provided for in this part, within 10 business days after receipt by the 
recipient, then the Corporation shall issue to the recipient a final 
decision containing either the draft final decision or the recommended 
decision, as the case may be. No further appeal or review will be 
available under this part.
    (b) The recipient or the Corporation may seek review by the 
President of a draft final decision or a recommended decision. A 
request shall be made in writing within 10 business days after receipt 
of the draft final decision or recommended decision by the party 
seeking review and shall state in detail the reasons for seeking 
review.
    (c) The President's review shall be based solely on the 
administrative record of the proceedings, including the appeal to the 
President, and any additional submissions, either oral or in writing, 
that the President may request. A recipient shall be given a copy of, 
and an opportunity to respond to, any additional submissions made to 
the President. All submissions and responses made to the President 
shall become part of the administrative record. Upon request, the 
Corporation shall provide a copy of the administrative record to the 
recipient.
    (d) For an appeal of a draft final decision involving a limited 
reduction of funding pursuant to Sec.  1606.7 of this part (for which 
there is no right to a hearing under Sec.  1606.8 of this part) the 
President may not review the appeal if the President has had prior 
involvement in the proceedings under this part. If the President cannot 
review the appeal, or the President chooses not to do so, then the 
appeal shall be reviewed by either the individual designated to do so 
pursuant to Sec.  1606.5(b) of this part, or by another senior 
Corporation employee designated by the President who has not

[[Page 10097]]

had prior involvement in the proceedings under this part.
    (e) As soon as practicable after receipt of the request for review 
of a draft final decision or a recommended decision, but not later than 
30 calendar days thereafter, the President or designee shall adopt, 
modify, or reverse the draft final decision or the recommended 
decision, or direct further consideration of the matter. In the event 
of modification or reversal of a recommended decision pursuant to Sec.  
1606.9 of this part, this decision shall conform to the requirements of 
Sec.  1606.9(b) of this part.
    (f) The decision of the President or designee under this section 
shall become final upon receipt by the recipient.


Sec.  1606.11  Qualifications on hearing procedures.

    (a) Except as modified by paragraph (c) of this section, the 
hearing rights set out in Sec. Sec.  1606.6 through 1606.10 of this 
part shall apply to any action to debar a recipient or to terminate a 
recipient's funding.
    (b) The Corporation may simultaneously take action to debar and 
terminate a recipient within the same hearing procedure that is set out 
in Sec. Sec.  1606.6 through 1606.10 of this part. In such a case, the 
same hearing officer shall oversee both the termination and debarment 
actions in the same hearing.
    (c) If the Corporation does not simultaneously take action to debar 
and terminate a recipient under paragraph (b) of this section and 
initiates a debarment action based on a prior termination under Sec.  
1606.4(b)(1) or (2), the hearing procedures set out in Sec.  1606.6 
through 1606.10 of this part shall not apply. Instead:
    (1) The President shall appoint a hearing officer, as described in 
Sec.  1606.8(c), to review the matter and make a written recommended 
decision on debarment.
    (2) The hearing officer's recommended decision shall be based 
solely on the information in the administrative record of the 
termination proceedings providing grounds for the debarment and any 
additional submissions, either oral or in writing, that the hearing 
officer may request. The recipient shall be given a copy of and an 
opportunity to respond to any additional submissions made to the 
hearing officer. All submissions and responses made to the hearing 
officer shall become part of the administrative record.
    (3) If neither party appeals the hearing officer's recommended 
decision within 10 business days of receipt of the recommended 
decision, the decision shall become final and the final decision shall 
be issued by the Corporation to the recipient within 5 business days.
    (4) Either party may appeal the recommended decision to the 
President who shall review the matter and issue a final written 
decision pursuant to Sec.  1606.9(b).
    (d) All final debarment decisions shall state the effective date of 
the debarment and the period of debarment, which shall be commensurate 
with the seriousness of the cause for debarment but shall not be for 
longer than 6 years.
    (e) The Corporation may reverse a debarment decision upon request 
for the following reasons:
    (1) Newly discovered material evidence;
    (2) Reversal of the conviction or civil judgment upon which the 
debarment was based;
    (3) Bona fide change in ownership or management of a recipient;
    (4) Elimination of other causes for which the debarment was 
imposed; or
    (5) Other reasons the Corporation deems appropriate.


Sec.  1606.12  Time and waiver.

    (a) Except for the 6-year time limit for debarments in Sec.  
1606.11(d) of this part, any period of time provided in these rules 
may, upon good cause shown and determined, be extended in writing:
    (1) By the Corporation, unless a hearing officer has been 
appointed;
    (2) By the hearing officer, until the recommended decision has been 
issued; or
    (3) By the President at any time.
    (b) Failure by the Corporation to meet a time requirement of this 
part does not preclude the Corporation from terminating a recipient's 
grant or contract with the Corporation or imposing a limited reduction 
of funding.


Sec.  1606.13  Interim and other funding, reprogramming, 
implementation.

    (a) Pending the completion of termination or limited reduction of 
funding proceedings under this part, the Corporation shall provide the 
recipient with the level of financial assistance provided for under its 
current grant or contract for financial assistance with the 
Corporation.
    (b) After a final decision has been made to terminate a recipient's 
grant or contract or to impose a limited reduction of funding, the 
recipient loses all rights to the terminated or reduced funds.
    (c) After a final decision has been made to terminate a recipient's 
grant or contract, the Corporation may authorize closeout or transition 
funding, or both, if necessary to enable the recipient to close or 
transfer current matters in a manner consistent with the recipient's 
professional responsibilities to its present clients.
    (d) The Corporation has sole discretion to determine the manner in 
which the final decision is implemented. The Corporation's discretion 
includes, but is not limited to the decision to pro-rate the amount of 
funds reduced over the remaining disbursements in the funding term or 
deduct the sum in a single disbursement, or any other method the 
Corporation deems appropriate.
    (e) Funds recovered by the Corporation pursuant to a termination or 
limited reduction of funding shall be reallocated by the Corporation 
for basic field purposes at its sole discretion.


Sec.  1606.14  Recompetition.

    After a final decision has been issued by the Corporation 
terminating financial assistance to a recipient in whole for any 
service area, the Corporation shall implement a new competitive bidding 
process for the affected service area. Until a new recipient has been 
awarded a grant pursuant to such process, the Corporation shall take 
all practical steps to ensure the continued provision of legal 
assistance in the service area pursuant to Sec.  1634.11 of this part.

PART 1614--PRIVATE ATTORNEY INVOLVEMENT

0
2. The authority citation for part 1614 continues to read as follows:

    Authority:  Sec. 1007(a)(2)(C) and sec. 1007(a)(3); (42 U.S.C. 
2996f(a)(2)(C) and 42 U.S.C. 2996f(a)(3)).


0
3. Amend Sec.  1614.7 by revising paragraph (b) to read as follows:


Sec.  1614.7  Failure to comply.

* * * * *
    (b) The withholding of funds under this section shall not be 
construed as any action under 45 CFR part 1606.
* * * * *

0
4. Revise part 1618 to read as follows:

PART 1618--ENFORCEMENT PROCEDURES

Sec.
1618.1 Purpose.
1618.2 Definition.
1618.3 Complaints.
1618.4 Duties of recipients.
1618.5 Duties of the Corporation.

    Authority:  42 U.S.C. 2996e(b)(1), 2996e(b)(2), 2996e(b)(5), 
2996f(a)(3), 2996f(d), and 2996g(e).

[[Page 10098]]

Sec.  1618.1  Purpose.

    In order to ensure uniform and consistent interpretation and 
application of the provisions of the LSC Act, the Corporation's 
appropriations act or other law applicable to LSC funds, a Corporation 
rule, regulation, guideline or instruction, or the terms and conditions 
of the recipient's grant or contract with the Corporation, and to 
prevent a question of whether these requirements have been violated 
from becoming an ancillary issue in any case undertaken by a recipient, 
this part establishes a systematic procedure for enforcing compliance 
with them.


Sec.  1618.2  Definitions.

    LSC requirements means the provisions of the LSC Act, the 
Corporation's appropriations act or other law applicable to LSC funds, 
a Corporation rule, regulation, guideline or instruction, or the terms 
or conditions of the recipient's grant or contract with the 
Corporation.
    Violation means a violation by the recipient of the LSC 
requirements.


Sec.  1618.3  Complaints.

    A complaint of a violation by a recipient or an employee of a 
recipient may be made to the recipient, the State Advisory Council, or 
the Corporation.


Sec.  1618.4  Duties of recipients.

    (a) A recipient shall:
    (1) Advise its employees of their responsibilities under the LSC 
requirements;
    (2) Establish procedures, consistent with the notice and hearing 
requirements of section 1011 of the LSC Act, for determining whether an 
employee has committed a violation and whether the violation merits a 
sanction based on consideration of the totality of the circumstances; 
and
    (3) Establish a policy for determining the appropriate sanction to 
be imposed for a violation, including:
    (i) Administrative reprimand if a violation is found to be minor 
and unintentional, or otherwise affected by mitigating circumstances;
    (ii) Suspension and termination of employment; and
    (iii) Other sanctions appropriate for enforcement of the LSC 
requirements.
    (b) Before suspending or terminating the employment of any person 
for a violation, a recipient shall consult the Corporation to ensure 
that its interpretation of these requirements is consistent with 
Corporation policy.
    (c) This section provides procedural requirements between the 
Corporation and recipients. It does not create rights for recipient 
employees.


Sec.  1618.5  Duties of the Corporation.

    (a) Whenever the Corporation learns that there is reason to believe 
that a recipient or a recipient's employee may have committed a 
violation, the Corporation shall investigate the matter promptly and 
attempt to resolve it through informal consultation with the recipient. 
Such actions may be limited to determining if the recipient is 
sufficiently investigating and resolving the matter itself.
    (b) Whenever there is substantial reason to believe that a 
recipient has persistently or intentionally violated the LSC 
requirements, or, after notice, has failed to take appropriate remedial 
or disciplinary action to ensure compliance by its employees with the 
LSC requirements, and attempts at informal resolution have been 
unsuccessful, the Corporation may proceed to suspend or terminate 
financial support of the recipient, or impose a limited reduction in 
funding, pursuant to the procedures set forth in parts 1623 and 1606, 
or may take other action to enforce compliance with the LSC 
requirements.
    (c) Whenever the Corporation determines that a recipient has 
committed a violation, that corrective actions by the recipient are 
required to remedy the violation and/or prevent recurrence of the 
violation, and that imposition of special grant conditions are needed 
prior to the next grant renewal or competition for the service area, 
the Corporation may immediately impose Special Grant Conditions on the 
recipient to require completion of those corrective actions.

0
5. Revise part 1623 to read as follows:

PART 1623--SUSPENSION PROCEDURES

Sec.
1623.1 Purpose.
1623.2 Definitions.
1623.3 Grounds for suspension.
1623.4 Suspension procedures.
1623.5 Time extensions and waiver.
1623.6 Interim funding.

    Authority:  42 U.S.C. 2996e(b)(1), 2996f(a)(3), and 2996f(d); 
Pub. L. 105-119, Title V, Secs. 501(b), 502, and 503, 111 Stat. 
2440, 2510-11; Pub. L. 104-134, Title V, Secs. 503(f) and 509(c), 
110 Stat. 1321, 1321-53, 1321-58, and 1321-59.


Sec.  1623.1  Purpose.

    The purpose of this rule is to:
    (a) Ensure that the Corporation is able to take prompt action when 
necessary to safeguard LSC funds or to ensure the compliance of a 
recipient with applicable provisions of law, or a rule, regulation, 
guideline or instruction issued by the Corporation, or the terms and 
conditions of a recipient's grant or contract with the Corporation; and
    (b) Provide procedures for prompt review that will ensure informed 
deliberation by the Corporation when it has made a proposed 
determination that financial assistance to a recipient should be 
suspended.


Sec.  1623.2  Definitions.

    For the purposes of this part the definitions in 45 CFR part 1606 
shall apply and also:
    Suspension means an action taken during the term of the recipient's 
current year's grant or contract with the Corporation that withholds 
financial assistance to a recipient, in whole or in part, until the end 
of the suspension period pending prompt corrective action by the 
recipient or a decision by the Corporation to initiate termination 
proceedings.


Sec.  1623.3  Grounds for suspension.

    (a) Financial assistance provided to a recipient may be suspended 
when the Corporation determines that there has been a substantial 
violation by the recipient of the LSC requirements, and the Corporation 
has reason to believe that prompt action is necessary to:
    (1) Safeguard LSC funds; or
    (2) Ensure immediate corrective action necessary to bring a 
recipient into compliance with an applicable provision of law, or a 
rule, regulation, guideline or instruction issued by the Corporation, 
or the terms and conditions of the recipient's grant or contract with 
the Corporation.
    (b) Financial assistance provided to a recipient may also be 
suspended by the Corporation pursuant to a recommendation by the Office 
of Inspector General when the recipient has failed to have an 
acceptable audit in accordance with the guidance promulgated by the 
Corporation's Office of Inspector General.


Sec.  1623.4  Suspension procedures.

    (a) Prior to a preliminary determination involving a suspension of 
funding, the Corporation shall designate either the President or 
another senior Corporation employee to conduct any final review that is 
requested pursuant this part. The Corporation shall ensure that the 
person so designated has had no prior involvement in the proceedings 
under this part so as to meet the criterion of impartiality described 
in this section.
    (b) When the Corporation has made a proposed determination, based 
on the grounds set out in Sec.  1623.3 of this part, that financial 
assistance to a recipient should be suspended, the Corporation

[[Page 10099]]

shall serve a written proposed determination on the recipient. The 
proposed determination shall:
    (1) State the grounds and effective date for the proposed 
suspension;
    (2) Identify, with reasonable specificity, any facts or documents 
relied upon as justification for the suspension;
    (3) Specify what, if any, prompt corrective action the recipient 
can take to avoid or end the suspension;
    (4) Advise the recipient that it may request, within 5 business 
days of receipt of the proposed determination, an informal meeting with 
the Corporation at which it may attempt to show that the proposed 
suspension should not be imposed; and
    (5) Advise the recipient that, within 10 business days of its 
receipt of the proposed determination and without regard to whether it 
requests an informal meeting, it may submit written materials in 
opposition to the proposed suspension.
    (c) If the recipient requests an informal meeting with the 
Corporation, the Corporation shall designate the time and place for the 
meeting. The meeting shall occur within 5 business days after the 
recipient's request is received.
    (d) The informal meeting shall be conducted by the Corporation 
employee who issued the preliminary determination or any other 
Corporation employee with a seniority level at, or equivalent to, the 
level of an office director or higher.
    (e) At the informal meeting, the Corporation and the recipient 
shall both have an opportunity to state their case, seek to narrow the 
issues, explore the possibilities of settlement or compromise including 
implementation of corrective actions, and submit written materials.
    (f) The Corporation shall consider any written materials submitted 
by the recipient in opposition to the proposed suspension and any oral 
presentation or written materials submitted by the recipient at an 
informal meeting. If, after considering such materials, the Corporation 
determines that the recipient has failed to show that the suspension 
should not become effective, the Corporation may issue a written final 
determination to suspend financial assistance to the recipient in whole 
or in part and under such terms and conditions the Corporation deems 
appropriate and necessary. The final determination shall include a 
summary of the issues raised in the informal conference and presented 
in any written materials. The final determination need not engage in a 
detailed analysis of all issues raised.
    (g) The final determination shall be promptly transmitted to the 
recipient in a manner that verifies receipt of the determination by the 
recipient, and the suspension shall become effective when the final 
determination is received by the recipient or on such later date as is 
specified therein.
    (h) If a suspension lasts for more than 30 days, then the recipient 
may seek review of the suspension by the President. A request may be 
made in writing on the thirty-first day or any day thereafter, and 
shall state, in detail, the reasons for seeking review.
    (1) The President may not review the suspension appeal if the 
President has had prior involvement in the suspension proceedings. If 
the President cannot review, or the President chooses not to do so, 
then the appeal shall be reviewed by either the individual designated 
to do so pursuant to Sec.  1623.4(a) of this part, or by another senior 
Corporation employee designated by the President who has not had prior 
involvement in the suspension proceedings.
    (2) The President's review shall be based on the administrative 
record of the proceedings, including the appeal to the President, and 
any additional submissions, either oral or in writing that the 
President may request. A recipient shall be given a copy of, and an 
opportunity to respond to, any additional submissions made to the 
President. All submissions and responses made to the President shall 
become part of the administrative record. Upon request, the Corporation 
shall provide a copy of the administrative record to the recipient.
    (3) The President shall affirm, modify, or terminate the suspension 
through a suspension appeal decision within 15 calendar days of receipt 
of the appeal by the Corporation, unless the Corporation and the 
recipient agree to a later date.
    (i) The Corporation may at any time rescind or modify the terms of 
the final determination to suspend and, on written notice to the 
recipient, may reinstate the suspension without further proceedings 
under this part.
    (j) Except as provided in Sec.  1623.4(k) of this part, the total 
time of a suspension shall not exceed 90 calendar days, unless the 
Corporation and the recipient agree to a continuation of the suspension 
without further proceedings under this part.
    (k) When the suspension is based on the grounds in Sec.  1623.3(b) 
of this part, a recipient's funds may be suspended until an acceptable 
audit is completed. No appeal to the President will be available for 
audit-based suspensions pursuant to Sec.  1623.3(b).


Sec.  1623.5  Time extensions and waiver.

    (a) Except for the time limits in Sec.  1623.4(i) and (j), any 
period of time provided in this part may be extended by the Corporation 
for good cause. Requests for extensions of time shall be considered in 
light of the overall objective that the procedures prescribed by this 
part ordinarily shall be concluded within 30 calendar days of the 
service of the proposed determination.
    (b) Any other provision of this part may be waived or modified by 
agreement of the recipient and the Corporation for good cause.
    (c) Failure by the Corporation to meet a time requirement of this 
part shall not preclude the Corporation from suspending a recipient's 
grant or contract with the Corporation.


Sec.  1623.6  Interim funding.

    (a) Pending the completion of suspension proceedings under this 
part, the Corporation shall provide the recipient with the level of 
financial assistance provided for under its current grant or contract 
with the Corporation.
    (b) Funds withheld pursuant to a suspension shall be released to 
the recipient at the end of the suspension period.

    Dated: February 6, 2013.
Victor M. Fortuno.
Vice President & General Counsel.
[FR Doc. 2013-03241 Filed 2-12-13; 8:45 am]
BILLING CODE 7050-01-P